-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BXK/s6pTktwvOXMPNYyXJpCYd6qA+WN7fgcVRDXGOs/5QP9nyCyJi1YrMZ66V/0H cTfpqZa42BUkOSz/3Ap4Gg== 0000942708-96-000039.txt : 19960731 0000942708-96-000039.hdr.sgml : 19960731 ACCESSION NUMBER: 0000942708-96-000039 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960730 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINARK CORP CENTRAL INDEX KEY: 0000055805 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 710268502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-03920 FILM NUMBER: 96601170 BUSINESS ADDRESS: STREET 1: 7060 S YALE CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 9184940964 MAIL ADDRESS: STREET 1: 7060 SOUTH YALE STREET 2: STE 603 CITY: TULSA STATE: OK ZIP: 741365723 FORMER COMPANY: FORMER CONFORMED NAME: KIN ARK OIL CO DATE OF NAME CHANGE: 19690601 FORMER COMPANY: FORMER CONFORMED NAME: KIN ARK OIL & GAS CO DATE OF NAME CHANGE: 19680906 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED ] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-3920 KINARK CORPORATION (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 71-0268502 (I.R.S. Employer Identification No.) 7060 SOUTH YALE, TULSA, OKLAHOMA 74136 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code (918) 494-0964 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $.10 PAR VALUE AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock held by non-affiliates on March 15, 1996 was approximately $13.6 million. As of March 15, 1996, there were 6,026,536 shares of Kinark Corporation Common Stock $.10 par value outstanding. Documents Incorporated by Reference Portions of the registrant's definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this report are incorporated by reference in Part III. Item 7 is hereby amended to read in its entirety as follows: ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Indexes to Management's Discussion and Analysis of Financial Condition, Results of Operations, Financial Statements and Supplementary Data are presented on page 5 of this Amendment to Annual Report on Form 10-K/A. Item 14 is hereby amended in its entirety to read as follows: ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: (1) FINANCIAL STATEMENTS PAGE Independent Auditors' Report FS-8 Consolidated Balance Sheets at December 31, 1995 and 1994 FS-9 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 FS-10 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 FS-11 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 FS-12 Notes to Consolidated Financial Statements FS-13 (2) FINANCIAL STATEMENT SCHEDULES: Schedule II - Valuation and Qualifying Accounts 3 All schedules omitted are inapplicable or the information required is included in either the consolidated financial statements or the related notes to the consolidated financial statements. (3) EXHIBITS: The Exhibits filed with or incorporated into this report are listed in the following Index to Exhibits. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 3.1 Restated Certificate of Incorporation of Kinark Corporation, as amended by Certificate of Amendment of Restated Certificate of Incorporation dated May 19, 1987 and Certificate of Amendment of Restated Certificate of Incorporation dated July 30, 1993. This information is incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 3.2 Amended and Restated Bylaws of Kinark Corporation. This information is incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. 10.1 Employment Continuity Letter Agreement dated May 14, 1982, by and between Kinark Corporation and Paul R. Chastain. This information is incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.2 Revolving Credit and Term Loan Agreement dated as of March 24, 1992, as amended on October 16, 1992; March 31, 1993; March 31, 1994; March 31, 1995; and April 1, 1996 by and between Bank of Oklahoma, N.A. and Kinark Corporation and subsidiaries. This information is incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.3 Consulting Agreement dated July 1, 1993, by and between Kinark Corporation and Harry D. Jones. This agreement is incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. 21. Subsidiaries of the Registrant. 23. Independent Auditors' Consent (as corrected). 24.01 Power of attorney from Richard C. Butler. 24.02 Power of attorney from Michael T. Crimmins. 24.03 Power of attorney from Ronald J. Evans. 24.04 Power of attorney from Harry D. Jones. 24.05 Power of attorney from Mark E. Walker. 27. Amended Financial Data Schedule (B) REPORTS ON FORM 8-K: The Company filed a Current Report on Form 8-K dated October 13, 1995 in connection with its announcement that it had caused an outside stockholder of the Company to disgorge short-swing trading profits for violating Section 16(b) of the Securities Exchange Act of 1934. KINARK CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Additions Balance Balance at Charged to at Beginning Costs and End of Description of Period Expenses Deductions Period Allowance for bad debts - Accounts Receivable 1995 $77,000 $140,000 $55,000 (a) $162,000 1994 $95,000 $46,000 $64,000 (a) $77,000 1993 $35,000 $153,000 $93,000 (a) $95,000 (a) Accounts written off, less recoveries SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this amendment to report to be signed on its behalf by the undersigned, as duly authorized. KINARK CORPORATION (Registrant) Date: July 30, 1996 By: /s/ Paul R. Chastain Paul R. Chastain Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment to report has been signed below on July 30, 1996, by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Michael T. Crimmins* /s/ Ronald J. Evans* Michael T. Crimmins, Chairman Ronald J. Evans, President and Director of the Board and Chief Executive Officer (Principal Executive Officer) /s/ Paul R. Chastain /s/ Richard C. Butler* Paul R. Chastain, Vice President, Richard C. Butler, Director Chief Financial Officer and Director (Principal Financial and Accounting Officer) /s/ Harry D. Jones* /s/ Mark E. Walker* Harry D. Jones, Director Mark E. Walker, Director *Paul R. Chastain, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the directors and officers of the Registrant after whose typed names asterisks appear pursuant to powers of attorney duly executed by such directors and officers and filed with the Securities and Exchange Commission as exhibits to this report. By: /s/ Paul R. Chastain Paul R. Chastain Attorney-in-fact INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS, CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page(s) Management's Discussion and Analysis. . . . . . . . . . . . . . .FS-1 to FS-7 Independent Auditor's Report. . . . . . . . . . . . . . . . . . .FS-8 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . .FS-9 Consolidated Statements of Operations . . . . . . . . . . . . . .FS-10 Consolidated Statements of Shareholder's Equity . . . . . . . . .FS-11 Consolidated Statements of Cash Flows . . . . . . . . . . . . . .FS-12 Notes to Consolidated Financial Statements. . . . . . . . . . . .FS-13 to FS-18 Segments of Business. . . . . . . . . . . . . . . . . . . . . . .FS-19 Quarterly Results . . . . . . . . . . . . . . . . . . . . . . . .FS-20 Five-Year Financial Summary . . . . . . . . . . . . . . . . . . .FS-21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 The consolidated statements of operations