SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM 10-Q/A
[MARKONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 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 [ ]
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 November 13, 1998, was
4,447,397 shares. The number of shares of Class B Common Stock outstanding on
November 13, 1998, was 2,291,569 shares.
- ------------------------------------------------------------------------------
<PAGE>
KIMMINS CORP.
AMENDMENT NO. 1
FORM 10-Q/A
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated balance sheets at December 31, 1997 and
September 30, 1998(unaudited)...........................1-2
Consolidated statements of operations for the three and nine
months ended September 30, 1997 and 1998
(unaudited)...........................................3 - 4
Consolidated statements of cash flows for the nine months
ended September 30, 1997 and 1998
(unaudited)...............................................5
Notes to consolidated financial
statements...........................................6 - 16
Item 2. Management's discussion and analysis of financial condition
and results of operations...........................17 - 26
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K........................27
Signatures..............................................28
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(unaudited)
<S> <C> <C>
Current assets:
Cash.............................................................$ 3,674,027 $ 7,641,041
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . --- 21,859,210
Accounts receivable:
Contract and trade............................................ 19,906,358 17,100,432
Affiliates.................................................... 19,628 104,288
Costs and estimated earnings in excess of billings on ---
uncompleted contracts......................................... 5,434,123 4,794,114
Income tax refund receivable..................................... 247,561 ---
Deferred income tax.............................................. 1,980,148 1,259,738
Property held for sale........................................... 410,681 ---
Other current assets............................................. 347,510 380,026
Net assets of discontinued solid waste management
operations.................................................... 7,265,280 ---
------------------- ------------------
Total current assets....................................... 39,285,316 53,138,849
------------------- ------------------
Property and equipment, net......................................... 48,028,010 46,600,294
Property held for sale.............................................. 1,800,000 3,051,569
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts...................... 9,130,090 8,949,858
Accounts receivable - affiliates.................................... 900,000 900,000
Investment in Apartments............................................ 5,862,067 5,438,206
Investment in Cumberland Technologies, Inc.......................... 4,991,956 5,052,934
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,840 280,694
------------------- ------------------
Total assets...............................................$ 110,006,279 $ 123,412,404
=================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade.................................. $ 15,583,606 $ 17,580,017
Income tax payable........................................ - 1,708,096
Accrued expenses.......................................... 5,584,209 7,784,299
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 4,583,533 2,990,775
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . - 1,184,486
. 12,723,528 10,879,141
Current portion of long-term debt.........................
Current portion of Employee Stock Ownership Plan 480,000 480,000
------------------- ------------------
Trust debt.............................................
Total current liabilities........................... 38,954,876 42,606,814
------------------- ------------------
Long-term debt..................................................... 54,271,770 54,716,194
Employee Stock Ownership Plan Trust debt........................... 960,000 583,063
Deferred income taxes.............................................. 3,527,480 1,259,738
Minority interest in subsidiary.................................... 2,898,777 5,106,154
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 18,477,446
Retained earnings......................................... (7,290,073) 2,490,509
Unrealized loss on securities (net of tax) -- (140,790)
Unearned employee compensation from Employee
Stock Ownership Plan Trust............................. (1,320,000) (960,000)
------------------- ------------------
10,126,839 19,873,904
Less treasury stock, at cost (150,428 shares)............. (733,463) (733,463)
------------------- -------------------
Total stockholders' equity.......................... 9,393,376 19,140,441
------------------- ------------------
Total liabilities and stockholders' equity.......... $ 110,006,279 $ 123,412,404
=================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30,
1997 1998
(unaudited) (unaudited)
<S> <C> <C>
Revenue.............................................................
Gross revenue..............................................$ 31,844,293 $ 9,153,861
Outside services, at cost.................................. (6,195,317) (3,406,984)
------------------- --------------------
Net revenue................................................ 25,648,976 5,746,877
Costs and Expenses:
Cost of revenue earned..................................... 20,085,427 16,633,047
Selling, general, and administrative expenses.............. 2,003,589 2,892,102
--------------------- ---------------
Operating income (loss)............................................. 3,559,960 (13,778,272)
Pre-acquisition earnings --- 223,893
Minority interest in net (income) loss of subsidiary................ 346,454 (2,154,632)
Interest expense, net............................................... (812,412) (1,662,013)
------------------- --------------------
Income (loss) from continuing operations before provision
for income taxes........................................... 3,094,002 (17,818,810)
Provision for income taxes (benefit)................................ 950,084 (6,355,674)
------------------- --------------------
Income (loss) from continuing operations............................ 2,143,918 (11,463,136)
Discontinued operations:
Gain on sale of discontinued solid waste division net of --- 16,662,818
tax provision of $9,162,149
Income (loss) from discontinued solid waste division
(net of tax benefit in 1997 $893,283)..................... (1,397,191) ---
------------------- --------------------
Income (loss) from discontinued operations (1,397,191) 16,662,818
------------------- --------------------
Net income.................................................$ 746,727 $ 5,199,682
=================== ===================
Share data:
Basic income per share from continuing operations..........$ .50 $ (2.67)
=================== ===================
Diluted income per share from continuing operations........$ .49 $ (2.67)
=================== ===================
Basic income (loss) per share from discontinued
operations..............................................$ (.33) $ 3.88
=================== ==================
Diluted income (loss) per share from discontinued
operations..............................................$ (.32) $ 3.88
=================== ==================
Total basic income (loss) per share........................$ .17 $ 1.21
=================== ==================
Total diluted income (loss) per share......................$ .17 $ 1.21
=================== ==================
Weighted average number of shares outstanding used in computations:
Basic................................................... 4,296,969 4,296,969
=================== ===================
Diluted................................................. 4,413,210 4,296,969
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1998
(unaudited) (unaudited)
<S> <C> <C>
Revenue............................................................
