<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 September 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
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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 [X] No [ ]<PAGE>
Applicable Only to Corporate Issuers
The number of shares of Common Stock outstanding on November 4, 1997, was
4,296,969 shares.
The number of shares of Class B Common Stock outstanding on November 4,
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 September 30, 1997
(unaudited) . . . . . . . . . . . . . . . . . 1 - 3
Consolidated statements of operations for
the three and nine months ended
September 30, 1996 and 1997 (unaudited) . . . 4 - 5
Consolidated statements of cash flows
for the nine months
ended September 30, 1996 and 1997
(unaudited) . . . . . . . . . . . . . . . . . 6 - 7
Notes to consolidated financial statements . . 8 - 15
Item 2. Management's discussion and
analysis of financial condition
and results of operations . . . . . . . . . 15 - 23
Item 3. Qualitative and quantitative disclosures
about market risk . . . . . . . . . . . . . . . 23
PART II. OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . . . . . . . 24
Item 2. Changes in securities . . . . . . . . . . . . . . 24
Item 3. Defaults upon senior securities . . . . . . . . . 24
Item 4. Submission of matters to a vote of security
holders . . . . . . . . . . . . . . . . . . . . 24
Item 5. Other information . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 25<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, September 30,
1996 1997
---------------- ----------------
(unaudited)
Current assets:
Cash . . . . . . . . . . . . . . . . $ 968,638 $ 1,614,194
Accounts receivable:
Contract and trade . . . . . . . . 20,060,169 24,857,501
Affiliates . . . . . . . . . . . 1,648,529 1,905,692
Costs and estimated earnings in
excess of billings on
uncompleted contracts . . . . . . 15,967,872 16,865,323
Income tax refund receivable . . . . 1,199,775 820,637
Deferred income tax . . . . . . . . . 1,499,329 1,499,329
Other current assets . . . . . . . . 512,110 597,585
---------------- ----------------
Total current assets . . . . . . . 41,856,422 48,160,261
---------------- ----------------
Property and equipment, net . . . . . . 38,877,521 53,982,326
Intangible assets . . . . . . . . . . . 898,853 629,250
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 4,933,656
Other assets . . . . . . . . . . . . . 1,043,036 1,579,185
---------------- ----------------
$ 93,082,907 $ 114,586,121
================ ================
1
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1996 1997
---------------- ----------------
(unaudited)
Current liabilities:
Accounts payable - trade . . . . . . $ 19,169,607 $ 19,010,418
Accrued expenses . . . . . . . . . . 8,072,187 8,700,855
Billings in excess of costs and
estimated earnings on
uncompleted contracts . . . . . . 752,287 454,936
Current portion of
long-term debt . . . . . . . . . . 7,794,848 13,401,734
Current portion of Employee Stock
Ownership Plan Trust debt . . . . 480,000 480,000
---------------- ----------------
Total current liabilities . . . 36,268,929 42,047,943
---------------- ----------------
Long-term debt . . . . . . . . . . . . 29,920,396 43,851,020
Employee Stock Ownership
Plan Trust debt . . . . . . . . . . . 1,440,000 1,080,000
Deferred income taxes . . . . . . . . . 4,159,605 4,159,605
Minority interest in subsidiary . . . . 3,440,681 3,059,328
Commitments and contingencies . . . . . - -
2
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(continued)
December 31, September 30,
1996 1997
---------------- ----------------
(unaudited)
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
4,296,969 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 3,670,427
Unearned employee compensation from
Employee Stock Ownership
Plan Trust . . . . . . . . . . . . (1,800,000) (1,440,000)
---------------- ----------------
18,165,079 20,967,339
Less treasury stock at cost
(73,828 and 150,428 shares at
December 31, 1996, and September
30, 1997, respectively) . . . . . (311,783) (579,114)
---------------- ----------------
Total stockholders equity . . . 17,853,296 20,388,225
---------------- ----------------
$ 93,082,907 $ 114,586,121
================ ================
3
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30,
---------------------------------
1996 1997
---------------- ----------------
(unaudited) (unaudited)
Revenue:
Gross revenue . . . . . . . . . . . . $ 33,758,177 $ 39,453,935
Outside services, at cost . . . . . . (4,532,085) (6,195,317)
---------------- ----------------
Net revenue . . . . . . . . . . . . . 29,226,092 33,258,618
Costs and expenses:
Cost of revenue earned . . . . . . . 25,918,978 27,702,608
Selling, general and
administrative expenses . . . . . 3,664,664 3,935,885
---------------- ----------------
Operating income (loss) . . . . . . . (357,550) 1,620,125
Minority interest in net (income)
loss of subsidiary . . . . . . . . . (15,332) 346,454
Interest expense, net . . . . . . . . . (597,478) (1,163,051)
---------------- ----------------
Income (loss) before provision for
income taxes . . . . . . . . . . . . (970,360) 803,528