provide an overview of Kinark's operating results for 1993 through 1995. This section of Management's Discussion and Analysis summarizes the major factors which influenced operating results during the three-year period presented. Revenues and expenses associated with the Company's previously owned Kinpak packaging subsidiary, which are presented as discontinued operations, are not included in the continuing operations analyzed below (see Discontinued Operations Note to the Consolidated Financial Statements). REVENUES 1995 1994 1993 $(000) % $(000) % $(000) % Boyles Galvanizing $16,984 67.3% $15,476 59.0% $14,935 58.5% Lake River Corp. 8,262 32.7% 10,747 41.0% 10,607 41.5% Total $25,246 100.0% $26,223 100.0% $25,542 100.0% 1995 COMPARED WITH 1994 Consolidated sales for 1995 decreased $977,000, or 3.7%, from 1994 due to lower sales at Lake River. Lake River's sales of $8,262,000 were down $2,485,000, or 23.1%, from 1994 due to the loss of its largest customer for bulk liquid storage. Revenues from drumming and warehousing increased 15% over 1994, partially offsetting the decline in storage. The drumming and warehousing operations accounted for 76% of Lake River's total sales in 1995, and it is expected to maintain that relative share for the foreseeable future. The Company has prepared a program to develop new terminaling business; however, the success of this program cannot be assured due to the available supply of storage tanks in the Chicago area. Boyles' sales increased $1,508,000, or 9.7%, in 1995 on record volume and higher pricing. Boyles galvanized a total of 70,363 tons of steel in 1995, representing a 9.5% increase in volume over the prior year. Volume increased in five of the six regions where Boyles plants are located, with the largest increase being recorded in the Texas market. The sales trend has been up at Boyles for the past two years and business activity early in 1996 continues that trend. 1994 COMPARED WITH 1993 The Company's consolidated sales increased $681,000, or 2.6%, over 1993 due to improved sales at Boyles and Lake River. Sales at Boyles increased in 1994 by $541,000, or 3.6%, on improved volume. During the year, Boyles galvanized 64,261 tons of steel, up 6,612 tons from 1993, due primarily to increased volume in the two Texas plants. The average selling price fell by 7% in 1994 compared to 1993, partially offsetting the higher sales volume experienced in 1994. Selling price declined in 1994 following the trend from 1993 due to continuing competitive pressures in the markets served by Boyles. Boyles continued to generate the largest portion of the Company's sales in 1994 accounting for 59.0% of consolidated sales. Lake River sales of $10,747,000 in 1994 were up slightly from 1993. Revenues from the terminal operations declined during 1994 on reduced throughput. However, revenues from warehousing and drumming operations more than offset the reduced sales from terminal activities. In the fourth quarter of 1994, Lake River lost its largest customer which accounted for over 30% of Lake River's 1994 revenues. Lake River sales represented 41.0% of the Company's consolidated sales in 1994. EXPENSES 1995 1994 1993 % of % of % of $(000) Sales $(000) Sales $(000) Sales Cost of sales $20,524 81.3% $18,999 72.5% $17,731 69.4% Selling, general & administrative 3,766 14.9% 3,619 13.8% 3,802 14.9% Depreciation 1,471 5.8% 1,469 5.6% 1,304 5.1% Total $25,761 102.0% $24,087 91.9% $22,837 89.4% 1995 COMPARED WITH 1994 Cost of sales, as a percentage of sales, increased 8.8% in 1995 at Lake River. There has been a continuing shift in service mix to lower margin warehousing which accounted for 57% of Lake River's activity in 1995. Lake River's cost of sales were 84.3% in 1995, up from 65.6% in 1994 due to a reduction in high margin terminal throughput following the loss of its largest customer. Cost of sales at Boyles increased to 80%, up 3% from 1994 on higher direct material costs. In 1995, zinc usage per ton of production rose 3.7% with most of the increase concentrated in three plants that had a strong increase in volume. Direct labor per ton of steel galvanized decreased 1.9% in 1995, partially offsetting the higher material costs. Selling, general and administrative expenses increased $147,000, or 4.1%, in 1995 to $3,766,000. One-time severance costs associated with closing and transferring the Boyles accounting office to the corporate headquarters, and additional legal expenses accounted for this increase. Depreciation expense was $1,471,000, essentially unchanged from 1994. 1994 COMPARED WITH 1993 Cost of sales, as a percentage of sales, increased 3.1% in 1994 due to lower margins at Boyles and Lake River. Cost of sales at Boyles increased to 77.2%, up 3.7% from 1993, due primarily to the lower selling price for galvanizing discussed above. In addition, two unusual equipment failures occurred during the year which led to increased worker's compensation expense and lost production time. The Company filed a lawsuit in 1994 to attempt to recover damages from the equipment manufacturer. Zinc prices remained favorable through the first three quarters of 1994 resulting in relatively low material cost. During the fourth quarter, the price of zinc began to increase placing additional pressure on Boyles margins in certain markets. Lake River's cost of sales totaled 65.6 % in 1994, up 2% from 1993 because of increased activity in lower margin warehousing operations and reduced terminal throughput. Total selling, general and administrative ("S, G & A") expenses decreased $183,000 to $3,619,000 in 1994, down 4.8% from 1993 primarily due to reductions in travel, administrative staff and related expenses at the Kinark corporate office. S, G & A expenses at the operating subsidiaries increased less than 3% in 1994. Depreciation expense increased to $1,469,000 in 1994, up $165,000 from 1993 due to increased capital expenditures in recent years with the bulk of increased depreciation attributable to Boyles. OTHER (INCOME) EXPENSE 1995 1994 1993 % of % of % of $(000) Sales $(000) Sales $(000) Sales Interest $634 2.5% $502 1.9% $435 1.7% Consent solicitation --- --- --- --- 1,076 4.2% Other --- --- 95 0.4% (1) --- Total $634 2.5% $597 2.3% $1,510 5.9% 1995 COMPARED WITH 1994 Interest expense increased to $634,000 in 1995, up $132,000 from 1994 due to increased borrowings primarily used in operating the discontinued Kinpak subsidiary. 