Gross revenue.................................................... $ 85,952,579 $ 57,293,904
Outside services, at cost........................................ (16,816,823) (10,177,626)
------------------- -------------------
Net revenue...................................................... 69,135,756 47,116,278
Costs and Expenses:
Cost of revenue earned........................................... 55,777,064 49,238,583
Selling, general, and administrative expenses.................... 5,141,587 6,705,690
------------------- ------------------
Operating income (loss)............................................ 8,217,105 (8,827,995)
Pre-acquisition income (223,893)
Minority interest in net (income) loss of subsidiary 381,353 (3,059,777)
Interest expense, net.............................................. (2,136,170) (4,646,559)
------------------- -------------------
Income (loss) from continuing operations before provision
for income taxes................................................. 6,462,288 (16,758,224)
Provision for income taxes (benefit)............................... 1,730,660 6,797,268
------------------- ------------------
Income (loss) from continuing operations........................... 4,731,628 (9,960,956)
Discontinued operations:
Gain on sale of discontinued solid waste division net of
the provision of $11,164,205.................................. --- 19,921,581
Income (loss) from discontinued solid waste division
(net of tax provision of ($1,463,692) and $81,593 in
1997 and 1998, respectively).................................. (2,289,368) (180,043)
------------------- ------------------
Income (loss) from discontinued operations (2,289,368) 19,741,538
------------------- ------------------
Net income....................................................... $ 2,442,260 $ 9,780,582
=================== ==================
Share data:
Basic income (loss) per share from continuing
operations.................................................... $ 1.09 $ (2.32)
=================== ===================
Diluted income (loss) per share from continuing
operations.................................................... $ 1.07 $ (2.32)
=================== ===================
Basic income (loss) per share from discontinued
operations.................................................... $ (.53) $ 4.59
=================== ==================
Diluted income (loss) per share from discontinued
operations.................................................... $ (.52) $ 4.59
=================== ==================
Total basic income (loss) per share.............................. $ .56 $ 2.27
=================== ==================
Total diluted income (loss) per share............................ $ .55 $ 2.27
=================== ==================
Weighted average number of shares outstanding used in computations:
Basic......................................................... 4,325,731 4,296,969
=================== ==================
Diluted....................................................... 4,410,764 4,296,969
=================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1998
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations........................... $ 4,731,628 $ (9,960,956)
Adjustments to reconcile net income from continuing
operations to net cash provided (used) by operating
activities:
Depreciation and amortization.................................. 6,416,449 7,121,577
Minority interest in net loss of subsidiary.................... (381,353) 2,207,377
Gain on disposal of property and equipment..................... (542,795) (80,773)
Equity in losses of investment................................. 48,352 (62,388)
Unearned employee compensation from
Employee Stock Ownership Plan Trust........................ 360,000 360,000
Changes in operating assets and liabilities:
Accounts receivable........................................ (5,054,483) 2,721,266
Costs and estimated earnings in excess of
billings on uncompleted contracts..................... (897,451) 820,241
Income tax refund receivable and payable................... 379,138 1,592,811
Other assets............................................... (826,347) (304,370)
Accounts payable........................................... (159,189) 1,996,411
Accrued expenses........................................... 668,224 2,200,090
Billings in excess of costs and estimated
earnings on uncompleted contracts..................... (297,351) (1,592,758)
----------------- ------------------
Total adjustments...................................................... (286,806) 16,979,484
----------------- -----------------
Net cash provided by continuing operations............................. 4,444,822 7,018,528
Net loss from discontinued operations.................................. (2,289,368) (180,043)
Change in net assets of discontinued operations........................ - 7,265,280
----------------- -----------------
Net cash provided by operating activities.............................. 2,155,454 14,103,765
----------------- -----------------
Cash flows from investing activities:
Capital expenditures.................................................... (22,330,598) (7,020,311)
Proceeds from sale of property and equipment............................ 1,910,521 991,606
Gain on sale of assets from discontinued operations..................... - 19,921,581
Purchase of marketable securities. . . . . . . . . . . . . . . - (4,982,000)
Investment in Eastern stock. . . . . . . . . . . . . . . . . . . - (16,877,210)
Unrealized loss on marketable securities. . . . . . . . . . - (140,790)
----------------- ------------------
Net cash provided by (used in) investing activities....................... (20,420,077) (8,107,124)
----------------- ------------------
Cash flows from financing activities:
Proceeds from long-term debt............................................ 34,410,738 34,420,460
Repayments of long-term debt............................................ (14,873,228) (35,820,423)
Repayments of Employee Stock Ownership Plan
Trust debt........................................................... (360,000) (376,937)
Purchase of treasury stock.............................................. (267,331) (252,727)
----------------- ------------------
Net cash provided by (used in) financing activities....................... 18,910,179 (2,029,627)
----------------- ------------------
Net increase (decrease) in cash........................................... 645,556 3,967,014
Cash, beginning of period................................................. 968,638 3,674,027
----------------- -----------------
Cash, end of period....................................................... $ 1,614,194 $ 7,641,041
================= =================
</TABLE>
5
<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") has historically operated two business segments: specialty
contracting services and solid waste management services. The Company continues
to provide specialty contracting services, including infrastructure development;
underground construction; road work; mining services, demolition and dismantling
of facilities; and asbestos abatement. The Company had provided solid waste
management services to commercial, industrial, residential and, municipal
customers in the state of Florida. The Company sold its solid waste management
operations in a stock sale to a competitor which was completed on September 3,
1998.
