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 JUNE 30, 1996
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 June 30, 1996.
Common Stock $ .10 Par Value . . . . . 6,066,536
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of June 30, 1996
(unaudited), and December 31, 1995 3
Condensed Consolidated Statements of Earnings for the three
and six months ended June 30, 1996 and 1995 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 (unaudited) 5
Notes to Condensed Consolidated Financial Statements for the three
and six months ended June 30, 1996 and 1995 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION 15
SIGNATURES 17<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW 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 June 30, 1996, and the related
condensed consolidated statements of earnings and cash flows for the six-month
and three-month periods ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Company'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, 1995, 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 February 27, 1996 (except as to
the second paragraph of the Long-Term Debt Footnote, for which the date is
April 1, 1996) which includes explanatory paragraphs discussing the Company's
change in accounting for income taxes and the acquisition of Rogers Galvanizing
Company, 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, 1995 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
The Company adopted Statement of Financial Accounting Standards Nos. 121 and
123 effective January 1, 1996.
/s/ Deloitte & Touche
Tulsa, Oklahoma
August 9, 1996<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars) Unaudited
June 30 Dec 31
1996 1995
ASSETS
Current Assets
Cash $592 $30
Accounts receivable, less allowances 7,182 3,508
Net assets of discontinued operations -- 434
Inventories 4,421 2,615
Prepaid expenses 482 566
Total Current Assets 12,677 7,153
Deferred Income Taxes 2,180 2,070
Other Assets 356 145
Excess of Cost Over Fair Value of Net Assets,
Acquired, Net 3,066 ---
Property, Plant and Equipment, at Cost 31,105 30,455
Less: Allowance for depreciation 17,371 21,448
Property, Plant and Equipment, Net 13,734 9,007
TOTAL ASSETS $32,013 $18,375
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $2,490 $1,593
Other accrued liabilities 4,049 2,057
Current portion of long-term obligations 3,960 628
Total Current Liabilities 10,499 4,278
Minority Interest 1,450 ---
Long-Term Obligations 5,518 5,932
Shareholders' Equity
Common stock 748 520
Additional paid-in capital 15,863 10,531
Retained earnings 3,747 3,090
Less: Treasury stock at cost (5,812) (5,976)
Total Shareholders' Equity 14,546 8,165
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $32,013 $18,375
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
Three Months Ended Six Months Ended
June 30 June 30
(Thousands of Dollars Except per Share) 1996 1995 1996 1995
Sales $13,337 $6,696 $23,754 $12,770
Costs and Expenses
Cost of Sales 10,072 5,448 18,226 10,407
Selling, General & Administrative 1,350 1,064 2,543 2,072
Depreciation and Amortization 640 398 1,178 786
12,062 6,910 21,947 13,265
Operating Earnings (Loss) 1,275 (214) 1,807 (495)
Other Expense
Interest Expense, net 223 166 428 310
Earnings (Loss) from Continuing
Operations before Income Taxes
and Minority Interest 1,052 (380) 1,379 (805)
Income Tax Expense (Benefit) 374 (138) 494 (293)
Earnings (Loss) from Continuing
Operations before Monthly Interest 678 (242) 885 (512)
Minority Interest in Subsidiary 145 --- 228 ---
Earnings (Loss) from Continuing
Operations 533 (242) 657 (512)
Loss from Discontinued Operation,
net of Income Taxes --- (20) --- (232)
Net Earnings (Loss) $533 $(262) $657 $(744)
Net Earnings (Loss) per Common Share
Continuing Operations 0.09 (0.06) 0.11 (0.14)
Discontinued Operations --- (0.01) --- (0.06)
Net Earnings (Loss) per Common Share $0.09 $(0.07) $0.11 $(0.20)
Average shares outstanding 6,157,758 3,747,115 5,712,751 3,746,765
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended
June 30
(Thousands of Dollars) 1996 1995
Cash Flows From Operating Activities
