<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
Form 10-Q
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995
or
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
--------- --------
Commission File No.: 0-16372
KIMMINS ENVIRONMENTAL SERVICE CORP.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2763096
- - ----------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1501 Second Avenue - Tampa, Florida 33605
---------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (813) 248-3878
-----------------------------
None
- - --------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report
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 ( )
--- --
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES ( ) NO ( )
--- --
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock outstanding on May 10, 1995, was
13,328,992 shares.
The number of shares of Class B Common Stock outstanding on May 10, 1995, was
6,874,706 shares.
<PAGE> 2
KIMMINS ENVIRONMENTAL SERVICE CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated balance sheets at
December 31, 1994 and March 31,
1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 - 2
Consolidated statements of operations
for the three months ended March 31,
1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated statements of cash
flows for the three months ended
March 31, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 6
Item 2. Management's discussion and analysis of
financial condition and results of
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 - 8
PART II. OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults upon senior securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of matters to a vote of security holders . . . . . . . . . . . . . . . . . 9
Item 5. Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIMMINS ENVIRONMENTAL SERVICE CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
--------------- ----------------
ASSETS (unaudited)
------
<S> <C> <C>
Current assets:
Cash $ 479,106 $ 788,023
Accounts receivable:
Contract and trade 22,081,973 21,159,168
Other receivables - affiliates 1,464,369 1,474,049
Notes receivable - affiliate 54,167 56,667
Costs and estimated earnings in excess of billings on
uncompleted contracts 10,166,227 10,725,435
Income tax refund receivable 679,538 105,022
Other current assets 1,274,469 1,481,085
-------------- ---------------
Total current assets 36,199,849 35,789,449
-------------- ---------------
Property and equipment, net 26,815,429 28,439,188
Intangible assets - 851,445
Accounts receivable - affiliates 1,349,058 1,407,341
Note receivable - affiliate 3,533,696 3,531,196
Term note from affiliate (including accrued interest of
$51,983 and $161,968 as of December 31, 1994, and March
31, 1995, respectively) 4,343,032 4,453,017
Other assets 447,716 637,922
-------------- ---------------
$ 72,688,780 $ 75,109,558
============== ===============
</TABLE>
See accompanying notes.
1
<PAGE> 4
KIMMINS ENVIRONMENTAL SERVICE CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
- - ------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 13,303,408 $ 12,735,135
Deferred income taxes 73,708 73,708
Accrued expenses 3,473,775 3,296,296
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,375,548 963,695
Current portion of long-term debt 6,168,006 6,222,245
Current portion of Employee Stock Ownership Plan
Trust debt 600,000 600,000
------------- -------------
Total current liabilities 24,994,445 23,891,079
------------- -------------
Long-term debt 14,632,115 17,392,410
Employee Stock Ownership Plan Trust debt 2,400,000 2,250,000
Deferred income taxes 2,914,597 2,914,597
Minority interest in subsidiary 3,233,421 3,334,778
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value; 32,500,000 shares
authorized; 13,328,992 shares issued and outstanding 13,329 13,329
Class B common stock, $.001 par value; 10,000,000
shares authorized; 6,874,706 shares issued and
outstanding 6,875 6,875
Capital in excess of par value 18,696,909 18,696,909
Retained earnings 8,569,023 9,232,067
Unearned employee compensation from Employee
Stock Ownership Plan Trust (2,771,934) (2,622,486)
------------- -------------
Total stockholders' equity 24,514,202 25,326,694
------------- -------------
$ 72,688,780 $ 75,109,558
============= =============
</TABLE>
See accompanying notes.
2
<PAGE> 5
KIMMINS ENVIRONMENTAL SERVICE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1994 1995
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue:
Gross revenue $ 20,809,785 $ 25,749,750
Outside services, at cost (1,972,863) (4,705,106)
-------------- ---------------
Net revenue 18,836,922 21,044,644
Costs and expenses:
Cost of revenue earned 16,283,216 16,709,388
Selling, general and administrative expenses 1,798,612 2,720,542
-------------- ---------------
Operating income 755,094 1,614,714
Minority interest in net (income) loss of subsidiary 5,390 (101,357)
Interest expense, net (151,077) (343,536)
-------------- ---------------
Income before provision for income taxes 609,407 1,169,821
Provision for income taxes 232,581 506,777
-------------- ---------------
Net income $ 376,826 $ 663,044
============== ===============
Income per share $ .03 $ .05
============== ===============
Weighted average number of shares outstanding used in
computation 13,328,992 13,328,992
============== ===============
</TABLE>
See accompanying notes.
