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, 1999
[] TRANSITION REPORT PURSUANT TO SECTION 13 OF 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 [ ] No [ ]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by 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 7, 1999 was 4,288,956
shares. The number of shares of Class B Common Stock outstanding on May 7, 1999
was 2,291,569 shares.
<PAGE>
- --------------------------------------------------------------------------------
KIMMINS CORP.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated balance sheets at December 31, 1998 and
March 31, 1999 (unaudited) 3
Consolidated statements of operations for the three months
ended March 31, 1998 and 1999 (unaudited) 5
Consolidated statements of cash flows for the three months
ended March 31, 1998 and 1999 (unaudited) 7
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of financial
condition and results of operations 18
Item 3. Quantitative and qualitative disclosures about market risk 23
PART II. OTHER INFORMATION
Item 1. Legal proceedings 24
Item 2. Changes in securities 24
Item 3. Defaults upon senior securities 24
Item 4. Submission of matters to a vote of security holders 24
Item 5. Other information 24
Item 6. Exhibits and reports on Form 8-K 24
Signatures 25
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
1998 1999
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,859,275 $ 1,473,922
Marketable securities 22,022,296 21,489,879
Accounts receivable, net
Contract and trade 17,550,528 14,961,501
Affiliates 282,903 302,647
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,743,644 1,471,412
Deferred income tax, net 1,437,707 1,546,237
Property and equipment held for sale 2,083,083 1,927,828
Other current assets 225,677 103,119
-------------- -------------
Total current assets $ 47,205,113 $ 43,276,545
-------------- -------------
Property and equipment, net 45,646,719 43,461,073
Property held for sale -0- -0-
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 8,804,728 8,804,728
Non-current portion of accounts receivable, net
contract and trade 874,048 874,048
Accounts receivable - affiliate 900,000 900,000
Note receivable - affiliate 1,010,764 1,028,264
Investment in Apartments 5,231,080 5,048,940
Investment in Cumberland Technologies, Inc. 4,628,019 4,665,092
============== =============
Total assets $ 114,300,471 $ 108,058,690
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements KIMMINS CORP.
<PAGE>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 11,799,293 $ 8,505,512
Income tax payable 489,353 184,210
Accrued expenses 6,080,388 4,407,914
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,152,522 3,688,563
Current portion of long-term debt 18,270,156 23,062,682
Current portion of Employee Stock Ownership Plan
Trust debt 360,000 480,000
------------- ------------
Total current liabilities $ 41,151,712 $ 40,328,881
------------- ------------
Long-term debt 50,768,960 46,405,796
Capital lease obligations 1,242,101 1,107,640
Employee Stock Ownership Plan Trust debt 449,498 329,498
Deferred income taxes 1,812,182 1,812,182
Minority interest in subsidiary 4,204,938 3,652,116
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 32,500,000 shares
authorized; 4,447,397 shares issued and 4,288,956
and 4,288,956 outstanding as of December 31, 1998
and March 31, 1999 respectively 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 19,114,603 19,384,952
Unrealized gain on securities (net of tax) 101,064 (61,732)
Retained earnings (deficit) (2,947,063) (3,423,119)
Unearned employee compensation from Employee Stock
Ownership Plan Trust (840,000) (720,000)
------------- ------------
15,435,343 15,186,840
Less treasury stock, at cost (158,441 shares) (764,263) (764,263)
------------- ------------
Total stockholders' equity 14,671,080 14,422,577
------------- ------------
Total liabilities and stockholders' equity $114,300,471 $108,058,690
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1998 1999
------------- ------------
<S> <C> <C>
Revenue
Gross revenue $ 24,598,001 16,925,801
Outside services, at cost (2,568,179) (1,878,078)
------------- ------------
Net revenue 22,029,822 15,047,723
Cost of revenue earned 17,227,196 13,120,247
------------- ------------
Gross profit 4,802,626 1,927,476
Selling, general and administrative expenses 1,728,995 1,911,875
------------- ------------
Operating income (loss) 3,073,631 15,601
Minority interest in net operations of subsidiary (58,046) (42,118)
Income from marketable securities -0- 564,571
Interest expense (1,516,004) (1,318,472)
------------- ------------
Loss before provision for income taxes (benefit) 1,499,581 (780,418)
Provision for income taxes (benefit) 250,602 (304,362)
------------- ------------
Income (loss) from continuing operations 1,248,979 (476,056)
Discontinued operations:
Income (loss) from discontinued solid waste division (net
of tax benefit of $49,437 in 1998) (12,324) -0-
------------- ------------
Net income (loss) $ 1,236,655 $ (476,056)
============= ============
Share data:
Basic income (loss) per share from continuing operations $ .29 $ (.11)
============= ============
Diluted income (loss) per share from continuing operations .28 (.10)
============= ============