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 nine-month period
ended September 30, 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"), an 83 percent owned subsidiary. All material
intercompany transactions have been eliminated. See Note 9 for additional
information.
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 $393,000 and
$37,000 for the nine months ended September 30, 1997 and 1998, respectively.
Accumulated amortization was approximately $245,000 at December 31, 1997. The
intangible assets including customer contracts were sold on May 31, 1998, as
part of the sale of the Jacksonville operations to Eastern Environmental
Services of Florida, Inc. See Note 8 for additional information.
6
<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 $165,000 and $168,000 for the nine
months ended September 30, 1997 and 1998, respectively. Accumulated amortization
was $909,000 and $1,077,000 at December 31, 1997, and September 30, 1998,
respectively. All of the pre-contract costs and loan costs capitalized as of
December 31, 1997, were held by TransCor's subsidiary, Kimmins Recycling Corp.
(KRC) which was sold effective August 31, 1998. Accordingly, pre-contract and
loan costs were included in "net assets of discontinued operations" at December
31, 1997.
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. The Company's investments in
marketable securities are accounted for using the cost method.
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. MARKETABLE SECURITIES
As a result of the sale of Kimmins Recycling Corp. (KRC) to Eastern
Environmental Services, Inc. (EESI), TransCor received 555,329 shares of common
stock of EESI. Additionally, commencing in September 1998, TransCor began
purchasing common stocks and other marketable securities with a portion of the
cash proceeds received from the sale of KRC. In accordance with the Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", the investments are classified as
available-for-sale securities. Such securities are carried at an aggregate
market value of $21,859,000 as of September 30, 1998. TransCor's cost basis in
these investments is $22,000,000, and the unrealized loss of approximately
141,000, net of deferred income taxes of approximately $89,000, is reported as a
separate component of shareholder's equity.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
December 31, September 30,
1997 1998
(unaudited)
Expenditures on uncompleted contracts............. $115,708,567 $ 114,185,068
Estimated earnings on uncompleted contracts....... 6,141,672 (1,248,835)
------------ -----------
121,850,239 112,936,233
Less actual and allowable billings on uncompleted
contracts...................................... 111,869,559 102,183,036
------------ ------------
$ 9,980,680 $10,753,197
============= ===========
Costs and estimated earnings in excess of billings
on uncompleted contracts....................... $ 14,564,213 $ 13,743,972
Billings in excess of costs and estimated earnings
on uncompleted contracts....................... (4,583,533) (2,990,775)
------------ -------------
$ 9,980,680 $ 10,753,197
============= =============
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED)
As of December 31, 1997, and September 30, 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
$10,000,000, 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 that are not expected to be collected within twelve months at
December 31, 1997 and September 30, 1998 were approximately $9,130,000 and
$8,950,000. Accordingly, these amounts are classified as non-current assets.
4. 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 as of December 31, 1997 and September 30, 1998, 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 in
1997 to reflect the fair market value based on the purchase agreement. The
incinerator is classified as a non-current asset under the caption, "property
held for sale."
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. During 1997, 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 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 the recognition of a $590,000 impairment
loss during 1997.
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 held
at September 30, 1998, and December 31, 1997, which were not included in the
sale of TransCor's solid waste services division, were carried at $1,210,000 and
$1,216,000, respectively, net of an impairment loss of $90,000 as long term
assets under the caption "Property held for sale."
TransCor's land and buildings which were being held for sale and were included
in the sale of the solid waste services division are included in the caption
"net assets of discontinued solid waste management operations" and carried a net
of an impairment loss of $500,000 at $1,834,000 and $1,511,000 at December 31,
1997 and August 31, 1998 respectively.
7
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(unaudited)
<S> <C> <C>
Land.................................................... $ 4,323,053 $ 658,234
Buildings and improvements.............................. 6,235,460 2,166,984
Construction and recycling equipment.................... 88,087,064 61,650,050
Furniture and fixtures.................................. 1,503,217 698,628
Construction in progress................................ 48,419 461,294
---------------- ---------------
100,197,213 65,635,190
Less accumulated depreciation........................... (27,420,533) (19,034,896)
---------------- ----------------
72,776,680 46,600,294
Less net property and equipment attributable to
discontinued operations............................... (24,748,670) ---
---------------- --------------
Net property and equipment attributable to assets of
continuing operations................................ $ 48,028,010 $ 46,600,294
================= ================
</TABLE>
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 $9,458,000 for the nine
months ended September 30, 1997 and 1998, respectively. The increase in
depreciation expense at September 30, 1998, is primarily attributable to the
Company's purchases in 1997 of approximately $41,000,000 of equipment for use in
the specialty contracting segment. For the nine months ended September 30, 1998,
$7,155,000 of depreciation expense was attributable to continuing operations and
$2,303,000 was attributable to discontinued operations.
On May 31, 1998, the Company sold its Jacksonville area waste
collection and recycling operating 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. (EESF), for $11,600,000 in cash. The
proceeds exceeded the net book value of the underlying assets sold by
approximately $5,263,000. This gain is shown in the Consolidated Statements of
Operations as part of "income from discontinued operations." On September 3,
1998, the Company sold the stock of KRC to EESF resulting in the Company's exit
from the solid waste industry.
