<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 March 31, 1998
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 [ ]<PAGE>
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by a check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
Applicable Only to Corporate Issuers
The number of shares of Common Stock outstanding on May 15, 1998, was
4,447,397 shares.
The number of shares of Class B Common Stock outstanding on May 15, 1998,
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, 1997 and March 31, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . 1 - 2
Consolidated statements of operations for the
three months ended March 31, 1997 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . 3
Consolidated statements of cash flows for the
three months ended March 31, 1997 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Notes to consolidated financial statements . . 5 - 12
Item 2. Management's discussion and analysis of
financial condition and results of
operations . . . . . . . . . . . . . . . . . 13 - 17
Item 3. Qualitative and Quantitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . . . . . . . . 18
Item 2. Changes in securities . . . . . . . . . . . . . . . 18
Item 3. Defaults upon senior securities . . . . . . . . . . 18
Item 4. Submission of matters to a vote of security holders 18
Item 5. Other information . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . 19<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Current assets:
Cash . . . . . . . . . . . . . . . . . . $ 3,674,027 $ -
Accounts receivable:
Contract and trade . . . . . . . . . . . 23,627,522 22,188,818
Affiliates . . . . . . . . . . . . . . . 104,658 55,696
Costs and estimated earnings in
excess of billings on uncompleted
contracts . . . . . . . . . . . . . . . 5,434,123 10,154,683
Income tax refund receivable . . . . . . 247,561 81,421
Deferred income tax . . . . . . . . . . 1,980,148 1,980,148
Property held for sale . . . . . . . . . 733,658 410,681
Other current assets . . . . . . . . . . 484,756 806,306
------------- -------------
Total current assets . . . . . . . . 36,286,453 35,677,753
------------- -------------
Property and equipment, net . . . . . . . . 72,775,007 70,437,800
Property held for sale . . . . . . . . . . 3,312,397 3,339,503
Intangible assets . . . . . . . . . . . . . 606,975 584,700
Non-current portion of costs and estimated
earnings in excess of billings on
uncompleted contracts . . . . . . . . . . 9,130,090 9,130,090
Accounts receivable - affiliates . . . . . 900,000 900,000
Note receivable - affiliates . . . . . . . - -
Investment in Apartments . . . . . . . . . 5,862,067 5,711,584
Investment in Cumberland Technologies, Inc. 4,991,956 5,046,896
Other assets, net . . . . . . . . . . . . . 1,151,045 1,137,795
------------- -------------
$135,015,990 $131,966,121
============= =============
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Current liabilities:
Accounts payable - trade . . . . . . . . $ 19,332,517 $ 19,577,773
Accrued expenses . . . . . . . . . . . . 7,793,596 8,543,235
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . 4,583,533 1,514,901
Current portion of long-term debt . . . . 17,385,838 17,124,178
Current portion of Employee Stock
Ownership Plan Trust debt . . . . . . . 480,000 480,000
------------- -------------
Total current liabilities . . . . . 49,575,484 47,240,087
------------- -------------
Long-term debt . . . . . . . . . . . . . . 68,660,873 66,651,700
Employee Stock Ownership Plan Trust debt . 960,000 840,000
Deferred income taxes . . . . . . . . . . . 3,527,480 3,527,480
Minority interest in subsidiary . . . . . . 2,898,777 2,956,823
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 (deficit) . . . . . . . (7,290,073) (6,053,418)
Unearned employee compensation from
Employee Stock Ownership Plan Trust . . (1,320,000) (1,200,000)
------------- -------------
10,126,839 11,483,494
Less treasury stock, at cost (73,828 and
150,428 shares at December 31, 1997, and
March 31, 1998, respectively) . . . . . (733,463) (733,463)
------------- -------------
Total stockholders' equity . . . . 9,393,376 10,750,031
------------- -------------
$135,015,990 $131,966,121
============= =============
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------------------------
1997 1998
------------- -------------
(unaudited) (unaudited)
Revenue:
Gross revenue . . . . . . . . . . . . . . $ 33,850,378 $ 33,192,751
Outside services, at cost . . . . . . . . (4,868,404) (2,568,179)
------------- -------------
Net revenue . . . . . . . . . . . . . . . 28,981,974 30,624,572
Costs and expenses:
