Friday, November 19, 1999 - 0300P
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 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)
FLORIDA 59-3598343
(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 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 15, 1999 was
4,872,256 shares. The number of shares of Class B Common Stock outstanding on
November 15, 1999 was 1,666,569 shares.
988229v1
<PAGE>
KIMMINS CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C> <C>
Item 1. Consolidated balance sheets at December 31, 1998
and September 30, 1999 (unaudited) 3
Consolidated statements of operations for the
three months ended September 30, 1998 and 1999
(unaudited) 5
Consolidated statements of comprehensive income
for the three months ended September 30, 1998 and
1999 (unaudited) 6
Consolidated statements of operations for the nine
months ended September 30, 1998 and 1999 (unaudited) 7
Consolidated statements of comprehensive income
for the nine months ended September 30, 1998 and
1999 (unaudited) 8
Consolidated statements of cash flows for the nine
months ended September 30, 1998 and 1999 (unaudited) 9
Notes to consolidated financial statements 10
Item 2. Management's discussion and analysis of financial
condition and results of operations 21
Item 3. Quantitative and qualitative disclosures about
market risk 27
PART II.OTHER INFORMATION
Item 1. Legal proceedings 28
Item 2. Changes in securities 28
Item 3. Defaults upon senior securities 28
Item 4. Submission of matters to a vote of security holders 28
Item 5. Other information 28
Item 6. Exhibits and reports on Form 8-K 28
Signatures 29
</TABLE>
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,859,275 $ 569,720
Marketable securities 22,022,296 13,189,889
Accounts receivable, net
Contract and trade 17,550,528 15,049,130
Affiliates 282,903 362,156
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,743,644 819,455
Deferred income tax, net 1,437,707 3,185,709
Property and equipment held for sale 2,083,083 1,213,089
Other current assets 225,677 345,918
-------------------- --------------------
Total current assets 47,205,113 34,735,066
-------------------- --------------------
Property and equipment, net 45,646,719 39,656,265
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 8,804,728 7,655,075
Non-current portion of accounts receivable, net
contract and trade 874,048 -0-
Accounts receivable - affiliate 900,000 900,000
Note receivable - affiliate 1,010,764 1,085,764
Investment in Apartments 5,231,080 4,712,225
Investment in Cumberland Technologies, Inc. 4,628,019 4,709,280
==================== ====================
Total assets $ 114,300,471 $ 93,453,675
==================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 11,799,293 $ 7,287,105
Income tax payable 489,353 107,269
Accrued expenses 6,080,388 6,126,561
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,152,522 1,805,137
Deferred revenue on open stock options -0- -0-
Current portion of long-term debt 18,270,156 18,398,046
Current portion of Employee Stock Ownership Plan
Trust debt 360,000 569,498
--------------------- ------------------
Total current liabilities 41,151,712 34,293,616
Long-term debt 50,768,960 45,929,066
Capital lease obligations 1,242,101 779,405
Employee Stock Ownership Plan Trust debt 449,498 -0-
Deferred income taxes 1,812,182 -0-
Minority interest in subsidiary 4,204,938 1,650,112
Stockholders' equity:
Common stock, $.001 par value; 32,500,000 shares
authorized; 4,447,397 and 5,072,397 shares
issued and 4,288,956 and 4,872,256 outstanding
as of December 31, 1998 and September 30, 1999
respectively 4,447 5,072
Class B common stock, $.001 par value; 10,000,000
shares authorized; 2,291,569 shares issued and 2,291,569
and 1,666,569 outstanding as of December 31, 1998 and
September 30, 1999 respectively 2,292 1,667
Capital in excess of par value 19,114,603 20,609,914
Unrealized gain (loss) on securities (net of tax) 101,064 (5,460,474)
Retained earnings (deficit) (2,947,063) (3,544,964)
Unearned employee compensation from Employee Stock
Ownership Plan Trust (840,000) -0-
--------------------- ------------------
15,435,343 11,611,215
Less treasury stock, at cost (158,441 and 200,141 shares at
December 31, 1998 and September 30, 1999 respectively) (764,263) (809,739)
--------------------- ------------------
Total stockholders' equity 14,671,080 10,801,476
--------------------- ------------------
Total liabilities and stockholders' equity 114,300,471 $ 93,453,675
===================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
Revenue
Gross revenue $ 9,153,861 $ 14,945,307
Outside services, at cost (3,406,984) (943,556)
------------------- -------------------
Net revenue 5,746,877 14,001,751
Costs and expenses:
Cost of revenue earned 16,633,047 12,576,084
------------------- -------------------
Gross profit (loss) (10,886,170) 1,425,667
Selling, general and administrative expenses 2,892,102 1,975,867
------------------- -------------------
Operating income (loss) (13,778,272) (550,200)
Minority interest in net operations of subsidiary (2,378,525) (133,768)
Income from marketable securities -0- 1,502,577
Interest expense (1,662,013) (1,012,780)
