SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995
COMMISSION FILE NO. 1-3920
KINARK CORPORATION
(Exact name of the registrant as specified in its
charter)
DELAWARE 71-0268502
(State of Incorporation) (I.R.S.
Employer
Identification
No.)
7060 SOUTH YALE
TULSA, OKLAHOMA 74136
(Address of principal executive offices)
Registrant's telephone number: (918) 494-0964
Indicate by check mark whether the registrant (1) has filed
all reports
required to be filed by Section 13 and 15 (d) of the Securities
Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the
registrant was required to file such reports), and (2) has been
subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes
of common stock, as of September 30, 1995.
Common Stock $ .10 Par Value . . . . . 3,747,498
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report
2
Condensed Consolidated Balance Sheets as
of September 30, 1995 (unaudited), and
December 31, 1994
3
Condensed Consolidated Statements of
Operations for the three and nine
months ended September 30, 1995
and 1994 (unaudited)
4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1995 and 1994 (unaudited)
5
Notes to Condensed Consolidated Financial
Statements for the three and nine months
ended September 30, 1995 and 1994 (unaudited)
6-7
Item 2. Managements' Discussion and Analysis of
Financial Condition and Results of
Operations
8-11
PART II. OTHER INFORMATION
12
SIGNATURES
13
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Kinark Corporation:
We have reviewed the accompanying condensed consolidated balance
sheet of
Kinark Corporation and subsidiaries as of September 30, 1995, and
the related
condensed consolidated statements of operations for the three and
nine-month
periods ended September 30, 1995 and 1994. These financial
statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established
by the
American Institute of Certified Public Accountants. A review of
interim
financial information consists principally of applying analytical
procedures to
financial data and of making inquiries of persons responsible for
financial and
accounting matters. It is substantially less in scope than an
audit conducted
in accordance with generally accepted auditing standards, the
objective of
which is the expression of an opinion regarding the financial
statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should
be made to such condensed consolidated financial statements for
them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing
standards, the consolidated balance sheet of Kinark Corporation
and
subsidiaries as of December 31, 1994, and the related
consolidated statements
of operations, shareholders' equity, and cash flows for the year
then ended
(not presented herein); and in our report dated January 30, 1995
(except as to
the second paragraph of the Long-Term Debt Footnote, for which
the date is
March 2, 1995), we expressed an unqualified opinion on those
consolidated
financial statements. In our opinion, the information set forth
in the
accompanying condensed consolidated balance sheet as of December
31, 1994 is
fairly stated, in all material respects, in relation to the
consolidated
balance sheet from which it has been derived.
Deloitte & Touche LLP
November 14, 1995
Tulsa, Oklahoma
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
SEPT 30 DEC
31
(Dollars in Thousands) 1995 1994
ASSETS
CURRENT ASSETS
Cash $ 128 $
32
Accounts receivable, less allowances 3,438
3,221
Net assets of discontinued operations 388
2,001
Inventories 2,476
2,634
Prepaid expenses 519
459
TOTAL CURRENT ASSETS 6,949
8,347
DEFERRED INCOME TAXES 2,271
1,356
OTHER ASSETS 150
154
PROPERTY, PLANT AND EQUIPMENT, AT COST 29,992
29,686
Less: Allowance for depreciation 21,110
20,263
8,882
9,423
$18,252
$19,280
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,234 $
985
Other accrued liabilities 2,574
2,655
Current portion of long-term
obligations 6,071
554
TOTAL CURRENT LIABILITIES 9,879
4,194
LONG-TERM OBLIGATIONS 84
5,042
SHAREHOLDERS' EQUITY
Common stock 520
520
Additional paid-in capital 10,531
10,535
Retained earnings 3,215
4,969
Less: Treasury stock at cost (5,977)
(5,980)
TOTAL SHAREHOLDERS' EQUITY 8,289
10,044
$18,252
$19,280
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Nine Months
Ended
September 30 September
30
(Dollars in Thousands 1995 1994 1995
1994
per Share)
SALES $ 6,201 $ 6,830 $ 18,971
$ 20,167
COSTS AND EXPENSES
Cost of sales 4,902 4,751 15,352
14,204
Selling, general &
administrative 748 966 2,777
2,858
Depreciation 356 373 1,142
1,115
6,006 6,090 19,271
18,177
OTHER EXPENSE
Interest expense,
net 157 130 467
362
EARNINGS (LOSS) BEFORE
INCOME TAXES 38 610 (767)
1,628
INCOME TAX EXPENSE
(BENEFIT) 13 223 (280)
594
NET EARNINGS (LOSS)
FROM CONTINUING
OPERATIONS 25 387 (487)
1,034
FROM DISCONTINUED
OPERATIONS (NET OF
