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 March 31, 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.)
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, 1997.
Common Stock $ .10 Par Value . . . . . 6,778,345
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as
of March 31, 1997 (unaudited), and
December 31, 1996 3
Condensed Consolidated Statements of
Earnings for the three months ended
March 31, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the three months ended
March 31, 1997 and 1996 (unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
Item 3. Quantitative and Qualitative Disclosure
About Market Risks 11
PART II. OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
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 (the "Company") and subsidiaries as of March 31, 1997, and
the related condensed consolidated statements of operations and cash flows for
the three-month periods ended March 31, 1997 and 1996. 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, 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
May 13, 1997
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
March 31 Dec 31
(Dollars in Thousands) 1997 1996
ASSETS
Cash $ 278 $ 2,041
Accounts receivable, net 6,505 6,189
Inventories 3,852 4,138
Prepaid expenses and other current assets 568 580
TOTAL CURRENT ASSETS 11,203 12,948
PROPERTY, PLANT AND EQUIPMENT, AT COST 31,916 31,343
Less: Allowance for depreciation 17,661 17,038
TOTAL PROPERTY, PLANT & EQUIPMENT, NET 14,255 14,305
DEFERRED INCOME TAXES, NET 1,533 1,773
GOODWILL, NET 4,345 4,183
OTHER ASSETS 74 230
TOTAL ASSETS $31,410 $33,439
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 2,296 $ 2,356
Other accrued liabilities 3,775 6,182
Current portion of long-term obligations 948 994
TOTAL CURRENT LIABILITIES 7,019 9,532
LONG-TERM OBLIGATIONS 7,404 7,172
STOCKHOLDERS' EQUITY
Common stock 817 817
Additional paid-in capital 17,366 17,366
Retained earnings 4,616 4,364
Less: Treasury stock at cost (5,812) (5,812)
TOTAL STOCKHOLDERS' EQUITY 16,987 16,735
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $31,410 $33,439
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
Three Months Ended
March 31
(Dollars in Thousands Except per _____________________
Share Amounts) 1997 1996
SALES $11,724 $10,417
COSTS AND EXPENSES
Cost of sales 9,167 8,154
Selling, general & administrative 1,286 1,193
Depreciation and amortization 632 538
TOTAL COSTS AND EXPENSES 11,085 9,885
OPERATING EARNINGS 639 532
OTHER EXPENSE
Interest expense, net 203 205
EARNINGS BEFORE INCOME TAXES AND MINORITY
INTEREST 436 327
Income tax expense 184 120
Earnings before minority interest 252 207
Minority interest in subsidiary --- 83
NET EARNINGS 252 124
NET EARNINGS PER COMMON SHARE $ .04 $ .02
AVERAGE SHARES OUTSTANDING 6,846,150 5,300,688
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) _____________________
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 252 $ 124
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 632 538
Deferred income taxes 240 (37)
Minority interest income -- 83
Change in assets and liabilities:
Accounts receivable (316) (970)
Inventories and other 283 292
Accounts payable and other
current liabilities (231) 385
Net Cash Provided by Continuing
Operations 860 415
Net Cash Used for Discontinued Operations -- (416)
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 860 (1)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Rogers Galvanizing
Company (2,236) (5,768)
Proceeds from sale of Kinpak, Inc. -- 807
Capital expenditures (573) (365)
NET CASH USED FOR INVESTING ACTIVITIES (2,809) (5,326)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock -- 5,624
Proceeds from long-term obligations 2,810 5,264
Payments on long-term obligations (2,624) (5,211)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 186 5,677
INCREASE (DECREASE) IN CASH (1,763) 350
CASH AT BEGINNING OF PERIOD 2,041 30
CASH AT END OF PERIOD $ 278 $ 380
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, 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 7.
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 6,846,150 and 5,300,688 for the three months ended March 31, 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 and fixed assets are pledged as
collateral under the agreement, and the agreement is secured by a
guaranty from each of the Company's subsidiary companies.
Amounts borrowed under the agreement will bear interest at prime,
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 term loan requires equal monthly
payments of principal and interest based on a five year amortization
schedule. The advancing term loan, once funded, will require monthly
payments based on a seven year amortization schedule. The revolver
may be paid down without penalty, or additional funds may be borrowed
up to the revolver limits, subject to borrowing base limitations. 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. Pre-payment of the term loans is allowed without
penalty.
NOTE 5. STOCK OPTIONS
On February 25, 1997, the Company granted a stock option to the
President of North American Galvanizing Company to acquire 60,000
shares of its common stock at an exercise price of $3.50 per share,
the fair market value of the common stock on the date of the grant.
The option was granted under the Company's 1996 Stock Option Plan.
NOTE 6. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standard No. 128
("SFAS No. 128, Earning 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 months ended March 31, 1997 and 1996 would have been the same
as that reported in the accompanying Condensed Consolidated Statement
of Earnings.
NOTE 7. NEW SUBSIDIARY
The Company formed a new wholly-owned subsidiary, North American
Warehousing Company, an Illinois corporation, incorporated on March
19, 1997. North American Warehousing Company will provide public
warehousing storage and distribution for customers accessing markets
in both the greater Chicago and upper Midwest region and will also
provide customized export services. Initially, North American
Warehousing Company will service the public warehousing customer base
currently being served by the Company's wholly-owned subsidiary Lake
River Corporation. Lake River Corporation will continue to provide
bulk liquid terminal and on-site storage, custom chemical blending,
bag filling of dry chemical product, and drum filling.