Cost of revenue earned . . . . . . . . . 23,937,943 24,315,955
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 3,296,613 2,903,516
------------- -------------
Operating income . . . . . . . . . . . . . 1,747,418 3,405,101
Minority interest in net income of
subsidiary . . . . . . . . . . . . . . . (5,325) (58,046)
Interest expense, net . . . . . . . . . . . (829,396) (1,909,235)
------------- -------------
Income before provision for income taxes . 912,697 1,437,820
Provision for income taxes . . . . . . . . 93,346 201,165
------------- -------------
Net income . . . . . . . . . . . . . . . . $ 819,351 $ 1,236,655
============= =============
Share Data:
Basic income per share . . . . . . . . . . $ .19 $ .29
============= =============
Diluted income per share . . . . . . . . . $ .19 $ .28
============= =============
Weighted average number of shares
outstanding used in computations:
Basic . . . . . . . . . . . . . . . . . 4,358,768 4,296,969
============= =============
Diluted . . . . . . . . . . . . . . . . 4,358,768 4,435,324
============= =============
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
---------------------------
1997 1998
------------- -------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . $ 819,351 $ 1,236,655
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization . . . . . 1,899,025 3,303,606
(Gain) loss on disposal of property and
equipment . . . . . . . . . . . . . (772) 15,379
Equity in losses of investment . . . . 81,710 (46,213)
Minority interest in net income (loss)
of subsidiary . . . . . . . . . . . . 5,325 58,046
Unearned employee compensation from
Employee Stock Ownership Plan Trust . 120,000 120,000
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . . . . (3,557,158) 1,487,666
Costs and estimated earnings in excess
of billings on uncompleted
contracts . . . . . . . . . . . . . (2,468,407) (4,720,560)
Income tax refund receivable . . . . 103,168 166,140
Other assets . . . . . . . . . . . . (468,741) (313,796)
Accounts payable . . . . . . . . . . 650,294 245,256
Accrued expenses . . . . . . . . . . 1,111,305 749,639
Billings in excess of costs and
estimated earnings on uncompleted
contracts . . . . . . . . . . . . . 367,395 (3,068,632)
------------- -------------
Total adjustments . . . . . . . . . (2,156,856) (2,003,469)
------------- -------------
Net cash used by operating activities . . . (1,337,505) (766,814)
------------- -------------
See accompanying notes.<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Three months ended
March 31,
---------------------------
1997 1998
------------- -------------
(unaudited) (unaudited)
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . (15,860,062) (1,277,267)
Proceeds from sale of property and
equipment . . . . . . . . . . . . . . . 20,500 760,887
------------- -------------
Net cash used by investing activities . . . (15,839,562) (516,380)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . 26,042,454 3,235,055
Repayments of long-term debt . . . . . . (9,045,135) (5,505,888)
Repayments of Employee Stock Ownership
Plan Trust debt . . . . . . . . . . . . (120,000) (120,000)
Purchase of treasury stock . . . . . . . (77,102) -
------------- -------------
Net cash provided by financing activities . 16,800,217 (2,390,833)
------------- -------------
Net decrease in cash . . . . . . . . . . . (376,850) (3,674,027)
Cash, beginning of period . . . . . . . . . 968,638 3,674,027
------------- -------------
Cash, end of period . . . . . . . . . . . . $ 591,788 $ -
============= =============
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 period ended March 31,
1998, are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. For further information, refer to
the consolidated financial statements and notes thereto as of and for the
year ended December 31, 1997, included in the Company's Form 10-K dated
December 31, 1997, as filed with the United States Securities and
Exchange Commission.
Certain amounts in the 1997 consolidated financial statements have
been reclassified to conform to the 1998 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 $34,000 and $22,000 for the three months ended March
31, 1997 and 1998, respectively. Accumulated amortization was
approximately $245,000 and $267,000 at December 31, 1997 and March 31,
1998, 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 1996 and 1997, 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 $51,000
and $70,000 for the three months ended March 31, 1997 and 1998,
respectively. Accumulated amortization was $909,000 and $979,000 at
December 31, 1997, and March 31, 1998, respectively.