Basic income (loss) per share from discontinued operations $ -0- $ -0-
============= ============
Diluted income (loss) per share from discontinued operations -0- -0-
============= ============
Total basic income (loss) per share $ .29 $ (.11)
============= ============
Total diluted income (loss) per share .28 (.10)
============= ============
Weighted average number of shares outstanding used in computations:
Basic 4,296,969 4,288,956
============= ============
Diluted 4,410,361 4,913,956
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net income (loss) $ 1,236,655 $ (476,056)
Unrealized loss on investments in marketable
securities, net of tax benefit of $108,530 -0- (162,796)
Less minority interest -0- 20,512
Allocable share of unrealized loss on investments in
marketable securities held by Cumberland 8,771 (40,459)
----------- -----------
Comprehensive income (loss) $ 1,245,426 $ (658,799)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ 1,248,979 (476,056)
Adjustments to reconcile net income from continuing operations to net cash provided
(used) by operating activities:
Depreciation and amortization 2,261,667 2,407,402
Gain on sale of marketable securities -0- (25,326)
Unrealized loss on marketable securities -0- 108,529
Deferred income taxes -0- (108,530)
Minority interest in operations of subsidiary 58,046 (282,473)
Gain on disposal of property and equipment (7,904) -0-
Accrued interest on term note -0- (17,500)
Equity in losses of equity investees (46,213) 3,311
Unearned employee compensation from Employee Stock Ownership Plan Trust 120,000 -0-
Changes in operating assets and liabilities:
Accounts receivable 1,466,181 2,685,250
Costs and estimated earnings in excess of billings on uncompleted contracts (4,720,560) 156,265
Income tax refund receivable and payable 166,140 (305,143)
Other (296,520) 122,559
Accounts payable 1,435,127 (3,293,781)
Accrued expenses (992,208) (1,552,474)
Billings in excess of costs and estimated earnings on uncompleted contracts (3,068,632) (463,959)
------------- ------------
Total adjustments (3,624,876) (565,870)
------------- ------------
Net cash provided by (used in) continuing operations (2,375,897) (1,041,926)
Net loss from discontinued operations (12,324) -0-
Net book value of assets of discontinued operations 962,655 -0-
------------- ------------
Net cash provided by (used in) operating activities 950,331 -0-
------------- ------------
Cash flows from investing activities:
Capital expenditures (890,106) (80,000)
Proceeds from sale of property and equipment 483,537 155,254
Cash proceeds from sale of marketable securities -0- 498,593
Purchase of marketable securities -0- (212,175)
------------- ------------
Net cash provided by (used in) investing activities (406,569) 361,672
------------- ------------
Cash flows from financing activities:
Proceeds from long-term debt 2,513,017 5,000,000
Repayments of long-term debt and capital leases (4,234,909) (4,570,638)
Payments on capital lease obligations -0- (134,461)
Repayments of Employee Stock Ownership Plan (120,000) -0-
------------- ------------
Net cash provided by (used in) financing activities (1,841,892) 294,901
------------- ------------
Net increase (decrease) in cash (3,674,027) (385,353)
Cash, beginning of period 3,674,027 1,859,275
============= ============
Cash, end of period $ -0- $ 1,473,922
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 one business segment: specialty-contracting services. The
Company provides specialty-contracting services in the southeastern United
States, primarily Florida, including earthwork; infrastructure development;
underground construction; roadwork; site remediation services such as
excavation, removal and disposal of contaminated soil; facilities demolition and
dismantling; and asbestos abatement. The Company formerly provided solid waste
management services through its subsidiary, TransCor Waste Services, Inc.
("TransCor"), (See Note 8).
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, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and notes thereto as of and for the
year ended December 31, 1998, included in the Company's Form 10-K dated December
31, 1998, as filed with the United States Securities and Exchange Commission.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Kimmins and its subsidiaries, including TransCor, an 87 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.
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. Subsequent to the sale of Kimmins Recycling
Corp. to EESI, Waste Management, Inc. acquired EESI. On January 4, 1999,
TransCor received 355,742 shares of Waste Management, Inc. common stock in
exchange for its 555,329 shares of EESI. Additionally, commencing in September
1998, the Company 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 approximately $21,490,000 as of March 31, 1999. The
Company's cost basis in these investments is approximately $21,436,000, and the
unrealized gain of approximately $54,000, net of deferred income taxes of
approximately $21,000, is reported as a separate component of shareholder's
equity.
Additionally, the Company's allocable share of the unrealized gains and
losses on marketable securities held by Cumberland Technologies, Inc.