------------------- -------------------
Loss before provision for income taxes (benefit) (17,818,810) (194,171)
Provision for income taxes (benefit) (6,355,674) (75,728)
------------------- -------------------
Income (loss) from continuing operations (11,463,136) (118,443)
Discontinued operations:
Gain on sale of discontinued solid waste division net of
tax provision of $9,163,000 16,662,818 -0-
------------------- -------------------
Net income (loss) $ 5,199,682 $ (118,443)
=================== ===================
Share data:
Basic income (loss) per share from continuing operations $ (2.67) $ (.03)
=================== ===================
Diluted income (loss) per share from continuing operations (2.67) (.03)
=================== ===================
Basic income (loss) per share from discontinued operations $ 3.88 $ -0-
=================== ===================
Diluted income (loss) per share from discontinued operations 3.88 -0-
=================== ===================
Total basic income (loss) per share $ 1.21 $ (.03)
=================== ===================
Total diluted income (loss) per share 1.21 (.03)
=================== ===================
Weighted average number of shares outstanding used in computations:
Basic 4,296,969 4,702,568
=================== ===================
Diluted 4,296,969 4,702,568
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
Net income (loss) $ 5,199,682 $ (118,443)
Unrealized gain (loss) on investments in
marketable securities, net of tax benefit of
$90,013 and $4,734,343 (140,790) (7,411,954)
Less minority interest 25,342 563,309
Allocable share of unrealized loss on investments in
marketable securities held by Cumberland (60,877) (71,821)
-------------------- -----------------
Comprehensive income (loss) $ 5,023,357 $ (7,038,909)
==================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
Revenue
Gross revenue $ 57,293,904 $ 50,374,368
Outside services, at cost (10,177,626) (5,600,351)
------------------- ------------------
Net revenue 47,116,278 44,774,017
Costs and expenses:
Cost of revenue earned 49,238,583 38,996,544
------------------- ------------------
Gross profit (loss) (2,122,305) 5,777,473
Selling, general and administrative expenses 6,705,690 5,259,056
------------------- ------------------
Operating income (loss) (8,827,995) 518,417
Minority interest in net operations of subsidiary (3,283,670) (102,851)
Income from marketable securities -0- 2,067,148
Interest expense (4,646,559) (3,462,880)
------------------- ------------------
Loss before provision for income taxes (benefit) (16,758,224) (980,166)
Provision for income taxes (benefit) (6,797,268) (382,264)
------------------- ------------------
Income (loss) from continuing operations (9,960,956) (597,902)
Discontinued operations:
Gain on sale of discontinued solid waste division net of
tax provision of $11,164,205 19,921,581 -0-
Income (loss) from discontinued solid waste division (net
of tax benefit of $81,593 in 1998) (180,043) -0-
------------------- ------------------
Income (loss) from discontinued operations 19,741,538 -0-
------------------- ------------------
Net income (loss) $ 9,780,582 $ (597,902)
=================== ==================
Share data:
Basic income (loss) per share from continuing operations $ (2.32) $ (.14)
=================== ==================
Diluted income (loss) per share from continuing operations (2.32) (.14)
=================== ==================
Basic income (loss) per share from discontinued operations $ 4.60 $ -0-
=================== ==================
Diluted income (loss) per share from discontinued operations 4.60 -0-
=================== ==================
Total basic income (loss) per share $ 2.28 $ (.14)
=================== ==================
Total diluted income (loss) per share 2.28 (.14)
=================== ==================
Weighted average number of shares outstanding used in computations:
Basic 4,296,969 4,426,827
=================== ==================
Diluted 4,296,969 4,426,827
=================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
Net income (loss) $ 9,780,582 $ (597,902)
Unrealized loss on investments in marketable
securities, net of tax benefit of $90,013 and
$3,555,737 (140,790) (5,561,538)
Less minority interest 25,342 586,742
Allocable share of unrealized loss on investments in
marketable securities held by Cumberland (66,874) (113,292)
-------------------- -----------------
Comprehensive income (loss) $ 9,598,260 $ (5,685,990)
==================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1999
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) from continuing operations $ (9,960,956) $ (597,902)
Adjustments to reconcile net income from continuing operations to net cash
provided (used) by operating activities:
Depreciation and amortization 7,124,577 6,990,867
Change in value of marketable securities -0- 8,832,407
Deferred income taxes -0- (3,560,184)
Minority interest in operations of subsidiary 2,207,377 (1,059,515)
Gain on disposal of property and equipment (80,773) -0-
Equity in income (losses) of equity investees (62,388) 12,326
Unearned employee compensation from Employee Stock Ownership Plan Trust 360,000 840,000