Investments. The Company's 30 percent investment in Cumberland
Technologies, Inc. ("Cumberland") and 49 percent investment in
Summerbreeze Apartments, Ltd., and Sunshadow Apartments Ltd. (the
"Apartments") are accounted for using the equity method of accounting.
Earnings per share - Net income (loss) per share is computed based on
the weighted average number of shares of capital stock and stock options
outstanding. Diluted earnings per share includes unexercised stock
options assuming an average stock price. The convertible subordinated
debt was not included in the computations because the assumed conversion
would be antidilutive.
2. Costs and estimated earnings on uncompleted contracts
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Expenditures on uncompleted contracts . $115,708,567 $113,617,244
Estimated earnings on uncompleted
contracts . . . . . . . . . . . . . . 6,141,672 8,985,844
------------- -------------
Less actual and allowable billings on 121,850,239 122,603,088
uncompleted contracts . . . . . . . . 111,869,559 104,833,217
------------- -------------
$ 9,980,680 $ 17,769,871
============= =============
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 14,564,213 $ 19,284,773
Billings in excess of costs and
estimated earnings on uncompleted
contracts . . . . . . . . . . . . . . (4,583,533) (1,514,902)
------------- -------------
$ 9,980,680 $ 17,769,871
============= =============<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Costs and estimated earnings on uncompleted contracts (continued)
As of December 31, 1997, and March 31, 1998, 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
$12,000,000 and $12,000,000, 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. The
portions at December 31, 1997, and March 31, 1998, that are not expected
to be collected within twelve months are classified as non-current
assets.
3. Property held for sale
As a result of management's decision to cease operations in the
northeast and to de-emphasize the performance of certain environmental
services within the specialty contracting segment, the Company decided to
sell its thermal incineration unit. This asset has a carrying value of
approximately $1,800,000 and $1,865,000 as of December 31, 1997 and 1996,
respectively. A purchase agreement for the sale of the incinerator for
$1,800,000 is currently pending. The Company wrote down the carrying
value of the asset by $40,000 to reflect the fair market value based on
the purchase agreement.
In addition, as a result of management's review of the Company's
various regional solid waste operating facilities, a decision was made to
dispose of less profitable operating assets. The Company's TransCor
subsidiary sold its residential solid waste services contract with St.
Lucie County to a competitor and ceased operations at its Lantana,
Florida, facility. The Lantana and St. Lucie facilities contributed
losses of approximately $1,111,000 and $476,000, respectively, of the
$2,184,000 operating loss of TransCor for the year ended December 31,
1997. The Company wrote off intangible assets of $183,000 associated with
contracts that were sold. Also, in accordance with SFAS No. 121,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," TransCor wrote down certain land and buildings that management
believed had carrying amounts higher than their fair market value,
resulting in a $590,000 impairment loss.
TransCor's impairment loss of $590,000 was calculated by comparing
the carrying amount of impaired assets of approximately $2,834,000 with
recent offers on the properties held for sale. The $590,000 impairment
loss is included in selling, general and administrative expenses on the
consolidated statements of operations for the year ended December 31,
1997. The land and buildings that were impaired at December 31, 1997, and
have executed agreements for sale are expected to be sold during 1998
and, accordingly, the carrying value of these assets of approximately
$734,000, which is net of the related impairment loss of $90,000, is
classified as a current asset under the caption "Property Held for Sale"
in this consolidated balance sheet.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and equipment, net
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Land . . . . . . . . . . . . . . . . . $ 4,323,053 $ 4,323,053
Buildings and improvements . . . . . . 6,235,460 6,253,660
Construction and recycling equipment . 88,085,391 86,765,853
Furniture and fixtures . . . . . . . . 1,503,217 1,537,712
Construction in progress . . . . . . . 48,419 112,845
------------- -------------
100,195,540 98,993,123
Less accumulated depreciation . . . . . (27,420,533) (28,555,323)
------------- -------------
$ 72,775,007 $ 70,437,800
============= =============
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 $1,773,000
and $3,069,000 for the three months ended March 31, 1997 and 1998,
respectively.