("Cumberland") is approximately $98,000 for the year ended December 31, 1998.
The balance of unrealized gains and losses net of deferred tax is $101,000 at
December 31, 1998.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - The Company's 31.6 percent investment in Cumberland is
accounted for using the equity method of accounting. The Company's 49 percent
investments in Summerbreeze Apartments, Ltd., and Sunshadow Apartments, Ltd.
(the "Apartments"), are also accounted for using the equity method of
accounting. The original carrying amounts in excess of the underlying equity in
these companies is amortized over the estimated useful life of the investment.
The estimated useful lives of these intangibles are twenty years for Cumberland
and thirty years for the Apartments.
EARNINGS (LOSS) PER SHARE - In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"),
which establishes standards for computing and presenting earnings per share. The
Company adopted the provisions of SFAS No. 128 effective December 31, 1997 and
all earnings per share amounts for all periods presented, and where appropriate,
have been restated to conform to SFAS No. 128 requirements.
COMPREHENSIVE INCOME - 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 be displayed in a
financial statement with equal prominence as other financial statements.
Comprehensive income is defined as changes in stockholders' equity exclusive of
transactions with owners such as capital contributions and dividends. The
Company adopted the provisions of SFAS No. 130 effective January 1, 1998.
PROPOSED ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Statement requires companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of assets, liabilities, or
firm commitments through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the Statement to have a significant affect on
earnings or the financial position of the Company.
2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
<S> <C> <C>
Expenditures on uncompleted contracts $ 140,139,011 $ 167,918,532
Estimated earnings on uncompleted contracts (1,242,975) (7,091,262)
-------------- --------------
138,896,036 160,827,270
Less actual and allowable billings on uncompleted
contracts 132,500,186 154,239,693
-------------- --------------
$ 6,395,850 $ 6,587,577
============== ==============
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 10,548,372 $ 10,276,140
Billings in excess of costs and estimated earnings
on uncompleted contracts (4,152,522) (3,688,563)
-------------- --------------
$ 6,395,850 $ 6,587,577
============== ==============
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and March 31, 1999, 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 approximately $10,000,000 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 at December 31, 1998 and March 31, 1999 that were not
expected to be collected within twelve months are classified as a non-current
asset.
3. PROPERTY AND EQUIPMENT 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 transportable
incineration system. This asset has a carrying value of approximately $1,800,000
as of December 31, 1998 and March 31, 1999. A purchase agreement for the sale of
the incinerator for $1,800,000 was executed in February 1998. The Company wrote
down the carrying value of the asset of $40,000 in 1997 to reflect the fair
market value based on the purchase agreement. Since February 1998, the Company
received approximately $720,000 from the buyer towards the purchase. The sale of
the transportable incineration system will be completed upon full receipt of the
purchase price by the Company, which is expected during 1999. The deposits of
$720,000 have been netted against the carrying value of the asset resulting in
$1,081,000 being included in "property held for sale" at March 31, 1999.
As a result of the Company's sale of its solid waste operations in August
1998, all of TransCor's operating facilities were disposed of with the exception
of an idle facility in Ft. Myers (Lee County), Florida. In accordance with
Statement of Financial Accounting Standards No. 121, "Impairment of Long-Lived
Assets to be Disposed Of," in 1997 the Company reduced the carrying value of
certain land held for sale by $90,000, that management believed had carrying
amounts higher than its fair market value. The land and buildings are listed for
sale and are expected to be sold during 1999. Accordingly, the carrying value of
these assets of approximately $808,000, net of the impairment loss of $90,000,
is classified as a current asset under the caption "Property Held for Sale" in
the consolidated balance sheet.
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
December 31, March 31,
1998 1999
Land $ 1,058,234 $ 1,058,234
Buildings and improvements 2,166,984 2,166,984
Construction equipment 60,752,336 60,752,336
Furniture and fixtures 698,628 778,606
Construction in progress 548,816 548,816
-------------- ---------------
65,224,998 65,304,976
Less accumulated depreciation (19,578,279) (21,843,903)
-------------- ---------------
Net P&E $ 45,646,719 $ 43,461,073
============== ===============
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging from 3 to 30 years.
Depreciation expense was approximately $3,069,000 and $2,266,000 for the three
months ended March 31, 1998 and 1999, respectively. Approximately $970,000 of
depreciation expense for the three-month period ended March 31, 1998, is
attributable to discontinued operations, with the remaining depreciation
attributable to continuing operations. Construction in progress will be
depreciated over the estimated useful lives of respective assets when placed
into service.
5. INVESTMENTS IN CUMBERLAND TECHNOLOGIES, INC., SUMMERBREEZE APARTMENTS,
LTD., AND SUNSHADOW APARTMENTS, LTD.