Changes in operating assets and liabilities:
Accounts receivable 2,721,266 3,221,193
Costs and estimated earnings in excess of billings on uncompleted contracts 820,241 2,073,842
Income tax refund receivable and payable 1,592,811 (382,084)
Other (307,370) (120,241)
Accounts payable 1,996,411 (4,512,188)
Accrued expenses 2,200,090 46,173
Billings in excess of costs and estimated earnings on uncompleted contracts (1,592,758) (2,347,385)
--------------------- ----------------
Total adjustments 16,979,484 10,035,211
--------------------- ----------------
Net cash provided by (used in) continuing operations 7,018,528 9,437,309
Net loss from discontinued operations (180,043) -0-
Net book value of assets of discontinued operations 7,265,280 -0-
--------------------- ----------------
Net cash provided by (used in) operating activities 14,103,765 9,437,309
--------------------- ----------------
Cash flows from investing activities:
Capital expenditures (7,020,311) (3,684,391)
Proceeds from sale of property and equipment 991,606 3,979,240
Gain on sale of assets of discontinued operations 19,921,581 -0-
Purchase of marketable securities (4,982,000) -0-
Investment in Eastern stock (16,877,210) -0-
Unrealized loss on marketable securities (140,790) (5,561,538)
--------------------- ----------------
Net cash provided by (used in) investing activities (8,107,124) (5,266,689)
--------------------- ----------------
Cash flows from financing activities:
Proceeds from long-term debt 34,420,460 8,106,739
Repayments of long-term debt and capital leases (35,820,423) (13,281,439)
Purchase on treasury stock (252,727) (45,475)
Repayments of Employee Stock Ownership Plan debt (376,937) (240,000)
--------------------- ----------------
Net cash provided by (used in) financing activities (2,029,627) (5,460,175)
--------------------- ----------------
Net increase (decrease) in cash 3,967,014 (1,289,555)
Cash, beginning of period 3,674,027 1,859,275
--------------------- ----------------
Cash, end of period $ 7,641,041 $ 569,720
===================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<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 9).
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, 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, a 93 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 $13,190,000 as of September 30, 1999.
The Company's cost basis in these investments is approximately $21,966,000 and
the unrealized loss of approximately $8,776,000, net of deferred income taxes of
approximately $3,423,000, is reported as a separate component of shareholder's
equity. During the quarter ended September 30, 1999, the Company's investment in
marketable securities decreased approximately $12,000,000 before tax as a result
of a decline in the current market value of Waste Management, Inc. (WMI). The
Company owns 355,742 shares of WMI with a cost basis of $17,000,000 or
approximately $48.00 per share. The per share price declined from $53.75 per
share on June 30, 1999 to $19.25 per share on September 30, 1999. The price per
share of WMI on November 15, 1999 was $16.25.
This unrealized loss is partially offset by an unrealized gain
approximately $143,000 for the quarter ended September 30, 1999 and $502,000 for
the nine months period ended September 30, 1999 in a separate portfolio of
mostly blue chip stocks.
10
<PAGE>
Additionally, the Company's allocable share of the unrealized losses on
marketable securities held by Cumberland Technologies, Inc. ("Cumberland") is
approximately $113,000 for the nine months ended September 30, 1999. The balance
of unrealized gains and losses net of deferred tax is approximately $5,460,000
at September 30, 1999.
INVESTMENTS - The Company's 31.6 percent investment in Cumberland is
accounted for using the equity method of accounting. The Company's 49.5 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, 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 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.
<PAGE>
2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
(unaudited)
<S> <C> <C>
Expenditures on uncompleted contracts $ 140,139,011 $ 89,025,268
Estimated earnings on uncompleted contracts (1,242,975) 4,822,009
----------------------- -------------------------
138,896,036 93,847,277
Less actual and allowable billings on uncompleted
contracts 132,500,186 87,177,884
----------------------- -------------------------
$ 6,395,850 $ 6,669,393
======================= =========================
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 10,548,372 $ 8,474,530
Billings in excess of costs and estimated earnings on
uncompleted contracts (4,152,522) (1,805,137)
----------------------- -------------------------
$ 6,395,850 $ 6,669,393
======================= =========================
</TABLE>
11
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and September 30, 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 $8,539,000 and
$7,894,000, 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 September 30, 1999, that were not
expected to be collected within twelve months are classified as non-current
assets.