On May 31, 1998, TransCor sold its Jacksonville area waste collection
and recycling operations assets and certain assets of the Miami front-end
load and rear-load commercial waste and recycling business to Eastern
Environmental Services of Florida, Inc., for $11,600,000 in cash, which
exceeded the carrying value of the underlying assets.
5. Investment in Cumberland Technologies, Inc. and the Apartments
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 May 31,1998, the market value of the Cumberland common stock
held by the Company was approximately $5,010,000.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investment in Cumberland Technologies, Inc. and the Apartments
(continued)
The following is a summary of the financial position at March 31,
1998, and results of operations of Cumberland for the three-month period
ending March 31, 1998:
March 31,
1998
-------------
(unaudited)
Cash and cash equivalents . . . . . . . . . . . . . . $ 1,804,000
Investments . . . . . . . . . . . . . . . . . . . . . 6,469,000
Accounts receivable - trade, net . . . . . . . . . . 1,307,000
Intangibles . . . . . . . . . . . . . . . . . . . . . 1,681,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 4,060,000
-------------
Total assets . . . . . . . . . . . . . . . . . . . $ 15,321,000
=============
Policy liabilities and accruals . . . . . . . . . . . $ 5,180,000
Long-term debt . . . . . . . . . . . . . . . . . . . 1,419,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 2,713,000
-------------
Total liabilities . . . . . . . . . . . . . . . . . $ 9,312,000
Stockholders' equity . . . . . . . . . . . . . . . . 6,009,000
-------------
Total liabilities and stockholders' equity . . . . $ 15,321,000
=============
Cumberland's operating results included revenue of $1,738,000 and a
net income of $320,000 during the three-month period ending March 31,
1998. The Company's equity in this net income amounted to approximately
$96,000. In addition, approximately $41,000 of amortization expense was
recorded by the Company related to the investment during the three months
ended March 31, 1998. Accumulated amortization was approximately
$165,000 and $206,000 at December 31, 1997, and March 31, 1998,
respectively.
On October 22, 1997, the Company contributed its note receivable in
an amount of approximately $3,851,000 from the Apartments and other
receivables of $3,059,000 for a non-controlling 49 percent preferred
limited partnership interest in the Apartments and a receivable of
$900,000 from the Apartments. The amount of $12,066,000 in excess of the
underlying equity was attributed to goodwill and is being amortized over
thirty years. The Company will be allocated 49 percent of operating
income, losses and cash flow. The preference in the Company's equity
interest in the Apartments occurs upon the sale of the underlying
partnership properties. Upon the occurrence of a capital transaction, the
Company would receive cash flows from the sale or refinancing of the
Apartments' assets equal to its capital contribution prior to any other
partner receiving any proceeds. The Company accounts for its investment
in the Apartments using the equity method.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investment in Cumberland Technologies, Inc. and the Apartments
(continued)
During the quarter ended March 31, 1998, the Apartments recognized
revenue of $1,116,000 and a net loss of 102,000. The Company has
recorded its 49 percent share of the net results of operations. In
addition, approximately $101,000 of amortization expense was recorded by
the Company related to the investments in the Apartments. At March 31,
1998, the Company's balance in its total investment in the Apartments was
approximately $6,612,000, of which $900,000 is classified as an "accounts
receivable - affiliate."
