<PAGE> 1
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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, 1997
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.)
2250 EAST 73RD STREET
TULSA, OKLAHOMA 74136-6832
(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, 1997.
Common Stock $ .10 Par Value . . . . . 6,778,345
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<PAGE> 2
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as
of September 30, 1997 (unaudited), and
December 31, 1996 3
Condensed Consolidated Statements of
Earnings for the three and nine months ended
September 30, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the three and nine months ended
September 30, 1997 and 1996 (unaudited) 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-13
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 14
PART II. OTHER INFORMATION 15
SIGNATURES 16
</TABLE>
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
Kinark Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Kinark
Corporation and subsidiaries as of September 30, 1997, and the related condensed
consolidated statements of earnings for the three and nine month periods ended
September 30, 1997 and 1996 and the condensed consolidated cash flow statements
for the nine-months ended September 30, 1997 and 1996. 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, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 14, 1997 (except as to the second
paragraph of the Long-Term Debt Footnote, for which the date is March 11, 1997)
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, 1996 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/Deloitte & Touche LLP
Tulsa, Oklahoma
November 7, 1997
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<PAGE> 4
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
SEPTEMBER 30 Dec 31
(Dollars in Thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 489 $ 2,041
Accounts receivable, net 6,243 6,189
Inventories 4,559 4,138
Prepaid expenses and other current assets 263 580
-------- --------
TOTAL CURRENT ASSETS 11,554 12,948
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST 32,421 31,343
Less: Allowance for depreciation 17,702 17,038
-------- --------
TOTAL PROPERTY, PLANT & EQUIPMENT, NET 14,719 14,305
-------- --------
DEFERRED INCOME TAXES, NET 1,508 1,773
GOODWILL, NET 4,239 4,183
OTHER ASSETS 107 230
-------- --------
TOTAL ASSETS $ 32,127 $ 33,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 4,403 $ 2,356
Other accrued liabilities 3,272 6,182
Current portion of long-term obligations 777 994
-------- --------
TOTAL CURRENT LIABILITIES 8,452 9,532
-------- --------
LONG-TERM OBLIGATIONS 6,401 7,172
STOCKHOLDERS' EQUITY
Common stock 819 817
Additional paid-in capital 17,366 17,366
Retained earnings 4,901 4,364
Less: Treasury stock at cost (5,812) (5,812)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,274 16,735
-------- --------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 32,127 $ 33,439
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ------------------------
(Dollars in Thousands Except per Share Amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 12,206 $ 12,375 $ 36,465 $ 36,129
COSTS AND EXPENSES
Cost of sales 9,766 9,511 28,630 27,737
Selling, general & administrative 1,547 1,512 4,285 4,055
Depreciation and amortization 684 630 2,007 1,808
---------- ----------- ---------- ----------
TOTAL COSTS AND EXPENSES 11,997 11,653 34,922 33,600
---------- ----------- ---------- ----------
OPERATING EARNINGS 209 722 1,543 2,529
OTHER EXPENSE
Interest expense, net 189 216 603 644
---------- ----------- ---------- ----------
EARNINGS BEFORE INCOME TAXES
AND MINORITY INTEREST 20 506 940 1,855
Income Tax Expense 18 204 403 698
---------- ----------- ---------- ----------
Earnings before Minority Interest 2 302 537 1,187
Minority Interest -- (28) -- 200
---------- ----------- ---------- ----------
NET EARNINGS $ 2 $ 330 $ 537 $ 987
========== =========== ========== ==========
NET EARNINGS PER COMMON SHARE $ -- $ 0.05 $ 0.08 $ 0.16
========== =========== ========== ==========
AVERAGE SHARES OUTSTANDING 6,828,792 6,116,275 6,835,390 5,847,260
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
(Dollars in Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 537 $ 987
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,007 1,808
Deferred income taxes 265 24
Minority interest -- 200
Change in assets and liabilities:
Accounts receivable (54) (404)
Inventories and other (118) 68
Accounts payable and other current liabilities 1,585 630
-------- --------
Net Cash Provided by Continuing Operations 4,222 3,313
Net Cash Used for Discontinued Operations -- (354)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,222 2,959
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Rogers Galvanizing Company (2,236) (5,662)
Proceeds from sale of Kinpak, Inc. -- 807
Capital expenditures (2,340) (2,206)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (4,576) (7,061)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 2 5,725
Proceeds from long-term obligations 13,126 9,621
Payments on long-term obligations (14,326) (10,586)
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (1,198) 4,760
-------- --------
INCREASE (DECREASE) IN CASH (1,552) 658
CASH AT BEGINNING OF PERIOD 2,041 30
-------- --------
CASH AT END OF PERIOD $ 489 $ 688
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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 a newly formed
wholly-owned subsidiary North American Warehousing Company,
discussed in Note 6.