Net Earnings (Loss) $657 $(744)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used for) operating activities:
Loss from discontinued operations --- 232
Depreciation and amortization 1,178 786
Deferred Income Taxes 92 (856)
Minority interest income 228 ---
Change in assets and liabilities
Accounts receivable (1,216) (332)
Inventories and other (101) 70
Accounts payable and other current
liabilities 526 37
Net Cash Provided by (Used for) Continuing
Operations 1,364 (807)
Net Cash (Used for) Discontinued Operations (350) (209)
Net Cash Provided by (Used for) Operating Activities 1,014 (1,016)
Cash Flows From Investing Activities
Investment in Rogers Galvanizing (5,768) ---
Proceeds from Sale of Kinpak, Inc. 807 ---
Capital expenditures (1,035) (416)
Net Cash Used for Investing Activities (5,996) (416)
Cash Flows From Financing Activities
Proceeds from sales of common stock 5,725 ---
Proceeds from long-term obligations 6,967 7,885
Payments on long-term obligations (7,148) (6,404)
Net Cash Provided by Financing Activities 5,544 1,418
Increase In Cash 562 49
Cash at Beginning of Period 30 26
Cash at End of Period $592 $75
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
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, as amended, for the year ended December 31, 1995. 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
6,157,758 and 3,747,115 for the three months ended June 30, 1996 and 1995,
respectively, and 5,712,751 and 3,746,765 for the six months ended June 30,
1996 and 1995, respectively, including the effect of stock options, when
applicable, using the treasury stock method.
NOTE 3. INVENTORIES
Inventories consist primarily of zinc, the principal raw material used in
hot dip galvanizing.
NOTE 4. STOCK OPTIONS
At the Annual Meeting of Stockholders on June 5, 1996, stockholders
approved the Company's 1996 Stock Option Plan (the "Plan"). Under the terms of
the Plan, the Company has reserved 800,000 shares of Common Stock from which
future grants of stock options may be made to employees, directors, consultants
and advisors to the Company. Future option grants may consist of incentive
stock options (ISO), nonqualified stock options and non-employee director
options. The exercise price under each option granted will be established by
the Compensation Committee of the Company's Board of Directors, but in no event
will the exercise price of an ISO or non-employee director option be less than
100% of the fair market value of the Company's Common Stock on the date of the
grant. Commencing on July 1, 1996 and continuing on the first day of each July
thereafter for a period of ten years through July 1, 2005, each non-employee
director who is a member of Board of Directors shall be granted an option for
5,000 shares of Common Stock.
On July 1, 1996, pursuant to the Plan, the Compensation Committee made
automatic grants of stock options aggregating 20,000 shares to each of the
following non-employee directors of the Company to acquire 5,000 shares each of
its Common Stock at exercise prices representing 100% of the fair market value
of the Common Stock on the date of the grants:
Options Granted July 1, 1996 at an Exercise Price of $3.375 Per Share
Richard C. Butler, Director 5,000 shares
Joseph J. Morrow, Director 5,000 shares
John H. Sununu, Director 5,000 shares
Mark E. Walker, Director 5,000 shares
On July 18, 1996, pursuant to the Plan, the Compensation Committee granted
stock options aggregating 117,000 shares to the following officers of the
Company to acquire shares of its Common Stock at exercise prices representing
100% of the fair market value of the Common Stock on the date of the grants:
Options Granted July 18, 1996 at an Exercise Price of $3.50 Per Share
Michael T. Crimmins, Chairman of the
Board and Chief Executive Officer 100,000 shares
Ronald J. Evans, President 17,000 shares
On April 3, 1996, the Company granted a stock option to Ronald J. Evans,
President of Kinark Corporation, to acquire 233,000 shares of its Common Stock
at an exercise price of $2.50 per share, the fair market value of the Common
Stock on the date of grant. The option was granted under the Company's 1988
Stock Option Plan.