TAX) (1,036) (545) (1,268)
(445)
NET EARNINGS (LOSS) $ (1,011) $ (158) $ (1,755)
$ 589
NET EARNINGS (LOSS) PER
COMMON SHARE
FROM CONTINUING
OPERATIONS 0.01 0.10 (0.13)
0.28
FROM DISCONTINUED
OPERATIONS
(NET OF TAX) (0.28) (0.14) (0.34)
(0.12)
Net Earnings (Loss) per
Common Share $ (0.27) $ (0.04) $ (0.47)
$ 0.16
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine
Months Ended
September 30
(Dollars in Thousands) 1995
1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $(1,755)
$ 589
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Loss (Gain) from discontinued
operations 1,268
445
Depreciation 1,142
1,115
Change in assets and liabilities:
Accounts receivable (217)
(229)
Deferred tax asset (186)
571
Inventories and other 102
(175)
Accounts payable and
other accrued liabilities 168
377
NET CASH PROVIDED BY OPERATING ACTIVITIES 522
2,693
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (601)
(937)
Discontinued operations (384)
(1,072)
NET CASH USED FOR INVESTING
ACTIVITIES (985)
(2,009)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from current and
long-term obligations 11,231
9,616
Payments on current and
long-term obligations (10,672)
(10,460)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 559
(844)
INCREASE (DECREASE) IN CASH 96
(160)
CASH AT BEGINNING OF PERIOD 32
160
CASH AT END OF PERIOD $ 128
$ 0
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
AND 1994
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements
included in this
report have been prepared by Kinark Corporation (the
Company)
pursuant to the rules and regulations of the Securities
and Exchange
Commission for interim reporting and include all normal
and recurring
adjustments which are, in the opinion of management,
necessary for a
fair presentation. These financial statements have not
been audited
by an independent accountant. The condensed
consolidated financial
statements include the accounts of the Company and its
subsidiaries.
Certain information and footnote disclosures normally
included in
financial statements prepared in accordance with
generally accepted
accounting principles have been condensed or omitted
pursuant to such
rules and regulations for interim reporting. The
Company believes
that the disclosures are adequate to make the
information presented
not misleading. However, these financial statements
should be read
in conjunction with the financial statements and notes
thereto
included in the Company's Annual Report on Form 10-K
for the year
ended December 31, 1994. The financial data for the
interim periods
presented may not necessarily reflect the results to be
anticipated
for the complete year.
NOTE 2. EARNINGS PER COMMON SHARE
Net earnings (loss) per common share for the periods
presented has
been computed based upon the weighted average number of
shares
outstanding of 3,747,000 and 3,753,000 for the three
months ended
September 30, 1995 and 1994 respectively, and 3,747,000
and 3,753,000
for the nine months ended September 30, 1995 and 1994
respectively,
including the effect of stock options, when applicable,
using the
treasury method.
NOTE 3. INVENTORIES
Inventories consist primarily of zinc, the principal
raw material
used in galvanizing.
NOTE 4. LONG-TERM OBLIGATIONS
During 1995, the company has operated under a bank
credit agreement
which provides a $4,250,000 maximum revolving line of
credit and a
term loan, both of which expire in March 1996. The
Company intends
to renew this agreement upon expiration in the normal
course of
business. However, because the current agreement
expires in less
than one year, all obligations under the Company's bank
credit
agreement are treated as current liabilities in the
September 30,
1995 balance sheet.
NOTE 5. DISCONTINUED OPERATIONS
During the third quarter, the Company announced that it
would divest
its Kinpak subsidiary due to continuing losses at this
operation.
Kinpak, located in Montgomery, Alabama, produces and
sells
proprietary household cleaning products and contract
packages private
label antifreeze and windshield washer fluid. In
connection with
this disposition, the Company recorded a pretax charge
of $1,525,000
to reduce the assets of Kinpak to their estimated net
realizable
value and recognize estimated operating losses of
$185,000 to be
incurred during the disposal period. Revenues and
expenses of Kinpak
are not included in the results of continuing
operations.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
THIRD QUARTER ANALYSIS
During the third quarter, the Company announced that it
would divest its
Kinpak subsidiary by the end of 1995 due to continuing losses at
this
operation. As a result, this subsidiary has been classified as a
discontinued
operation for accounting purposes. Revenues and expenses of
Kinpak are not
included in the results of continuing operations analyzed below.