CUMBERLAND - In 1988, Cumberland Casualty & Surety Company ("CCS") issued a
surplus debenture to the Company that bears interest at 10 percent per annum in
exchange for $3,000,000. In 1992, such debenture was assigned to Cumberland
Technologies, Inc. ("Cumberland"), a holding company that provides, among other
services, reinsurance for specialty sureties and performance and payment bonds
for contractors. Cumberland entered into a term note agreement with the Company
for the outstanding amount of the debenture, including accrued interest.
Interest accrued on the term note was $506,755 at December 31, 1995 ($372,066 in
1996 prior to the conversion discussed below).
On November 5, 1996, the Company received 1,723,290 shares, or 30 percent
of the outstanding common stock, of Cumberland common stock 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. The amount of
$3,300,000 in excess of the underlying equity was attributed to goodwill and is
being amortized over twenty years. At March 31, 1999, the market value of the
Cumberland common stock held by the Company was approximately $4,092,000 based
on a stock price of $2.375.
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of Cumberland at March
31, 1999:
March 31, 1999
Cash and cash equivalents $ 3,829,000
Investments in various marketable securities 3,321,000
Accounts receivable - trade, net 1,685,000
Reinsurance recoverable 3,061,000
Intangibles 1,406,000
Other 2,466,000
---------------
Total assets $ 15,768,000
===============
Policy liabilities and accruals $ 7,325,000
Long-term debt 2,319,000
Other 656,000
---------------
Total liabilities 10,300,000
Stockholders' equity 5,468,000
---------------
Total liabilities and stockholders' equity $ 15,768,000
===============
Cumberland's operating results included revenue of approximately $1,738,000
and $2,585,000 and net income of approximately $320,000 and $247,000,
respectively, during the quarters ended March 31, 1998 and 1999. The Company's
equity in the net income amounted to approximately $101,000 and $78,000,
respectively. In addition, approximately $41,000 of amortization expense was
recorded by the Company related to the investment for each quarter.
APARTMENTS - 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 approximately $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.
During the quarters ended March 31, 1998 and 1999, the Apartments
recognized revenue of approximately $1,116,000 and $1,108,000. During the same
periods, the Apartments recognized net losses of approximately $102,000 and
$167,000, respectively. The Company has recorded its 49 percent share of the net
results of operations. In addition, approximately $101,000 and $101,000 of
amortization expense was recorded by the Company related to the investments in
the Apartments for the quarters ended March 31, 1998 and 1999, respectively. At
March 31, 1999, the Company's balance in its total investment in the Apartments
was approximately $5,049,000 of which $900,000 is considered as an "accounts
receivable - affiliate."
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of the Apartments at
December 31, 1998 and March 31, 1999:
<TABLE>
<CAPTION>
Total investment
December 31, March 31,
1998 1999
---- ----
<S> <C> <C>
Cash and cash equivalents $ 66,000 $ 77,000
Accounts receivable - affiliate -0- 946,000
Land 3,800,000 3,800,000
Buildings, capitalized construction interest, furniture and
equipment, net 16,420,000 16,204,000
Other 638,000 676,000
------------- ---------------
Total assets $ 20,924,000 $ 21,703,000
============= ===============
Accounts payable and accrued expenses $ 846,000 $ 1,011,000
Accounts payable to affiliates 1,489,000 1,586,000
Mortgage loan payable 20,993,000 20,949,000
Note payable to partner - Francis M. Williams 2,860,000 2,860,000
------------- ---------------
Total liabilities 26,188,000 26,406,000
Partners' deficit (5,264,000) (4,703,000)
------------- ---------------
Total liabilities and partners' deficit $ 20,924,000 $ 21,703,000
============= ===============
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
<S> <C> <C>
Notes payable, principal and interest payable in monthly installments
through March 1, 2003, interest at varying rates up to 13 percent,
collateralized by equipment $ 51,712,212 $ 47,187,426
Revolving term bank line of credit, including letters of credit, $4,424,000 in
1998 (see below), due March 31, 2001 interest, payable monthly at
lender's base rate plus .5%. At December 31, 1998 the rate is 8.25%. 1,764,003 2,198,669
Revolving term line of credit, $16,000,000 maximum, due April 1, 2000, interest
payable monthly at lender's base rate of LIBOR plus 2.5%,
collateralized by equipment. At December 31, 1998 the rate is 8.2656%. 13,700,000 13,250,000
<CAPTION>
Revolving securities - based loan, $8,200,000 maximum, due July 7, 1999,
interest payable monthly at lender's base rate of 3 month LIBOR plus
.75%. At March 31, 1999 rate was 5.75%. -0- 5,000,000
Mortgage notes, principal and interest payable in monthly installments through
August 1, 2000, interest at varying rates up to prime plus 1.75%,
collateralized by land and buildings. At December 31, 1998 the
average rate is 9%. 1,862,901 1,832,383
--------------- ----------------
Total debt 69,039,116 69,468,478
Less current portion 18,270,156 23,062,682
--------------- ----------------
Net long term debt $ 50,768,960 $ 46,405,796
=============== ================
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 1999, there was approximately $334,000 of borrowings available
under the revolving term bank line of credit. The revolving term bank line of
$4,424,000 includes the letter of credit facility of $2,526,000 and is secured
by a pledge of all of the stock of the Company's subsidiaries and substantially
all of the unsecured assets of the Company. The use of funds under these lines
is limited among certain subsidiaries.