NOTE 5. ACQUISITION OF ROGERS GALVANIZING COMPANY
On February 5, 1996, the Company acquired 51.2% of the outstanding common
stock of Rogers Galvanizing Company ("Rogers") from The C. L. Inter Vivos
Revocable Trust and The Alta Rogers Simpson Inter Vivos Revocable Trust (the
"Trusts"). During February and March 1996, the Company acquired an additional
16.0% and 1.7%, respectively, of the minority common stock of Rogers at the
same price per share paid for the common stock of the Trusts, bringing its
ownership to 68.9% at March 31, 1996. The total purchase price for these
acquisitions of the common stock of Rogers was approximately $5.7 million in
cash. The Company acquired the Rogers stock using the proceeds from a private
placement of 2,329,038 million shares of its Common Stock in January and March
1996. The Company intends to offer to purchase the remaining shares of Rogers
common stock from its remaining minority stockholders. Rogers' galvanizing
plants are located in Tulsa, Oklahoma and Kansas City, Missouri.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the estimated fair
values at the dates of acquisition including an adjustment to eliminate the
LIFO valuation reserve on Rogers' zinc inventory. The excess of the purchase
price over the fair values of the net assets acquired was approximately $3
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 25 years. It is the Company's policy to account for
costs in excess of fair value of assets purchased and other intangible assets
at the lower of amortized cost or estimated fair value. On a periodic basis,
management reviews the valuation and amortization of such assets. As part of
its ongoing review, management estimates the fair value of the Company's
intangible assets, taking into consideration any events and circumstances which
might have diminished fair value. No valuation allowances have been recorded
as a result of these analyses. Management has not completed its determination
of the fair value of Rogers' assets and liabilities, but does not believe that
the historical amounts of such items differ materially from fair value. The
net purchase price was preliminarily allocated as follows:
(Dollars in Thousands)
Estimated fair value of assets, not including cash $9,374
Goodwill 3,095
Liabilities (6,701)
Purchase price, net of cash received $5,768
The operating results of Rogers have been included in the consolidated
statement of operations using a convenience date of February 1, 1996 for
financial reporting purposes.
On May 31, 1996, the Company filed with the Securities and Exchange
Commission (the "SEC") a registration statement for a rights offering to its
stockholders to raise additional financing to acquire the remaining shares of
Rogers stock. The Company plans to distribute to its stockholders of record
one nontransferable right for each one share of Common Stock held, with each
right entitling the holder to purchase one share of the Company's Common Stock.
The registration statement for the rights offering has been filed with the SEC
but has not yet become effective. The rights are expected to be exercisable
for a thirty day period beginning shortly after the registration statement is
declared effective by the SEC. No securities will be sold or offers accepted
prior to the time the registration statement becomes effective. There can be
no assurance that the rights offering will be successful or that the Company
will be able to acquire the remaining shares of the Rogers common stock.
The following unaudited pro forma results of operations assume the
acquisition of 68.9% of Rogers' common stock as of January 1, 1995. The
weighted average common shares used to compute pro-forma net earnings (loss)
per share include the approximately 2.28 million shares issued in the private
placement.
<PAGE>
Three Months Ended Six Months Ended
March 31 June 30
(Dollars in Thousands) 1996 1995 1996 1995
Sales $12,020 $10,586 $25,357 $23,329
Earnings from continuing operations
before minority interest 109 91 760 292
Less: Minority interest 54 118 199 251
Earnings (loss) from continuing
operations 55 (27) 561 41
Loss from discontinued operation,
net of income taxes --- (212) --- (232)
Net Earnings (Loss) $55 $(239) $561 $(191)
Net Earnings (Loss) Per Common Share $.01 $(.04) $.10 $(.03)
The pro forma results include an adjustment to reflect the amortization of
the excess of cost over fair value of net assets acquired in the Rogers
acquisition using a straight-line method over 25 years. The pro forma
financial information is not necessarily indicative of the operating results
that would have occurred had the Rogers acquisition be consummated as of
January 1, 1995, nor are they necessarily indicative of future operating
results.