1994 COMPARED WITH 1993 Interest expense increased to $502,000 in 1994, up $67,000 from 1993 due to higher interest rates during the year. The prime rate at the beginning of 1994 was 6% and, after several increases during the year, ended 1994 at 8.5%. Interest expense as a percentage of sales was 1.9% in 1994 and 1.7% in 1993. Other expense consisted primarily of expenses associated with an early retirement program offered to certain employees at Lake River and a provision for environmental expenses attributable to Boyles' Philadelphia plant which was sold approximately fifteen years ago. Environmental matters are further discussed below. INCOME TAXES The Company's effective tax rates for 1995, 1994 and 1993 were 38.8%, 34.3% and 36.0%, respectively. The Company recorded an income tax benefit of $446,000 in 1995 as a result of incurring a loss of $1,149,000 from continuing operations. Income tax expenses for 1994 and 1993 were $527,000 and $430,000, respectively. EARNINGS FROM CONTINUING OPERATIONS Due to the above factors, the Company had a loss from continuing operations of $703,000 in 1995, down from earnings of $1,011,000 from continuing operations in 1994. In 1995, Boyles' operating earnings increased to $1,414,000, up from $1,305,000 in 1994. Lake River's 1995 operating earnings were $174,000, down from $2,363,000 in 1994. DISCONTINUED OPERATION In August 1995, the Company adopted a plan to divest its Kinpak packaging subsidiary and recorded a charge to discontinued operations of $1,525,000 in the third quarter. With this charge, the Company wrote off certain inventories and prepaid expenses of $260,000 and goodwill of $550,000; and, provided $715,000 for estimated operating losses and losses on the disposal of fixed assets and other expenses associated with final disposition of the Kinpak subsidiary. On January 5, 1996, the Company signed a letter of intent with a subsidiary of Ocean Bio Chem, Inc., a Florida corporation for the sale of substantially all of the assets and assumption of certain liabilities of Kinpak. On February 8, 1996, the parties executed a definitive purchase agreement and closed the transaction on February 27, 1996. The purchase price was $1,840,000, which included the buyer's assumption of $990,000 of indebtedness under First Mortgage Industrial Revenue Bonds and the balance paid in cash at closing. In 1995, Kinpak recorded a net loss from discontinued operations of $1,176,000, which included operating losses of $307,000 through August 1995 and a loss of $869,000 (including operating losses through February 27, 1996) on disposal of the assets. Kinpak's sales were $6,083,000 in 1995. At December 31, 1995 the Company's consolidated balance sheet reflects Net Assets of Discontinued Operations of $434,000 which will be realized upon recording the sale of Kinpak and liquidation of retained assets and liabilities in 1996. The Company has no further liabilities with respect to the operations of its Kinpak subsidiary, except as guarantor of the facilities Lease Agreement with The Industrial Development Board of The City of Montgomery ("the Lease"), dated September 1, 1979, that has been assigned to Ocean Bio-Chem, and some possible environmental remediation issues for which a portion of the cash proceeds has been escrowed. Ocean Bio-Chem is required to make rent payments under the Lease, and the full amount of such payments apply to retire the revenue bond debt. At February 27, 1996, the balance remaining on the bonds was $990,000 which is payable in annual installments through September 1, 1999. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD Effective January 1, 1993, the Company adopted, on a prospective basis, Statement of Financial Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires, among other items, the separate recognition of deferred tax assets and deferred tax liabilities, measured at current tax rates, for the tax effect of temporary differences between the financial and tax reporting bases of assets and liabilities, and net operating loss and tax credit carryforwards for tax purposes. In the event it is "more likely than not" that all or a portion of a deferred tax asset will not be realized, a valuation allowance must be established. In accordance with the provisions of SFAS 109, a deferred tax asset of $1,802,000 was recorded in the first quarter of 1993 representing primarily the estimated future tax benefits from utilization of the Company's net operating loss and tax credit carryforwards. The operating losses related primarily to hotel subsidiaries that were sold in 1991. Based upon its estimate of future operating results (See Outlook For 1996), management believes that it is more likely than not that the full value of these tax benefits will ultimately be realized. CASH FLOWS OPERATING ACTIVITIES In 1995, the Company's net cash provided by operating activities was $89,000, compared with cash provided by operating activities of $2,702,000 in 1994. The reduction was due to the combination of lower earnings at Lake River as a result of losing its largest customer and higher administrative expenses at the corporate headquarters. INVESTING ACTIVITIES Investing activities include capital expenditures. In 1995, capital expenditures were $1,055,000, down from $1,410,000 in 1994. Of the 1995 program, expenditures were authorized in approximately equal amounts between the galvanizing and chemical storage operations. Significant capital expenditures in 1995 included the following: BOYLES - galvanizing equipment $166,000, material handling equipment $128,000, building and facilities improvements $62,000; LAKE RIVER - tank renovation $151,000, material handling equipment $142,000, building and facilities improvements $158,000. FINANCING ACTIVITIES In 1995, the Company increased its borrowing under the revolving credit facility to partially compensate for the reduction in cash flow from operations. Net cash required from financing activities totaled $964,000 in 1995, after meeting scheduled payments of $444,000 on the term loan and $210,000 on industrial revenue bonds. Effective with the disposal of the assets of Kinpak in February 1996, the revenue bond obligation of $990,000 remaining for the years 1996 through 1999 was assigned to the buyer. The Company remains as the guarantor of the facilities lease underlying the revenue bonds, as discussed in the Discontinued Operation sections of Management's Discussion and the Notes To Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The Company's net loss had a negative impact on liquidity in 1995. In order to offset the reduced cash flow from operations, borrowings were increased $1,158,000 to $2,893,000 on the $4,250,000 revolving credit facility, and capital expenditures were reduced. Further, the Company expects to require additional borrowings in the first quarter of 1996 for seasonal operating expenses. Management believes that after the first quarter of 1996, cash generated by operating activities will provide sufficient funds for on-going working capital and operating cash requirements. The acquisition of 68.9% of the common stock (including 1.7% acquired on March 29, 1996) of Rogers Galvanizing Company in the first quarter of 1996 was funded with cash proceeds from a private placement of the Company's common stock. The Company plans to raise additional financing to offer to purchase the remaining Rogers shares through a rights offering to existing shareholders, in the second quarter of 1996. The net proceeds from the offering will be used to acquire the remaining Rogers' shares, pay related fees and expenses and for general corporate purposes. There can be no assurance, however, that the Company will be able to raise such additional financing or to acquire all of the remaining Rogers' shares. Following completion of the acquisition of Rogers, management intends to negotiate a restructuring of the Company's current bank credit facilities. FINANCIAL CONDITION Shareholders equity declined to $8,165,000, or $2.18 per share, at December 31, 1995 due to the net loss incurred in 1995. The Company's debt to net worth ratio of 1.3 was up slightly from 1.1 a year ago and the current ratio improved to 1.7, up from 1.6 at December 31, 1994. ENVIRONMENTAL MATTERS The Company's facilities are subject to extensive