Provision for income taxes
(benefit) . . . . . . . . . . . . . (440,250) (56,801)
---------------- ----------------
Net income (loss) . . . . . . . . . . . $ (530,110) $ 746,727
================ ================
Per Share Data:
Income (loss) per share . . . . . . . . $ (.12) $ .17
================ ================
Weighted average number of shares
outstanding used in
computation . . . . . . . . . . . . . 4,415,964 4,296,969
================ ================
4
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended September 30,
---------------------------------
1996 1997
---------------- ----------------
(unaudited) (unaudited)
Revenue:
Gross revenue . . . . . . . . . . . . $ 85,842,526 $ 110,340,771
Outside services, at cost . . . . . . (9,122,827) (16,816,823)
---------------- ----------------
Net revenue . . . . . . . . . . . . . 76,719,699 93,523,948
Costs and expenses:
Cost of revenue earned . . . . . . . 66,849,424 77,383,131
Selling, general and
administrative expenses . . . . . 11,074,491 10,683,564
---------------- ----------------
Operating income (loss) . . . . . . . (1,204,216) 5,457,253
Minority interest in net (income)
loss of subsidiary . . . . . . . . . (1,878) 381,353
Interest expense, net . . . . . . . . . (1,643,500) (3,129,378)
---------------- ----------------
Income (loss) before provision for
income taxes . . . . . . . . . . . . (2,849,594) 2,709,228
Provision for income taxes
(benefit) . . . . . . . . . . . . . (1,280,864) 266,968
---------------- ----------------
Net income (loss) . . . . . . . . . . $ (1,568,730) $ 2,442,260
================ ================
Per Share Data:
Income (loss) per share . . . . . . . . $ (.35) $ .56
================ ================
Weighted average number of shares
outstanding used in
computation . . . . . . . . . . . . . 4,434,838 4,325,731
================ ================
5
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
Nine months ended September 30,
---------------------------------
1996 1997
---------------- ----------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) . . . . . . . . . $ (1,568,730) $ 2,442,260
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and
amortization . . . . . . . . 3,878,943 6,416,449
(Gain) loss on disposal of
property and
equipment . . . . . . . . . . (34,458) (542,795)
Accrued interest on
term note . . . . . . . . . . (372,066) -
Equity in losses of
investment . . . . . . . . . - 48,352
Minority interest in net income
(loss) of subsidiary . . . . 1,878 (381,353)
Unearned employee compensation
from Employee Stock
Ownership Plan Trust . . . . 347,082 360,000
Changes in operating assets and
liabilities:
Accounts receivable . . . . . (3,085,253) (5,054,483)
Costs and estimated earnings
in excess of billings on
uncompleted contracts . . . (1,336,460) (897,451)
Income tax refund
receivable . . . . . . . . (669,971) 379,138
Other assets . . . . . . . . (649,081) (826,347)
Accounts payable . . . . . . 2,393,946 (159,189)
Accrued expenses . . . . . . 1,231,683 668,224
Billings in excess of costs
and estimated earnings on
uncompleted contracts . . . 131,498 (297,351)
---------------- ----------------
Total adjustments . . . . . . . . . . 1,837,741 (286,806)
Net cash provided by operating ---------------- ----------------
activities . . . . . . . . . . . . . 269,011 2,155,454
---------------- ----------------
6
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(continued)
Nine months ended September 30,
---------------------------------
1996 1997
---------------- ----------------
(unaudited) (unaudited)
Cash flows from investing activities:
Capital expenditures . . . . . . . . (4,971,678) (22,330,598)
Proceeds from sale of property and
equipment . . . . . . . . . . . . 462,185 1,910,521
Net cash used by investing ---------------- ----------------
activities . . . . . . . . . . . . . (4,509,493) (20,420,077)
---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term debt . . . . 12,206,052 34,410,738
Repayments of long-term debt . . . . (5,907,220) (14,873,228)
Repayments of Employee Stock
Ownership Plan Trust debt . . . . (480,000) (360,000)
Purchase of treasury stock . . . . . (238,927) (267,331)
Net cash provided by financing ---------------- ----------------
activities . . . . . . . . . . . . . 5,579,905 18,910,179
Net increase (decrease) in cash . . . . 1,339,423 645,556
Cash, beginning of period . . . . . . . 1,160,463 968,638
---------------- ----------------
Cash, end of period . . . . . . . . . . $ 2,499,886 $ 1,614,194
================ ================
7
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; mining services, 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 nine-month periods
ended September 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 $90,000 and $393,000 for the nine months ended
September 30, 1996 and 1997, respectively. Accumulated amortization was
approximately $191,000 and $374,000 at December 31, 1996 and September
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 $89,000
and $165,000 for the nine months ended September 30, 1996 and 1997,
respectively. Accumulated amortization was $637,000 and $802,000 at
December 31, 1996, and September 30, 1997, respectively.