NOTE 6. DEBT OBLIGATIONS
The Company operates under various bank credit agreements which provide
$7,250,000 maximum revolving lines of credit. At June 30, 1996, total
borrowings under the revolving lines of credit were $4,522,000, of which
$1,600,000 was attributable to Rogers. The balance of $2,922,000 borrowed
under a separate revolving line of credit is required by its term to be
classified as a current liability. However, current and future borrowings
under this separate revolving line of credit do not become due until April 30,
1997, and it is the Company's intention to renew the revolving line of credit
agreement at that time. There can be no assurance that the Company will be
able to renew the revolving line of credit at that time. During July 1996,
Rogers renewed two revolving lines of credit for $3,000,000 with terms and
conditions unchanged. The two revolving lines of credit, scheduled to expire
July 31, 1996, have been renewed through October 31, 1997.
Rogers' debt also includes three term loans expiring at various dates in
October 1996, July 1997 and October 2000. One of these loans bears interest at
7.2% and the remaining loans bear interest at 1/2% over prime. In the
aggregate, the amount outstanding on the term loans was $739,000 at June 30,
1996. Payments on the term loans are based on separate amortization schedules
with equal monthly payments of principal and interest. Substantially all of
the accounts receivables, inventories and fixed assets of Rogers and its
subsidiaries are pledged as collateral under the bank credit agreement for the
revolving lines of credit and term loans. The agreement places certain
restrictions on payment of dividends and the amount of debt and lease
obligations. Additionally, the bank credit agreement requires Rogers to
maintain a specified minimum net worth. Rogers was in compliance with all such
provisions of the bank credit agreement at June 30, 1996.
Other long-term obligations of Rogers include notes payable to unrelated
companies for the purchase of equipment, which equipment serves as collateral
for such notes. In the aggregate, the amount outstanding on the notes was
$587,000 at June 30, 1996. The notes bear interest at rates ranging from 3.5%
to 9.5% and have maturities ranging from 1997 through 2015.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS OR INFORMATION
Certain statements contained in this Management Discussion and Analysis
are not based on historical facts, but are forward-looking statements that are
based upon numerous assumptions about future conditions that may ultimately
prove to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties. Such risks
and uncertainties include, but are not limited to, product prices, continued
availability of capital and financing, and other factors affecting the
Company's business that may be beyond its control.
RESULTS OF OPERATIONS
REVENUES
Quarter Ended June 30 1996 1995
$(000) % of Sales $(000) % of Sales
Galvanizing $11,036 82.7% $4,536 67.7%
Chemical Storage 2,301 17.3% 2,160 32.3%
Total $13,337 100.0% $6.696 100.0%
Consolidated sales for the second quarter of 1996 increased $6,641,000, or
99.2%, in comparison to the second quarter of 1995. All of the Company's
businesses reported an increase in sales and operating profits for the second
quarter of 1996.
Sales at Lake River Corporation ("Lake River"), the Company's chemical
storage and distribution subsidiary, increased $141,000, or 6.5%, compared to
the second quarter of 1995. This improvement over the comparable quarter in
1995 was due to higher throughput of bulk liquid chemicals, up 2.4%, and
increased warehouse revenues, up 11.5% on expanded storage capacity. In the
fourth quarter of 1995, Lake River increased its warehouse space in the greater
Chicago area approximately 20% to a total of 600,000 square feet in response to
the demand for warehousing services. Second quarter 1996 sales increased 5.2%
from the first quarter of 1996 due to continued growth in bulk liquids storage
and warehousing.
Galvanizing sales increased $6,500,000, or 143.3%, in the second quarter
on the combined results of Boyles Galvanizing ("Boyles"), a subsidiary of the
Company, and Rogers Galvanizing Company ("Rogers"), a 69% owned subsidiary that
was acquired in February 1996. Boyles' same-plant second quarter sales
increased 10% compared to the second quarter of 1995 due to higher production
volume and improved pricing. Boyles' production totaled 20,200 tons during the
quarter, up 6.6% from 1995; average selling prices were up 3.2% from 1995. In
the second quarter of 1996, Rogers galvanized 18,800 tons of steel products and
generated 55% of total galvanizing sales, which were 34% higher than sales for
the first quarter of this year. Galvanizing sales for the second quarter of
1996 include the results of Rogers for the entire quarter, while the prior
first quarter sales only included the results of Rogers from the date of
acquisition.