The following is a summary of the financial position of the
Apartments at March 31, 1998:
Total
Investment
-------------
Cash and cash equivalents . . . . . . . . . . . . . . $ 85,000
Accounts receivable - affiliate . . . . . . . . . . . 980,000
Land . . . . . . . . . . . . . . . . . . . . . . . . 3,800,000
Buildings, capitalized construction interest,
furniture and equipment, net . . . . . . . . . . . 16,977,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 760,000
-------------
Total assets . . . . . . . . . . . . . . . . . . . $ 22,602,000
=============
Accounts payable and accrued expenses . . . . . . . . $ 888,000
Accounts payable to affiliates . . . . . . . . . . . 1,686,000
Mortgage loan payable . . . . . . . . . . . . . . . . 21,099,000
Note payable to partner - Francis M. Williams . . . . 2,860,000
-------------
Total liabilities . . . . . . . . . . . . . . . . . 26,533,000
Partners' deficit . . . . . . . . . . . . . . . . . . (3,931,000)
-------------
Total liabilities and partners' deficit . . . . . . $ 22,602,000
=============<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt
December 31, March 31,
1997 1998
------------- -------------
(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 . . . . . . . . . . . . . . . $ 63,076,321 $ 61,888,996
Revolving term bank line of credit,
$2,974,000 ($4,424,000 during 1997)
maximum, due July 31, 1999, interest
payable monthly at lender's base rate
plus .5 percent, permanent quarterly
principal reductions of $250,000 began
on July 1, 1997 . . . . . . . . . . . . 4,235,377 1,939,002
Revolving term line of credit,
$16,000,000 ($16,000,000 during 1997)
maximum, due February 26, 1999, interest
payable monthly at lender's base rate of
LIBOR plus 2.5 percent, collateralized
by equipment . . . . . . . . . . . . . 12,200,000 13,700,000
Mortgage notes, principal and interest
payable in monthly installments through
August 1, 2010, interest at varying
rates up to prime plus 1.75 percent,
collateralized by land and buildings . 6,535,013 6,247,880
------------- -------------
86,046,711 83,775,878
Less current portion . . . . . . . . . . 17,385,838 17,124,178
------------- -------------
$ 68,660,873 $ 66,651,700
============= =============
At March 31, 1998, there was approximately $935,000 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 March 31, 1998.
The revolving term bank line of $1,939,000 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, and substantially all of the unsecured assets of
Kimmins. The use of funds under these lines is limited among certain
subsidiaries, and repayment is guaranteed by Cumberland.
The revolving term line of credit of $16,000,000 is secured by a
pledge of the trade receivables of Kimmins Contracting Corp.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt (continued)
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 and net income of not less than
$1,500,000. In addition, the covenants prohibit the Company from paying
dividends without lender approval. Specifically regarding the revolving
term bank line of credit for $1,939,000, the Company did not meet the
tangible net worth and net income requirements under the credit agreement
with the bank. The Company has obtained waivers for the financial
covenants for all measurement periods during the year ended December 31,
1998.
During 1997, Kimmins Contracting Corp. ("KCC"), a wholly-owned
subsidiary of the Company, entered into four separate debt agreements.
KCC converted equipment previously rented under operating leases into
equipment notes of approximately $13,041,000 in February 1997 and
$28,590,000 in November 1997 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. In November 1997, KCC increased the working capital loan from
$11,000,000 to $16,000,000. As of March 31, 1998, KCC had drawn
$13,700,000 on the line of credit.
The above equipment notes and the working capital loan agreements
contain certain covenants, the most restrictive of which require
maintenance of a total liabilities to adjusted net worth ratio of 8.0 to
1.0 and a current ratio of 1.5 to 1.0. Regarding the revolving term line
of credit for $13,700,000 and outstanding equipment notes for
approximately $40,900,000, KCC and the Company, as guarantor, did not
meet the total liability to net worth ratio, current ratio or net income
requirements under the credit and note agreements. The equipment notes
and working capital loan are guaranteed by the Company and require the
Company to maintain a debt to equity ratio not exceeding 6.5 to 1 and a
current ratio of not less than 1.2 to 1. The Company and KCC have
obtained waivers of these financial covenants for all measurement periods
during the year ended December 31, 1998. In addition, the Company
received a modification of the covenants for the year ended December 31,
1998, with which the Company believes it is in compliance with.
Included in the notes payment of approximately $61,831,000 are
equipment notes of TransCor for $5,700,000 that are due in July 1998.