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, 1996. 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 per common share for the periods presented has been
computed based upon the weighted average number of shares
outstanding of 6,828,792 and 6,116,275 for the three months ended
September 30, 1997 and 1996 respectively, and 6,835,390 and
5,847,260 for the nine months ended September 30, 1997 and 1996
respectively.
NOTE 3. INVENTORIES
Inventories consist primarily of raw zinc "pigs," molten zinc in
galvanizing kettles and other chemicals and materials used in the
hot dip galvanizing process.
NOTE 4. DEBT OBLIGATIONS
The Company entered into a new two year bank credit agreement with
a single lender on April 30, 1997, which consolidated several bank
credit agreements that were scheduled to expire during 1997. The
new agreement provides a $8,500,000 revolving line of credit, a
$1,250,000 advancing term loan for expansion of galvanizing plants
and a $3,500,000 term loan. Substantially all of the Company's
accounts receivable, inventories,
6
<PAGE> 8
equipment, general intangibles, and fixed assets are pledged as
collateral under the agreement, and the agreement is guaranteed by
each of the Company's subsidiaries.
Amounts borrowed under the agreement will bear interest at an
adjustable rate equal to a prime rate announced by Chase Manhattan
Bank, plus or minus a spread ranging from plus 50 basis points to
minus 25 basis points, with such spread based on the Company's
ratio of earnings to debt service. The interest rate is adjusted
quarterly. The revolving line of credit may be paid down without
penalty, or additional funds may be borrowed up to the credit
limit, subject to borrowing base limitations. The term loan
requires equal monthly payments of principal and interest based on
a five year amortization schedule with a balloon payment on May 1,
1999. The advancing term loan, once funded, will require equal
monthly payments based on a seven year amortization schedule with
a balloon payment on May 1, 1999. The revolving line of credit,
advancing term loan and the term loan are all due on May 1, 1999.
The agreement requires the Company to comply with certain
financial covenants, including the maintenance of a minimum net
worth and minimum ratios of current assets to current liabilities,
total liabilities to net worth and cash flow to debt service. The
Company was in compliance with all such provisions of the credit
agreement at September 30, 1997. Pre-payment of the term loan and
the advancing term loan are allowed without penalty.
NOTE 5. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standard No. 128
("SFAS No. 128, Earnings Per Share") which is effective for annual
and interim periods ending after December 15, 1997.
Based on the methodology of SFAS No. 128, earnings per share for
the three and nine months ended September 30, 1997 and 1996 would
have been the same as that reported in the accompanying Condensed
Consolidated Statement of Earnings.
NOTE 6. NEW SUBSIDIARY
The Company formed a new wholly-owned subsidiary, North American
Warehousing Company, an Illinois corporation, on March 19, 1997,
which became operational on July 1, 1997. North American
Warehousing Company provides public warehousing storage and
distribution for customers accessing markets in both the greater
Chicago and upper Midwest region and also provides customized
export services. North American Warehousing Company is servicing
the public warehousing customer base previously served by the
Company's wholly-owned subsidiary Lake River Corporation. Lake
River Corporation is continuing to provide bulk liquid terminal
and on-site storage, custom chemical blending, bag filling of dry
chemical products, and drum filling services.
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<PAGE> 9
NOTE 7. MERGER OF GALVANIZING SUBSIDIARIES
Effective June 30, 1997, the Company consolidated its wholly-owned
galvanizing subsidiaries by merging Boyles Galvanizing Company
("Boyles") into North American Galvanizing Company ("NAGC")
pursuant to a Certificate of Merger filed with the State of
Delaware. Under the terms of the Agreement and Plan of Merger
between Boyles and NAGC, the name of the surviving corporation in
the merger is North American Galvanizing Company, a Delaware
corporation, which has assumed all of the property, rights,
franchises, debts and liabilities of Boyles. North American
Galvanizing Company is a wholly-owned subsidiary of the Company.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS OR INFORMATION
Certain statements in this Form 10-Q, including information set forth
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", constitute "Forward-Looking Statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions investors that forward-looking statements included in this Form 10-Q,
or hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
significant risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ materially from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. The Company believes that the important factors set forth in the
Company's cautionary statements at Exhibit 99 to this Form 10-Q could cause such
a material difference to occur and investors are referred to Exhibit 99 for such
cautionary statements.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Quarter Ended September 30
1997 1996
------------------- -------------------
% of % of
$ (000) Sales $ (000) Sales
----------------------------------------
<S> <C> <C> <C> <C>
Galvanizing $ 9,729 79.7% $10,058 81.2%
Chemical Storage 1,431 11.7% 1,505 12.2%
Warehousing 1,046 8.6% 812 6.6%
------- ----- ------- -----
Total $12,206 100.0% $12,375 100.0%
======= ===== ======= =====
</TABLE>
Kinark's consolidated sales for the third quarter of 1997 decreased
$169,000, or 1.4%, in comparison to the third quarter of 1996, primarily due to
lower revenues at its galvanizing subsidiary.