Six Months Ended June 30 1996 1995
$(000) % of Sales $(000) % of Sales
Galvanizing $19,265 81.1% $8,619 67.5%
Chemical Storage 4,489 18.9% 4,151 32.5%
Total $23,754 100.0% $12,770 100.0%
Through the first half of the year, sales on a consolidated basis
increased $10,984,000, or 86% from 1995, due to sales increases at Lake River
and Boyles and the addition of Rogers. Sales were up 8.1% at Lake River due to
an increase in the number of storage tanks leased to customers and higher
demand for this unit's warehousing and chemical drumming services. Galvanizing
sales more than doubled from 1995, benefiting from the addition of Rogers and
continuing improvement at Boyles. Boyles' sales increased 7.7% over the second
half of 1995 as a result of higher volume and improved average selling prices.
The Company typically achieves its strongest performance in the second
quarter when delivery of galvanized steel structure for construction projects
peaks. Record sales in the first half of 1996, which sales include the
addition of Rogers, were almost equal to sales for all of 1995.
COSTS AND EXPENSES
Quarter Ended June 30 1996 1995
$(000) % of Sales $(000) % of Sales
Cost of Sales $10,072 75.5% $5,448 81.4%
Selling, general & admin. 1,350 10.1% 1,064 15.9%
Depreciation and amortization 640 4.8% 398 5.9%
Total $12,062 90.4% $6,910 103.2%
Cost of sales, as a percentage of sales, decreased 5.9% during the second
quarter of 1996 in comparison to 1995. Lake River's cost of sales percentage
held constant as compared with 1995. Boyles' same-plant cost of sales
percentage decreased by 5.8% in the second quarter of 1996 due to increased
sales and more efficient utilization of labor and material. A 74.4% cost to
sales ratio at Rogers also contributed to the Company's total reduction in the
cost of sales percentage for the second quarter of 1996.
Selling, general and administrative expenses ("SG&A") for the second
quarter of 1996, excluding Rogers, decreased $222,000, or 20.9% compared to the
second quarter of 1995. This saving is attributable primarily to reductions in
corporate and operations staffs during 1995 and 1996.
Six Months Ended June 30 1996 1995
$(000) % of Sales $(000) % of Sales
Cost of sales $18,226 76.7% $10,407 81.5%
Selling, general & admin. 2,543 10.7% 2,072 16.2%
Depreciation and amortization 1,178 5.0% 786 6.2%
Total $21,947 92.4% $13,265 103.9%
Cost of sales, as a percentage of sales, decreased 4.8% during the second
quarter of 1996 in comparison to the second quarter of 1995. This decrease was
primarily attributable to galvanizing operations where increased sales,
including the addition of Rogers, coupled with lower production costs resulted
in a 211% increase in gross profit. Boyles' cost of sales percentage decreased
4.9% due to increased average selling prices and lower production costs on a
per ton basis. Boyles' gross profit in the first half of 1996, measured in
dollars per ton, increased 40% from the comparable period for 1995. Lake
River's cost of sales percentage decreased 1.1% in the second quarter of 1996
because significant fixed costs associated with the operation of this terminal
facility were spread over increased sales, as discussed in the Revenue section
above.
SG&A expenses increased $481,000 over the first six months of 1995 due to
the addition of Rogers. This increase was partially offset by reduced SG&A
expenses at Boyles and the Company's corporate office. As a percentage of
sales, SG&A expense declined from 16.2% in 1995 to 10.7% in 1996.