6. 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 October 27, 1998,
the market value of the Cumberland common stock held by the Company was
approximately $5,169,000 or $3.00 per share.
8
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN CUMBERLAND TECHNOLOGIES, INC. (CONTINUED)
The following is a summary of the financial position at September 30,
1998, and results of operations of Cumberland for the nine-month period ending
September 30, 1998:
September 30,
1998
(unaudited)
Cash and cash equivalents..................... $ 3,073,318
Investments in various marketable securities.. 3,868,699
Accounts receivable - trade, net.............. 2,608,804
Reinsurance recoverable....................... 1,701,813
Intangibles................................... 1,504,830
Other......................................... 2,506,160
---------------
Total assets............................... $ 15,263,624
================
Policy liabilities and accruals............... $ 7,537,769
Long-term debt................................ 1,342,205
Other......................................... 870,738
---------------
Total liabilities.......................... 9,750,712
Stockholders' equity.......................... 5,512,912
---------------
Total liabilities and stockholders' equity. $ 15,263,624
================
Cumberland's operating results included revenue of $899,000 and a net
loss of $30,000 during the third quarter. The Company's equity in this net loss
was approximately $9,000. In addition, approximately $41,000 of amortization
expense was recorded by the Company related to the investment during the third
quarter.
Cumberland's operating results included revenue of $5,410,000 and net
income of $617,000 during the nine-month period ending September 30, 1998. The
Company's equity in this net income amounted to approximately $195,000. In
addition, approximately $123,000 of amortization expense was recorded by the
Company related to the investment during the nine months ended September 30,
1998. Accumulated amortization was approximately $165,000 and $288,000 at
December 31, 1997, and September 30, 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.
9
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN CUMBERLAND TECHNOLOGIES, INC. AND THE APARTMENTS
(CONTINUED)
During the third quarter ended September 30, 1998, the Apartments
recognized revenue of $1,109,000 and a net loss of $62,000. 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 during the third quarter.
The Apartments recognized revenue of $3,446,000 and a net loss of
$240,000 during the nine-month period ended September 30, 1998. The Company's
equity in this net loss was approximately $118,000 for the first nine months of
1998. In addition, approximately $302,000 of amortization expense was recorded.
At September 30, 1998, the Company's balance in its total investment in the
Apartments was approximately $6,343,000, of which $900,000 is classified as an
"accounts receivable - affiliate."
The following is a summary of the financial position of the Apartments
at September 30, 1998:
Total
Investment
Cash and cash equivalents........................ $ 28,000
Accounts receivable - affiliate.................. 995,000
Land............................................. 3,800,000
Buildings, capitalized construction interest,
furniture and equipment, net................... 16,644,000
Other............................................ 547,000
---------------
Total assets................................ $ 22,014,000
================
Accounts payable and accrued expenses............ $ 710,000
Accounts payable to affiliates................... 1,504,000
Mortgage loan payable............................ 21,032,000
Note payable to partner - Francis M. Williams.... 2,860,000
---------------
Total liabilities........................... 26,106,000
Partners' deficit................................ (4,092,000)
----------------
Total liabilities and partners' deficit.......... $ 22,014,000
================
10
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(unaudited)
<S> <C> <C>
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 $ 48,859,392
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 1,138,003
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 1,897,940
--------------------- ---------------
Total long-term debt................................. 86,046,711 65,595,335
Less long-term debt of discontinued operations........... 19,051,413 ---
Less current portion of long-term debt................... 12,723,528 10,879,141
---------------- ---------------
Long-term debt of continuing operations.................. $ 54,271,770 $ 54,716,194
================= ================
</TABLE>
At September 30, 1998, there was approximately $1,736,000 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, 1998.
The revolving term bank line of $1,138,000 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.
11
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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 September 30, 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.
12
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EARNINGS PER SHARE
As required by FASB Statement No. 128, the following table sets forth
the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three months
ended September 30,
1997 1998
<S> <C> <C>
Numerator:
Net income............................................... $ 2,143,918 $ (11,463,136)
Adjustment for basic earnings per share.................. 0 0
---------------- ----------------
Numerator for basic earnings per share -
income available to common
stockholders.......................................... 0 0
Effect of dilutive securities............................ 0 0
---------------- ----------------
Numerator for diluted earnings per share:
Income from continuing operations.................... 2,143,918 (11,463,136)
Income (loss) from discontinued operations........... (1,397,191) 16,662,818
---------------- ---------------
Income available to common stockholders after
assumed conversions..................................... $ 746,727 $ 5,199,682
================= ================
Denominator:
Denominator for basic earnings per share -
weighted-average shares............................... 4,296,969 4,296,969
Effective of dilutive securities:
Stock options............................................ 116,241 0
Dilutive potential common shares......................... 0 0
---------------- ----------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions................................... 4,413,210 4,296,969
================ ================
Basic income per share from continuing
operations........................................... $ .50 $ (2.67)
================= ==================
Diluted income per share from continuing
operations........................................... $ .49 $ (2.67)
================= ==================
Basic income (loss) per share from discontinued
operations........................................... $ (.33) $ 3.88
================= =================
Diluted income (loss) per share from discontinued
operations........................................... $ (.32) $ 3.88
================= =================
Total basic income (loss) per share...................... $ .17 $ 1.21