3
<PAGE> 6
KIMMINS ENVIRONMENTAL SERVICE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1994 1995
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 376,826 $ 663,044
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 964,993 898,292
Minority interest in net (income) loss of
subsidiary (5,390) 101,357
(Gain) loss on disposal of property and
equipment 65,730 (70,924)
Accrued interest on term note (111,084) (109,985)
Unearned employee compensation from
Employee Stock Ownership Plan Trust 137,563 149,448
Changes in operating assets and liabilities:
Accounts receivable 116,815 854,842
Costs and estimated earnings in excess of
billings on uncompleted contracts (472,415) (559,208)
Income tax refund receivable 61,543 574,516
Other assets (340,708) (396,822)
Accounts payable (1,821,004) (568,273)
Accrued expenses (117,868) (177,479)
Billings in excess of costs and estimated
earnings on uncompleted contracts 394,391 (411,853)
-------------- ---------------
Total adjustments (1,127,434) 283,911
-------------- ---------------
Net cash provided (used) by operating activities (750,608) 946,955
-------------- ---------------
Cash flows from investing activities:
Capital expenditures (470,982) (3,520,572)
Proceeds from sale of property and equipment 377,403 218,000
-------------- ---------------
Net cash used by investing activities (93,579) (3,302,572)
-------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt 596,298 3,933,597
Repayments of long-term debt (1,415,090) (1,119,063)
Repayments of Employee Stock Ownership Plan
Trust debt (150,000) (150,000)
-------------- ---------------
Net cash provided (used) by financing activities (968,792) 2,664,534
-------------- ---------------
Net increase (decrease) in cash (1,812,979) 308,917
Cash, beginning of period 2,530,428 479,106
-------------- ---------------
Cash, end of period $ 717,449 $ 788,023
============== ===============
</TABLE>
See accompanying notes.
4
<PAGE> 7
KIMMINS ENVIRONMENTAL SERVICE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - These financial statements of Kimmins
Environmental Service Corp. (the "Company") omit or condense certain
footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for fair presentation of
the financial information for the interim periods reported have been
made.
Intangible assets - Intangible assets consist principally of the
excess of costs over fair market value of the net assets of the
acquired solid waste management business, which will be amortized on a
straight-line basis over twenty years, and customer contracts, which
will be amortized on a straight-line basis over five years.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ -----------
(unaudited)
<S> <C> <C>
Expenditures on uncompleted contracts $92,911,600 $76,762,115
Estimated earnings on uncompleted contracts 17,028,013 17,490,647
----------- -----------
109,939,613 94,252,762
Less actual and allowable billings on uncompleted
contracts 101,148,934 84,491,022
----------- -----------
$ 8,790,679 $ 9,761,740
=========== ===========
Costs and estimated earnings in excess of billings
on uncompleted contracts $10,166,227 $10,725,435
Billings in excess of costs and estimated earnings
on uncompleted contracts (1,375,548) (963,695)
----------- -----------
$ 8,790,679 $ 9,761,740
=========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ------------
(unaudited)
<S> <C> <C>
Land $ 4,699,480 $ 4,699,480
Buildings and improvements 6,275,216 6,294,527
Construction and recycling equipment 31,170,987 32,677,317
Furniture and fixtures 1,258,249 1,318,864
Construction in progress 486,128 924,587
------------ ------------
43,890,060 45,914,775
(17,074,631) (17,475,587)
------------ ------------
Less accumulated depreciation $ 26,815,429 $ 28,439,188
============ ============
</TABLE>
5
<PAGE> 8
KIMMINS ENVIRONMENTAL SERVICE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT, NET (CONTINUED)
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over estimated useful lives ranging
from three to thirty years. Construction in progress will be
depreciated over the estimated useful lives when placed into service.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
---------------- -----------------
(unaudited)
<S> <C> <C>
Notes payable, principal and interest payable in
monthly installments through October 1, 1999, interest
at varying rates up to 13 percent, collateralized by
equipment $ 10,220,373 $ 12,294,792
Revolving term bank line of credit, $1,290,000
maximum due August 31, 1996, interest at prime plus 1
3/4 percent - 1,290,000
Bank note payable, varying principal and interest
payments through August 1, 1996, interest at prime
plus 1 3/4 percent, collateralized by equipment 5,500,000 5,000,000
Mortgage notes, principal and interest payable in
monthly installments through January 1, 1999, interest
at prime plus 1 1/2 percent to prime plus 1 3/4
percent, collateralized by land and buildings 3,679,748 3,629,863