environmental legislation and regulations affecting their operations and the discharge of wastes. The cost of compliance with such regulations during 1995 approximated $513,000 with the disposal of waste acids generated by Boyles in the galvanizing process representing the major expenditure in this area. Due to the increasing cost of waste disposal and decreasing availability of approved disposal methods, alternative waste acid recycling methods have been evaluated over recent years. While it appears that the technology for an economically feasible system is available, no proven system for the recycling of hydrochloric acid utilized by Boyles is currently on the market. The Company initially planned to install a prototype system at one galvanizing plant in 1994, but postponed this expenditure due to the cost and experimental nature of the system under consideration. Hydrochloric acid recycling systems will be further evaluated as new systems become available. Future capital expenditures in this area are expected to increase, however, such expenditures should significantly reduce waste acid disposal expense. Environmentally related expenditures at Lake River and Kinpak represented a relatively small percentage of the Company's total cost in this area. The majority of waste disposal costs at Lake River are incurred on behalf of customers and are reimbursable. Lake River does not take title to the chemicals stored, blended, or bagged in its facilities and thus is responsible only for the proper handling of these materials while under its care, custody, and control. Kinpak has been a zero discharge facility and produces no hazardous wastes. As described above, Kinark has escrowed proceeds from the sale of Kinpak's assets for some possible environmental remediation. Boyles received notice on October 21, 1994 from the United States Environmental Protection Agency ("EPA") that it was a potentially responsible party in connection with an investigation and removal action at a former Boyles site in Philadelphia, Pennsylvania. Boyles sold the property in 1981, and a subsequent owner placed fill dirt on the property. An EPA initial investigation indicated the presence of lead contamination on the site. During 1995, Boyles entered into negotiations with the EPA and received an informal indication that the EPA does not consider Boyles to be the source of the lead in the soil. The EPA has concluded its investigation with no finding of other contamination for which Boyles would be considered liable. In 1995, Boyles participated in the final clean-up of this site and received notification from the EPA that it had demonstrated to the satisfaction of the EPA that all requirements relating to the performance of the Response Action Plan had been completed. Clean-up of this site consisted primarily of soil removal at a cost of approximately $85,000 to Boyles. The Company is committed to complying with all federal, state and local environmental laws and regulations and using its best management practices to anticipate and satisfy future requirements. As is typical in the galvanizing and chemicals businesses, Boyles and Lake River will have additional environmental compliance costs associated with past, present, and future operations. Management has committed resources to discovering and eliminating environmental issues as they arise. Because of the frequent changes in environmental technology, laws and regulations management cannot reasonably attempt to quantify the Company's potential costs in this area. However, such costs are expected to increase above their current levels as discussed above. OUTLOOK FOR 1996 Based on the present situations at Boyles and Lake River, management is confident that the Company is in a position to realize an improved operating performance in 1996. Lake River expects to achieve profit growth through the continued shifting of its sales mix into specialty chemicals drumming and warehousing. Boyles is benefiting from increased volume and higher pricing which is expected to generate improved profit margins. Kinark's recently announced acquisition of a controlling interest in Rogers Galvanizing Company creates the largest independent galvanizing company in North America. By combining these companies under one group, Kinark can take full advantage of the growth opportunities in the highly fragmented galvanizing industry. Kinark's expanded network to eleven galvanizing plants represents a doubling of capacity over 1995, and increased market share. Increased market share should provide for versatility of service, optimization of production, price leadership and improved profitability. On February 5, 1996, the Company closed its acquisition of 51.2% of the common stock of Rogers Galvanizing Company ("Rogers") from the Trust Company of Oklahoma as the Trustee for two private trusts, pursuant to a Stock Purchase Agreement dated as of August 3, 1994. On February 16, 1996 and March 29, 1996, the Company exercised options to purchase additional common shares from certain minority stockholders and increased its ownership of Rogers to 68.9%. The Company also has purchase options for, or has offered to purchase, the remaining 31.1% of Rogers stock which it intends to close in 1996. The acquisition of Rogers will approximately double the Company's galvanizing operations. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which establishes accounting standards for such assets, including intangible assets. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 establishes a fair value method and disclosure standards for stock-based employee compensation arrangements, such as stock purchase plans and stock options. 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 arrangements and disclose the pro forma effects of applying SFAS No. 123 for 1995 and 1996 on the 1996 financial statements. Management believes that adoption of SFAS No. 121 and No. 123 in the 1996 financial statements will not have a material impact on the Company's consolidated financial position or results of operations. INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KINARK CORPORATION: We have audited the accompanying consolidated balance sheets of Kinark Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Kinark Corporation and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in the Income Taxes footnote to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. As discussed in the Acquisition of Rogers Galvanizing Company ("Rogers") footnote to the consolidated financial statements, the Company acquired 67.2% of Rogers common stock in cash purchase transactions in February 1996. The financing for this acquisition was provided through a private placement of the Company's common stock in January 1996, as discussed in the Private Placement footnote. /s/ Deloitte & Touche, LLP Deloitte & Touche LLP Tulsa, Oklahoma February 27, 1996 (except as to the second paragraph of the Long-Term Debt footnote, for which the date is April 1, 1996) CONSOLIDATED BALANCE SHEETS December 31 (Dollars in Thousands) 1995 1994 ASSETS Current Assets Cash $30 $32 Accounts receivable, less allowances of $162 in 1995 and $77 in 1994 3,508 3,847 Inventories 2,615 3,301 Prepaid expenses 566 482 Net assets of discontinued operation 434 --- Total Current Assets 7,153 7,662 Deferred Income Taxes, Net 2,070 1,356 Other Assets 