TransCor has executed a commitment agreement that refinances the
$5,700,000 until January 1, 2000. The $5,700,000 is classified as long-
term debt as of March 31, 1998.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Earnings per share
As required by FASB Statement No. 128, the following table sets forth
the computation of basic and diluted earnings per share:
Quarter ended March 31,
---------------------------
1997 1998
------------- -------------
Numerator:
Net income . . . . . . . . . . . . . . $ 819,351 $ 1,236,655
Adjustment for basic earnings
per share . . . . . . . . . . . . . . 0 0
------------- -------------
Numerator for basic earnings per
share - income available to common
stockholders . . . . . . . . . . . . 819,351 1,236,655
Effect of dilutive securities . . . . . 0 0
------------- -------------
Numerator for diluted earnings per
share - income available to common
stockholders after assumed
conversions . . . . . . . . . . . . . $ 819,351 $ 1,236,655
============= =============
Denominator:
Denominator for basic earnings per
share - weighted-average shares . . . $ 4,358,768 $ 4,296,969
Effective of dilutive securities:
Stock options . . . . . . . . . . . . . 0 138,355
Dilutive potential common shares . . . 0 0
------------- -------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions . . . $ 4,358,768 $ 4,435,324
============= =============
Basic earnings per share . . . . . . . $ .19 $ .29
============= =============
Diluted earnings per share . . . . . . $ .19 $ .28
============= =============
Unexercised options to purchase 154,075 shares of common stock for
1997 were not included in the computations of diluted income per share
because the assumed conversion would be antidilutive.<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Subsequent event
On May 31, 1998, TransCor sold its Jacksonville area waste collection
and recycling operations assets and certain assets of the Miami front-end
load and rear-load commercial waste and recycling business to Eastern
Environmental Services of Florida, Inc., for $11,600,000 in cash, which
exceeded the carrying value of the underlying assets.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net revenue for the three months ended March 31, 1998, increased by 6
percent to $30,625,000 from $28,982,000 for the three months ended March
31, 1997. The increase is due primarily to the growth of the Company's
utility contracting services ($4,481,000 increase in net revenue). This
increase offsets certain decreases in the Company's solid waste
management segment ($1,531,000 increase in net revenue), remediation
services ($1,355,000 decrease in net revenue), and demolitions services
($225,000 decrease in net revenue). In addition, other services increased
net revenues by $273,000.
Outside services, which largely represent subcontractor costs,
decreased, as a percentage of net revenue, to 8 percent for the first
quarter of 1998 from 17 percent for the same period in 1997. 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 lesser extent
during 1998 than 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 first
quarter of 1998 decreased to 79 percent from 83 percent for the same
period in 1997. As a result, the gross profit for the first quarter of
1998 was $6,309,000 (21 percent of net revenue) compared to $5,044,000
(17 percent of net revenue) for the first quarter of 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
($1,279,000 increase in gross profit) and additionally from remediation
services ($126,000 increase in gross profit), industrial demolition
services ($232,000 increase in gross profit), and asbestos abatement
services ($134,000 increase in gross profit). This increase offsets
certain decreases in the Company's solid waste management services
($506,000 decrease in gross profit).
During the three months ended March 31, 1998, selling, general and
administrative expenses decreased to $2,904,000 (10 percent of net
revenue) from $3,297,000 (11 percent of net revenue) for the three months
ended March 31, 1997. The dollar and percentage decrease is primarily a
result of management's efforts to contain and reduce administration and
overhead costs.
Minority interest in net income of subsidiary was $58,000 for the
three months ended March 31, 1998, compared to minority interest in net
income of subsidiary of $5,000 during the same period in 1997. The
minority interest in net income of the subsidiary reflects approximately
26 percent of TransCor's earnings as a result of the March 25, 1993,
initial public offering of TransCor's common stock. The increase in
TransCor's earnings between years is attributable to reduced
administration and overhead costs at certain solid waste management
facilities, especially the headquarters office.<PAGE>
Interest expense, net of interest income, increased to $1,909,000
during the three months ended March 31, 1998, compared to $829,000 for
the three months ended March 31, 1997. The increase is primarily
attributable to increases in average borrowings during 1997 from the
acquisition of equipment used in the specialty contracting segment of
approximately $40,000,000, most of which was acquired in the fourth
quarter of 1997.
As a result of the foregoing, income before provision for income
taxes for the three months ended March 31, 1998, was $1,438,000 (5
percent of net revenue) compared to net income before provision for taxes
of $913,000 (3 percent of net revenue) during the same period in 1997.