The revolving term bank line of credit agreement contains 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 of approximately $1,764,000, the Company met the
tangible net worth and net income requirements under the credit agreement with
the bank. As of March 31, 1999, the Company was in compliance with or obtained
waivers for all loan covenants.
The revolving term line of credit of $16,000,000 is secured by a pledge of
the trade receivables of Kimmins Contracting Corp. The amount outstanding at
March 31, 1999 is $13,250,000.
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 tangible net worth ratio of 7.5 to 1.0 and a current
ratio of 1.5 to 1.0. Regarding the revolving term line of credit for $13,250,000
and outstanding equipment notes of approximately $37,029,000, 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 liability to adjusted tangible net worth ratio
not exceeding 6.0 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 the three
months ended March 31, 1999. In addition, the Company received a modification of
the covenants for the three months ended March 31, 2000, with which the Company
believes it will comply.
On January 7, 1999, TransCor executed a revolving securities-based loan
with a maximum principal amount of $8,200,000. The initial disbursement was
$2,500,000 with another $2,500,000 being drawn during the quarter resulting in a
balance outstanding at March 31, 1999 of $5,000,000. The loan term is three
months and it was renewed on April 7, 1999. Interest is due monthly based on the
three month LIBOR rate plus .75 percent. The rate on April 7, 1999 was 5.75
percent. The loan is collateralized by a portion of TransCor's stock investment
in Waste Management, Inc.
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY
The Company's Class B common stock has the same voting rights as common
stock and is not entitled to participate in cash dividends. Upon liquidation or
dissolution of the Company, the holders of common stock are entitled to receive
up to $9.00 per share, after which the holders of Class B common stock are
entitled to receive up to $9.00 per share. Thereafter, all assets remaining for
distribution will be distributed pro rata to the holders of common stock and
Class B common stock. The right to convert Class B common stock to common stock
occurs in any fiscal year in which the Company achieves net earnings equal to a
specified amount (currently $.84 per share), which is calculated by adding the
total shares outstanding at fiscal year end to the number of shares that could
be converted during the fiscal year.
The holders of the Class B common stock will thereafter have the right to
convert up to 625,000 shares of Class B common stock into common stock on a
share for share basis as follows. Each cumulative incremental increase in net
earnings in any subsequent year of $.21 per share above the specified level of
earnings previously obtained will afford holders the right to convert up to an
additional 625,000 shares of Class B common stock into common stock on a share
for share basis. Holders of Class B common stock will not be entitled to convert
more than 625,000 of such shares in any fiscal year unless the Company achieves
earnings of $1.44 per share of common stock in any fiscal year, which will
entitle holders to convert all shares of Class B common stock into common stock.
In addition, conversion occurs if a sale of part of the Company's business as to
which there is a bona fide offer to purchase would have resulted in
convertibility of any of the outstanding Class B common stock and it is
determined by the Board of Directors of the Company not to approve such a
transaction, then, upon request of the holder or holders of a majority of the
outstanding Class B common stock, the number of shares thereof which would have
become convertible had the transaction occurred would become convertible. A
similar provision provides that if there is an independent valuation of a part
of the business of the Company such that if such part of the business were sold,
the result would allow conversion of all outstanding Class B common stock and if
the Board of Directors of the Company does not authorize such sale, then, upon
request of the holder or holders of a majority of the outstanding Class B common
stock, the outstanding Class B common stock would become convertible. No shares
of Class B common stock became eligible for conversion into common stock during
the years ended December 31, 1996 or 1997.
As a result of TransCors sale of KRC to EESI in August 1998, the Companys
net income for the year ended December 31, 1998 exceeded the threshold amount of
$.84 per share. Thus, subsequent to year end, the Board of Directors set the
conversion date and the holder of the Class B common stock, Mr. Francis M.
Williams, was entitled to convert 625,000 Class B shares into common stock.