145 740 Property, Plant and Equipment, at Cost Land 483 692 Chemical facilities and equipment 18,051 23,846 Galvanizing plants and equipment 11,730 11,516 Other 191 113 30,455 36,167 Less: Allowance for depreciation 21,448 24,971 Total Property, Plant & Equipment, Net 9,007 11,196 TOTAL ASSETS $18,375 $20,954 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable and bank overdraft $1,593 $1,722 Other accrued liabilities 2,057 2,415 Current portion of long-term obligations 628 764 Total Current Liabilities 4,278 4,901 Long-Term Obligations 5,932 6,009 Commitments and Contingencies Shareholders' Equity Common stock, $.10 par value, 12,000,000 shares authorized: 5,200,562 shares issued 520 520 Additional paid-in capital 10,531 10,535 Retained earnings 3,090 4,969 Less: Treasury stock at cost: 1995 - 1,453,064 shares; 1994 - 1,454,152 shares (5,976) (5,980) Total Shareholders' Equity 8,165 10,044 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $18,375 $20,954 See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 (Dollars in Thousands Except per Share) 1995 1994 1993 Sales $25,246 $26,223 $25,542 Costs and Expenses Cost of sales 20,524 18,999 17,731 Selling, general & administrative 3,766 3,619 3,802 Depreciation 1,471 1,469 1,304 25,761 24,087 22,837 Operating Earnings (Loss) (515) 2,136 2,705 Other (Income) Expense Interest expense 634 503 435 Consent solicitation ---- ---- 1,076 Other ---- 95 (1) 634 598 1,510 Earnings (Loss) from continuing operations before income taxes and cumulative effect of change in accounting method (1,149) 1,538 1,195 Income Tax Expense (Benefit) (446) 527 430 Earnings (Loss) from continuing operations before cumulative effect of change in accounting method (703) 1,011 765 Earnings (Loss) from Discontinued Operation: Earnings (Loss) from discontinued operation (net of income taxes) (307) (601) 15 Loss from disposal of discontinued operation (net of income taxes) (869) ---- ---- (1,176) (601) 15 Cumulative effect of change in accounting method ---- ---- 1,802 Net Earnings (Loss) $(1,879) $410 $2,582 Net Earnings (Loss) Per Common Share: Earnings (loss) from continuing operations before cumulative effect of change in accounting method $(.19) $.27 $.20 Discontinued operation (.31) (.16) ---- Cumulative effect of change in accounting method ---- ---- .48 Net Earnings (Loss) Per Common Share $(.50) $.11 $.68 Weighted Average Shares Outstanding 3,747,134 3,751,979 3,754,854
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Common Additional Shares Stock ($.10Paid-in Retained Treasury OutstandingPar Value)Capital Earnings Stock Total January 1, 1993 3,746,425 $520 $10,535 $1,977 $(5,980) $7,052 Net Earnings ---- ---- ---- 2,582 ---- 2,582 December 31, 1993 3,746,425 520 10,535 4,559 (5,980) 9,634 Treasury stock purchased (15) ---- ---- ---- ---- ---- ---- Net Earnings ---- ---- ---- 410 ---- 410 December 31, 1994 3,746,410 520 10,535 4,969 (5,980) 10,044 Treasury stock issued 1,088 ---- (4) ---- 4 ---- Net Loss ---- ---- ---- (1,879) ---- (1,879) December 31, 1995 3,747,498 $520 $10,531 $3,090 $(5,976) $8,165
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (Dollars in Thousands) 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net Earnings (Loss) $(1,879) $410 $2,582 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Loss (Gain) from discontinued operation 1,176 601 (15) Cumulative effect of change in accounting method ---- ---- (1,802) Depreciation 1,471 1,469 1,304 Deferred income taxes (763) 412 443 Change in assets and liabilities: Accounts receivable (286) 205 351 Inventories and other (79) (111) 327 Accounts payable and other accrued liabilities 16 1,068 (578) Net Cash Provided by (Used for) Continuing Operations (344) 4,054 2,612 Net Cash Provided by (Used for) Discontinued Operation 433 (1,352) (497) NET CASH PROVIDED BY OPERATING ACTIVITIES 89 2,702 2,115 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,055) (1,410) (2,459) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term obligations 14,462 12,969 13,512 Payments on long-term obligations (13,498) (14,415) (13,159) NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 964 (1,446) 353 DECREASE IN CASH (2) (154) (9) CASH AT BEGINNING OF PERIOD 32 186 177 CASH AT END OF PERIOD $30 $32 $186 SUPPLEMENTAL DISCLOSURES Interest paid $634 $503 $435
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1995, 1994, and 1993 DESCRIPTION OF BUSINESS Kinark Corporation (the Company) is engaged in galvanizing and chemical storage and distribution. In the galvanizing segment, Boyles Galvanizing Company provides metals corrosion protection with six regionally located galvanizing plants. Kinark operates chemical storage facilities through Lake River Corporation in Chicago. The Company grants credit to its customers on terms standard for these industries. The Company's largest customer accounted for 4.7%, 13.2% and 15.4% of consolidated sales for the years 1995, 1994 and 1993, respectively. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Boyles Galvanizing Company, Lake River Corporation, Kinpak, Inc., (a discontinued subsidiary) and Camelot Inn - Little Rock, Inc. (a discontinued subsidiary whose assets were sold in 1991). All intercompany transactions are eliminated in consolidation. ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for each of the years. Actual results will be determined based on the outcome of future events and could differ from the estimates. INVENTORIES. Inventories consist primarily of zinc, the principal raw material used in galvanizing. All inventories are stated at the lower of cost or market with zinc valued on a last-in-first-out (LIFO) basis. Other inventories are valued primarily on an average cost basis. Inventories consist of the following: (Dollars in Thousands) 1995 1994 Raw Material - LIFO $2,374 $2,433 Other Raw Materials 241 387 Finished Goods --- 481 $2,615 $3,301 The approximate replacement cost of raw material valued on a LIFO basis was $2,085,000 and $2,328,000 at December 31, 1995 and 1994 respectively. REVENUE RECOGNITION. Galvanizing revenues are recognized as services are performed. Chemical storage and distribution revenues are generally recognized over the terms of the lease for storage contracts and as services are performed for distribution and other miscellaneous services. DEPRECIATION AND AMORTIZATION. Plant and equipment, including assets under capital leases, are depreciated on the straight-line basis over their estimated useful lives, generally at rates of 2% to 6% for buildings and 10% to 20% for equipment, furnishings, and fixtures. SELF-INSURANCE. The Company is self-insured for workers' compensation and certain health care claims for its active employees. The Company carries excess workers' compensation insurance covering claims exceeding $50,000 per occurrence. The reserves for workers' compensation benefits and health care claims represent estimates for reported claims and for claims incurred but not reported. Such estimates are generally based on actuarially determined estimates of the expected values; however, the actual results may vary from these values since the evaluation of losses is inherently subjective and susceptible to significant changing factors. EARNINGS (LOSS) PER COMMON SHARE. Earnings (loss) per common share are calculated using the weighted average number of shares outstanding