================= =================
Total diluted income (loss) per share.................... $ .17 $ 1.21
================= =================
</TABLE>
13
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Nine months
ended September 30,
1997 1998
<S> <C> <C>
Numerator:
Net income............................................... $ 4,731,628 $ (9,960,956)
Adjustment for basic earnings per share.................. --- ---
---------------- ----------------
Numerator for basic earnings per share -
income available to common
stockholders.......................................... --- ---
Effect of dilutive securities............................ --- ---
---------------- ----------------
Numerator for diluted earnings per share:
Income from continuing operations.................... 4,731,628 (9,960,956)
Income (loss) from discontinued operations........... (2,289,368) 19,741,538
---------------- ----------------
Income available to common stockholders after assumed
conversions.......................................... $ 2,442,260 $ 9,780,582
================= =================
Denominator:
Denominator for basic earnings per share -
weighted-average shares............................... 4,325,731 4,296,969
Effective of dilutive securities:
Stock options............................................ 85,033 0
Dilutive potential common shares......................... 0 0
----------------- -----------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions................................... 4,410,764 4,296,969
================ ===============
Basic income per share from continuing
operations........................................... $ 1.09 $ (2.32)
================= =================
Diluted income per share from continuing
operations........................................... $ 1.07 $ (2.32)
================= =================
Basic income (loss) per share from discontinued
operations........................................... $ (.53) $ 4.60
================= ================
Diluted income (loss) per share from discontinued
operations........................................... $ (.52) $ 4.60
================= ================
Total basic income (loss) per share...................... $ .56 $ 2.28
================= ================
Total diluted income (loss) per share.................... $ .55 $ 2.28
================= ================
</TABLE>
Unexercised options to purchase 254,075 and 274075 shares of common stock
for 1997 and 1998 were not included in the computations of diluted income per
share because the assumed conversion would be antidilutive under the new
standards which utilize income or loss from continuing operations in determining
whether securities are antidilutive. Additionally, because of the loss from
continuing operations, 2,291,569 shares of Class B common stock which are
convertible at year end if the Company's net income remains above $9,700,000,
are excluded from the calculation.
14
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. DISCONTINUED OPERATIONS
On July 17, 1998, the Company adopted a formal plan to sell its
solid waste management services operations to a competitor Eastern
Environmental Services, Inc. (EESI). On August 31, 1998 the Company
completed the sale of the solid waste management services (SWMS)
operations. The assets sold consisted primarily of accounts
receivables, contracts and property and equipment. The selling price
was $57,800,000 in the form of cash and EESI common stock.
Operations for the six months ended June 30, 1998 are shown
separately in the accompanying income statement. The consolidated
statements of operations for the three and nine month periods ended
September 30, 1997 have been restated to show separately the operating
results of the SWMS operations.
Net revenues of the SWMS operations for the three and nine month
periods ending September 30, 1997 and 1998 were $9,793,000 and
$6,679,000, and $32,684,000 and $27,276,000, respectively. These
amounts are included in the income or loss from discontinued
operations portion of the accompanying consolidated statements of
operations. Approximately $4,832,000 of these net revenues were
received after the Company's adoption of the plan to sell the SWMS
operations.
Information related to the discontinued operations of KRC for the
three- and nine-month periods ended September 30, 1998, is as follows:
Three months Nine months
ended ended
September 30, September 30,
1998 1998
Net revenue.............................. $ 4,833,000 $21,526,000
Operating expenses....................... 4,384,000 18,176,000
Selling, general and administrative
expenses....................... 1,650,000 4,002,000
------------ ----------
Operating income......................... (1,201,000) (652,000)
Non-operating gain on sale of assets..... (458,000) 4,805,000
Interest................................. 221,000 913,000
------------ ----------
Income before provision for income taxes. (1,880,000) 3,240,000
Income taxes............................. (722,000) 1,280,000
------------ ----------
Net income............................... $ (1,158,000) $ 1,960,000
============= ===========
15
<PAGE>
9. DISCONTINUED OPERATIONS (CONTINUED)
Assets and liabilities of the discontinued SWMS operations sold
consisted of the following:
August 31, 1998 December 31, 1997
--------------- -----------------
Accounts receivable $4,120,410 $3,885,857
Other current assets 2,559,727 572,951
Property and equipment 26,144,418 27,583,052
Intangible assets 74,898 606,975
Other assets 826,892 1,142,205
-------------- -------------
Total assets 33,726,345 33,791,040
Current liabilities 11,480,231 26,525,760
------------- -------------
Net assets disposed of $22,246,114 $7,265,280
============ =============
Net assets sold have been separately classified in the accompanying
balance sheet at December 31, 1997.
The sale of the Company's SWMS operations to EESI for approximately
$57,800,000 resulted in a gain of approximately $19,922,000 net of taxes
approximately $11,164,000. Approximately $15.1 million of the cash proceeds were
used to pay off debt on the property and equipment of the SWMS operations. An
additional $6.6 million was used to fund the working capital deficit of the SWMS
operations at August 31, 1998.
10. INVESTMENT IN SUBSIDIARIES
On August 14, 1998, the Company, acquired an additional 297,200
shares of common stock in TransCor from Francis M. Williams, President and
Chief Executive Officer. The acquisition increased the Company's ownership
percentage to 81 percent from 74 percent and results in the ability to
consolidate the Company and TransCor for federal income tax purposes on a
prospective basis.
11. COMPREHENSIVE INCOME
In accordance with Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997, the following table summarizes the Company's
comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $746,727 $5,199,682 $2,442,260 $9,780,582
Unrealized losses on securities net of tax - 140,790 - 140,790
---------------- ---------- ---------------- ----------
Comprehensive income $746,727 $5,058,892 $2,442,260 $9,639,792
=========== ========== ========== ==========
</TABLE>
The Company also incurred a $300,000 unrealized loss on marketable
securities as a result of the Company'sapproximately 30% interest in Cumberland
Technologies, Inc.