As of September 30, 1997, other assets include approximately
$1,150,000 of pre-contract costs. As explained above, these costs are
currently being amortized over the terms of the related contracts.
However, the American Institute of Certified Public Accountants ("AICPA")
has recently issued proposed Statement of Position ("SOP"), "Reporting on
the Costs of Start-up Activities," would require all start-up costs,
including pre-contract costs, to be expensed as incurred. If adopted,
effective in the first quarter of 1998 the proposed SOP would require the
Company to write off the remaining unamortized balance of approximately
$1,150,000.
Investments. The Company's investment of 30 percent in Cumberland
Technologies, Inc. ("Cumberland") is accounted for using the equity
method of accounting.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Costs and estimated earnings on uncompleted contracts
December 31, September 30,
1996 1997
---------------- ----------------
(unaudited)
Expenditures on uncompleted
contracts . . . . . . . . . . . $ 76,218,248 $ 106,543,886
Estimated earnings on
uncompleted contracts . . . . . 4,490,748 12,804,953
---------------- ----------------
80,708,996 119,348,839
Less actual and allowable billings
on uncompleted contracts . . . . 65,493,411 107,406,836
---------------- ----------------
$ 15,215,585 $ 11,942,003
================ ================
Costs and estimated earnings in
excess of billings on
uncompleted contracts . . . . . $ 15,967,872 $ 12,396,277
Billings in excess of costs and
estimated earnings on
uncompleted contracts . . . . . (752,287) (454,274)
---------------- ----------------
$ 15,215,585 $ 11,942,003
================ ================
As of December 31, 1996, and September 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 $12,850,000, 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.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and equipment, net
December 31, September 30,
1996 1997
---------------- ----------------
(unaudited)
Land . . . . . . . . . . . . . . . $ 5,622,769 $ 5,753,712
Buildings and improvements . . . . 7,909,361 8,071,018
Construction and recycling
equipment . . . . . . . . . . . 47,143,128 65,993,591
Furniture and fixtures . . . . . . 1,508,105 1,577,881
Construction in progress . . . . . 33,463 189,404
---------------- ----------------
62,216,826 81,585,606
Less accumulated depreciation . . (23,339,305) (27,603,280)
---------------- ----------------
$ 38,877,521 $ 53,982,326
================ ================
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 $5,850,000
and $3,789,000 for the nine months ended September 30, 1997 and 1996,
respectively.
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 November 5, 1997, the market value of the Cumberland
common stock held by the Company was approximately $5,601,000 based on
the NASDAQ share price of $3.25.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in Cumberland Technologies, Inc. (continued)
The following is a summary of the financial position at September
30, 1997, and results of operations of Cumberland for the nine-month
period ending September 30, 1997:
September 30,
1997
----------------
(unaudited)
Cash and cash equivalents . . . . . . . . . . . . $ 1,920,000
Investments . . . . . . . . . . . . . . . . . . . 5,642,000
Accounts receivable - trade, net . . . . . . . . . 1,198,000
Intangibles . . . . . . . . . . . . . . . . . . . 1,749,000
Other . . . . . . . . . . . . . . . . . . . . . . 2,732,000
----------------
Total assets . . . . . . . . . . . . . . . . . . $ 13,241,000
================
Policy liabilities and accruals . . . . . . . . . $ 5,485,000
Long-term debt . . . . . . . . . . . . . . . . . . 1,441,000
Other . . . . . . . . . . . . . . . . . . . . . . 710,000
----------------
Total liabilities . . . . . . . . . . . . . . . 7,636,000
Stockholders' equity . . . . . . . . . . . . . . . 5,605,000
----------------
Total liabilities and stockholders' equity . . . $ 13,241,000
================
Cumberland's operating results included revenue of $6,202,000 and a
net loss of $161,000 during the nine-month period ending September 30,
1997. The Company's equity in this net loss amounted to approximately
$48,000. In addition, approximately $124,000 of amortization expense was
recorded by the Company related to the investment during the nine months
ended September 30, 1997. Accumulated amortization was approximately
$27,000 and $151,000 at December 31, 1996, and September 30, 1997,
respectively.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Affiliated accounts and notes receivable
Included in accounts and notes receivables from affiliates are
approximately $6,980,000 of receivables related to certain real estate
properties controlled by Francis M. Williams. Subsequent to September 30,
1997, three of these properties were refinanced; and, as a result, the
Company's receivable interests were converted into equity interests in
two partnerships. The Company received a non-controlling 49 percent
preferred limited partnership interest in Summerbreeze Apartments, Ltd.,
and Sunshadow Apartments, Ltd. The Company will be allocated 49 percent
of operating income and losses and cash flow. The preference in the
Company's equity interest occurs upon the sale of the underlying
properties. At the time of sale, the Company would receive the balance of
its unpaid capital account prior to any other partner receiving any
proceeds from the sale. The Company intends to account for the
investments in these two Florida limited partnerships using the equity
method.
