<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
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. 1-10489
__________________________________________
KIMMINS CORP.
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2763096
------------------------------- -------------------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
1501 Second Avenue, East, Tampa, Florida 33605
------------------------------------------------------------------------
(Address of registrant's principal executive offices, including zip code)
__________________________________________
(Registrant's telephone number, including area code): (813) 248-3878
Not applicable
------------------------------------------------------------------------
(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 [ ]<PAGE>
Applicable Only to Corporate Issuers
The number of shares of Common Stock outstanding on
August 12, 1997, was 4,447,397 shares.
The number of shares of Class B Common Stock outstanding on
August 12, 1997, was 2,291,569 shares.<PAGE>
KIMMINS CORP.
FORM 10-Q
INDEX
Page
-------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated balance sheets at December 31,
1996 and June 30, 1997 (unaudited) . . . . . . . 1 - 2
Consolidated statements of operations for the
three and six months ended June 30, 1996
and 1997 (unaudited) . . . . . . . . . . . . . . 3 - 4
Consolidated statements of cash flows for the
six months ended June 30, 1996 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements . . 6 - 10
Item 2. Management's discussion and analysis of
financial condition and results of
operations . . . . . . . . . . . . . . . . . 11 - 15
PART II. OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . . . . . . . 16
Item 2. Changes in securities . . . . . . . . . . . . . . 16
Item 3. Defaults upon senior securities . . . . . . . . . 16
Item 4. Submission of matters to a vote of
security holders . . . . . . . . . . . . . . . . . 16
Item 5. Other information . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . 17<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, 1996 June 30, 1997
----------------- -----------------
(unaudited)
Current assets:
Cash . . . . . . . . . . . . . . $ 968,638 $ 1,657,044
Accounts receivable:
Contract and trade . . . . . . 20,060,169 22,556,834
Affiliates . . . . . . . . . . 1,648,529 1,890,869
Costs and estimated earnings in
excess of billings on
uncompleted contracts . . . . . 15,967,872 16,424,322
Income tax refund receivable . . 1,199,775 872,494
Deferred income tax . . . . . . 1,499,329 1,499,329
Other current assets . . . . . . 512,110 390,355
----------------- -----------------
Total current assets . . . . 41,856,422 45,291,247
----------------- -----------------
Property and equipment, net . . . . 38,877,521 52,254,168
Intangible assets . . . . . . . . . 898,853 651,525
Accounts receivable - affiliates . 1,450,716 1,450,716
Note receivable - affiliate . . . . 3,850,727 3,850,727
Investment in Cumberland
Technologies, Inc. . . . . . . . 5,105,632 4,927,091
Other assets . . . . . . . . . . . 1,043,036 1,875,737
----------------- -----------------
$ 93,082,907 $ 110,301,211
================= =================
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1996 June 30, 1997
----------------- -----------------
(unaudited)
Current liabilities:
Accounts payable - trade . . . . $ 19,169,607 $ 16,419,965
Accrued expenses . . . . . . . . 8,072,187 9,467,856
Billings in excess of costs and
estimated earnings on
uncompleted contracts . . . . . 752,287 2,224,868
Current portion of long-term
debt . . . . . . . . . . . . . 7,794,848 10,851,813
Current portion of Employee Stock
Ownership Plan Trust debt . . . 480,000 480,000
----------------- -----------------
Total current liabilities . . . 36,268,929 39,444,502
----------------- -----------------
Long-term debt . . . . . . . . . . 29,920,396 42,569,824
Employee Stock Ownership Plan
Trust debt . . . . . . . . . . . 1,440,000 1,200,000
Deferred income taxes . . . . . . . 4,159,605 4,159,605
Minority interest in subsidiary . . 3,440,681 3,405,782
Commitments and contingencies . . . - -
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;