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 September 30, 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 has received approximately
$1,000,000 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. The deposits of $1,000,000 have been netted against the carrying
value of the asset resulting in $800,000 being included in the balance of
$1,211,000 in "property held for sale" at September 30, 1999.
4. PROPERTY AND EQUIPMENT
December 31,1998 September 30, 1999
(unaudited)
Land $ 1,058,234 $ 1,058,234
Buildings and improvements 2,166,984 2,166,984
Construction equipment 60,752,336 60,945,564
Furniture and fixtures 698,628 544,059
Construction in progress 548,816 560,731
------------------- -------------------
65,224,998 65,275,572
Less accumulated depreciation (19,578,279) (25,619,307)
------------------- -------------------
Net Property & Equipment $ 45,646,719 $ 39,656,265
=================== ===================
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 $9,458,000 and $6,566,000 for the nine
months ended September 30, 1998 and 1999, respectively. Approximately $2,303,000
of depreciation expense for the nine-month period ended September 30, 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.
12
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 1999, the market value of
the Cumberland common stock held by the Company was approximately $3,231,000
based on a stock price of $1.875.
The following is a summary of the financial position of Cumberland at
September 30, 1999:
Dec. 31, 1998 September 30,
1999
(unaudited)
Cash and cash equivalents $ 4,202,000 4,651,000
Investments in various marketable securities 3,987,000 2,939,000
Accounts receivable - trade, net 1,810,000 2,886,000
Reinsurance recoverable 2,306,000 3,704,000
Intangibles 1,456,000 1,308,000
Other 2,584,000 2,982,000
------------ ------------
Total assets 16,345,000 $ 18,470,000
============ ============
Policy liabilities and accruals 8,085,000 $ 8,901,000
Long-term debt 2,331,000 2,294,000
Other 580,000 1,465,000
------------ ------------
Total liabilities 10,996,000 12,660,000
Stockholders' equity 5,349,000 5,810,000
------------ ------------
Total liabilities and stockholders' equity $ 16,345,000 $ 18,470,000
============ ============
13
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Cumberland's operating results included revenue of approximately $1,837,000
and $2,640,000 and a net loss of approximately $30,000 during the third quarter
of 1998 as compared to net income of $285,000 during the third quarter of 1999.
The Company's equity in this net income (loss) was approximately ($9,000) and
$90,000 during the third quarter of 1998 and 1999 respectively. In addition,
approximately $41,000 of amortization expense was recorded by the Company
related to the investment during the third quarter of 1998 and 1999.
Cumberland's operating results included revenue of approximately $5,410,000
and $7,069,000 and net income of approximately $617,000 and $648,000,
respectively, during the nine month periods ended September 30, 1998 and 1999.
The Company's equity in the net income amounted to approximately $195,000 and
$205,000, respectively. In addition, approximately $123,000 of amortization
expense was recorded by the Company related to the investment for nine-month
periods ended September 30, 1998 and 1999.
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 49.5 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 49.5 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 September 30, 1998 and 1999, the Apartments
recognized revenue of approximately $1,109,000 and $1,071,000. During the same
periods, the Apartments recognized net losses of approximately $62,000 and
$91,000, respectively. The Company has recorded its 49.5 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 September 30, 1998 and 1999 respectively.
The Apartments recognized revenue of $3,446,000 and $3,311,000 during the
nine-month periods ended September 30, 1998 and 1999 respectively. During the
same periods, the Apartments recognized net losses of approximately $240,000 and
$439,000. In addition, approximately $302,000 and $302,000 of amortization
expense was recorded during the nine-month periods ended September 30, 1998 and
1999. At September 30, 1999, the company's balance in it's total investment in
the Apartments was approximately $4,712,000, excluding $900,000 of which is
classified as an "account receivable - affiliate".
14
<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 September 30, 1999:
<TABLE>
<CAPTION>
Total investment
December 31, September 30,
1998 1999
------------------ ----------------
<S> <C> <C>
Cash and cash equivalents $ 66,000 $ 33,000
Accounts receivable - affiliate -0- 946,000
Land 3,800,000 3,800,000
Buildings, capitalized construction interest, furniture and 16,420,000 15,772,000
equipment, net
Other 638,000 497,000
------------------ ----------------
Total assets $ 20,924,000 $ 21,048,000
================== ================
Accounts payable and accrued expenses $ 846,000 $ 657,000
Accounts payable to affiliates 1,489,000 1,641,000
Mortgage loan payable 20,993,000 20,876,000
Note payable to partner - Francis M. Williams 2,860,000 2,860,000
------------------ ----------------
Total liabilities 26,188,000 26,034,000
Partners' deficit (5,264,000) (4,986,000)
------------------ ----------------
Total liabilities and partners' deficit $ 20,924,000 $ 21,048,000
================== ================
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
<S> <C> <C>
Notes payable, principal and interest payable in monthly installments
through March 1, 2003, interest at varying rates up to 9.75 percent,
collateralized by equipment $ 51,712,212 $ 55,504,400
Revolving term bank line of credit, including letters of credit, $4,080,000
in 1999, due March 31, 2001 interest payable monthly at lender's base
rate plus .5%. At December 31, 1998 the rate was 8.25%. 1,764,003 2,874,003
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 was
8.2656%. 13,700,000 -0-
Revolving securities - based loan, $6,000,000 maximum, due November 30,
1999, interest payable monthly at lender's base rate of 3 month LIBOR plus -0- 4,471,258
.75%. At September 30, the rate was 5.91%.