The two partnerships had appraised fair market values at October
1997 as follows: Summerbreeze - $13,330,000; Sunshadow - $14,500,000. The
partnerships' financial position at September 30, 1997, was as follows:
Summerbreeze Sunshadow
---------------- ----------------
Total assets . . . . . . . . . . . $ 9,881,000 $ 11,626,000
Total liabilities . . . . . . . . 13,873,000 18,052,000
Net equity . . . . . . . . . . . . (3,992,000) (6,426,000)
In accordance with the equity method of accounting, the difference
of $12,000,000 between the purchase price of $6,900,000 and the acquired
negative equity of $5,100,000 represents goodwill and will be amortized
over thirty years.
The partnerships are expected to generate negative earnings and
positive cash flow.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt
December 31, September 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 $ 35,148,200
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 4,466,002
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 . . . . . . . . . . . . - 10,900,000
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
buildings . . . . . . . . . . . . 6,976,756 6,738,552
---------------- ----------------
37,715,244 57,252,754
Less current portion . . . . . . . . 7,794,848 13,401,734
---------------- ----------------
$ 29,920,396 $ 43,851,020
================ ================
At September 30, 1997, there was approximately $208,000 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 $2,526,000 at September 30, 1997.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt (continued)
The revolving term bank line of $4,466,000 and the letter of credit
facility of $2,526,000 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 September 30, 1997, the Company was in compliance with
all loan covenants. The Company may be required to obtain 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.
Kimmins Contracting Corp. is currently negotiating an additional
equipment note of approximately $28,000,000 under terms similar to the
equipment note described above. The working capital loan of $11,000,000
disclosed above may also be increased to $16,000,000 as part of the
financing arrangements currently being negotiated.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1997 and 1996
Net revenue for the three months ended September 30, 1997, increased
by 14 percent to $33,259,000 from $29,226,000 for the three months ended
September 30, 1996. The increase is due primarily to the growth of the
Company's utility contracting services ($7,495,000 increase in net
revenue), especially new contracts in mining support services. This
increase offsets certain decreases in the Company's remediation services
($1,449,000 decrease in net revenue), due to the termination of
operations in the northeast region, and solid waste management services
($1,479,000 decrease in net revenue), due to facility closures and market
pricing pressures.
Outside services, which largely represent subcontractor costs, as a
percentage of net revenue, was 16 percent for the three months ended
September 30, 1997 and 1996, respectively. 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 during 1996 and 1997 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 September 30, 1997, decreased to 83 percent from 89
percent for the three months ended September 30, 1996. As a result, the
gross profit for the three months ended September 30, 1997, was
$5,556,000 (17 percent of net revenue) compared to $3,307,000 (11 percent
of net revenue for the three months ended September 30, 1996. The dollar
increase in the gross profit is primarily associated with the growth of
the Company's utility contracting services ($3,553,000 increase in gross
profit) and remediation services ($446,000 decrease in gross loss).
These gross profit improvements offset certain decreases in the Company's
solid waste management services ($2,017,000 decrease in gross profit).