REVENUES
Quarter Ended 1995 1994
September 30 % of % of
$(000) Sales $(000) Sales
Boyles Galvanizing $4,210 67.9% $4,008 58.7%
Lake River Corporation 1,991 32.1% 2,822 41.3%
Total $6,201 100.0% $6,830 100.0%
Consolidated sales for the third quarter of 1995 decreased
$629,000, or
9.2%, in comparison to the third quarter of 1994. Sales
increased at the
Company's Boyles subsidiary, but this increase was more than
offset by the
sales decline at Lake River. Boyles sales were up $202,000, or
5.0%, on
improved volume. Galvanizing throughput totaled 17,371 tons, up
5.1% from the
prior year's third quarter. The average selling price during the
third quarter
at Boyles has changed very little from 1994. Boyles continued to
focus on
increasing market share with its aggressive pricing approach and
succeeded in
raising volume in comparison to last year as it has in each of
the first three
quarters of 1995.
Third quarter sales at Lake River declined $831,000, or
29.4%, from 1994
due to the previously announced loss of this subsidiary's largest
customer
during the fourth quarter of 1994. Lake River sales were also
down from the
second quarter of 1995 due primarily to normally scheduled summer
plant
shutdowns in the Chicago area. Warehousing revenues continued to
show
improvement at Lake River partially offsetting the decline in
terminal sales.
Nine Months Ended 1995 1994
September 30 % of % of
$(000) Sales $(000) Sales
Boyles Galvanizing $12,829 67.6% $11,690 58.0%
Lake River Corporation 6,142 32.4% 8,477 42.0%
Total $18,971 100.0% $20,167 100.0%
Through the first three quarters of the year, sales on a
consolidated
basis declined $1,196,000, or 5.9%, from 1994 because of the
significant sales
decline at Lake River which was partially offset by improved
sales at Boyles.
Sales were down at Lake River due to the customer loss discussed
above. Boyles
sales were up $1,139,000, or 9.7%, on much stronger volume
through the first
three quarters of the year.
The Company expects sales to continue to show improvement at
Boyles for
the balance of the year in comparison to last year while Lake
Rivers revenues
will fall below 1994 for the remainder of the year due to the
customer loss at
this subsidiary.
COSTS AND EXPENSES
Quarter Ended 1995 1994
September 30 % of % of
$(000) Sales $(000) Sales
Cost of sales $ 4,902 79.0% $4,751 69.6%
Selling, general &
administrative 748 12.1% 966 14.1%
Depreciation 356 5.8% 373 5.4%
Total $ 6,006 96.9% $6,090 89.1%
As a percentage of sales, cost of sales increased 9.4%
during the third
quarter of 1995 in comparison to 1994. This increase was
primarily
attributable to Lake River where reduced sales, as discussed
above, coupled
with significant fixed costs associated with this subsidiary's
terminal
operations resulted in a 22% erosion in gross profit. Boyles'
cost of sales
percentage also increased during the third quarter, up
approximately 3.5% from
1994 due to increased material cost. The cost of sales
percentage has
stabilized to a large degree and should continue in the current
range for the
balance of the year.
Selling, general and administrative ("S, G & A") expenses
for the third
quarter of 1995 declined $218,000 from the prior year's third
quarter. This
decrease was primarily attributable to reduced S, G & A expenses
at Boyles
which resulted from the consolidation of administrative offices
during the
second quarter. Compared to last year, S, G & A expenses at
Boyles declined
43% during the third quarter. Lake River third quarter S, G & A
expenses also
declined 23% compared to 1994 as various administrative expenses
have been
eliminated during the year in connection with the customer loss.
S, G & A
expenses increased approximately 7% at Kinark's corporate office
during the
third quarter due primarily to increased legal and professional
fees. The
Company expects the reduction in S, G & A expenses to continue
through the
remainder of the year.
Nine Months Ended 1995 1994
September 30 % of % of
$(000) Sales $(000) Sales
Cost of sales $15,352 80.9% $14,204 70.4%
Selling, general &
administrative 2,777 14.7% 2,858 14.2%
Depreciation 1,142 6.0% 1,115 5.5%
Total $19,271 101.6% $18,177 90.1%
The Company's cost of sales percentage increased 10.5%
through the first
three quarters of the year compared to 1994. Lake River
experienced the
greatest increase in percentage due to the decline in sales
previously
discussed. Boyles also experienced increased cost of sales as a
percentage of
sales due to higher material cost.