4,447,397 shares issued and
outstanding . . . . . . . . . . 4,447 4,447
Class B common stock, $.001 par
value; 10,000,000 shares
authorized; 2,291,569 shares
issued and outstanding . . . . 2,292 2,292
Capital in excess of par value . 18,730,173 18,730,173
Retained earnings . . . . . . . 1,228,167 2,923,700
Unearned employee compensation
from Employee Stock Ownership
Plan Trust . . . . . . . . . . (1,800,000) (1,560,000)
----------------- -----------------
Less treasury stock, at cost 18,165,079 20,100,612
(73,828 and 150,428 shares at
December 31, 1996, and June 30,
1997, respectively) . . . . . . (311,783) (579,114)
----------------- -----------------
Total stockholders' equity . 17,853,296 19,521,498
----------------- -----------------
$ 93,082,907 $ 110,301,211
================= =================
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30,
-----------------------------------
1996 1997
----------------- -----------------
(unaudited) (unaudited)
Revenue:
Gross revenue . . . . . . . . . $ 27,374,204 $ 37,036,458
Outside services, at cost . . . (2,291,739) (5,753,102)
----------------- -----------------
Net revenue . . . . . . . . . . 25,082,465 31,283,356
Costs and expenses:
Cost of revenue earned . . . . . 20,315,712 25,742,580
Selling, general and
administrative expenses . . . . 3,796,997 3,386,483
----------------- -----------------
Operating income . . . . . . . . . 969,756 2,154,293
Minority interest in net (income)
loss of subsidiary . . . . . . . (33,436) 40,224
Interest expense, net . . . . . . . (550,764) (1,201,514)
----------------- -----------------
Income before provision for income
taxes . . . . . . . . . . . . . 385,556 993,003
Provision for income taxes . . . . 158,014 116,821
----------------- -----------------
Net income . . . . . . . . . . . . $ 227,542 $ 876,182
================= =================
Per Share Data:
Income per share . . . . . . . . . $ .05 $ .20
================= =================
Weighted average number of
shares outstanding used in
computation . . . . . . . . . . 4,444,782 4,322,134
================= =================
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30,
-----------------------------------
1996 1997
----------------- -----------------
(unaudited) (unaudited)
Revenue:
Gross revenue . . . . . . . . . $ 52,084,349 $ 70,886,836
Outside services, at cost . . . (4,590,742) (10,621,506)
----------------- -----------------
Net revenue . . . . . . . . . . 47,493,607 60,265,330
Costs and expenses:
Cost of revenue earned . . . . . 40,930,446 49,680,523
Selling, general and
administrative expenses . . . . 7,409,827 6,747,679
----------------- -----------------
Operating income (loss) . . . . . . (846,666) 3,837,128
Minority interest in net loss of
subsidiary . . . . . . . . . . . 13,454 34,899
Interest expense, net . . . . . . . (1,046,022) (1,966,327)
----------------- -----------------
Income (loss) before provision for
income taxes (benefit) . . . . . (1,879,234) 1,905,700
Provision for income taxes
(benefit) . . . . . . . . . . . (840,614) 210,167
----------------- -----------------
Net income (loss) . . . . . . . . . $ (1,038,620) $ 1,695,533
================= =================
Per Share Data:
Income (loss) per share . . . . . . $ (.23) $ .39
================= =================
Weighted average number of shares
outstanding used in
computation . . . . . . . . . . 4,445,746 4,340,350
================= =================
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
-----------------------------------
1996 1997
----------------- -----------------
(unaudited) (unaudited)
Cash flows from operating
activities:
Net income (loss) . . . . . . $ (1,038,620) $ 1,695,533
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and
amortization . . . . . . . 2,630,909 4,196,391
Minority interest in net
loss of subsidiary . . . . (13,454) (34,899)
(Gain) loss on disposal of
property and equipment . . 58,403 (343,382)
Accrued interest on term
note . . . . . . . . . . . (244,944) -
Equity in losses of
investment . . . . . . . . - 96,125
Unearned employee
compensation from Employee
Stock Ownership Plan Trust 227,082 240,000
Changes in operating assets