including the effect of stock options, when applicable, using the treasury stock method. INCOME TAXES. For financial statement purposes, income taxes are calculated according to Statement of Financial Standards ("SFAS") No. 109, "Accounting for Income Taxes". The cumulative effect of adopting SFAS No. 109 was to increase 1993 earnings by $1,802,000 which represented primarily the future tax benefits to be realized from utilization of net operating loss carryforwards for which management believes realization is more likely than not. LONG-TERM OBLIGATIONS December 31 (Dollars in Thousands) 1995 1994 Revolving line of credit $2,893 $1,735 Term loan 3,297 3,741 Capital leases 370 1,297 6,560 6,773 Less current portion 628 764 $5,932 $6,009 LONG-TERM DEBT. During 1995 the Company operated under a bank credit agreement which provided a $4,250,000 maximum revolving line of credit, and a term loan, both of which expire in March 1996. Amounts borrowed on the revolver and on the term loan bore interest at 1% over prime during 1995, and 1/2% and 3/4% over prime during 1994, resulting in an effective rate of 9 1/4% on both the revolving line of credit and the term loan at December 31, 1995 and 9% and 9 1/4%, respectively, at December 31, 1994. The revolver could be paid down without penalty, or additional funds could be borrowed up to the revolver limits. The term loan payments were based on a ten year amortization schedule with equal monthly payments of principal and interest. Substantially all of the Company's accounts receivable, as well as the inventories and fixed assets of Boyles Galvanizing Company were pledged as collateral under the agreement. The bank credit agreement placed certain restrictions on capital expenditures, amount of debt, and pledging of assets. In addition, the agreement required the Company to maintain a specified minimum net worth. The Company was in compliance with all such provisions of the credit agreement at December 31, 1995. On April 1, 1996, the Company's bank credit agreement was extended through April 1997, on substantially the same terms as described above. Aggregate maturities of long-term debt, exclusive of capital lease obligations, for each of the five years following 1995 are $488,000, $5,702,000, $0, $0, and $0, after giving effect to the April 1, 1996 renewal of the bank credit agreement. CAPITAL LEASES. Capital leases with an aggregate maturity of $370,000 consist of computers and material handling equipment used in the subsidiary operations. As discussed in the Discontinued Operation note, on February 27, 1996, the Company sold substantially all of the assets of its Kinpak subsidiary and the buyer assumed the capital lease for the plant facility which was financed by a $3,000,000 industrial revenue bond issue. Lease payments equal bond principal and interest at a fixed rate of interest which averages 6 7/8 % annually. The Company remains contingently liable on the capital lease which requires principal payments aggregating $990,000 through 1999. This contingent liability is not included in the schedule of Long-Term Obligations. COMMITMENTS The Company leases land, office, warehouse facilities and certain equipment under noncancellable operating leases. The leases generally provide for renewal options and periodic rate increases based on specified economic indicators and are typically renewed in the normal course of business. Rent expense was $1,288,000 in 1995, $1,186,000 in 1994, and $1,211,000 in 1993. Minimum annual rental commitments at December 31, 1995 are as follows: Capital Operating (Dollars in Thousands) Leases Leases 1996 $167 $1,481 1997 109 624 1998 72 10 1999 38 10 2000 53 8 $439 $2,133 Less: Portion representing interest 69 Net capitalized lease obligation $370 CONTINGENCIES & ENVIRONMENTAL Various litigation arising in the ordinary course of business is pending against the Company. Further, the Company will have additional environmental compliance costs associated with past, present, and future operations in the galvanizing and chemicals businesses. The Company is committed to complying with the environmental legislation and regulations affecting its operations. Due to the uncertainties associated with future environmental technologies, regulatory interpretations, and prospective legislative activity management cannot reasonably attempt to quantify potential costs in this area. The Company expenses or capitalizes, where appropriate, environmental expenditures that relate to current operations as they are incurred. Such expenditures are expensed when they are attributable to past operations and are not expected to contribute to current or future revenue generation. The Company records liabilities when remediation or other environmental assessment or clean-up efforts are probable and the cost can be reasonably estimated. Boyles was named as a potentially responsible party in October, 1994 by the United States Environmental Protection Agency ("EPA") in connection with an investigation and removal action at a former Boyles site in Philadelphia, Pennsylvania sold in 1981. During 1995, Boyles participated in the clean-up of this site which consisted primarily of soil removal at a cost of approximately $85,000. In 1995, the EPA notified Boyles that it had complied with all requirements relating to clean-up of the Philadelphia site. Management believes that resolution of the Company's litigation and environmental matters should not materially affect the Company's consolidated financial position. Should future developments cause the Company to record an additional liability for environmental evaluation or clean up, the recording of such a liability could have a material impact on the results of operations for the period involved. INCOME TAXES The provision (benefit) for income taxes consists of the following: December 31, (Dollars in Thousands) 1995 1994 1993 Current $(125) $304 $7 Deferred (321) 223 423 Income tax expense (benefit) $(446) $527 $430 The reconciliation of income taxes at the federal statutory rate to the Company's effective tax rate is as follows: Taxes at statutory rate $(391) $523 $406 State tax net of federal benefit (15) (8) --- Other (40) 12 24 Taxes at effective tax rate $(446) $527 $430 At December 31, 1995, the Company has approximately $5,309,000 of net operating loss carryforwards available to offset future taxable income. Investment tax credits of $157,000 and alternative minimum tax credit carryforwards of $65,000 are also available as carryforwards to future years. The net operating loss carryforwards expire in varying amounts during the years 2002 through 2010 and the investment tax credits expire in 1999. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax asset consist of the following: December 31, (Dollars in Thousands) 1995 1994 Deferred tax liabilities: Differences between book and tax basis of property $304 $327 Other state income tax 7 15 Deferred tax liability 311 342 Deferred tax assets: Alternative Minimum Tax Credit 65 191 Reserves not currently deductible 232 243 Operating loss carryforwards 1,856 1,016 Tax credit carryforwards 157 157 Other 71 91 Deferred tax asset 2,381 1,698 Net deferred tax asset $2,070 $1,356 Substantially all of the Company's operating loss carryforwards arose from losses incurred by hotel operations which were sold in 1991. Management believes that future operating income of the Company will more likely than not be sufficient to realize the net deferred tax asset. STOCK OPTION PLANS At December 31, 1995 and 1994, 335,000 shares of the Company's common stock were reserved for issuance under the terms of the stock option plans for key employees. The plans generally provide options to purchase Company stock at fair market value as of the date the option is granted. Options generally become exercisable in installments specified by the applicable plan and must be exercised within ten years of the grant date. Number Under Option of Shares Option Price Balance at January 1, 1993 272,250 $3.19 to $5.56 Granted 5,000 $4.31 Expired (5,000) $4.44 Canceled (200,000) $5.56 Balance at December 31, 1993 72,250 $3.19 to $4.75 Granted 34,500 $4.50 Canceled (1,500) $4.50 Balance at December 31, 1994 105,250 $3.19 to $4.75 Granted 32,613 $3.00 to $3.88 Expired (5,500) $4.50 Canceled (31,113) $3.06 to $4.50 Balance at December 31, 1995 101,250 $3.00 to $4.75 At December 31, 1995, 1994, and 1993, options for 76,125, 68,000 and 66,250 shares, respectively were exercisable. DISCONTINUED OPERATIONS During August 1995, the Company finalized a formal plan to discontinue the operations of its Kinpak subsidiary, which exclusively and entirely comprised the Company's chemical packaging business. Substantially all of the assets of Kinpak were subsequently sold on February 27, 1996 for $1,840,000 consisting of $850,000 cash and the assumption of the capital lease on its plant facilities which was financed by a $3,000,000 industrial revenue bond issue. The $1,264,000 loss on disposal (before income taxes of $395,000) includes $460,000 of operating losses incurred during the third and fourth quarter of 1995 and the period through February 27, 1996, the closing date, and a $804,000 loss on the sale of assets. The loss above differs from the prior estimated loss of $1,525,000 recorded during the third quarter of 1995. Revenues from Kinpak were $6,346,236 (including revenues of $263,110 for the period through the closing date), $8,559,000 and $5,358,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The income tax expense (benefit) on the operating results of Kinpak are ($176,000), ($346,000), and $24,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Kinark remains as the guarantor on the capital lease assigned to the buyer, which requires payments aggregating $990,000 through 1999. EMPLOYEE BENEFIT PLANS Substantially all of the Company's employees are covered by a thrift plan, except for union employees of Lake River Corporation who are covered by a defined benefit pension plan. Company contributions to these benefit plans are as follows: Year Ended December 31 (Dollars in Thousands) 1995 1994 1993 Pension Plan $42 $53 $88 Thrift Plan 204 260 267 $246 $313 $355 Pension plan assets consist of group annuity insurance contracts. Thrift plan assets consist of short-term investments, intermediate bonds, and listed stock. Pension costs are funded in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). The funded status of the Company's defined benefit pension plan is as follows: December 31 (Dollars in Thousands) 1995 1994 1993 Accumulated benefit obligation Vested $1,023 $916 $1,083 Nonvested 25 5 11 Total $1,048 $921 $1,094 Projected benefit obligation $1,087 $962 $1,104 Less fair value of plan assets (572) (551) (659) Unfunded projected benefit obligation 515 411 445 Unrecognized net transition obligation (347) (256) (331) Pension liability recognized in the consolidated balance sheet $168 $155 $114 Applicable rates used in determining the actuarial value of the projected benefit are as follows: 1995 1994 1993 Discount rate* 7.5% 8.0% 7.0% Rate of increase in future compensation levels* 6.0% 6.0% 5.0% Expected long-term rate of return on plan assets 7.5% 8.5% 8.0% *Used in determining the actuarial value of the projected benefit. The periodic net pension cost of the Company's defined benefit pension plan included the following: Year Ended December 31 (Dollars in Thousands) 1995 1994 1993 Service cost benefits earned during the period $27 $27 $33 Interest cost on projected benefit obligations 70 84 65 Expected return on assets (41) (53) (48) Amortization of unrecognized net transition obligations 8 8 8 Amortization of prior service cost 7 7 4 Amortization of loss 3 9 6 Net periodic pension cost $74 $83 $68 NORTHBRIDGE CONSENT SOLICITATION During 1993, Northbridge Holdings, Inc. ("Northbridge"), together with certain other stockholders of the Company, solicited stockholder consent to increase the number of the Company's directors and to elect their nominees to the newly created positions (the "Consent Solicitation"). The Company's board of directors opposed the Consent Solicitation and solicited revocations of consent. The Consent Solicitation was settled under the terms of a Memorandum of Understanding entered into by the Company, Northbridge, Altair Corporation, and certain other parties as approved by the Court of Chancery of the State of Delaware in and for Newcastle County. Subsequent to this settlement, two of Northbridge's officers became members of the Company's board of directors. The Company recorded Consent Solicitation expenses of $1,076,000 during 1993, including the reimbursement of Northbridge consent-related expenses of $578,000. Additional Consent Solicitation expenses incurred by the Company consisted primarily of legal fees, proxy solicitation fees, and printing and distribution costs. RECOVERY OF SHORT-SWING TRADING PROFITS During 1995, the Company received approximately $5,000 from a stockholder representing profits on the sale of its Company stock in violation of certain trading rules under the Securities Exchange Act of 1934. This amount was recorded as other income rather than a capital transaction based on the immaterial amount involved. PRIVATE PLACEMENT In January 1996, the Company sold approximately 2.28 million shares of its common stock in a private placement at a price of $2.50 per share. Proceeds from this sale of stock were used to fund the acquisition of Rogers Galvanizing Company (see Acquisition of Rogers Galvanizing Company). ACQUISITION OF ROGERS GALVANIZING COMPANY On February 5, 1996, the Company acquired 51.2% of the outstanding common stock of Rogers Galvanizing Company ("Rogers"), and assumed control of the Board of Directors. Rogers is a galvanizing company located in Oklahoma. The acquisition will be accounted for using the purchase method of accounting. The purchase price of the common stock was $4.3 million in cash paid to two Trusts that held the common stock. Under the purchase agreement with the Trusts, the Company agreed to offer to purchase the remaining outstanding shares of common stock of Rogers from its minority stockholders for cash at a price per share equivalent to that paid to the Trusts. On February 16, 1996, pursuant to five separate option agreements, the Company acquired an additional 16% of the outstanding common stock of Rogers. The purchase price of this common stock was $1.3 million in cash. The following unaudited pro forma results of operations assume the acquisition of 67.2% of Rogers common stock occurred as of January 1, 1994. Weighted average common shares used to compute net earnings (loss) per share include the 2.28 million shares issued in the Private Placement. Year Ended December 31 (Dollars in Thousands) 1995 1994 Sales $42,860 $38,848 Earnings from continuing operations $544 $1,873 Loss from discontinued operation, net of taxes $(1,176) $(601) Net Earnings (Losses) $(632) $1,272 Net Earnings (Losses) per common share $(.10) $.21 The pro forma results include the operating results of Rogers for its fiscal year ended September 30. The pro forma amounts 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 Company has not completed its determination of the fair value of Rogers' assets and liabilities, but does not believe that the historical amounts of Rogers' assets and liabilities differ materially from fair value. 