S, G & A expenses decreased $81,000 over the first nine
months of 1995 in
comparison to 1994. Boyles and Lake River reduced S, G & A
expenses as
previously discussed. S, G & A expenses at the Kinark corporate
office were up
20% due primarily to increased legal and professional expenses
associated with
certain transactions which were not consummated.
OTHER EXPENSE
Interest expense for the third quarter of 1995 was up
$27,000 compared to
1994 due to the Company's increased bank debt and higher interest
rate. For
the nine month period, interest was up $105,000 in the current
year compared to
1994. This trend is expected to continue because the Company's
operating
losses and loss from discontinued operations have resulted in
increased
borrowing.
INCOME TAXES
The Company recorded an income tax expense of $13,000 for
the third
quarter of 1995, down from $223,000 for the comparable period in
1994. This
reduction resulted from the Company's reduced earnings from
continuing
operations in the third quarter of 1995. Tax expense includes
federal income
tax recorded at current rates and state income tax provisions for
various
Company operations.
EARNINGS FROM CONTINUING OPERATIONS
The Company recorded earnings from continuing operations of
$25,000, or $
.01 per share. While down significantly from the third quarter of
1994, this
represents an improvement from the first two quarters of 1995
which were
unprofitable. On a year to date basis, the Company's loss from
continuing
operations totaled $(487,000), or $(.13) per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operating activities through
the nine
months ended September 30, 1995 totaled $522,000, down from
$2,693,000 in the
prior year. This decline resulted primarily from the Company's
loss from
continuing operations in 1995.
Cash used for investing activities declined to $985,000
through the third
quarter of 1995, a reduction of $1,024,000 from 1994. The major
factor in this
reduction was the decline in cash used by the Company's Kinpak
operation which
is now treated as a discontinued operation pending the
disposition of this
facility. In addition, capital expenditures were reduced from
the 1994 level
to conserve cash.
The Company utilized its credit facilities to fund the cash
used by
operating and investing activities through the first three
quarters, resulting
in cash provided by financing activities of $559,000.
Outstanding borrowings
on the Company's $4,250,000 revolving line of credit totaled
$2,564,000 at
September 30,1995, reflecting an improvement in liquidity from
the second
quarter as expected. The Company has controlled capital
expenditures and S, G
& A expenses at reduced levels to maintain adequate liquidity
through the
losses incurred during the first three quarters of 1995.
The Company continues to evaluate alternative financing
plans to complete
the previously announced purchase of Rogers Galvanizing Company.
The
subordinated debt financing proposal provided by the company's
chairman has
been withdrawn. Other financing proposals including equity to be
provided by a
rights offering of common stock to the Company's stockholders to
raise the
needed financing are under consideration.
DISCONTINUED OPERATIONS
During the third quarter, the Company announced that it
would divest its
Kinpak subsidiary due to continuing losses at this operation. In
connection
with this disposition, the Company recorded a pretax charge of
$1,525,000 to
reduce the assets of Kinpak to their estimated net realizable
value. The
Company has received tentative offers to purchase Kinpak at
values in excess of
the currently recorded net realizable value and plans to complete
the
disposition of Kinpak by year-end.<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Not applicable.
b) Reports on Form 8-K
Not applicable.<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934,
the registrant
has duly caused this report to be signed on its behalf by the
undersigned
thereunto duly authorized:
KINARK CORPORATION
Registrant
/S/J. Bruce Lancaster
J. Bruce Lancaster
Vice President - Finance
(Principal Financial Officer)
Date: November 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the interim financial statements of Kinark Corporation dated
September 30, 1995, set forth in the accompanying Form 10-Q and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 3,522
<ALLOWANCES> 84
<INVENTORY> 2,476
<CURRENT-ASSETS> 6,949
<PP&E> 29,992
<DEPRECIATION> 21,110
<TOTAL-ASSETS> 18,252
<CURRENT-LIABILITIES> 9,879
<BONDS> 84
<COMMON> 520
0
0
<OTHER-SE> 7,769
<TOTAL-LIABILITY-AND-EQUITY> 18,252
<SALES> 18,971
<TOTAL-REVENUES> 18,971
<CGS> 15,352
<TOTAL-COSTS> 19,271
<OTHER-EXPENSES> 467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 467
<INCOME-PRETAX> (767)
<INCOME-TAX> (280)
<INCOME-CONTINUING> (487)
<DISCONTINUED> (1,268)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,755)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