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 was 9%. 1,862,901 1,477,451
---------------- ------------------
Total debt 69,039,116 64,327,112
Less current portion 18,270,156 18,398,046
---------------- ------------------
Net long term debt $ 50,768,960 $ 45,929,066
================ ==================
</TABLE>
15
<PAGE>
KIMMINS CORP.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1999, there were no borrowings available under the
revolving term bank line of credit. The revolving term bank line of $4,080,000
includes the letter of credit facility of $1,206,000 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 September 30, 1999 the Company was in compliance with or
obtained waivers for all loan covenants.
The revolving term line of credit of $16,000,000 was secured by a pledge of
the trade receivables of Kimmins Contracting Corp. This loan was merged with the
equipment loan balance into a single note with the respective lender.
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.
This agreement was modified on September 8, 1999 and the Company and its
affiliates are in compliance with the loan covenants.
On January 7, 1999, TransCor executed a revolving securities-based loan
with a maximum principal amount of $6,000,000. The initial disbursement of
$2,500,000 combined with additional draws of $2,733,690 during the first six
months and payments of $762,432 during the third quarter, resulted in a balance
outstanding at September 30, 1999 of $4,471,258. The loan term is two months and
it was renewed on September 30, 1999. Interest is due monthly based on the three
month LIBOR rate plus .75 percent. The rate on September 30, 1999 was 6.25%. The
loan is collateralized by TransCor's stock investment in Waste Management, Inc.
7. STOCKHOLDER'S 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 $1.05 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 holder 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.
16
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
As a result of TransCor's sale of KRC to EESI in August 1998, the Company's
net income for the year ended December 31, 1998 exceeded the threshold amount of
$.84 per share. During the quarter ended September 30, 1999, the holder of the
Class B Common Stock, Mr. Francis M. Williams, converted 625,000 Class B shares
into common stock.
17
<PAGE>
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 September 30,
1998 1999
<S> <C> <C>
Numerator:
Income (loss) from continuing operations $ (11,463,136) $ (118,443)
Adjustment for basic earnings per share -0- -0-
------------------ ------------------
Numerator for basic earnings per share - income (loss)
Available to common stockholders from continuing operations -0- -0-
Effect of dilutive securities -0- -0-
Numerator for diluted earnings per share:
Income (loss) from continuing operations (11,463,136) (118,443)
Income from discontinued operations 16,662,818 -0-
------------------ ------------------
Income (loss) applicable to common stockholders after assumed
Conversions $ 5,199,682 $ (118,443)
================== ==================
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 4,296,969 4,702,568
Effective of dilutive securities:
Stock options -0- -0-
Dilutive potential common shares -0- -0-
------------------ ------------------
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 4,296,969 4,702,568
================== ==================
Basic income (loss) per share from continuing operations $ (2.67) $ (.03)
================== ==================
Diluted income (loss) per share from continuing operations $ (2.67) $ (.03)
================== ==================
Basic income (loss) per share from discontinued operations $ 3.88 $ -0-
================== ==================
Diluted income (loss) per share from discontinued operations $ 3.88 $ -0-
================== ==================
Total basic income (loss) per share $ 1.21 $ (.03)
================== ==================
Total diluted income (loss) per share $ 1.21 $ (.03)
================== ==================
</TABLE>
18
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1999
<S> <C> <C>
Numerator:
Income (loss) from continuing operations $ (9,960,956) $ (597,902)
Adjustment for basic earnings per share -0-
------------------ ------------------
Numerator for basic earnings per share - income (loss)
available to common stockholders from continuing operations (9,960,956) (597,902)
Effect of dilutive securities -0-
------------------ ------------------
Numerator for diluted earnings per share:
Income (loss) from continuing operations (9,960,956) (597,902)
Income from discontinued operations 19,741,538 -0-
------------------ ------------------
Income (loss) applicable to common stockholders after assumed
Conversions $ 9,780,582 $ (597,902)
================== ==================
Denominator:
Denominator for basic earnings per share -
weighted-average shares 4,296,969 4,426,827
Effective of dilutive securities:
Stock options -0- -0-
Dilutive potential common shares -0- -0-
------------------ ------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,296,969 4,426,827
================== ==================
Basic income (loss) per share from continuing operations $ (2.32) $ (.14)
================== ==================
Diluted income (loss) per share from continuing operations $ (2.32) $ (.14)
================== ==================
Basic income (loss) per share from discontinued operations $ 4.60 $ -0-
================== ==================
Diluted income (loss) per share from discontinued operations $ 4.60 $ -0-
================== ==================
Total basic income (loss) per share $ 2.28 $ (.14)
================== ==================
Total diluted income (loss) per share $ 2.28 $ (.14)
================== ==================
</TABLE>
19
<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 of approximately $11,861,000 in
the third quarter of 1998.