NORTH AMERICAN GALVANIZING COMPANY ("NAG"). Galvanizing sales decreased
$329,000, or 3.3%, for the third quarter of 1997 in comparison to the third
quarter of 1996, due to moderately lower business activity. NAG improved its
average selling prices during the third quarter of 1997, which partially off-set
the lower volume and reflects demand continuing at near the record level it
experienced last year. The decrease in volume of hot dip galvanized steel
produced in the third quarter of 1997 was wide-spread among the numerous
industries served by NAG's network of regional plants.
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<PAGE> 11
LAKE RIVER CORPORATION ("LAKE RIVER"). Sales at Lake River's chemical
storage operation were down $74,000, or 4.9%, for the third quarter of 1997
compared to the third quarter of 1996, due to lower turnover of bulk liquid
shipments to commercial users.
NORTH AMERICAN WAREHOUSE COMPANY ("NAW"). Warehousing activity for the
third quarter of 1997 rose approximately 29% to $1,046,000, compared to $812,000
for the comparable quarter of 1996. Factors contributing to NAW's improved
performance in the third quarter of 1997 include the addition of new accounts, a
more favorable rate structure and increased turnover of customers' products.
<TABLE>
<CAPTION>
Nine Months Ended September 30
1997 1996
------------------ -------------------
% of % of
$ (000) Sales $ (000) Sales
----------------------------------------
<S> <C> <C> <C> <C>
Galvanizing $29,091 79.8% $29,323 81.2%
Chemical Storage 4,282 11.7% 3,949 10.9%
Warehousing 3,092 8.5% 2,857 7.9%
------- ----- ------- -----
Total $36,465 100.0% $36,129 100.0%
======= ===== ======= =====
</TABLE>
Consolidated sales through the first nine months of 1997, increased
$336,000, or approximately 1% over the same period for 1996. Increases in
business activity and improved service rates at the chemical storage and
warehousing operations off-set a comparable reduction in galvanizing. Total
sales from the storage and warehousing operations were up 8.3% over 1996 as a
result of increased throughput of bulk liquid chemicals, higher drumming
production and greater utilization of warehouse storage capacity to meet
customers' demands. Galvanizing sales for the first nine months of 1997
decreased approximately 1% over 1996, reflecting lower demand from certain
market sectors that were particularly strong in 1996 and competitive pressures
from other regional galvanizers.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
Quarter Ended September 30
1997 1996
------------------ ------------------
% of % of
$ (000) Sales $ (000) Sales
--------------------------------------
<S> <C> <C> <C> <C>
Cost of sales $ 9,766 80.0% $ 9,511 76.9%
Selling, general &
administrative (SG&A) 1,547 12.7% 1,512 12.2%
Depreciation and amortization 684 5.6% 630 5.1%
------- ---- ------- ----
Total $11,997 98.3% $11,653 94.2%
======= ==== ======= ====
</TABLE>
The Company's cost of sales, as a percentage of sales, increased 3.1%
for the third quarter of 1997 in comparison to the third quarter of 1996, due
primarily to higher raw material costs in galvanizing. During the third quarter
of 1997, the price of zinc continued its rapid escalation in world markets.
Although supplies of zinc were not restricted, NAG has experienced a greater
than 40% increase in its purchase cost of this primary raw material during 1997.
NAG successfully passed on a portion of the rise in zinc to its customers;
however, for the most part, it was forced to absorb the
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<PAGE> 12
zinc price increases in production costs. Primarily, as a result of higher raw
material costs, NAG sustained a 65% reduction in operating profits for the third
quarter of 1997 compared to the same quarter for 1996. There has been a
reduction of zinc prices recently. The bulk liquids storage and warehousing
operations in Chicago, in the aggregate, reported higher operating profits and
profit margins for the third quarter of 1997 compared to the third quarter of
1996, primarily based on achieving higher sales.
The Company's total SG&A expenses for the third quarter of 1997 were
essentially even with the same period in 1996. Depreciation in the third quarter
of 1997 increased $54,000, or 8.6%, in comparison to the third quarter of 1996,
as a result of increased capital expenditures to improve operating facilities at
the Company's business units and the amortization of goodwill arising from the
acquisition of a galvanizing company in 1996.