During the three months ended September 30, 1997, selling, general
and administrative expenses increased to $4,144,000 (12 percent of net
revenue) from $3,665,000 (13 percent of net revenue) for the three months
ended September 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
termination of operations in the northeast region, which resulted in a
savings of approximately $236,000 between periods. In addition,
selling, general and administrative expenses were offset by a gain of
approximately $208,000 due to a sale by TransCor of certain contracts and
related equipment during the three months ended September 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 September 30, 1997 and 1996 (continued)
Minority interest in net loss of subsidiary was $346,000 for the
three months ended September 30, 1997, compared to a minority interest in
net income of subsidiary of $15,000 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 $1,163,000
during the three months ended September 30, 1997, compared to $597,000
for the three months ended September 30, 1996. During 1997 the Company
discontinued recognition of interest income of approximately $160,000 on
certain notes receivable from affiliates. The remainder of the increase
is attributable to increases in average borrowings during the three
months ended September 30, 1997, as a result of equipment financing.
As a result of the foregoing, income before provision for income
taxes for the three months ended September 30, 1997, was $803,000 (2
percent of net revenue) compared to a loss before provision for income
taxes of ($970,000) (negative 3 percent of net revenue) during the three
months ended September 30, 1996.
The Company's effective tax rate was 7.1 percent for the three
months ended September 30, 1997, compared to a rate of 45.3 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 September 30, 1997, of $746,000 (2 percent of net
revenue) as compared to a net loss of ($530,000) (negative 2 percent of
net revenue) for the three months ended September 30, 1996.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996
Net revenue for the nine months ended September 30, 1997, increased
by 22 percent to $93,524,000 from $76,720,000 for the nine months ended
September 30, 1996. The increase is due primarily to the growth of the
Company's utility contracting services ($21,298,000 increase in net
revenue), especially new contracts in mining support services. This
increase offsets certain decreases in the Company's remediation services
($3,876,000 decrease in net revenue) and demolition services ($826,000
decrease in net revenue) due to the termination of operations in the
northeast region.
Outside services, which largely represent subcontractor costs,
increased, as a percentage of net revenue, to 18 percent for the nine
months ended September 30, 1997, from 12 percent for the nine months
ended September 30, 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 during 1996 and 1997 due to the specific
contracts in progress and the associated work requirements.
Cost of revenue earned, as a percentage of net revenue, for the nine
months ended September 30, 1997, decreased to 83 percent from 87 percent
for the same period in 1996. As a result, the gross profit for the nine
months ended September 30, 1997, was $16,141,000 (17 percent of net
revenue) compared to $9,870,000 (13 percent of net revenue) for the nine
months ended September 30, 1996. The increase in the dollar amount and
percentage of gross margin is primarily associated with the growth of the
Company's utility and specialty contracting services ($8,445,000 increase
in gross profit) and asbestos abatement services ($255,000 decrease in
gross loss). These gross profit improvements offset certain decreases in
the Company's remediation services ($525,000 decrease in gross profit),
industrial demolition services ($356,000 decrease in gross profit), and
solid waste management services ($1,602,000 decrease in gross profit).<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996 (continued)
During the nine months ended September 30, 1997, selling, general
and administrative expenses decreased to $11,198,000 (12 percent of net
revenue) from $11,074,000 (14 percent of net revenue) for the nine months
ended September 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
termination of operations in the northeast region, which resulted in a
savings of approximately $1,108,000 between periods. These decreases
offset expense increases in the solid waste management segment
attributable to advertising costs associated with new contracts of
approximately $500,000, and other costs associated with facility closures
of approximately $1,000,000. In addition, selling, general and
administrative expenses were offset by a gain of approximately $563,000
due to a sale by TransCor of certain contracts and related equipment
during the nine months ended September 30, 1997. These assets were
primarily utilized in TransCor's commercial and residential solid waste
collection services.
Minority interest in net loss of subsidiary was $381,000 for the
nine months ended September 30, 1997, compared to $2,000 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 $3,129,000
during the nine months ended September 30, 1997, compared to $1,644,000
for the nine months ended September 30, 1996. During 1997 the Company
discontinued recognition of interest income of approximately $467,000 on
certain notes receivable from affiliates. The remainder of the increase
is attributable to increases in average borrowings during the nine months
ended September 30, 1997, as a result of significant equipment financing.
As a result of the foregoing, income before provision for income
taxes for the nine months ended September 30, 1997, was $2,709,000 (3
percent of net revenue) compared to a loss before provision for income
taxes of ($2,850,000) (negative 4 percent of net revenue) during the same
period in 1996.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996 (continued)
The Company's effective tax rate was 9.9 percent for the nine months
ended September 30, 1997, compared to a rate of 44.9 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 nine months ended September 30, 1997, of $2,442,000 (3 percent of net
revenue) as compared to a net loss of ($1,569,000) (negative 2 percent of
net revenue) for the nine months ended September 30, 1996.