and liabilities:
Accounts receivable . . 838,959 (3,648,898)
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts . . . . . . 607,502 453,443
Income tax refund
receivable . . . . . (224,060) 327,281
Other assets . . . . . (1,475,948) (811,981)
Accounts payable . . . (3,878,634) (2,749,642)
Accrued expenses . . . (165,474) 1,395,669
Billings in excess of
costs and estimated
earnings on
uncompleted contracts (83,110) 1,472,581
----------------- -----------------
Total adjustments . . . . . . . (1,722,769) 592,688
----------------- -----------------
Net cash provided (used) by
operating activities . . . . . . (2,761,389) 2,288,221
----------------- -----------------
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Six months ended June 30,
-----------------------------------
1996 1997
----------------- -----------------
(unaudited) (unaudited)
Cash flows from investing
activities:
Capital expenditures . . . . . . $ (3,578,674) $ (17,939,808)
Proceeds from sale of property
and equipment . . . . . . . . 183,583 1,140,931
Net cash used by investing ----------------- -----------------
activities . . . . . . . . . . . (3,395,091) (16,798,877)
----------------- -----------------
Cash flows from financing
activities:
Proceeds from long-term debt . . 9,587,467 28,224,521
Repayments of long-term debt . . (4,009,207) (12,518,128)
Repayments of Employee Stock
Ownership Plan Trust debt . . . (360,000) (240,000)
Purchase of treasury stock . . . (13,730) (267,331)
Net cash provided by financing ----------------- -----------------
activities . . . . . . . . . . . 5,204,530 15,199,062
----------------- -----------------
Net increase (decrease) in cash . . (951,950) 688,406
Cash, beginning of period . . . . . 1,160,463 968,638
----------------- -----------------
Cash, end of period . . . . . . . . $ 208,513 $ 1,657,044
================= =================
See accompanying notes.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Organization. Kimmins Corp. and its subsidiaries (collectively, the
"Company") operate two business segments: specialty contracting services
and solid waste management services. The Company provides specialty
contracting services, including infrastructure development; underground
construction; road work; demolition and dismantling of facilities; and
asbestos abatement. The Company provides solid waste management services
to commercial, industrial, residential and, municipal customers in the
state of Florida.
Basis of presentation. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods
ended June 30, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and notes
thereto as of and for the year ended December 31, 1996, included in the
Company's Form 10-K dated December 31, 1996, as filed with the United
States Securities and Exchange Commission.
Certain amounts in the 1996 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its subsidiaries, including
TransCor Waste Services, Inc. ("TransCor"), a 74 percent owned
subsidiary. All material intercompany transactions have been eliminated.
Use of estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
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. Amortization expense
was approximately $56,000 and $247,000 for the six months ended June 30,
1996 and 1997, respectively. Accumulated amortization was approximately
$191,000 and $438,000 at December 31, 1996 and June 30, 1997,
respectively.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
(continued)
Other assets - Other assets consist primarily of pre-contract costs
associated with residential solid waste management contracts obtained
during 1995 and 1996, which are being amortized on a straight-line basis
over five years, the term of the contracts, and loan costs, which are
amortized over the term of the loans. Amortization expense was $59,000
and $101,000 for the six months ended June 30 1996 and 1997,
respectively. Accumulated amortization was $637,000 and $738,000 at
December 31, 1996, and June 30, 1997, respectively.
Investments. The Company's 30 percent investment in Cumberland
Technologies, Inc. ("Cumberland") is accounted for using the equity
method of accounting.