<TABLE>
<CAPTION>
Nine Months Ended September 30
1997 1996
------------------ ------------------
% of % of
$ (000) Sales $ (000) Sales
--------------------------------------
<S> <C> <C> <C> <C>
Cost of sales $28,630 78.6% $27,737 76.8%
Selling, general &
administrative 4,285 11.7% 4,055 11.2%
Depreciation and amortization 2,007 5.5% 1,808 5.0%
------- ---- ------- ----
Total $34,922 95.8% $33,600 93.0%
======= ==== ======= ====
</TABLE>
The Company's cost of sales percentage for the first nine months of
1997 was 78.6%, compared to 76.8% for the same period in 1996. As discussed
above, the higher cost of zinc during 1997 is the major cause for the increase
in the cost of sales at the galvanizing subsidiary. Based on higher sales over
the first nine months of 1996, the Chicago storage and warehousing operations
were able to spread costs over a larger sales base and post improved operating
results.
SG&A expenses for the first nine months of 1997 were up $230,000, or
5.7%, in comparison to the first nine months of 1996. Substantially all of this
increase relates to the acquisition of a majority interest in a galvanizing
company during the first quarter of 1996. Depreciation and amortization expense
during the first nine months of 1997 increased $199,000, or 11.0%, over the
first nine months of 1996 as a result of capital expenditures to support the
operating subsidiaries and amortization of goodwill arising from the galvanizing
acquisition.
INTEREST EXPENSE
Interest expense was slightly lower in both the third quarter and the
first nine months of 1997 in comparison to the same periods for 1996 due to a
reduction in long-term debt and lower average interest rates under the Company's
loan agreement with a bank. Interest expense during the first nine months of
1997 was 1.7% of sales compared to 1.8% of sales for the same period in 1996.
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INCOME TAXES
The Company's charge for income tax expense in 1997 is down
approximately 42% compared to 1996, as a result of its lower earnings for the
first nine months. The Company recorded income tax expense of $18,000 for the
third quarter of 1997 as compared to $204,000 for the same period in 1996. For
the first nine months of 1997, income tax expense was $403,000 compared to
$698,000 in the first nine months of 1996. Income tax expense includes current
and deferred federal income tax recorded at current rates and state income tax
provisions for the Company's various operations.
EARNINGS
The Company recorded net earnings of $2,000, and no earnings per share,
for the third quarter of 1997 compared to net earnings of $330,000, or $.05 per
share, for the third quarter of 1996. For the first nine months of 1997, net
earnings were $537,000, or $.08 per share, compared to net earnings of $987,000,
or $.16 per share, for the first nine months of 1996. The lower earnings for
1997 as compared to 1996 are due primarily to increases in the cost of raw
materials absorbed at North American Galvanizing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated net cash of $4,222,000 in
the first nine months of 1997, which was an improvement of 43% over net cash of
$2,959,000 generated in the first nine months of 1996. The improvement in cash
flow from operating activities in the first nine months of 1997 was primarily
due to a reduction in working capital as opposed to an increase in 1996 and the
absence of funding requirements for a discontinued operation sold in 1996. Cash
totaled $489,000 at September 30, 1997, as compared to $2,041,000 at the
beginning of 1997. During the first quarter of 1997, the Company used cash of
$2,236,000 to complete the planned purchase of stock from the remaining minority
interest shareholders of a majority owned galvanizing subsidiary.
Capital expenditures of $2,340,000 for the first nine months of 1997
are in line with the Company's capital budget for the year, and compare to
capital expenditures of $2,206,000 during the first nine months of 1996. Capital
expenditures in both periods were primarily for planned replacement and
upgrading of plant facilities, material handling equipment and galvanizing
process tanks -- approximately 88% of the 1997 capital expenditures were
incurred for the galvanizing subsidiary. The Company anticipates that capital
expenditures for all of 1997 will be approximately even with 1996 capital
expenditures of $2,800,000.
The Company's financing activities during the first nine months of 1997
consisted of scheduled payments to reduce term loans, notes payable and lease
obligations, and borrowings or repayments on revolving lines of credit used for
working capital. For the first nine months of 1997, the Company paid down its
debt a net $1,200,000 as a result of cash generated from its operations.
As discussed in Note 4 to the Company's Condensed Consolidated
Financial Statements, the Company entered into a new two year bank credit
agreement on April 30, 1997, which provides a $8,500,000 revolving line of
credit, a $1,250,000 advancing term loan and a $3,500,000 term loan.