Mortgage notes - $500,000 with related parties
interest payable in quarterly installments at 10
percent, plus a performance based return not to exceed
6 percent, principal due January 9, 1997, collateral-
ized by land and buildings 1,400,000 1,400,000
--------------- ----------------
20,800,121 23,614,655
Less current portion 6,168,006 6,222,245
--------------- ----------------
$ 14,632,115 $ 17,392,410
=============== ================
</TABLE>
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Net revenue for the three months ended March 31, 1995 increased by 12
percent to $21,045,000 from $18,837,000 for the three months ended March 31,
1994. The increase is due primarily to the growth of the Company's utility
contracting services ($4,343,000 increase in net revenue) and to the continued
growth of the Company's solid waste management segment as it expands its
operations in the Florida market ($2,143,000 increase in net revenue). This
increase offsets certain decreases in the Company's industrial demolition
services ($3,696,000 decrease in net revenue) and asbestos abatement services
($859,000 decrease in net revenue).
Outside services, which largely represent subcontractor costs,
increased, as a percentage of net revenue, to 22 percent for the first quarter
of 1995 from 10 percent for the same period in 1994. The Company will utilize
the services of a subcontractor when it determines that an economic opportunity
exists with regards to providing the services internally.
Cost of revenue earned, as a percentage of net revenue, for the first
quarter of 1995 decreased to 79 percent from 86 percent for the same period in
1994. As a result, the gross margin percentage increased to 21 percent of net
revenue for the first quarter of 1995 from 14 percent for the same period in
1994. The gross profit for the first quarter of 1995 was $4,335,000 compared
to $2,554,000 for the first quarter of 1994. The increase in the dollar amount
and percentage of gross margin is associated primarily with the Company's solid
waste management subsidiary.
During the three months ended March 31, 1995, selling, general and
administrative expenses increased to $2,721,000 (13 percent of net revenue)
from $1,799,000 (10 percent of net revenue) for the three months ended March
31, 1994. The dollar increase is primarily a result of increased overhead
costs associated with higher net revenue.
Minority interest in net income (loss) of subsidiary was $101,000 for
the three months ended March 31, 1995, compared to ($5,000) during the same
period in 1994. The minority interest in net income (loss) of the subsidiary
reflects approximately 26 percent of TransCor's earnings as a result of the
March 25, 1993, initial public offering of TransCor's common stock. The
increase in TransCor's earnings between years is attributable to the higher
profit margins earned on certain solid waste management services.
Net interest expense increased to $344,000 from $151,000 primarily due
to the increase in the amount of interest-bearing debt.
As a result of the foregoing, income before provision for income taxes
for the three months ended March 31, 1995, was $1,170,000 (6 percent of net
revenue) compared to $609,000 (3 percent of net revenue) during the same period
in 1994.
The Company's effective tax rate was 43.3 percent for the three months
ended March 31, 1995, compared to a tax rate of 38.2 percent for 1994. The
increase in the effective tax rate was due primarily to higher state income
taxes and additional taxes on the income of TransCor.
As a result of the foregoing, net income for the three months ended
March 31, 1995, was $663,000 (3 percent of net revenue) as compared with net
income of $377,000 (2 percent of net revenue) for the same period during 1994.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided (used) by operating activities was $947,000 and
($751,000) during the three months ended March 31, 1995 and 1994, respectively.
For the first three months of 1995, the cash provided by operating activities
of $947,000 is due primarily to cash provided by net income, plus the effect of
depreciation, net of changes in certain operating assets and liabilities
(primarily accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts). For the first three months of 1994, the
cash used by operating activities of $751,000 is due primarily to cash provided
by net income, plus the effect of depreciation, net of changes in certain
operating assets and liabilities (primarily costs and estimated earnings in
excess of billings on uncompleted contracts and accounts payable). The Company
had cash requirements related to capital expenditures during the three months
ended March 31, 1995 and 1994 of $3,521,000 and $471,000, respectively. These
expenditures were primarily related to the acquisition of equipment associated
with the Company's solid waste transfer stations. At March 31, 1995, the
Company had borrowed the entire $1,290,000 of its term bank line of credit.