The Company's effective tax rate was 14.0 percent for the three
months ended March 31, 1998, compared to a rate of 10.2 percent for 1997
tax benefits. The lower than statutory effective tax rate was primarily
due to the net operating loss generated by the Company during 1997 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 2012; however, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," a valuation allowance of approximately $2,801,000 was
recognized during 1997. Included in the tax benefit, the Company has
approximately $697,000 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 incurred net income for the
three months ended March 31, 1998, was $1,237,000 (4 percent of net
revenue) as compared with net income of $819,000 (3 percent of net
revenue) for the same period during 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $767,000 and $5,737,000 during
the three months ended March 31, 1997 and 1998, respectively. Cash
provided by the Company's solid waste management services segment
approximated $628,000 and $2,585,000 for the three months ended March 31,
1997 and 1998, respectively. Cash used by the Company's specialty
contracting segment approximated $1,965,000 and $3,352,000, respectively.
Cash was provided by the solid waste management services operations
during the first quarter of 1998 at expected levels. Cash was used in
the specialty contracting operations during the first quarter of 1998 due
to the decrease in costs and estimated earnings in excess of billings on
uncompleted contracts and billings in excess of costs and estimated
earnings on uncompleted contracts associated with the increase in revenue
and significant losses on the earthmoving contracts.
The Company had capital expenditures during the three months ended
March 31, 1997 and 1998 of $15,860,000 and $1,277,000, 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>
During 1998 the Company generated cash from financing activities of
$2,391,000. Borrowings in 1998 related primarily to the acquisition of
approximately $3,000,000 of equipment. 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 credit agreement was increased to $16,000,000
in November 1997; and, as of March 31, 1998, borrowings were $13,700,000.
The Company's ratio of debt to equity was 9.16:1.00 and 7.79:1.00 at
December 31, 1997, and March 31, 1998, respectively. The decrease in
debt is primarily due to the debt paydowns exceeding new debt and an
increase in equity resulting from net income generated in the first
quarter.
During the three months ended March 31, 1997 and 1998, the Company's
average contract and trade receivables less retainage were outstanding
for 53 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.
On October 22, 1997, the Company contributed its note receivable in
an amount of approximately $3,851,000 from the Apartments and other
receivables of $3,059,000 for a non-controlling 49 percent preferred
limited partnership interest in the Apartments and a receivable of
$900,000 from the Apartments. The amount of $12,066,000 in excess of the
underlying equity was attributed to goodwill and is being amortized over
thirty years. The Company will be allocated 49 percent of operating
income, losses and cash flow. The preference in the Company's equity
interest in the Apartments occurs upon the sale of the underlying
partnership properties. Upon the occurrence of a capital transaction, the
Company would receive cash flows from the sale or refinancing of the
Apartments' assets equal to its capital contribution prior to any other
partner receiving any proceeds. The Company accounts for its investment
in the Apartments using the equity method.
At December 31, 1997, and March 31, 1998, $1,076,000 and $1,084,000,
respectively, 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 capacity for qualification purposes is
$60 million for an individual project ($120 million aggregate).
Historically, the Company has obtained bonding coverage in amounts up to
$53,000,000. However, bonding coverage is not guaranteed on projects up
to the above limits because each project has its own distinct and
separate bond requirements and it is customary for surety bonding
companies to underwrite each surety obligation individually. Management
believes that bonding coverages are adequate for the size and scope of
projects being performed.<PAGE>
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. The Company adopted the provisions of Statement 128
No. effective December 31, 1997. All earnings per share accounts for all
periods presented have been restated to conform to the Statement No. 128
requirements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income ("SFAS No. 130"). SFAS
No. 130 requires that total comprehensive income and comprehensive income
per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholders'
equity exclusive of transactions with owners such as capital
contributions and dividends. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management is currently assessing the
impact of SFAS No. 130, but does not expect its effect to be material.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which supercedes Financial
Accounting Standards No. 14. SFAS No. 131 uses a management approach to
report financial and descriptive information about a Company's operating
segments. Operating segments are revenue-producing components of the
enterprise for which separate financial information is produced
internally for the Company's management. SFAS No. 131 is effective for
fiscal years beginning after December 31, 1997. Management is currently
assessing the impact of SFAS No. 131, but does not expect its effect to
be material.