16
<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, 1998 AND 1997
Net revenue for the three months ended September 30, 1998, decreased by
$19,902,000, or 78 percent, to $5,747,000 from $25,649,000 for the three months
ended September 30, 1997. The decrease is due primarily to certain decreases in
the Company's utility contracting services ($15,238,000 decrease in net revenue)
caused by weather related delays and by remediation services ($4,040,000
decrease in net revenue) caused by the closing of its New York operations. In
addition, other services decreased net revenues by $625,000.
Outside services, which largely represent subcontractor costs,
increased, as a percentage of net revenue, to 59 percent for the three months
ended September 30, 1998, from 24 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 greater extent during 1998
than 1997 due to the specific contracts in progress and the associated work
requirements. The percentage increase is primarily attributable to lower
revenues in utility contracting services.
Cost of revenue earned, as a percentage of net revenue, for the three
months ended September 30, 1998, increased to 289 percent as compared to 78
percent for the same period in 1997. As a result, the gross loss for the three
months ended September 30, 1998, was $10,886,000 (negative 189 percent of net
revenue) compared to $5,564,000 (22 percent of net revenue) for the same period
in 1997. The decrease of $16,450,000 in the dollar amount of gross margin is
primarily associated with the Company's utility contracting services
($13,301,000 decrease in gross profit) and additionally from the Company's
remediation services ($2,520,000 decrease in gross profit) and the Company's
other services ($629,000 decrease in gross profit).
During the three months ended September 30, 1998, selling, general and
administrative expenses increased by $888,000 to $2,892,000 (50 percent of net
revenue) from $2,004,000 (8 percent of net revenue) for the same period in 1997.
The dollar and percentage increase is primarily a result of one-time costs
associated with the sale of the discontinued solid waste operations and reduced
revenues in utility contracting services. For discontinued operations, selling,
general and administrative expenses for the three months ended September 30,
1998, were $1,649,000, representing a decrease of $492,000, or 9 percent, from
$2,141,000 for the same period in 1997. The dollar and percentage decrease in
selling, general, and administrative expenses is primarily attributable to
reduced overhead costs, such as administrative, sales, marketing and labor costs
that are associated with facilities that have been closed or sold and from
management's actions to reduce overhead costs.
The Company's subsidiary, TransCor, exited the solid waste industry
when it sold its operating subsidiary, KRC, to Eastern Environmental Services of
Florida, Inc., for approximately $57,800,000 in cash and stock. This transaction
resulted in a gain on the sale of discontinued operations of approximately
$16,663,000 net taxes of approximately $9,162,000. This gain is included in the
gain on sale of discontinued operations for the three- and nine-month periods
ended September 30, 1998.
17
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (CONTINUED)
Minority interest in net income of subsidiary was $2,154,000 for the
three months ended September 30, 1998, compared to a minority interest in net
loss of subsidiary of $346,000 during the same period in 1997. The minority
interest in net income or loss of the subsidiary had reflected approximately 26
percent of TransCor's earnings as a result of the March 25, 1993, initial public
offering of TransCor's common stock. During the three months ended September 30,
1998, the Company acquired approximately 297,000 shares of TransCor stock from
Frances M. Williams the majority owner of the Company and Chairman of the Board
of the Company and of TransCor. This purchase of approximately 7% of the
outstanding shares increased the companies ownership in TransCor to 81%. Also
during the three months ended September 30, 1998, TransCor acquired 77,000
shares of Treasury Stock on the open market effectively increasing the Company's
ownership an additional 2% to 83%. The increase in TransCor's earnings between
periods is attributable to the gain on the sale of discontinued solid waste
management operations.
Interest expense, net of interest income, increased to $1,662,000
during the three months ended September 30, 1998, compared to $812,000 for the
same period in 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, the loss from continuing operations
before provision for income taxes for the three months ended September 30, 1998,
was $17,819,000 (negative 200 percent of net revenue) compared to net income
before provision for taxes of $3,094,000 (12 percent of net revenue) during the
same period in 1997.
The Company's effective tax rate was 36.9 percent for the three
months ended September 30, 1998, compared to a rate of 7.1 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.
The Company generated a net loss of $11,463,000 of income from
continuing operations for the three-month period ended September 30, 1998, as
compared to income of $2,144,000 for the same period in 1997.
In addition to the continuing operations, the Company incurred no
losses from discontinued solid waste management services operations for the
three months ended September 30, 1998, representing a decrease of $1,397,000 or
approximately 92 percent from $1,397,000 for the three months ended September
30, 1997. The dollar and percentage decrease in losses is primarily attributable
to the sale of KRC in August 1998, the sale of certain operating assets in May
1998 and reduced overhead costs such as administrative, sales, marketing and
labor costs as a result of facility closures and managements actions to reduce
overhead costs.
18
<PAGE>
The Company's sale of KRC to EESI for approximately $57,800,000
resulted in a gain of $16,663,000 net of taxes of $9,162,000. Also included in
the gain are losses of $1,119,000 net of a tax benefit of $715,000 from
discontinued solid waste management services operations for the period from the
measurement date on July 14, 1998 through August 31, 1998.