During the three months ended March 31, 1995 and 1994, the Company's
average contract and trade receivables less retainage were outstanding for 63
and 71 days, respectively. Management believes that the number of days
outstanding for its current receivables approximates industry norms. A portion
of the Company's contracting operations is subcontracted, and any delay in
collections of receivables relating to primary contracts will usually result in
the ability of the Company to delay payment of offsetting subcontract payables.
On June 30, 1993, Sunshadow Apartments, Ltd., and Summerbreeze
Apartments, Ltd., two Florida real estate limited partner- ships (collectively,
the "Apartments"), the Company, Citicorp Real Estate, Inc. ("Citicorp"), and
Francis M. Williams entered into a settlement and note renewal agreement
whereby the Apartments' Chapter 11 bankruptcy filings were voluntarily
dismissed. In accordance with the terms of the settlement agreement,
$3,638,696 of the accounts receivable - affiliates balance recorded by the
Company was converted into a note receivable. The note receivable bears
interest at prime plus 1 3/8 percent, increasing to prime plus 2 percent on
July 1, 1995, with principal and interest payable in monthly installments
through December 31, 1998, and is guaranteed by Mr. Williams. Citicorp also
renewed their mortgage notes with the Apartments through December 31, 1998.
Management of the Company believes that this note receivable balance is fully
collectible since an independent appraisal showed the appraised value of the
properties exceeded all recorded liabilities and all monthly obligations of the
Apartments, including debt, are being met. The Company will also receive
reimbursement for substantially all legal fees and costs incurred related to
this matter.
At December 31, 1994, and March 31, 1995, $4,937,000, and $4,995,000,
respectively, of the combined accounts receivable - affiliates and note
receivable - affiliates are due from affiliates of the Company's president.
Amounts due from the Apartments discussed above at December 31, 1994, and March
31, 1995, are approximately $3,588,000 and $3,588,000, respectively. The
affiliated receivables relate to contract services performed and are guaranteed
by Mr. Williams.
The Company's current bonding coverage for non-environmental projects
is $30,000,000 for an individual project ($100,000,000 aggregate). The Company
has been able to obtain bonding coverage in amounts up to $8,500,000 for
environmental projects. However, the Company has experienced difficulties in
obtaining bonding coverage for environmental projects in excess of this amount.
Although each project has its own distinct and separate bond requirements, the
Company may be unable to competitively bid on environmental projects which
require a bond in excess of $8,500,000.
Inflation has not had, and is not expected to have, a material effect
upon the Company's operations.
8
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) The following document is filed as an exhibit to this
Quarterly Report on Form 10-Q:
27 - Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMMINS ENVIRONMENTAL SERVICE CORP.
Date: May 10, 1995 By: /s/ Francis M. Williams
---------------- -----------------------------------
Francis M. Williams
President and Chief Executive Officer
Date: May 10, 1995 By: /s/ Norman S. Dominiak
---------------- -----------------------------------
Norman S. Dominiak
Chief Financial Officer;
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 788,023
<SECURITIES> 0
<RECEIVABLES> 23,324,400
<ALLOWANCES> 634,516
<INVENTORY> 0
<CURRENT-ASSETS> 35,789,449
<PP&E> 45,914,775
<DEPRECIATION> 17,475,587
<TOTAL-ASSETS> 75,109,558
<CURRENT-LIABILITIES> 23,891,079
<BONDS> 19,642,410
<COMMON> 13,329
0
0
<OTHER-SE> 25,313,365
<TOTAL-LIABILITY-AND-EQUITY> 75,109,558
<SALES> 25,749,750
<TOTAL-REVENUES> 25,749,750
<CGS> 21,414,494
<TOTAL-COSTS> 21,414,494
<OTHER-EXPENSES> 2,821,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,536
<INCOME-PRETAX> 1,169,821
<INCOME-TAX> 506,777
<INCOME-CONTINUING> 663,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 663,044
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