The American Institute of Certified Public Accountants recently
issued Statement of Position 98-5, Reporting on the Costs of Start-up
Activities. Start-up costs are defined broadly in the SOP as those one-
time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new
process in an existing facility, or commencing some new operation. Start-
up costs, including organizational costs, should be expensed as incurred
under the new SOP. The SOP would be effective for most entities for
fiscal years beginning after December 15, 1998. The SOP will require the
Company, upon adoption, to write off as a cumulative effect of a change
in accounting principle any previously capitalized start-up or
organization costs. Therefore, in the first quarter of 1999, the Company
may have to write off the remaining unamortized balance of contract
start-up costs of approximately $330,000 at December 31, 1998.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four digits to define the applicable year. As a
result, those computer programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000.
This could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.<PAGE>
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project is estimated to be immaterial to the
financial statements. To date, the Company's incremental costs for
assessment of the Year 2000 issue, the development of a modification
plan, and the purchase of new software have been insignificant.
The majority of software used by the Company is licensed from various
software providers who are currently updating our programs to be Year
2000 compliant. In-house developed programs comprise a small portion of
the total software utilized, and the majority of these programs are
believed to be Year 2000 compliant.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating system.
The Company believes, with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to
which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. There is no
guarantee that the systems of other companies on which the Company's
systems rely will be timely converted and would not have an adverse
effect on the Company's systems.
The costs of the project and the date on which the Company believes
it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of
future events, including the continued availability of certain resources
and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
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.<PAGE>
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
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
Effective with the close of business on June 10, 1998,
TransCor's stock was delisted from the Nasdaq National Market
because TransCor could not satisfy the market value public float
requirement and was delinquent in filing its 1997 Form 10-K and
this 1998 first quarter Form 10-Q. TransCor is in the processing
of reapplying to Nasdaq to transfer its listing to the Nasdaq
SmallCap Market.
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.
By: /S/ FRANCIS M. WILLIAMS
-------------------------
Francis M. Williams
President and Chief
Executive Officer
July 22, 1998
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on July 22,
1998.
Date: July 22, 1998 /S/ FRANCIS M. WILLIAMS
------------------- ------------------------------
Francis M. Williams
President and Chief
Executive Officer
(Principle Executive Officer)
Date: July 22, 1998 /S/ NORMAN S. DOMINIAK
------------------- ------------------------------
Norman S. Dominiak
Vice President and
Chief Financial Officer
(Principle Accounting and
Financial Officer)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $0
<SECURITIES> $0
<RECEIVABLES> $23,150,392
<ALLOWANCES> ($961,574)
<INVENTORY> $0
<CURRENT-ASSETS> $35,677,753
<PP&E> $98,993,123
<DEPRECIATION> ($28,555,323)
<TOTAL-ASSETS> $131,966,121
<CURRENT-LIABILITIES> $47,240,087
<BONDS> $0
$0
$0
<COMMON> $4,447
<OTHER-SE> $10,745,584
<TOTAL-LIABILITY-AND-EQUITY> $131,966,121
<SALES> $33,192,751
<TOTAL-REVENUES> $33,192,751
<CGS> $26,884,134
<TOTAL-COSTS> $26,884,134
<OTHER-EXPENSES> $2,961,562
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $1,909,235
<INCOME-PRETAX> $1,437,820
<INCOME-TAX> $201,165
<INCOME-CONTINUING> $1,236,655
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $1,236,655
<EPS-PRIMARY> $.29
<EPS-DILUTED> $.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $591,788
<SECURITIES> $0
<RECEIVABLES> $24,266,586
<ALLOWANCES> ($547,389)
<INVENTORY> $0
<CURRENT-ASSETS> $47,279,520
<PP&E> $78,000,130
<DEPRECIATION> ($25,055,399)
<TOTAL-ASSETS> $112,956,794
<CURRENT-LIABILITIES> $40,724,370
<BONDS> $0
$0
$0
<COMMON> $4,447
<OTHER-SE> $18,711,098
<TOTAL-LIABILITY-AND-EQUITY> $112,956,794
<SALES> $33,850,378
<TOTAL-REVENUES> $33,850,378
<CGS> $28,806,347
<TOTAL-COSTS> $28,806,347
<OTHER-EXPENSES> $3,301,938
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $829,396
<INCOME-PRETAX> $912,697
<INCOME-TAX> $93,346
<INCOME-CONTINUING> $819,351
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $819,351
<EPS-PRIMARY> $.19
<EPS-DILUTED> $.19
</TABLE>