As a result of the foregoing, the Company generated net income for the
three months ended September 30, 1998, of $5,200,000 (90 percent of net revenue)
as compared to net income of $747,000 (3 percent of net revenue) for the same
period during 1997.
19
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net revenue for the nine months ended September 30, 1998, decreased by
$22,019,000, or 32 percent, to $47,116,000 from $69,136,000 for the same period
in 1997. The decrease is due primarily to decreases in the Company's utility
contracting services ($12,805,000 decrease in net revenue) caused by weather
related delays, demolition services ($2,545,000 decrease in net revenue) and to
decreases in remediation services ($6,400,000 decrease in net revenue) caused by
the closing of its New York operations. In addition, other services decreased
net revenues by $269,000.
Outside services, which largely represent subcontractor costs,
decreased, as a percentage of net revenue, to 22 percent for the nine months
ended September 30, 1998, from 24 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, especially due to the increase in land reclamation work where
little or no subcontractors are utilized and the decrease in road construction
work which requires significant use of subcontractors.
Cost of revenue earned, as a percentage of net revenue, for the nine
months ended September 30, 1998, increased to 105 percent from 81 percent for
the same period in 1997. As a result, the gross loss for the nine months ended
September 30, 1998, was $2,122,000 (negative 5 percent of net revenue) compared
to $13,359,000 (19 percent of net revenue) gross profit for the same period in
1997. The decrease in the dollar amount ($15,481,000) and percentage of gross
margin (negative 116 percent) is primarily associated with cost overruns caused
by weather related delays in the Company's utility contracting services
($12,562,000 decrease in gross profit) and additionally from remediation
services ($1,930,000 decrease in gross profit), industrial demolition services
($1,354,000 decrease in gross profit). These decreases are partially offset by
increases in the Company's other demolition services ($233,000 increase in gross
profit) and asbestos abatement services ($133,000 increase in gross profit).
During the nine months ended September 30, 1998, selling, general and
administrative expenses increased to $6,706,000 (14 percent of net revenue) from
$5,142,000 (7 percent of net revenue) for the same period in 1997. The dollar
and percentage increase is primarily a result of one-time costs associated with
the sale of the solid waste services subsidiary and reduced revenues in utility
contracting services. For discontinued operations, selling, general and
administrative expenses for the nine months ended September 30, 1998, were
$4,302,000, representing a decrease of $1,803,000, or 30 percent, from
$6,105,000 for the same period in 1997. The dollar and percentage decrease in
selling, general, and administrative expenses is primarily attributable to
reduced overhead costs, such as administrative, sales, marketing and labor costs
that are associated with facilities that have been closed or sold and from
management's actions to reduce overhead costs.
20
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
The Company's subsidiary, TransCor, sold its Jacksonville area waste
collection and recycling operating 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. This
transaction, combined with the Company's sale of certain other vehicles, waste
containers, and equipment during the nine months ended September 30, 1998,
resulted in a non-operating gain of approximately $4,805,000. These assets were
primarily utilized in the Company's commercial and residential waste collection
services. This gain is included in income from discontinued operations for the
nine-month period ended September 30, 1998.
Minority interest in net income of subsidiary was $3,060,000 for the
nine months ended September 30, 1998, compared to minority interest in net loss
of subsidiary of $381,000 during the same period in 1997. The minority interest
in net income or net loss of the subsidiary has historically reflected
approximately 26 percent of TransCor's earnings as a result of the March 25,
1993, initial public offering of TransCor's common stock. The minority interest
of 26% was reduced to 19% as a result of the Company's purchase of approximately
297,000 shares (or 7%) of TransCor stock from Mr. Williams on August 14, 1998.
Additionally, during the nine months ended September 30, 1998, TransCor acquired
77,000 shares of treasury stock on the open market effectively increasing the
Company's ownership an additional 2% to 83%. The increase in TransCor's earnings
between years is attributable primarily to the gain on the sale of discontinued
operations and to a lesser extent to reduced administration and overhead costs
at certain solid waste management facilities, especially the headquarter's
office.
Interest expense, net of interest income, increased to $4,647,000
during the nine months ended September 30, 1998, compared to $2,136,000 for the
same period in 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, loss from continuing operations before
provision for income taxes for the nine months ended September 30, 1998, was
$16,758,000 (36 percent of net revenue) compared to income before provision for
income taxes of $6,462,000 (9 percent of net revenue) during the same period in
1997.
The Company's effective tax rate for continuing operations was 40
percent for the nine months ended September 30, 1998, compared to a rate of 26.7
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.
The Company incurred a loss from continuing operations of $9,961,000
(negative 21 percent of net revenue) for the nine months ended September 30,
1998, as compared with income from continuing operations of $4,732,000 (7
percent of net revenue) for the same period during 1997.
21
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (CONTINUED)
In addition to the continuing operations, the Company incurred losses from
discontinued solid waste management services operations of $180,000 for the nine
months ended September 30, 1998, representing a decrease of $2,109,000 or
approximately 92 percent from $2,289,000 for the nine months ended September 30,
1997. The dollar and percentage decrease in losses is primarily attributable to
the sale of KRC in August 1998, the sale of certain operating assets in May 1998
and reduced overhead costs such as administrative, sales, marketing and labor
costs as a result of facility closures and management's actions to reduce
overhead costs.
The Company's sale of KRC to EESI for approximately $57,800,000 resulted in
a gain of $19,922,000 net of taxes of $11,164,000. Also included in the gain are
losses of $1,119,000 net of a tax benefit of $715,000 from discontinued solid
waste management services operations for the period from the measurement date on
July 14, 1998 through August 31, 1998.