OTHER EXPENSE
Net interest expense for the second quarter of 1996 was up $57,000
compared to the second quarter of 1995, primarily reflecting the addition of
Rogers' existing debt structure. Due to the increase in sales and working
capital of the Company's continuing businesses and the increase in business
attributable to the acquisition of Rogers, the Company expects interest expense
to remain above 1995 levels.
In June 1996, Boyles successfully concluded settlement of a claim asserted
against a supplier for damages arising from defective equipment purchased by
Boyles. Although the Company expects to realize a small gain on this
settlement, it has deferred recognition of any such gain due to the uncertainty
surrounding the estimate of costs to repair and replace the defective
equipment. Boyles also is currently involved in settlement discussions with a
second supplier for the recovery of damages in connection with this same
matter, but it is not able to estimate if or when it might be successful.
<PAGE>
INCOME TAXES
The Company recorded income tax expense of $374,000 for the second quarter
of 1996 as compared to a tax benefit of $138,000 in 1995. Income tax expense
for the first half of 1996 was $494,000 compared to a tax benefit of $293,000
in 1995. Income tax expense (benefit) includes current and deferred federal
income tax recorded at current rates and state income tax provisions for
various Company operations.
EARNINGS
The Company recorded net earnings of $533,000, or $.09 per share, for the
second quarter of 1996 compared to a net loss of $262,000, or $.07 per share,
for the second quarter of 1995. For the first half of 1996, net earnings were
$657,000, or $.11 per share, compared to a net loss of $744,000, or $.20 per
share, for the comparable period in 1995. The improved earnings for 1996
reflect the inclusion of Rogers' earnings for one and a half quarters and are
due to increased sales, higher gross margins, and the elimination of
discontinued operation losses. Net results for 1995 included losses from a
discontinued operation of $20,000, or $.01 per share, in the second quarter and
$232,000, or $.06 per share, in the first half, attributable to Kinpak, Inc., a
subsidiary of the Company which was sold during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash totaled $592,000 at June 30, 1996, as compared to $30,000 at year-end
1995. The Company's continuing operations provided net cash of $1,364,000 in
the first half of 1996, compared to a net use of cash of $807,000 in the first
half of 1995. The net improvement in cash flow from continuing operations was
due primarily to higher earnings before depreciation which was sufficient to
fund an increase in working capital associated with higher sales during the
first half. The Company's discontinued operation had a net use of cash of
$350,000 in the first half of 1996, compared to a net use of cash of $209,000
in the first half of 1995. The increase in cash used by the discontinued
operation in 1996 reflected additional cash requirements for personnel
severance payments and other expenses associated with the sale of the Kinpak,
Inc. subsidiary in February 1996. The combined continuing and discontinued
operations resulted in a net cash flow of $1,014,000 from operating activities
in the first half of 1996, compared to a use of cash of $1,016,000 for
operating activities in the first half of 1995.
The Company required net cash of $5,996,000 for investing activities
during the first half of 1996. The acquisition of approximately 69% of the
common stock of Rogers required cash of $5,768,000; the sale of the chemical
packaging subsidiary provided net cash proceeds of $807,000 and capital
expenditures required $1,035,000. Investing activities for the comparable
period in 1995 required net cash of $416,000 used for capital expenditures. As
cash flow from operations improves, the Company expects to continue to increase
expenditures to support the growing galvanizing and chemical storage
operations.
During the first half of 1996, cash flows provided from financing
activities totaled $5,544,000. The net proceeds from the private placement of
approximately 2.32 million shares of the Common Stock of Kinark Corporation
totaled $5,725,000. Payments of $7,148,000 on long-term obligations exceeded
proceeds from long-term obligations by $181,000. Outstanding borrowings on the
Company's $7,250,000 revolving lines of credit, of which $1,000,000 is reserved
in compliance with workers' compensation funding requirements, totaled
$4,522,000 at June 30, 1996. During July 1996, Rogers renewed two revolving
lines of credit for $3,000,000 with terms and conditions unchanged. The two
revolving lines of credit, scheduled to expire July 31, 1996, have been renewed
through October 31, 1997.
