SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 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 March 31, 1996.
Common Stock $.10 Par Value . . . . . 6,066,536
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q/A
Part I of the Company's Form 10-Q for the quarter ended March 31, 1996, is
hereby amended and restated in its entirety as follows:
PAGE
"PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as
of March 31, 1996 (unaudited), and
December 31, 1995 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and 1995 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1996 and 1995 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the three months ended
March 31, 1996 and 1995 (unaudited) 6-10
SIGNATURES 16
<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 (the "Company") and subsidiaries as of March 31, 1996, and
the related condensed consolidated statements of operations and cash flows for
the three-month periods ended March 31, 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 LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
May 10, 1996
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
MAR 31 DEC 31
(Dollars in Thousands) 1996 1995
ASSETS
CURRENT ASSETS
Cash $ 380 $ 30
Accounts receivable, less allowances 6,964 3,508
Net assets of discontinued operations 43 434
Inventories 4,081 2,615
Prepaid expenses 425 566
TOTAL CURRENT ASSETS 11,893 7,153
DEFERRED INCOME TAXES 2,309 2,070
OTHER ASSETS 383 145
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, NET 3,075 0
PROPERTY, PLANT AND EQUIPMENT, AT COST 36,734 30,455
Less: Allowance for depreciation 23,066 21,448
TOTAL PROPERTY, PLANT & EQUIPMENT, NET 13,668 9,007
TOTAL ASSETS $31,328 $18,375
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 2,780 $ 1,593
Other accrued liabilities 3,589 2,057
Current portion of long-term obligations 2,667 628
TOTAL CURRENT LIABILITIES 9,036 4,278
LONG-TERM OBLIGATIONS 7,057 5,932
MINORITY INTEREST 1,322 0
SHAREHOLDERS' EQUITY
Common stock 748 520
Additional paid-in capital 15,862 10,531
Retained earnings 3,214 3,090
Less: Treasury stock at cost (5,811) (5,976)
Stock subscription receivable (100) 0
TOTAL SHAREHOLDERS' EQUITY 13,913 8,165
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $31,328 $18,375
See notes to condensed consolidated financial statements.<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended
March 31
(Dollars in Thousands Except per Share Amounts) 1996 1995
SALES $ 10,417 $ 6,074
COSTS AND EXPENSES
Cost of sales 8,154 4,959
Selling, general & administrative 1,193 1,008
Depreciation and amortization 538 388
TOTAL COSTS AND EXPENSES 9,885 6,355
OPERATING EARNINGS (LOSS) 532 (281)
OTHER EXPENSE
Interest expense 205 144
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 327 (425)
Income Tax Expense (Benefit) 120 (155)
Earnings (Loss) from Continuing Operations,
before Minority Interest 207 (270)
Minority Interest in Subsidiary 83 ---
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 124 (270)
Loss from Discontinued Operation,
net of Income Taxes --- (212)
NET EARNINGS (LOSS) $ 124 $ (482)
NET EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ .02 $ (.07)
Discontinued Operation --- (.06)
$ .02 $ (.13)
Average shares outstanding 5,318,000 3,751,000
See notes to condensed consolidated financial statements.<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31
(Dollars in Thousands) 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ 124 $ (482)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used for) operating activities:
Loss from discontinued operations --- 212
Depreciation and amortization 538 388
Deferred income taxes (37) (287)
Minority income 83 ---
Change in assets and liabilities:
Accounts receivable (970) (305)
Inventories and other 292 169
Accounts payable and other accrued
liabilities 385 58
Net Cash Provided by (Used for) Continuing
Operations 415 (247)
Net Cash (Used for) Discontinued Operations (416) (204)
NET CASH (USED FOR) OPERATING ACTIVITIES (1) (451)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Rogers Galvanizing Company (5,768) ---
Proceeds from Sale of Kinpak, Inc. 807 ---
Capital expenditures (365) (205)
NET CASH USED FOR INVESTING ACTIVITIES (5,326) (205)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Common Stock 5,624 ---
Proceeds from long-term obligations 5,264 3,452
Payments on long-term obligations (5,211) (2,820)
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,677 632
INCREASE (DECREASE) IN CASH 350 (24)
CASH AT BEGINNING OF PERIOD 30 32
CASH AT END OF PERIOD $ 380 $ 8
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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,
including Rogers Galvanizing Company ("Rogers") for 1996 (Note 4).
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
5,318,000 and 3,751,000 for the three months ended March 31, 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
galvanizing.