Liquidity and Capital Resources
Cash provided by operating activities was $2,155,000 during the nine
months ended September 30, 1997, compared to $269,000 during the nine
months ended September 30, 1996. Cash provided by the Company's solid
waste management services segment approximated $334,000 and $3,140,000
for the nine months ended September 30, 1997 and 1996, respectively.
Cash provided by the Company's specialty contracting segment approximated
$486,000 and $746,000, respectively. Cash was used by the solid waste
management services operations during the first nine months of 1997 to
fund startup costs for new contracts and the closures of certain
facilities. Cash was provided by the solid waste management services
operations during the first nine months of 1996 at expected levels. Cash
was provided by the specialty contracting operations during the first
nine months of 1997 and 1996 at expected levels.
The Company had capital expenditures during the nine months ended
September 30, 1997 and 1996 of $22,331,000 and $4,972,000, 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.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
During 1997 the Company generated cash from financing activities of
$18,910,000, 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 at
7.88 percent. 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. Kimmins
Contracting Corp. is currently negotiating additional equipment financing
of $28,000,000 and an additional working capital loan of $5,000,000 under
terms similar to the February 26, 1997, transaction described above.
The Company's ratio of debt to equity was 2:88:1.00 and 2.22:1.00 at
September 30, 1997, and December 31, 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 nine months ended September 30, 1996 and 1997, the
Company's average contract and trade receivables less retainage were
outstanding for 69 and 49 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.
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 September 30, 1997, are
approximately $3,851,000.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
Subsequent to September 30, 1997, the Apartments refinanced their
properties; and, as a result, the Company s receivable interests were
converted into equity interests in the partnerships. The Company received
a non-controlling 49 percent preferred limited partnership interest in
Summerbreeze Apartments, Ltd., and Sunshadow Apartments, Ltd. The Company
will be allocated 49 percent of operating income and losses and cash
flow. The preference in the Company s equity interest occurs upon the
sale of the underlying properties. At the time of sale, the Company would
receive the balance of its unpaid capital account prior to any other
partner receiving any proceeds from the sale. The Company intends to
account for the investments in these two Florida limited partnerships
using the equity method. The partnerships are expected to generate
negative earnings and positive cash flow.
At December 31, 1996, and September 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's bonding coverage for environmental projects is
$8.5 million. Management believes that bonding coverages are adequate for
the size and scope of the projects being performed.
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements, within the meaning of the Private Securities Litigation
Reform Act of 1995, that reflect management's current views with respect
to future events and financial performance. Such forward looking
statements include, without limitation, statements regarding the
Company's future capital expenditures, plant closures, product demand and
market growth, competitive position, and other statements regarding
future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. 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 include, but
are not limited to, economic conditions, competitive factors,
unanticipated change orders or cost overruns on projects bid by the
company, 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.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
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.
Item 3. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
Not required pursuant to Item 305, General Instruction 1.<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: November 14, 1997 By: /s/Francis M. Williams
--------------------- ------------------------------------
Francis M. Williams
President
(Principal Executive Officer)
Date: November 14, 1997 By: /s/Norman S. Dominiak
--------------------- ------------------------------------
Norman S. Dominiak
Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $1,614,194
<SECURITIES> $0
<RECEIVABLES> $25,788,326
<ALLOWANCES> ($930,825)
<INVENTORY> $0
<CURRENT-ASSETS> $48,160,261
<PP&E> $81,579,565
<DEPRECIATION> ($27,597,239)
<TOTAL-ASSETS> $114,586,121
<CURRENT-LIABILITIES> $42,047,943
<BONDS> $0
$0
$0
<COMMON> $4,447
<OTHER-SE> $20,383,778
<TOTAL-LIABILITY-AND-EQUITY> $114,586,121
<SALES> $110,340,771
<TOTAL-REVENUES> $110,340,771
<CGS> $94,199,954
<TOTAL-COSTS> $94,199,954
<OTHER-EXPENSES> $10,302,211
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $3,129,378
<INCOME-PRETAX> $2,709,228
<INCOME-TAX> $266,968
<INCOME-CONTINUING> $2,442,260
<DISCONTINUED> $0
<EXTRAORDINARY> 40
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<NET-INCOME> $2,442,260
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