At June 30, 1996, total borrowings of $4,522,000 under the Company's
revolving lines of credit, of which $1,600,000 was attributable to the Rogers'
revolving lines of credit, were classified as a current liability. As a result
of renewing the Rogers revolving lines of credit through October 1997, the
Company has classified Rogers' revolving debt as a long-term obligation at June
30, 1996. The balance of $2,922,000 borrowed under a separate revolving line
of credit is required by its term to be classified as a current liability.
However, current and future borrowings under this separate revolving line of
credit do not become due until April 30, 1997, and it is the Company's
intention to renew the revolving line of credit at that time.<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On June 6, 1996, the Company filed an amendment to its Restated
Certificate of Incorporation which increased the number of authorized shares of
the Company's Common Stock from 12,000,000 to 18,000,000. As described in Item
4 below, this amendment to the Company's Restated Certificate of Incorporation
was approved by the stockholders of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of the Company's stockholders was held on
Wednesday, June 5, 1996, in Tulsa, Oklahoma. At the meeting, the stockholders
(a) elected seven directors, (b) approved an amendment to Article Fourth of the
Company's Restated Certificate of Incorporation to increase the authorized
shares of Common Stock from 12,000,000 to 18,000,000 shares, and (c) approved
the Company's 1996 Stock Option Plan.
(a) The votes for the election of directors were as follows:
Richard C. Butler 5,295,506 For
284,595 Against
Paul R. Chastain 5,302,806 For
277,295 Against
Michael T. Crimmins 5,303,256 For
276,845 Against
Ronald J. Evans 5,303,156 For
276,945 Against
Joseph J. Morrow 5,303,324 For
276,777 Against
John H. Sununu 5,283,981 For
296,120 Against
Mark E. Walker 5,302,324 For
277,145 Against
(b) The votes for approving the amendment to Article Fourth of the
Restated Certificate of Incorporation were as follows:
5,373,731 For
186,132 Against
20,238 Abstain
(c) The votes for approving the Company's 1996 Stock Option Plan were as
follows:
3,603,720 For
601,497 Against
104,013 Abstain
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On May 8, 1996, the Company filed a Form 8-K Current Report dated April
10, 1996, stating under Item 5 that it had announced in a press released dated
April 10, 1996, that it was withdrawing a rights offering previously announced
in October 1995. The Company also reported under Item 5 that it was evaluating
options to raise additional funds to offer to acquire the remaining capital
stock of Rogers, including a new rights offering to its stockholders.
On May 22, 1996, the Company filed a Form 8-K Current Report dated May 14,
1996, reporting under Item 5 that Harry D. Jones had resigned as a member of
the Company's Board of Directors effective May 14, 1996. Mr. Jones had
previously declined to stand for re-election to the Board at the Company's
annual meeting of the stockholders to be held on June 5, 1996.<PAGE>
SIGNATURES
Pursuant to the requirements of the 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/ Paul R. Chastain
Paul R. Chastain
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 1996<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ISSUER'S INTERIM FINANCIAL STATEMENTS DATED JUNE 30, 1996, SET FORTH IN THE
ACCOMPANYING FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.0
<CASH> 592
<SECURITIES> 0
<RECEIVABLES> 7,369
<ALLOWANCES> 187
<INVENTORY> 4,421
<CURRENT-ASSETS> 12,677
<PP&E> 31,105
<DEPRECIATION> 17,371
<TOTAL-ASSETS> 32,013
<CURRENT-LIABILITIES> 10,499
<BONDS> 5,518
<COMMON> 748
0
0
<OTHER-SE> 14,546
<TOTAL-LIABILITY-AND-EQUITY> 32,013
<SALES> 23,754
<TOTAL-REVENUES> 23,754
<CGS> 18,226
<TOTAL-COSTS> 21,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 428
<INCOME-PRETAX> 1,379
<INCOME-TAX> 494
<INCOME-CONTINUING> 657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