NOTE 4. ACQUISITION OF ROGERS GALVANIZING COMPANY
On February 5, 1996, the Company acquired 51.2% of the outstanding common
stock of Rogers from The C.L. Simpson 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 approximately 2.28 million
shares of the Company's common stock in January 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 has been
selected for financial reporting purposes.
The Company is currently evaluating options to raise additional financing
to acquire the remaining common stock of Rogers. The financing options being
considered include a rights offering to the Company's stockholders. The
Company has not filed a registration statement relating to a rights offering
and no securities will be sold or offers accepted prior to the time a
registration statement is filed and becomes effective. There can be no
assurance that the Company will be able to raise such additional financing or
to acquire the remaining shares of 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
March 31
(Dollars in Thousands) 1996 1995
SALES $12,020 $10,586
Earnings from continuing operations
before minority interest 109 91
Less: Minority interest 54 118
Earnings (loss) from continuing operations 55 (27)
Loss from discontinued operation,
net of income taxes --- (212)
NET EARNINGS (LOSS) $ 55 $ (239)
NET EARNINGS (LOSS) PER COMMON SHARE $ .01 $ (.04)
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 been consummated as of
January 1, 1995, nor are they necessarily indicative of future operating
results.
NOTE 5. LONG-TERM OBLIGATIONS
MARCH 31, 1996
(Dollars in Thousands) Kinark Rogers Combined
Revolving lines of credit $2,942 $1,521 $4,463
Term loans and notes 2,926 1,480 4,406
Capital leases and other 419 436 855
6,287 3,437 9,724
Less current portion 631 2,036 2,667
$5,656 $1,401 $7,057
The Company's long-term obligations, excluding the Rogers' debt, are
substantially unchanged from those disclosed in the December 31, 1995 Annual
Report on Form 10-K, as amended. An amendment to the Company's bank credit
agreement effective April 1, 1996, extended such agreement through April 1997
and provides that if Rogers defaults under its bank credit agreement, such
default will constitute a default by the Company under its bank credit
agreement.
Rogers' long-term obligations consist of primarily revolving lines of
credit and term loans provided under a bank credit agreement, and notes payable
to unrelated companies. Two revolving lines of credit, both of which expire
July 31, 1996, provide for aggregate credit up to $3,000,000. Borrowings on
the revolving lines of credit are limited to $2,100,000 by a $900,000 workers'
compensation self-insurance letter of credit required by Oklahoma's Workers'
Compensation Court. Amounts borrowed on the revolving lines of credit bear
interest at 1/2% over prime. The revolving lines of credit can be paid down
without penalty, or additional funds can be borrowed up to their respective
limits. Rogers is currently negotiating renewal of the revolving lines of
credit and anticipates that they will be renewed under comparable terms.
Under the Rogers' bank credit agreement, the three term loans expire 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 $858,000
at March 31, 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 March 31, 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
$622,000 at March 31, 1996. The notes bear interest at rates ranging from 3.5%
to 9.5% and have maturities ranging from 1997 through 2015.
NOTE 6. SHAREHOLDERS' EQUITY
Changes in shareholders' equity during the three months ended March 31,
1996 consisted of:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Shares Common Additional Stock
Out- Stock ($.10Paid-In Retained Treasury Subscription
standing Par Value)Capital Earnings Stock ReceivableTotal
<S> <C> <C> <C> <C> <C> <C> <C>
January 1,
1996 3,747,498 $520 $10,531 $3,090 $(5,976) $ $8,165
Net Earnings 124 124
Sale of
Common Stock 2,319,038 228 5,331 (165) (100) 5,624
March 31, 1996 6,066,536 $748 $15,862 $5,811 $(5,976) $(100) $13,913
</TABLE>
NOTE 7. STOCK OPTIONS
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 8. NEW ACCOUNTING STANDARDS
The Company has adopted the Financial Accounting Standards Board SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and SFAS No. 123, Accounting for Stock-Based
Compensation, effective January 1, 1996. As allowed by SFAS No. 123, the
Company will continue to follow the provisions of Accounting Principles Board
Opinion No. 25 for such stock-based compensation plans. The adoption of SFAS
No. 121 and No. 123 did not have a material impact on the Company's
consolidated financial position or results of operations.
NOTE 9. SUBSEQUENT PRIVATE PLACEMENT
After the closing of the Private Placement, the Company offered and sold
40,000 shares of its Common Stock at an offering price of $2.50 per share,
pursuant to a subsequent private placement which closed on March 29, 1996.
This subsequent private placement resulted in gross proceeds of $100,000. <PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
caused this amendment to 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: July 30, 1996