As a result of the foregoing, the Company reported net income for the
nine months ended September 30, 1998, of $9,781,000 (21 percent of net revenue)
as compared with net income of $2,442,000 (4 percent of net revenue) for the
same period during 1997.
22
<PAGE>
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $13,494,000 and $2,155,000 during
the nine months ended September 30, 1998 and 1997, respectively. Cash provided
includes the Company's discontinued solid waste management services segment
which provided $7,085,000 for the nine months ended September 30, 1998 In
addition, $509,000 and $384,000 of cash was provided by continuing operations of
the solid waste management services segment for the nine months ended September
30, 1998 and 1997, respectively. Cash used in (provided by) the Company's
specialty contracting segment approximated $5,900,000 and ($1,771,000) for the
nine months ended September 30, 1998 and 1997, respectively. Cash was used in
the specialty contracting operations during the third 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.
Net cash used in investing activities during the nine months September
30, 1998, was $7,497,000 as compared to $20,420,000 for the nine months ended
September 30, 1997. The decrease in cash used in investing activities is
primarily attributable to a gain of $20,532,000 from the sale of assets of
discontinued operations as well as reduced capital expenditures of $15,310,000.
These decreases were partially offset by investments in Eastern stock of
$17,000,000 and other marketable securities of $5,000,000.
The Company had capital expenditures during the nine months ended
September 30, 1997 and 1998 of $22,331,000 and $7,020,000, respectively. The
1997 capital expenditures were primarily related to the conversion of
approximately $13,000,000 of construction equipment utilized in the Company's
specialty contracting operations, which was previously rented under operating
leases. Future capital expenditures will be financed by available cash
resources, cash flow from operations, and available credit resources, as needed.
During 1998 the Company used cash related to financing activities of
$2,030,000. Borrowings in 1998 related primarily to the acquisition of
approximately $8,106,000 of equipment. These equipment notes require periodic
payments through July, 2002. 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. The credit agreement was increased to $16,000,000
in November 1997; and, as of September 30, 1998, borrowings were $13,700,000.
The Company made repayments on long-term debt of $35,820,000 during the first
nine months of 1998.
The Company's ratio of debt to equity was 5.78:1.00 and 2.86:1.00 at
December 31, 1997, and September 30, 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 nine months, especially the
gain of $16,663,000.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the nine months ended September 30, 1997 and 1998, the
Company's average contract and trade receivables less retainage were outstanding
for 69 and 87 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 September 30, 1998, $1,076,000 and $900,000,
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.
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.
24
<PAGE>
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. As a result of
the sale of the Company's solid waste subsidiary in September 1998, the Company
will have no capitalized start-up costs remaining at December 31, 1998. At
December 31, 1997, the balance of capitalized start-up costs of $330,000 were
reflected in the "net assets of discontinued operations."
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.
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.
25
<PAGE>
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.
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.
26
<PAGE>
PART II - OTHER INFORMATION
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:
27.1 - Financial Data Schedule - 1998 (for SEC use only)
27.2 - Financial Data Schedule - 1997 (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
27
<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
November 25, 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 November 25, 1998.
Date: November 25, 1998 By: /s/ FRANCIS M. WILLIAMS
----------------- -----------------------
Francis M. Williams
President and Chief Executive Officer
(Principle Executive Officer)
Date: November 25, 1998 By: /s/ NORMAN S. DOMINIAK
----------------------- ----------------------
Norman S. Dominiak
Vice President and Chief
Financial Officer
(Principle Accounting and
Financial Officer)
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,641,041
<SECURITIES> 21,859,210
<RECEIVABLES> 17,234,720
<ALLOWANCES> (30,000)
<INVENTORY> 0
<CURRENT-ASSETS> 53,138,849
<PP&E> 65,635,190
<DEPRECIATION> 19,034,896
<TOTAL-ASSETS> 123,412,404
<CURRENT-LIABILITIES> 42,606,814
<BONDS> 0
0
0
<COMMON> 4,447
<OTHER-SE> 19,135,994
<TOTAL-LIABILITY-AND-EQUITY> 123,412,404
<SALES> 57,293,904
<TOTAL-REVENUES> 57,293,904
<CGS> 59,416,209
<TOTAL-COSTS> 59,416,209
<OTHER-EXPENSES> 6,705,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,646,559
<INCOME-PRETAX> (16,758,224)
<INCOME-TAX> (6,797,268)
<INCOME-CONTINUING> (9,960,956)
<DISCONTINUED> 19,741,538
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,780,582
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,614,194
<SECURITIES> 0
<RECEIVABLES> 23,690,052
<ALLOWANCES> (50,000)
<INVENTORY> 0
<CURRENT-ASSETS> 50,661,070
<PP&E> 41,909,517
<DEPRECIATION> (15,267,733)
<TOTAL-ASSETS> 87,350,556
<CURRENT-LIABILITIES> 31,195,160
<BONDS> 0
0
0
<COMMON> 4,447
<OTHER-SE> 20,383,778
<TOTAL-LIABILITY-AND-EQUITY> 87,350,556
<SALES> 85,952,579
<TOTAL-REVENUES> 85,952,579
<CGS> 72,593,887
<TOTAL-COSTS> 72,593,887
<OTHER-EXPENSES> 4,578,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,136,170
<INCOME-PRETAX> 6,462,288
<INCOME-TAX> 1,730,660
<INCOME-CONTINUING> 4,731,628
<DISCONTINUED> (2,289,368)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,442,260
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