As of January 1, 1999, the effect on the calculation of earnings per share
is as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1998
-------------------------------------
Actual Conversion
<S> <C> <C>
Share data:
Basic income (loss) per share from continuing operations $ (.29) $ (.11)
============ =============
Diluted income per share from continuing operations $ .28 $ (.10)
============ =============
Total basic income per share $ .29 $ (.11)
============ =============
Total diluted income (loss) per share $ .28 $ (.10)
============ =============
Weighted average number of shares outstanding used in computations:
Basic 4,288,956 4,913,956
Diluted 4,402,348 4,913,956
</TABLE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EARNINGS (LOSS) 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 March 31,
----------------------------------
1998 1999
---------------- ---------------
<S> <C> <C>
Numerator:
- ---------
Income (loss) from continuing operations $ 1,248,979 $ (476,056)
Adjustment for basic earnings per share -0- -0-
---------------- ---------------
Numerator for basic earnings per share - income (loss)
available to common stockholders from continuing operations 1,248,979 (476,056)
Effect of dilutive securities:
Numerator for diluted earnings per share:
Income (loss) from continuing operations 1,248,979 (476,056)
Loss from discontinued operations (12,324) -0-
---------------- ---------------
Income (loss) applicable to common stockholders after assumed
conversions $ 1,236,655 (476,056)
================ ===============
Denominator:
- -----------
Denominator for basic earnings per share -
weighted-average shares 4,296,969 4,288,956
Effective of dilutive securities:
Stock options 113,392 -0-
Dilutive potential of Class B common shares -0- 625,000
================ ===============
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,410,361 4,913,956
================ ===============
Basic income (loss) per share from continuing operations $ .29 $ (.11)
================ ===============
Diluted income (loss) per share from continuing operations $ .28 $ (.10)
================ ===============
Basic income (loss) per share from discontinued operations $ -0- $ -0-
================ ===============
Diluted income (loss) per share from discontinued operations $ -0- $ -0-
================ ===============
Total basic income (loss) per share $ .29 $ (.11)
================ ===============
Total diluted income (loss) per share $ .28 $ (.10)
================ ===============
</TABLE>
<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 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 approximately $57,800,000 in the form of cash
and EESI common stock. The sale of the Company's SWMS operations resulted in a
gain of approximately $19,611,000 net of taxes approximately $11,861,000 in the
third quarter of 1998.
Revenues and expenses of the SWMS operations for the quarter ended March
31, 1998 are shown separately in the schedule below. The consolidated statements
of operations for the quarter ended March 31, 1998 have been restated to show
separately the operating results of the SWMS operations. These amounts are
included in the income or loss from discontinued operations portion of the
accompanying consolidated statements of operations. None of the net revenue was
received after the Company's adoption of the plan to sell the SWMS operations.
Information related to the discontinued SWMS operations of KRC for the quarter
ended March 31, 1998, is as follows:
Three months ended
March 31, 1998
---------------------
Net revenue $ 8,595,000
Operating expenses, including depreciation 7,089,000
Selling, general and administrative expenses 1,175,000
---------------------
Operating loss 331,000
Interest expense, net 393,000
---------------------
Loss before provision for income tax benefit (62,000)
Provision for income tax benefit (50,000)
=====================
Loss from discontinued operations $ (12,000)
=====================
For the quarter ended March 31, 1998, approximately $12,000 is shown as a
loss from discontinued operations.
<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, 1999 AND 1998
Net revenue for the three months ended March 31, 1999, decreased by 32
percent to $15,048,000 from $22,030,000 for the three months ended March 31,
1998. The increase is due primarily to the contraction of the Company's utility
contracting services ($4,538,000 decrease in net revenue) and demolition
services ($1,297,000 decrease in net revenue). In addition, other services
decreased net revenues by $1,147,000.
Outside services, which largely represent subcontractor costs, increased as
a percentage of net revenue, to 11 percent for the first quarter of 1999 from 10
percent for the same period in 1998. The Company will use the services of a
subcontractor when it determined that an economic opportunity exists regarding
internally providing the services. The Company utilized the services of
subcontractors to a greater extent during 1999 than 1998 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 1999 increased to 87 percent from 78 percent for the same period in
1998. As a result, the gross profit for the first quarter of 1999 was $1,927,000
(13 percent of net revenue) compared to $4,803,000 (22 percent of net revenue)
for the first quarter of 1998. The decrease in the dollar amount and percentage
of gross margin is primarily associated with the contraction of the Company's
utility contracting services ($2,369,000 decrease in gross profit) and
demolition services ($461,000 decrease in gross profit), and other services
($45,000 decrease in gross profit).