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<PAGE> 14
The Company believes that it has the ability to continue to generate
cash from operations and has available borrowing capacity to meet its
foreseeable needs for working capital and planned capital expenditures.
NEW ACCOUNTING STANDARDS
In June 1997 the FASB issued SFAS No. 131 - Disclosure About Segments
of an Enterprise and Related Information. SFAS No. 131 modifies current segment
reporting requirements and establishes for public companies criteria for
reporting disclosures about a company's products and services, geographic areas
and major customers in annual and interim financial statements. The Company will
adopt SFAS No. 131 for the year ending December 31, 1998. The Company does not
believe that there will be significant reporting changes resulting from
adoption of SFAS No. 131.
CURRENT DEVELOPMENTS
The Company has numerous computer systems which were developed
employing six digit date structures. Where date logic requires the year 2000 or
beyond, such date structures may produce inaccurate results. Management has
implemented a program to comply with year 2000 requirements on a
system-by-system basis. The program includes extensive systems testing and is
expected to be completed by the end of 1998. Each of the systems has a solution
that is potentially unique and often dependent on third-party software and
developers. A failure on the part of the Company to ensure that its computer
systems are year 2000 compliant could have a material adverse effect on the
Company's operation.
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<PAGE> 15
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
14
<PAGE> 16
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
27 Financial Data Schedule (for SEC use only)
99 Cautionary Statements by the Company Related to
Forward-Looking Statements
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1997.
15
<PAGE> 17
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/Paul R. Chastain
-----------------------------
Paul R. Chastain
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 10, 1997
-----------------
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KINARK
CORP.'S INTERIM FINANCIAL STATEMENTS DATED SEPTEMBER 30, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 489
<SECURITIES> 0
<RECEIVABLES> 6,243
<ALLOWANCES> 263
<INVENTORY> 4,559
<CURRENT-ASSETS> 11,554
<PP&E> 32,421
<DEPRECIATION> 17,702
<TOTAL-ASSETS> 32,127
<CURRENT-LIABILITIES> 8,452
<BONDS> 6,401
0
0
<COMMON> 819
<OTHER-SE> 17,274
<TOTAL-LIABILITY-AND-EQUITY> 32,127
<SALES> 36,465
<TOTAL-REVENUES> 36,465
<CGS> 28,630
<TOTAL-COSTS> 34,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 603
<INCOME-PRETAX> 940
<INCOME-TAX> 403
<INCOME-CONTINUING> 537
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</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS BY THE COMPANY REGARDING
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q, including information set forth under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations", constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). The Reform Act provides certain "safe harbor" provisions for
forward-looking statements. The Company desires to take advantage of the "safe
harbor" provisions of the Reform Act and is including these cautionary
statements ("Cautionary Statements") pursuant to the Provisions of the Reform
Act with the intention of obtaining the benefits of the "safe harbor"
provisions. In order to comply with the terms of the "safe harbor" in the
Reform Act, the Company cautions investors that forward-looking statements
included in this Form 10-Q, or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve substantial risks, uncertainties, and other
factors which could cause the Company's actual results, performance (financial
or operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such a forward-looking statements. The Company believes the following important
factors could cause such material difference to occur:
1. The Company's ability to grow through the acquisition and development
of galvanizing, chemical storage and warehousing operations or the
acquisition of ancillary businesses.
2. The Company's ability to identify suitable acquisition candidates, to
consummate or complete construction projects, or to profitably operate
or successfully integrate enterprises into the Company's other
operations.
3. The Company's ability to secure the capital and the related cost of
such capital necessary to fund its future growth through acquisition
and development, as well as internal growth.
4. The level of competition in the Company's industries and the possible
entry of new, well-capitalized competitors into the Company's markets.
5. Uncertainties and changes in environmental compliance costs associated
with past, present and future operations.
6. Uncertainties and changes related to federal, state and local
regulatory policies, including environmental laws related to the
galvanizing, chemicals and warehousing industries.
7. The Company's ability to staff its galvanizing, chemical storage and
warehousing operations appropriately with qualified personnel,
including in times of shortages of such personnel and to maintain a
satisfactory relationship with labor unions.
<PAGE> 2
8. The pricing and availability of equipment, materials and inventories,
including zinc "pigs", the major component used in the hot dip
galvanizing industry.
9. Uncertainties and changes in general economic conditions.
10. Uncertainties and changes in several industries to which the Company's
businesses are closely tied, such as highway and transportation,
communications and energy.
11. Performance issues with key suppliers and subcontractors.
12. Uncertainties related to the retention of key customers in each of the
Company's business segments.
The words "believe," "expect," "anticipate," "project," "plan" and similar
expressions identify forward-looking statements. Investors are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company.