Revenues and expenses of the SWMS operations for the three and nine months
periods ended September 30, 1998 are shown separately in the schedule below. The
consolidated statements of operations for the nine months ended September 30,
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 three and nine-month periods ended September 30, 1998,
is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1998 September 30, 1998
<S> <C> <C>
Net revenue $ 4,833,000 $ 21,526,000
Operating expenses, including depreciation 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 (loss) on sale of assets (458,000) 4,805,000
Interest expense, net 221,000 913,000
------------------------- -----------------------
Income before provision for income taxes (1,880,000) 3,240,000
Provision for income tax benefit (722,000) 1,280,000
------------------------- -----------------------
Income from discontinued operations $ (1,158,000) $ 1,960,000
========================= =======================
</TABLE>
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 resulted in the ability to consolidate the Company
and TransCor for federal income tax purposes on a prospective basis. Beginning
in August 1998, TransCor began purchasing treasury stock. To date, Transcor has
acquired 473,075 shares of its own stock at a cost of $2,160,000. These treasury
stock purchases by TransCor have resulted in an increase in Kimmins' ownership
percentage in TransCor from 81 percent to 93 percent at September 30, 1999.
11. SUBSEQUENT EVENTS
Subsequent to September 30, 1999, the Company filed merger documents in
Florida and Delaware, which resulted in the Company changing its state of
incorporation to Florida from Delaware. The merger and resulting reincorporation
do not impact the financial statements and no changes occur in corporate assets,
liabilities or net worth. The merger and reincorporation constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(f) of the Internal
Revenue Code of 1986 as amended.
20
<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, 1999 AND 1998
Net revenue for the three months ended September 30, 1999, increased by 144
percent to approximately $14,002,000 from $5,747,000 for the three months ended
September 30, 1998. The increase is due primarily to increases in the Company's
utility contracting services ($8,415,000 in net revenue) and remediation
services ($1,669,000 decrease in net revenue). Offsetting these increases, other
services decreased net revenues by $1,829,000.
Outside services, which largely represent subcontractor costs, decreased as
a percentage of net revenue, to 7 percent for the third quarter of 1999 from 59
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 lesser 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 third
quarter of 1999 decreased to 90 percent from 289 percent for the same period in
1998. As a result, the gross profit (loss) for the third quarter of 1999 was
approximately $1,426,000 (10 percent of net revenue) compared to ($10,886,000)
(189 percent of net revenue) for the third quarter of 1998. The increase in the
dollar amount and percentage of gross margin is primarily associated with
increases in the Company's utility contracting services ($10,229,000 increase in
gross profit) and remediation services ($2,466,000 increase in gross profit),
and other services ($383,000 increase in gross profit). The gross loss in the
1998 period was due primarily to one-time charges due to adjustments in the
estimates to complete several contracts.
During the three months ended September 30, 1999, selling, general and
administrative expenses decreased to approximately $1,976,000 (14 percent of net
revenue) from $2,892,000 (50 percent of net revenue) for the three months ended
September 30, 1998. The dollar and percentage decrease is primarily a result of
management's efforts to contain and reduce administration and overhead costs.
Minority interest in net income of subsidiary was approximately $134,000
for the three months ended September 30, 1999 compared to approximately
$2,379,000 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 491,000
shares of Treasury Stock on the open market effectively increasing the Company's
ownership an additional 11% to 92%.
Interest expense, net of interest income, decreased to approximately
$1,013,000 during the three months ended September 30, 1999 compared to
$1,662,000 for the three months ended September 30, 1998. The decrease is
primarily attributable to decreases in average borrowings during 1999 from the
disposal of the solid waste management operations in August 1998 and other debt
reductions and restructurings.