2. Costs and estimated earnings on uncompleted contracts
December 31, June 30,
1996 1997
----------------- -----------------
(unaudited)
Expenditures on uncompleted
contracts . . . . . . . . . $ 76,218,248 $ 105,626,198
Estimated earnings on
uncompleted contracts . . . 4,490,748 11,758,938
----------------- -----------------
Less actual and allowable 80,708,996 117,385,136
billings on uncompleted
contracts . . . . . . . . . 65,493,411 103,185,682
----------------- -----------------
$ 15,215,585 $ 14,199,454
================= =================
Costs and estimated earnings in
excess of billings on
uncompleted contracts . . . $ 15,967,872 $ 16,424,322
Billings in excess of costs and
estimated earnings on
uncompleted contracts . . . (752,287) (2,224,868)
----------------- -----------------
$ 15,215,585 $ 14,199,454
================= =================<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Costs and estimated earnings on uncompleted contracts (continued)
As of December 31, 1996, and June 30, 1997, the costs and estimated
earnings in excess of billings on uncompleted contracts includes the
Company's cost associated with unapproved or disputed contract change
orders and costs claimed from customers on completed contracts of
$8,950,000 and $9,139,000, respectively. During the performance of these
contracts, the Company encountered site conditions that differed from bid
specifications. As a result, the Company incurred additional labor and
equipment costs in performing the contract. By their nature, recovery of
these amounts is often subject to negotiation with the customer and, in
certain cases, resolution through litigation. As a result, the recovery
of these amounts may extend beyond one year.
3. Property and equipment, net
December 31, June 30,
1996 1997
----------------- -----------------
(unaudited)
Land . . . . . . . . . . . . . $ 5,622,769 $ 5,753,712
Buildings and improvements . . 7,909,361 7,929,056
Construction and recycling
equipment . . . . . . . . . 47,143,128 63,250,535
Furniture and fixtures . . . . 1,508,105 1,538,048
Construction in progress . . . 33,463 184,384
----------------- -----------------
62,216,826 78,655,735
Less accumulated depreciation . (23,339,305) (26,401,567)
----------------- -----------------
$ 38,877,521 $ 52,254,168
================= =================
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. Depreciation expense was $2,515,000
and $3,766,000 for the six months ended June 30, 1996 and 1997,
respectively.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in Cumberland Technologies, Inc.
On November 5, 1996, the Company received 1,723,290 shares, or 30
percent of the outstanding common stock of Cumberland in exchange for the
term note from affiliate. The Cumberland common stock had a fair market
value of $3.00 per share on the date of the exchange, based upon the
quoted market price. This investment is accounted for under the equity
method. At August 12, 1997, the market value of the Cumberland common
stock held by the Company was approximately $4,308,000.
The following is a summary of the financial position at June 30,
1997, and results of operations of Cumberland for the six-month period
ending June 30, 1997:
June 30,
1997
-----------------
(unaudited)
Cash and cash equivalents . . . . . . . . . . . . $ 791,000
Investments . . . . . . . . . . . . . . . . . . . 6,000,000
Accounts receivable - trade, net . . . . . . . . 1,276,000
Intangibles . . . . . . . . . . . . . . . . . . . 1,818,000
Other . . . . . . . . . . . . . . . . . . . . . . 3,093,000
-----------------
Total assets . . . . . . . . . . . . . . . . . $ 12,978,000
=================
Policy liabilities and accruals . . . . . . . . . $ 5,088,000
Long-term debt . . . . . . . . . . . . . . . . . 1,479,000
Other . . . . . . . . . . . . . . . . . . . . . . 930,000
-----------------
Total liabilities . . . . . . . . . . . . . . 7,497,000
Stockholders' equity . . . . . . . . . . . . . . 5,481,000
-----------------
Total liabilities and stockholders' equity . . $ 12,978,000
=================
Cumberland's operating results included revenue of $3,038,000 and a
net loss of $320,000 during the six-month period ending June 30, 1997.
The Company's equity in this net loss amounted to approximately $96,000.