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, 1994, nor are they necessarily indicative of future operating results. FAIR VALUE OF FINANCIAL INSTRUMENTS For the year ended December 31, 1995, SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" requires disclosure regarding the fair value of financial instruments for which it is practical to estimate that value. The carrying value of financial instruments included in current assets and liabilities approximates fair value. The fair value of the Company's long-term debt is estimated to approximate carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which establishes accounting standards for such assets. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 establishes a fair value method and disclosure standards for stock-based employee compensation arrangements, such as stock purchase plans and stock options. 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 arrangements and disclose the pro forma effects of applying SFAS No. 123 for 1995 and 1996 on the 1996 financial statements. Management believes that adoption of SFAS No. 121 and No. 123 in the 1996 financial statements will not have a material impact on the Company's consolidated financial position or results of operations. SEGMENTS OF BUSINESS Year Ended December 31 (Dollars in Thousands) 1995 1994 1993 Sales Galvanizing $16,984 $15,476 $14,935 Chemical storage and distribution 8,262 10,747 10,607 $25,246 $26,223 $25,542 Operating Earnings Galvanizing $1,414 $1,305 $1,857 Chemical storage and distribution 174 2,363 2,658 1,588 3,668 4,515 Interest expense (634) (503) (435) Consent solicitation ---- ---- (1,076) Other ---- (95) ---- Corporate headquarters expense (2,103) (1,532) (1,809) (1,149) 1,538 1,195 Income Tax Expense (Benefit) (446) 527 430 Earnings (Loss) from Continuing Operations before cumulative effect of change in accounting method $(703) $1,011 $765 December 31 (Dollars in Thousands) 1995 1994 1993 Identifiable Assets Galvanizing $11,790 $12,079 $11,843 Chemical storage 3,555 3,604 3,547 Chemical packaging ---- 3,681 3,304 Net assets of discontinued operations 434 ---- ---- General corporate 2,596 1,590 2,237 $18,375 $20,954 $20,931 Capital Expenditures Galvanizing $544 $678 $1,660 Chemical storage 461 712 770 General corporate 50 20 29 $1,055 $1,410 $2,459 Depreciation Expense Galvanizing $879 $866 $736 Chemical storage 558 573 539 General corporate 34 30 29 $1,471 $1,469 $1,304 Quarterly Results (Unaudited) Quarterly Results of Operations for the Years Ended December 31, 1995 and 1994 Were: 1995
(Dollars in Thousands Except per Share)Mar 31Jun 30 Sep 30 Dec 31 Total Sales $6,074 $6,696 $6,201 $6,275 $25,246 Gross Profit $1,115 $1,022 $1,570 $1,015 $4,722 EARNINGS (LOSS) FROM Continuing operations (270) (242) 25 (216) (703) Discontinued operations (212) (20) (1,036) 92 (1,176) NET EARNINGS (LOSS) $(482) $(262) $(1,011) $(124) $(1,879) EARNINGS (LOSS) PER COMMON SHARE Continuing operations (.07) (.06) .01 (.07) (.19) Discontinued operations (.06) (.01) (.28) .04 (.31) NET EARNINGS (LOSS) PER COMMON SHARE $(.13) $(.07) $(.27) $(.03) $(.50)
1994
(Dollars in Thousands Except per Share)Mar 31Jun 30 Sep 30 Dec 31 Total SALES $6,719 $6,618 $6,830 $6,056 $26,223 GROSS PROFIT $1,878 $2,006 $2,069 $1,272 $7,225 EARNINGS (LOSS) FROM Continuing operations 299 348 387 (23) 1,011 Discontinued operations 165 (65) (545) (156) (601) NET EARNINGS (LOSS) $464 $283 $(158) $(179) $410 EARNINGS (LOSS) PER COMMON SHARE Continuing operations .08 .10 .10 (.01) .27 Discontinued operations .04 (.02) (.14) (.04) (.16) NET EARNINGS (LOSS) PER COMMON SHARE $.12 $.08 $(.04) $(.05) $.11
SELECTED FINANCIAL DATA The following is a summary of selected financial data of the Company (dollars in thousands, except for per share data):
For The Year Ended Dec. 31, 1995 1994 1993 1992 1991* Sales $25,246 $26,223 $25,542 $26,388 $29,369 Earnings (Losses) from continuing operations before cumulative effect of change in accounting method $(703) $1,011 $765 $1,819 $3,942 Earnings (Losses) per common share from continuing operations before cumulative effect of change in accounting method $(0.19) $0.27 $0.20 $0.49 $1.06 Weighted average shares outstanding** 3,747,134 3,751,979 3,754,854 3,748,469 3,704,822
At December 31, 1995 1994 1993 1992 1991* Working Capital $2,875 $2,761 $3,961 $4,028 $2,000 Current Ratio 1.7 1.6 2.1 2.1 1.4 Total Assets $18,375 $20,954 $20,931 $18,402 $16,841 Capital Expenditures $1,055 $1,410 $2,459 $3,186 $2,311 Depreciation $1,471 $1,469 $1,304 $1,238 $1,305 Long-Term Obligations $5,932 $6,009 $7,720 $7,548 $6,417 Shareholders' Equity $8,165 $10,044 $9,634 $7,052 $5,119 Per Share $2.18 $2.68 $2.57 $1.88 $1.41 Common Shares Outstanding3,747,498 3,746,410 3,746,425 3,746,425 3,622,950
* The Company changed its method of valuing certain inventory from the first-in first-out (FIFO) method to the last-in first-out (LIFO) method in 1991. This change increased 1991 net earnings by $300,000 or $.08 per share. ** Weighted average shares outstanding include the dilutive effect of stock options, if applicable. EXHIBIT INDEX Exhibit No. Description Page 3.1 Restated Certificate of Incorporation of Kinark Corporation, as amended by Certificate of Amendment of Restated Certificate of Incorporation dated May 19, 1987 and Certificate of Amendment of Restated Certificate of Incorporation dated July 30, 1993. This information is incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 3.2 Amended and Restated Bylaws of Kinark Corporation. This information is incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. 10.1 Employment Continuity Letter Agreement dated May 14, 1982, by and between Kinark Corporation and Paul R. Chastain. This information is incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.2 Revolving Credit and Term Loan Agreement dated as of March 24, 1992, as amended on October 16, 1992; March 31, 1993; March 31, 1994; March 31, 1995; and April 1, 1996 by and between Bank of Oklahoma, N.A. and Kinark Corporation and subsidiaries. This information is incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.3 Consulting Agreement dated July 1, 1993, by and between Kinark Corporation and Harry D. Jones. This agreement is incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. 21. Subsidiaries of the Registrant. * 23. Independent Auditors' Consent. 24.01 Power of attorney from Richard C. Butler. * 24.02 Power of attorney from Michael T. Crimmins. * 24.03 Power of attorney from Ronald J. Evans. * 24.04 Power of attorney from Harry D. Jones. * 24.05 Power of attorney from Mark E. Walker. * 27. Amended Financial Data Schedule. *Previously filed. -----END PRIVACY-ENHANCED MESSAGE-----