During the three months ended March 31, 1999, selling, general and
administrative expenses increased to $1,912,000 (13 percent of net revenue) from
$1,729,000 (8 percent of net revenue) for the three months ended March 31, 1998.
The dollar and percentage increase is primarily a result of a nonrecurring
reduction of insurance expense for the three months ended March 31, 1998.
Minority interest in net income of subsidiary was $42,000 for the three
months ended March 31, 1999 compared to minority interest in net income of
$58,000 during the same period in 1998. 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. In September 1998, the Company acquired approximately
297,000 shares of TransCor stock from Francis 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 Company's
ownership in TransCor to 81%. Also, since August 1998, TransCor acquired 150,000
shares of Treasury Stock on the open market effectively increasing the Company's
ownership an additional 7% to 88%.
Investment income from marketable securities was approximately $565,000.
There was no comparable investment income in the prior year. The increase is
attributable to TransCor's trading of covered options on Waste Management, Inc.
stock. During the three months ended March 31, 1999, TransCor invested
approximately $509,000 in covered options and recognized gains of approximately
$538,000 on proceeds of $1,047,000.
Interest expense, net of interest income, decreased to $1,318,000 during
the three months ended March 31, 1999 compared to $1,516,000 for the three
months ended March 31, 1998. The decrease is primarily attributable to decreases
in average borrowings during 1999 associated with the disposal of the solid
waste management operations in August 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of the foregoing, loss before provision for income taxes for
the three months ended March 31, 1999 was $780,000 (5 percent of net revenue)
compared to net income before provision for taxes of $1,500,000 (7 percent of
net revenue) during the same period in 1998.
The Company's effective tax rate was 39 percent for the three months ended
March 31, 1999 compared to a rate of 17 percent for 1998 tax benefits. The lower
than statutory effective tax rate in 1998 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 utilize these loss and
credit carryforwards before they expire in the year 2001; 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. In addition, for the three
months ended March 31, 1998 the Company incurred a loss of approximately $12,000
from discontinued operations as a result of the sale of the solid waste division
in the third quarter of 1998.
As a result of the foregoing, the Company incurred a net loss for the three
months ended March 31, 1999 of $476,000 (3 percent of net revenue) as compared
with net income of $1,237,000 (4 percent of net revenue) for the same period
during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $1,042,000 and $2,376,000 during the
three months ended March 31, 1998 and 1999, respectively. 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. During the first quarter of 1999, decreases in accounts
payable and accrued expenses more than offset decreases in accounts receivables
which were the primary factor for cash used by operating activities.
The Company had capital expenditures during the three months ended March
31, 1998 and 1999 of $890,000 and $80,000, respectively. The 1999 capital
expenditures were for the purchase of accounting software. The 1998 capital
expenditures were primarily related to the purchase of approximately $638,000 of
construction equipment utilized in the Company's specialty contracting
operations. Future capital expenditures will be financed by available cash
resources, cash flow from operations, and available credit resources, as needed.
During 1999 the Company generated cash from financing activities of
approximately $295,000. Borrowings in 1998 related primarily to the acquisition
of approximately $3,000,000 of equipment. As of March 31, 1999, borrowings on
the $16,000,000 working capital revolving credit line were $13,250,000.
On January 7, 1999, TransCor executed a revolving securities-based loan
with a maximum principal amount of $8,200,000. The initial disbursement was
$2,500,000 with another $2,500,000 being drawn during the quarter resulting in a
balance outstanding at March 31, 1999 of $5,000,000. The loan proceeds were used
primarily to reduce outstanding debt. The loan term is three months and it was
renewed on April 7, 1999. Interest is due monthly based on the three month LIBOR
rate plus .75 percent. The rate on April 7, 1999 was 5.75 percent. The loan is
collateralized by a portion of TransCor's stock investment in Waste Management,
Inc.
The Company's ratio of debt to equity was 4.8 and 4.9 at December 31, 1998
and March 31, 1999, respectively. The increase in debt is primarily due to the
decrease in equity resulting from the net loss generated in the first quarter.
During the three months ended March 31, 1998 and 1999, the Company's
average contract and trade receivables less retainage were outstanding for 75
and 79 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 payments.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1998 and March 31, 1998, $2,194,000 and $2,201,000,
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 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 be displayed in a financial statement
with equal prominence as other financial statements. Comprehensive income is
defined as changes in stockholders' equity exclusive of transactions with owners
such as capital contributions and dividends. The Company adopted the provisions
of SFAS No. 130 effective January 1, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes 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. During the
fourth quarter of 1998, the Company adopted the provision of SFAS No. 131. The
adoption of SFAS No. 131 did not affect the results of operations or financial
position of the Company. Based on management's assessment, the Company operates
one dominant segment.