As a result of the foregoing, loss before provision for income taxes for
the three months ended September 30, 1999 was approximately $194,000 (1 percent
of net revenue) compared to $17,819,000 (310 percent of net revenue) during the
same period in 1998.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's effective tax rate was 39 percent for the three months ended
September 30, 1999 compared to a rate of 36 percent for the same period in 1998.
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 2011. 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
September 30, 1998 the Company incurred a gain of $16,663,000 from discontinued
operations as a result of the sale of the solid waste division in the third
quarter of 1998.
In 1998, the Company recognized a gain of $16,662,818 on the sale of the
discontinued solid waste division.
As a result of the foregoing, the Company incurred a net loss for the three
months ended September 30, 1999 of $118,000 (1 percent of net revenue) as
compared with net income of $5,200,000 (90 percent of net revenue) for the same
period during 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net revenue for the nine months ended September 30, 1999 decreased by
$2,342,000, or 5 percent to approximately $44,774,000 from $47,116,000 for the
same period in 1998. The decrease is due primarily to contraction of the
Company's demolition services of $4,349,000, and abatement services ($846,000
decrease in net revenue). These decreases were partially offset by increases in
remediation services ($1,309,000 increase in net revenue), and utility services
($1,544,000 increase in net revenue).
Outside services, which largely represent subcontractor costs, decreased,
as a percentage of net revenue, to 13 percent for the nine months ended
September 30, 1999, from 22 percent for the same period in 1998. 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 1999 that
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 nine months
ended September 30, 1999, decreased to 87 percent from 105 percent for the same
period in 1998. As a result, the gross profit (loss) for the nine months ended
September 30, 1999, was $5,777,000 (13 percent of net revenue) compared to
$(2,122,000) (5 percent of net revenue) for the same period in 1998. The
increase in the dollar amount $7,900,000 and percentage of gross margin (18
percent) is primarily associated with utility contracting services ($9,825,000
increase in gross profit), remediation services ($2,359,000 in gross profit),
and industrial demolition services ($209,000 in gross profit). The increase is
partially offset by decreases in road work ($2,126,000 of gross profit) and
other services ($2,367,000). The gross loss in the 1998 period was due primarily
to one-time charges due to adjustments in the estimates to complete several
contracts.
During the nine months ended September 30, 1998, selling, general and
administrative expenses decreased to $5,259,000 (12 percent of net revenue) from
$6,706,000 (14 percent of net revenue) for the same period in 1998. The dollar
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 management's actions to reduce overhead
costs. The percentage increase is attributed to reduced revenue between the
periods.
Minority interest in net income of subsidiary was $103,000 for the nine
months ended September 30, 1998, compared to minority interest in net income of
the subsidiary of $3,284,000 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 stock purchases beginning in
September 1998. The Company's ownership in TransCor has increased to 92 percent.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense, net of interest income, decreased to $3,463,000 during
the nine months ended September 30, 1999, compared to $4,647,000 for the same
period in 1998. The decrease is primarily attributable to decreases in average
borrowings during 1999 due to scheduled debt paydowns, as well as the sale of
TransCor Waste Services, Inc. and other debt reductions and restructurings.
As a result of the foregoing, loss before provision for income taxes for
the nine months ended September 30, 1999, was $980,000 (2 percent of net
revenue) compared to $16,758,000 (36 percent of net revenue) during the same
period in 1998.
The Company's effective tax rate was 39 percent for the nine months ended
September 30, 1999, compared to a rate of 41 percent for 1998 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. 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 loss from continuing operations of approximately
$598,000 (1 percent of net revenue) for the nine months ended September 30,
1999, as compared with income from continuing operations of $9,961,000 (21
percent of net revenue) for the same period during 1998.
In 1998, the Company recognized a gain of $19,921,581 on the sale of the
discontinued solid waste division. In addition, the Company generated a loss of
$180,000 net of tax of $82,000 from discontinued solid waste management
operations for the nine months ended September 30, 1998.
As a result of the foregoing, the Company reported a net loss for the nine
months ended September 30, 1999, of $598,000 (1 percent of net revenue) as
compared with net income of $9,781,000 (21 percent of net revenue) for the same
period during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $9,437,309 during the nine months
ended September 30, 1999 compared to $7,018,528 for the same period in 1998.
Cash was provided by operations during the third quarter of 1999 due to
decreases in costs and estimated earnings in excess of billings on uncompleted
contracts and accounts receivable. This was partially offset by decreases in
billings in excess of costs and estimated earnings on uncompleted contracts.