In addition, approximately $82,000 of amortization expense was recorded
by the Company related to the investment during the six months ended June
30, 1997. Accumulated amortization was approximately $27,000 and
$109,000 at December 31, 1996, and June 30, 1997, respectively.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term debt
December 31, June 30,
1996 1997
----------------- -----------------
(unaudited)
Notes payable, principal and
interest payable in monthly
installments through March 1,
2003, interest at varying rates
up to 10 percent, collateralized
by equipment . . . . . . . . . $ 19,548,486 $ 34,093,790
Revolving term bank line of
credit, $5,650,000 $12,390,000
during 1996) maximum, due July
31, 1999, interest payable
monthly at lender's base rate
plus .5 percent, permanent
quarterly principal reductions
of $250,000 begin on July 1,
1997 . . . . . . . . . . . . . 11,190,002 2,969,602
Revolving term line of credit,
$11,000,000 (none during 1996)
maximum, due February 26, 1999,
interest payable monthly at
lender's base rate of LIBOR plus
2.5 percent, collateralized by
equipment . . . . . . . . . . . - 9,500,000
Mortgage notes, principal and
interest payable in monthly
installments through January 1,
2012, interest at varying rates
up to prime plus 1.75 percent,
collateralized by land and 6,976,756 6,858,245
buildings . . . . . . . . . . . ----------------- -----------------
37,715,244 53,421,637
Less current portion . . . . . 7,794,848 10,851,813
----------------- -----------------
$ 29,920,396 $ 42,569,824
================= =================
At June 30, 1997, there was approximately $2,680,000 of borrowings
available under the revolving term bank line of credit. The Company was
also contingently liable for letters of credit in the amount of
approximately $1,800,000 at June 30, 1997.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term debt (continued)
The revolving term bank line of $2,970,000 and the letter of credit
facility of $1,800,000 are secured by a pledge of all of the stock of the
Company's subsidiaries, the investment in Cumberland, and substantially
all of the assets of Kimmins. The use of funds under these lines is
limited among certain subsidiaries, and repayment is guaranteed by
Cumberland.
The debt agreements contain certain covenants, the most restrictive
of which require maintenance of a consolidated tangible net worth, as
defined, of not less than $6,500,000. In addition, the covenants
prohibit the ability, without lender approval, of the Company to pay
dividends. As of June 30, 1997, the Company was in compliance with all
loan covenants. The Company may be required to obtain similar waivers
for certain covenants in 1997, and the Company has a representation from
Mr. Francis M. Williams should waivers not be obtained and the lender
accelerates the maturities of the Revolving Term Bank Line of Credit and
the Mortgage Note on the corporate office. This representation provides
that Mr. Williams will lend the necessary funds to the Company, or
arrange for the Company to borrow a similar amount under similar terms
and maturities so that the Company is not required to pay any principal
payments during 1997 more than the regularly scheduled maturities.
During March 1997, Kimmins Contracting Corp. ("KCC"), a wholly-owned
subsidiary of the Company, entered into two separate debt agreements.
KCC converted equipment previously rented under operating leases into an
equipment note of approximately $13,000,000 under terms similar to the
Company's other equipment notes outstanding. In addition, KCC obtained
an $11,000,000 working capital loan, of which $7,000,000 was used to
reduce the Company's outstanding revolving term bank line of credit
during March 1997.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 and 1996
Net revenue for the three months ended June 30, 1997, increased by 25
percent to $31,283,000 from $25,082,000 for the three months ended June
30, 1996. The increase is due primarily to the growth of the Company's
utility contracting services ($7,480,000 increase in net revenue) and
continued growth of the Company's solid waste management segment as it
expands its operations in the Florida market ($464,000 increase in net
revenue). These increases offset a decrease in the Company's remediation
services ($2,042,000 decrease in net revenue).
Outside services, which largely represent subcontractor costs,
increased, as a percentage of net revenue, to 18 percent for the three
months ended June 30, 1997, from 9 percent for the same period in 1996.
The Company will use the services of a subcontractor when it determines
that an economic opportunity exists regarding internally providing the
services. The Company utilized the services of subcontractors to a
greater extent during 1997 than 1996 due to the specific contracts in
progress and the associated work requirements.
Cost of revenue earned, as a percentage of net revenue, for the three
months ended June 30, 1997, increased slightly to 82 percent from 81
percent for the same period in 1996. As a result, the gross profit for
the three months ended June 30, 1997, was $5,541,000 (18 percent of net
revenue) compared to $4,767,000 (19 percent of net revenue) for the
three months ended June 30, 1996. The dollar increase in the gross
profit primarily associated with the growth of the Company's utility
contracting services ($1,876,000 increase in gross profit) and asbestos
abatement services ($158,000 increase in gross profit). This increase
offsets certain decreases in the Company's remediation services ($473,000
decrease in gross profit), industrial demolition services ($306,000
decrease in gross profit), and solid waste management services ($281,000
decrease in gross profit).