<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 1997 1996
March 31 % of % of
$(000) Sales $(000) Sales
Galvanizing $ 9,340 79.7% $ 8,229 79.0%
Chemical Storage 2,384 20.3% 2,188 21.0%
Total $11,724 100.0% $10,417 100.0%
Consolidated sales for the first quarter of 1997 increased $1,307,000, or
12.5%, in comparison to the first quarter of 1996. All of the Company's
businesses reported an increase in sales and operating profits for the first
quarter of 1997.
Sales at Lake River Corporation ("Lake River"), the Company's chemical
storage and distribution subsidiary, increased $196,000, or 9.0%, compared to
the first quarter of 1996. This improvement over the comparable quarter in
1996 reflects the increased throughput of bulk liquid chemicals, up 20%, and
growth in warehouse storage, up 12.7%.
Sales at North American Galvanizing Company for the first quarter of 1997
increased $1,111,000, or 13.5%, in comparison to the first quarter of 1996.
For the first quarter of 1997, total tonnage of galvanizing production was up
15.1% from 1996 while average selling prices declined 1.4% from 1996. The
slightly lower average selling prices recorded for the first quarter of 1997
reflected a combination of product mix and on-going competitive pressures from
other galvanizers. North American Galvanizing Company competes aggressively
for new business with its sales force and, at the beginning of the second
quarter is experiencing an improvement in production volume concurrent with a
strengthening of prices.
<PAGE>
COSTS AND EXPENSES
Quarter Ended 1996 1995
March 31 % of % of
$(000) Sales $(000) Sales
Cost of sales $ 9,167 78.1% $ 8,154 78.3%
Selling, general &
administrative 1,286 11.0% 1,193 11.4%
Depreciation and
amortization 632 5.4% 538 5.2%
Total $11,085 94.5% $9,885 94.9%
Operating earnings of $639,000 for the first quarter of 1997 increased
20.1% in comparison to the first quarter of 1996. The improvement in earnings
over the comparable quarter was due to higher sales volume, enhanced by lower
cost and expenses, as a percentage of sales. In general, the Company achieved
improved operating margins in the first quarter of 1997 by controlling labor
related costs and administrative expenses.
INTEREST EXPENSE
Interest expense in the first quarter of 1997 was 1.7% of sales as
compared to 2.0% of sales in the first quarter of 1996. Based on the present
sales and working capital requirements, the Company expects interest expense to
remain comparable to the 1996 levels.
INCOME TAXES
The Company recorded income tax expense of $184,000 for the first quarter
of 1997, compared to $120,000 in the first quarter of 1996. The increase in
taxes resulted from the Company's increased earnings in 1997.
EARNINGS
The Company recorded net earnings of $252,000, or $.04 per share, for the
first quarter of 1997, compared to net earnings of $124,000, or $.02 per share,
for the first quarter of 1996. The improved earnings for 1997 are due to
increased sales, higher gross margins, and the elimination of the minority
interest in the Company's galvanizing subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Cash totaled $278,000 at March 31, 1997, as compared to $2,041,000 at
year-end 1996. Planned higher-than-normal cash balances at the end of 1996
were reserved to complete the purchase of the remaining minority interest in
Rogers Galvanizing Company. Cash of $2,236,000 was used to purchase the
remaining minority interest in January 1997. During the first quarter of 1997,
the Company generated cash flows of $860,000 from operating activities, as
compared to a use of $1,000 in the first quarter of 1996. The improvement in
cash flow from operating activities during the first quarter of 1997 was due to
higher cash basis earnings and the absence of funding requirements for a
discontinued operation sold in 1996.
Capital expenditures of $573,000 in the first quarter of 1997 were
primarily for normal replacement of material handling equipment and process
tanks at North American Galvanizing Company. Capital expenditures in the first
quarter of 1996 were $365,000. For all of 1997, the Company expects capital
expenditures for upgrading and expanding its galvanizing and chemical
subsidiaries will be approximately even with 1996 capital expenditures of $2.8
million.
During the first quarter of 1997, the Company's financing activities
provided a net increase of $186,000 in cash. Financing activities consisted of
scheduled payments to reduce term loans and borrowings from revolving lines of
credit for working capital.
As discussed in Note 4, 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.
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 capital expenditures.
<PAGE>
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS
The Company does not invest excess funds in derivative financial
instruments or other market risk sensitive instruments for the purposes of
managing its foreign currency exchange rate risk or for any other purpose.<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
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
<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/Paul R. Chastain
Paul R. Chastain
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1997
<PAGE>
EXHIBIT INDEX
Item Number Description Page
27 Financial Data Schedule
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ISSUER'S INTERIM FINANCIAL STATEMENTS DATED MARCH 31, 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
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] 3 MONTHS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] MAR-31-1997
[EXCHANGE-RATE] 1.0
[CASH] 278
[SECURITIES] 0
[RECEIVABLES] 6,864
[ALLOWANCES] 359
[INVENTORY] 3,852
[CURRENT-ASSETS] 11,203
[PP&E] 31,916
[DEPRECIATION] 17,661
[TOTAL-ASSETS] 31,410
[CURRENT-LIABILITIES] 7,019
[BONDS] 7,404
[COMMON] 817
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 16,987
[TOTAL-LIABILITY-AND-EQUITY] 31,410
[SALES] 11,724
[TOTAL-REVENUES] 11,724
[CGS] 9,167
[TOTAL-COSTS] 11,085
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 203
[INCOME-PRETAX] 436
[INCOME-TAX] 184
[INCOME-CONTINUING] 252
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 252
[EPS-PRIMARY] .04
[EPS-DILUTED] .04
</TABLE>