The Company had capital expenditures during the nine months ended September
30, 1998 and 1999 of $7,020,311 and $3,684,391 respectively. During 1999 and
1998 most capital expenditures were related to the conversion of leases to fixed
asset purchases of construction equipment utilized in the Company's specialty
contracting operations. In addition, 1999 capital expenditures included the
purchase of accounting software. Future capital expenditures will be financed by
available cash resources, cash flow from operations, and available credit
resources, as needed.
The Company used cash in financing activities of $2,029,627 and $5,460,175
during the nine months periods ended September 30, 1998 and 1999 respectively.
Repayments of long term debt exceeded borrowings during the nine month periods
in both 1998 and 1999.
The Company's ratio of debt to equity was 4.8 and 4.4 at December 31, 1998
and September 30, 1999, respectively. The decrease in debt is primarily due to
the debt paydowns exceeding new debt and an increase in equity resulting from
net income generated in the first quarter unrealized gains on securities.
23
<PAGE>
During the nine months ended September 30, 1998 and 1999, the Company's
average contract and trade receivables less retainage were outstanding for 87
and 92 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.
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.
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
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.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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
The following information is being provided as a Year 2000 Readiness
Disclosure Statement, and is subject to the provisions of the Year 2000
Information and Readiness Disclosure Act.
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 has modified or replaced
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 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 Year 2000 Project was completed in June 1999.
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.
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.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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>
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
September 30, 1999, the Company has debt of approximately $64,327,000 of which
$59,976,000 has a fixed interest rate. The remaining debt of $4,351,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $44,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market interest rate risk is not material.
As of September 30, 1999, the Company's 93% owned subsidiary TransCor held for
other than trading purposes marketable equity securities of publicly traded
companies having a value of approximately $13,190,000 ($6,848,000 related to
Waste Management, Inc.). These securities are subject to price risk.
Beginning in January 1999, the TransCor began trading covered options on
Waste Management, Inc. common stock. Management acknowledges that there is
always price risk in this type of transaction. During the nine months ended
September 30, 1999, TransCor invested approximately $3,696,000 in the covered
options and recognized income of approximately $1,996,000 on proceeds of
$5,692,000. At September 30, 1999, the Company has no open transactions.
Subsequent to the end of the quarter, the Company has not entered into any
additional option transactions.
27
<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
On September 9, 1999 the Annual Meeting of Stockholders of Kimmins Corp.
was held. Stockholders present in person or by proxy representing 4,804,848
shares of common stock and 1,666,569 shares of B stock voted on three matters.
Three Directors of the Company were duly elected to hold office until the
next Annual Meeting of Stockholders or until successors have been duly elected.
The elected Directors and the voting results were as follows:
NAME AFFIRMATIVE VOTES WITHHELD VOTES
Francis M. Williams 6,428,579 42,838
Michael Gold 6,428,329 40,088
R. Donald Finn 6,428,329 40,038
In the second matter, stockholders approve a plan to change the state of
incorporation to Florida from Delaware. In the third and final matter,
stockholders approved a new Long Term Incentive Plan. The voting results for
these two matters were as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
<S> <C> <C> <C>
Plan to change state of incorporation 6,377,472 37,650 55,894
Long Term Incentive Plan 6,386,323 78,832 5,262
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following document is filed as an exhibit to this Quarterly Report
on Form 10-Q:
27 - Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
28
<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
DATE: November 22, 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 November 22, 1999.
Date: November 22, 1999 /s/ FRANCIS M. WILLIAMS
----------------------------------------------
Francis M. Williams
President and Chief Executive Officer
(Principle Executive Officer)
Date: November 22, 1999 /s/ NORMAN S. DOMINIAK
----------------------------------------------
Norman S. Dominiak
Vice President and Chief Financial Officer
(Principle Accounting and Financial Officer)
988229v1
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 569,720
<SECURITIES> 13,189,889
<RECEIVABLES> 15,079,130
<ALLOWANCES> (30,000)
<INVENTORY> 0
<CURRENT-ASSETS> 34,735,066
<PP&E> 65,275,572
<DEPRECIATION> (25,619,307)
<TOTAL-ASSETS> 93,453,675
<CURRENT-LIABILITIES> 34,293,616
<BONDS> 0
0
0
<COMMON> 5,072
<OTHER-SE> 10,796,404
<TOTAL-LIABILITY-AND-EQUITY> 93,453,675
<SALES> 50,374,368
<TOTAL-REVENUES> 50,374,368
<CGS> 44,596,895
<TOTAL-COSTS> 44,596,895
<OTHER-EXPENSES> 5,259,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,462,880
<INCOME-PRETAX> (980,166)
<INCOME-TAX> (382,264)
<INCOME-CONTINUING> (597,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597,902)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