During the three months ended June 30, 1997, selling, general and
administrative expenses decreased to $3,386,000 (11 percent of net
revenue) from $3,797,000 (15 percent of net revenue) for the three months
ended June 30, 1996. The percentage decrease is primarily a result of
the increase in revenue, which has provided a larger base for which to
allocate these costs. The decrease is also attributable to the Company's
de-emphasis of operations in the northeast region, which resulted in a
savings of approximately $442,000 between periods. In addition,
selling, general and administrative expenses were offset by a gain of
approximately $368,000 due to a sale by TransCor of certain vehicles,
waste containers, and equipment during the three months ended June 30,
1997. These assets were primarily utilized in TransCor's commercial and
residential solid waste collection services.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 and 1996 (continued)
Minority interest in net loss of subsidiary was $40,000 for the three
months ended June 30, 1997, compared to a minority interest in net income
of subsidiary of $33,000 during the same period in 1996. The minority
interest in net income or 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 decrease in
TransCor's earnings between periods is attributable to a decrease in
profit margins earned on certain solid waste management services.
Interest expense, net of interest income, increased to $1,202,000
during the three months ended June 30, 1997, compared to $551,000 for the
three months ended June 30, 1996. During 1997 the Company discontinued
recognition of interest income of approximately $155,000 on certain notes
receivable from affiliates. The remainder of the increase is
attributable to increases in average borrowings during the three months
ended June 30, 1997.
As a result of the foregoing, income before provision for income
taxes for the three months ended June 30, 1997, was $993,000 (3 percent
of net revenue) compared to $386,000 (2 percent of net revenue) during
the same period in 1996.
The Company's effective tax rate was 11.7 percent for the three
months ended June 30, 1997, compared to a rate of 40.9 percent for 1996
tax benefits. The decrease in the effective tax rate was primarily due
to the net operating loss generated by the Company during 1996 and the
resulting tax benefits from credit and loss carryforwards. Management
expects to fully utilize these loss and credit carryforwards before they
expire in the year 2011; however, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," a
valuation allowance of approximately $1,700,000 was recognized during
1996. Included in the tax benefit, the Company has approximately
$836,000 of alternative minimum tax credit carryforwards available to
offset future federal regular income taxes. This credit does not expire.
As a result of the foregoing, the Company reported net income for the
three months ended June 30, 1997, of $876,000 (3 percent of net revenue)
as compared to net income of $228,000 (1 percent of net revenue) for the
same period during 1996.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1997 and 1996
Net revenue for the six months ended June 30, 1997, increased by 27
percent to $60,265,000 from $47,494,000 for the six months ended June 30,
1996. The increase is due primarily to the growth of the Company's
utility contracting services ($13,803,000 increase in net revenue) and
continued growth of the Company's solid waste management segment as it
expands its operations in the Florida market ($1,377,000 increase in net
revenue). This increase offsets certain decreases in the Company's
remediation services ($2,427,000 decrease in net revenue) and abatement
services ($29,000 decrease in net revenue).
Outside services, which largely represent subcontractor costs,
increased, as a percentage of net revenue, to 18 percent for the six
months ended June 30, 1997, from 10 percent for the same period in 1996.
The Company will use the services of a subcontractor when it determines
that an economic opportunity exists regarding internally providing the
services. The Company utilized the services of subcontractors to a
greater extent during 1997 than 1996 due to the specific contracts in
progress and the associated work requirements.
Cost of revenue earned, as a percentage of net revenue, for the six
months ended June 30, 1997, decreased to 82 percent from 86 percent for
the same period in 1996. As a result, the gross profit for the six months
ended June 30, 1997, was $10,585,000 (18 percent of net revenue) compared
to $6,563,000 (14 percent of net revenue) for the six months ended June
30, 1996. The increase in the dollar amount and percentage of gross
margin is primarily associated with the growth of the Company's utility
contracting services ($5,092,000 increase in gross profit) and solid
waste management services ($415,000 increase in gross profit). This
increase offsets certain decreases in the Company's remediation services
($971,000 decrease in gross profit), industrial demolition services
($426,000 decrease in gross profit), and asbestos abatement services
($89,000 decrease in gross profit).