In June 1998, the Financial Accounting Standards Board Issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Statement
requires the companies to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the Statement
to have a significant effect on earnings or the financial position of the
Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Given the complexity of the new Standard and that the impact hinges on
market values at the date of adoption, it is extremely difficult to estimate the
impact of adoption unless adoption is imminent.
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 200 and thereafter. The total cost of the Year
2000 project is estimated to be $15,000. 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 approximately $13,000.
The majority of software used by the Company is licensed from various
software providers who are currently updating the 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 June 1999, which is
prior to any anticipated impact on the Company's 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. If the above plan is not timely
implemented, the Company's contingency plan would be to maintain the accounting
system manually and devote additional resources, staff and consultants to the
project.
The Company has initiated formal communications will 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 affect 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 assurance 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 from those anticipated include, but are not
limited to, economic conditions, competitive factors, changes in market prices
of the Company's investments and other uncertainties, all of which are difficult
to predict and many of which are beyond the control of the Company. Due to such
uncertainties and risk, readers are cautioned not to place undue reliance on
such forward-looking statements, which speak only as of the date hereof.
EFFECT OF INFLATION
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset its increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During 1998, the Company did not enter into any transactions using
derivative financial instruments or derivative commodity instruments. As of
December 31, 1998, the Company has debt of approximately $63,500,000 of which
$47,000,000 has a fixed interest rate. The remaining debt of $16,500,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $165,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market interest rate risk is not material.
As of March 31, 1999, the Company's 87% owned subsidiary TransCor held for other
than trading purposes marketable equity securities of publicly traded companies
having a value of approximately $21,490,000 ($15,784,000 related to Waste
Management, Inc.). TransCor also holds approximately $5,700,000 of additional
marketable securities. These securities are subject to price risk.
Beginning in January 1999, TransCor covered options on Waste Management,
Inc. common stock. Management believes although there is always price risk in
this type of transaction, management is able to reduce this risk due to its
knowledge of the solid waste industry. During the three months ended March 31,
1999, TransCor invested approximately $509,000 in the covered options and
recognized gains of approximately $538,000 on proceeds of $1,046,000.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Effective with the close of business on March 1, 1999, Kimmins' stock was
delisted from the New York Stock Exchange (NYSE) because the Company could not
satisfy the continuing maintenance criteria of the NYSE. On March 10, 1999, the
Company's application for registration on the National Association of Securities
Dealers (NASD) Over the County Bulletin Board (OTCBB) was cleared. On March 11,
1999, the Company began trading on the OTCBB under the symbol "KVNM."
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:
10.1*- Loan and Collateral Account Agreement between Merrill Lynch
International Private Finance Limited and TransCor Waste Services,
Inc.
27.1 - Financial Data Schedule - March 31, 1999 (for SEC use only)
27.2 - Financial Data Schedule - March 31, 1998 (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
----------------------
* Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q of TransCor Waste Services, Inc. for the quarter ended March
31, 1999 (File No. 1-11822)
<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
May 20, 1999
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 May 20, 1999.
Date: May 20, 1999 /S/ FRANCIS M. WILLIAMS
----------------------------------------------
Francis M. Williams
President and Chief Executive Officer
(Principle Executive Officer)
Date: May 20, 1999 /S/ NORMAN S. DOMINIAK
----------------------------------------------
Norman S. Dominiak
Vice President and Chief Financial Officer
(Principle Accounting and Financial Officer)
<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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,473,922
<SECURITIES> 21,489,879
<RECEIVABLES> 15,264,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,276,545
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,058,690
<CURRENT-LIABILITIES> 40,328,881
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 14,415,838
<TOTAL-LIABILITY-AND-EQUITY> 108,058,690
<SALES> 16,925,801
<TOTAL-REVENUES> 15,047,723
<CGS> 13,120,247
<TOTAL-COSTS> 15,032,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,318,472
<INCOME-PRETAX> (780,418)
<INCOME-TAX> 304,362
<INCOME-CONTINUING> (476,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,056)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 22,244,514
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,677,753
<PP&E> 73,777,303
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,966,121
<CURRENT-LIABILITIES> 47,240,087
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 9,386,637
<TOTAL-LIABILITY-AND-EQUITY> 131,966,121
<SALES> 24,598,001
<TOTAL-REVENUES> 22,029,822
<CGS> 17,227,196
<TOTAL-COSTS> 18,956,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,516,004
<INCOME-PRETAX> 1,499,581
<INCOME-TAX> 250,602
<INCOME-CONTINUING> 1,248,979
<DISCONTINUED> (12,324)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,236,655
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.28
</TABLE>