During the six months ended June 30, 1997, selling, general and
administrative expenses decreased to $6,748,000 (11 percent of net
revenue) from $7,410,000 (16 percent of net revenue) for the six months
ended June 30, 1996. The percentage decrease is primarily a result of
the increase in revenue, which has provided a larger base for which to
allocate these costs. The decrease is also attributable to the Company's
de-emphasis of operations in the northeast region, which resulted in a
savings of approximately $871,000 between periods. In addition, selling,
general and administrative expenses were offset by a gain of
approximately $355,000 due to a sale by TransCor of certain vehicles,
waste containers, and equipment during the six months ended June 30,
1997. These assets were primarily utilized in TransCor's commercial and
residential solid waste collection services.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1997 and 1996 (continued)
Minority interest in net loss of subsidiary was $35,000 for the six
months ended June 30, 1997, compared to $13,000 during the same period in
1996. The minority interest in net 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
decrease in TransCor's earnings between years is attributable to the
lower profit margins earned on certain solid waste management services.
Interest expense, net of interest income, increased to $1,966,000
during the six months ended June 30, 1997, compared to $1,046,000 for the
six months ended June 30, 1996. During 1997 the Company discontinued
recognition of interest income of approximately $307,000 on certain notes
receivable from affiliates. The remainder of the increase is
attributable to increases in average borrowings during the six months
ended June 30, 1997.
As a result of the foregoing, income before provision for income
taxes for the six months ended June 30, 1997, was $1,906,000 (3 percent
of net revenue) compared to a loss before provision for income taxes of
$1,879,000 (negative 4 percent of net revenue) during the same period in
1996.
The Company's effective tax rate was 11.0 percent for the six months
ended June 30, 1997, compared to a rate of 44.7 percent for 1996 tax
benefits. The decrease in the effective tax rate was primarily due to
the net operating loss generated by the Company during 1996 and the
resulting tax benefits from credit and loss carryforwards. Management
expects to fully utilize these loss and credit carryforwards before they
expire in the year 2011; however, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," a
valuation allowance of approximately $1,700,000 was recognized during
1996. Included in the tax benefit, the Company has approximately
$836,000 of alternative minimum tax credit carryforwards available to
offset future federal regular income taxes. This credit does not expire.
As a result of the foregoing, the Company reported net income for the
six months ended June 30, 1997, of $1,696,000 (3 percent of net revenue)
as compared with a net loss of $1,039,000 (negative 2 percent of net
revenue) for the same period during 1996.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash used by operating activities was $2,761,000 during the six
months ended June 30, 1996, compared to cash provided by operating
activities was $2,288,000 during the six months ended June 30, 1997. -
Cash provided by the Company's solid waste management services segment
approximated $1,362,000 and $277,000 for the six months June 30, 1996 and
1997, respectively. Cash provided (used) by the Company's specialty
contracting segment approximated ($4,123,000) and $2,021,000,
respectively. Cash was provided by the solid waste management services
operations during the first half of 1997 at expected levels. Cash was
provided by the specialty contracting operations during the first half of
1997 at expected levels. Cash was used in the specialty contracting
operations during the first half of 1996 due to two significant contract
losses, plus a significant reduction of accounts payable.
The Company had capital expenditures during the six months ended June
30, 1996 and 1997 of $3,579,000 and $17,940,000, respectively. The 1997
capital expenditures were primarily related to the conversion of
approximately $13,000,000 of construction equipment utilized in the
Company's specialty contracting operations, which was previously rented
under operating leases. Future capital expenditures will be financed by
available cash resources, cash flow from operations, and available credit
resources, as needed.
During 1997 the Company generated cash from financing activities of
$15,199,000, which was net of purchases on the open market of 76,600
shares of the Company's common stock for $267,000. Borrowings in 1997
related primarily to the conversion of approximately $13,000,000 of
equipment previously rented under operating leases into a term note.
This equipment note requires periodic payments through February 2004. In
addition, on February 26, 1997, the Company, through its Kimmins
Contracting Corp. subsidiary, entered into a credit agreement with a
financial institution that provides for unrestricted borrowings up to
$11,000,000, of which $7,000,000 was used to reduce the Company's
outstanding revolving term bank line of credit during March 1997.
Borrowings on this facility are due in February 1999.
The Company's ratio of debt to equity was 2.22:1.00 and 2.82:1.00 at
December 31, 1996, and June 30, 1997, respectively. The increase in debt
is primarily due to the conversion of approximately $13,000,000 of
equipment previously rented under operating leases into an equipment note
and the use of a $11,000,000 credit facility as described above.
During the six months ended June 30, 1996 and 1997, the Company's
average contract and trade receivables less retainage were outstanding
for 34 and 24 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.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The Company has a note receivable in an original amount of $3,638,696
from Sunshadow Apartments, Ltd., and Summerbreeze Apartments, Ltd., two
Florida real estate limited partnerships (collectively, the
"Apartments"). The note receivable bears interest at prime plus 2
percent, with principal and interest payable in monthly installments
through December 31, 1998, and is guaranteed by Mr. Williams. The
Company did not receive any interest or principal payments during 1996 or
1997 relating to this note receivable, and management of the Company has
discontinued recognition of interest income. Amounts due from the
Apartments at December 31, 1996, and June 30, 1997, are approximately
$3,851,000.
At December 31, 1996, and June 30, 1997, $5,301,000, of the combined
accounts receivable - affiliates and note receivable - affiliates are due
from affiliates of the Company's President. 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 million for an individual project ($100 million aggregate). The
Company has been able to obtain bonding coverage in amounts up to $8.5
million 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 that require a bond in excess of $8.5
million.
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that reflect management's current views with respect to future
events and financial performance. Such statements involve risks and
uncertainties, and there are certain important factors that could cause
actual results to differ materially from those anticipated. Some of the
important factors that could cause actual results to differ materially
from those anticipated. Some of the important factors that could cause
actual results to differ materially from those anticipated include, but
are not limited to, economic conditions, competitive factors, and other
uncertainties, all of which are difficult to predict and many of which
are beyond the control of the Company. Due to such uncertainties and
risk, readers are cautioned not to place undue reliance on such forward-
looking statements, which speak only as of the date hereof.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact
upon the Company's operations. If inflation increases, the Company will
attempt to increase its prices to offset its increased expenses. No
assurance can be given, however, that the Company will be able to
adequately increase its prices in response to inflation.<PAGE>
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.<PAGE>
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 CORP.
Date: August 12, 1997 By: /s/ Francis M. Williams
---------------------- ------------------------
Francis M. Williams
President and
Chief Executive Officer
(Principle Executive Officer)
Date: August 12, 1997 By: /s/ Norman S. Dominiak
---------------------- ------------------------
Norman S. Dominiak
Vice President and
Chief Financial Officer
(Principle Accounting and
Financial Officer)<PAGE>
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<FISCAL-YEAR-END> DEC-12-1997
<PERIOD-END> JUN-30-1997
<CASH> $1,657,044
<SECURITIES> $0
<RECEIVABLES> $23,004,623
<ALLOWANCES> ($447,789)
<INVENTORY> $0
<CURRENT-ASSETS> $45,291,247
<PP&E> $78,655,735
<DEPRECIATION> ($26,401,567)
<TOTAL-ASSETS> $110,301,211
<CURRENT-LIABILITIES> $39,444,502
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<COMMON> $4,447
<OTHER-SE> $19,517,051
<TOTAL-LIABILITY-AND-EQUITY> $110,301,211
<SALES> $70,886,836
<TOTAL-REVENUES> $70,886,836
<CGS> $60,302,029
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<INCOME-PRETAX> $1,905,700
<INCOME-TAX> $210,167
<INCOME-CONTINUING> $1,695,533
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