SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
[MARK ONE]
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________.
Commission File No. 1-10489
---------------------
KIMMINS CORP.
(Exact name of registrant as specified in its charter)
Delaware 59-2763096
(State of Incorporation) (I.R.S. Employer Identification No.)
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
Securities registered pursuant to Section 12(b)of the Act:
Name of Exchange
Title of Each Class on Which Registered
----------------------------- -------------------
Common Stock, $.001 par value None
Securities registered pursuant to Section 12(g)of the Act:
NONE
Indicate by a 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 [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 31, 1999, there were outstanding 4,296,969 shares of Common
Stock and 2,291,569 shares of Class B common stock. The aggregate market value
of the voting stock held by non-affiliates of the registrant as of March 31,
1999, was $1,372,933.
------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
KIMMINS CORP.
Form 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
No.
PART I
Item 1 Business........................................................................................3
Item 2 Properties......................................................................................8
Item 3 Legal Proceedings...............................................................................9
Item 4 Submission of Matters to a vote of Security Holders.............................................9
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters......................10
Item 6 Selected Financial Data........................................................................11
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................12
Item 7A Quantitative and Qualitative Disclosures about Market Risk.....................................23
Item 8 Financial Statements and Supplementary Data....................................................24
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.......................................................................55
PART III
Item 10 Directors and Executive Officers of the Registrant.............................................56
Item 11 Executive Compensation.........................................................................58
Item 12 Security Ownership of Certain Beneficial Owners and Management.................................61
Item 13 Certain Relationships and Related Transactions.................................................62
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................64
</TABLE>
<PAGE>
Note: The discussions in this Form 10-K contain forward-looking
statements that involve risks and uncertainties. Statements contained in this
Form 10-K that are not historical facts are forward looking statements that are
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. A number of important factors could cause future results of Kimmins
Corp. and its subsidiaries to differ materially and significantly from those
expressed or implied in past results and in any forward looking statements made
by, or on behalf of, the Company. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Form 10-K. These
factors include, without limitation, those listed in "Risk Factors" in the
Company's Registration Statement on Form S-1 (File No.
33-12677).
PART I
Item 1. Business
THE COMPANY
Kimmins Corp. and its subsidiaries (collectively, the "Company")
provide specialty-contracting services in the south, mainly in 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 has historically operated two business segments: solid
waste management services and specialty contracting services. The Company
previously provided solid waste management services through its TransCor Waste
Services, Inc., ("TransCor") subsidiary to commercial, industrial, residential,
and municipal customers in the state of Florida. As a result of TransCor's sale
of its wholly owned subsidiary Kimmins Recycling Corp. ("KRC") in August 1998,
the Company no longer provides solid waste management services.
The Company's specialty contracting services are as follows:
* Earthwork and utility contracting - Earthwork activities
including commercial and residential site work and earthwork
activities for the phosphate mining industry. Utility
contracting, including infrastructure services such as sewer
lines, water lines, and roads.
* Industrial demolition, dismantling, and abatement - Dismantling
of facilities or structures including offshore oil platforms;
draining liquid wastes from pipes and tanks; asbestos removal,
cleanup, disposal, and reinsulation; removal of above- and
below-ground tanks; removal and disposal or sale of other
equipment; and sale of scrap materials.
* Hazardous waste services - Containment and excavation and
removal.
The Company's services may be used individually or in combination as
required to meet the specific needs of customers. The Company's business
strategy is to draw upon its contracting experience to perform complex projects
requiring a broad range of services. Although each of the Company's business
lines can operate independently from the other related services, the Company
believes that integration of these services gives it a competitive advantage by
relieving the customer of the burden of coordinating activities of multiple
contractors.
During its initial years of operation, the Company emphasized, among
other services offered, a broad range of contracting services. As the need for
waste-related and specialty contracting services has grown in response to
heightened public concern and government regulation, the Company has used its
capabilities in facilities demolition and dismantling and in the management of
complex construction projects to become increasingly involved in
project-oriented activities.
The Company's strategy is to continue to focus on specialty contracting
projects for private and governmental customers. The Company does not consider
its business to be highly seasonable.
<PAGE>
SERVICES
Specialty Contracting:
Earthwork and Utility Contracting Services
Since 1988, the Company has directed its focus toward environmental and
utility contracting, including infrastructure and reconstructive service work.
The Company, through its subsidiary, Kimmins Contracting Corp., continues to
provide comprehensive non-hazardous contracting services, including
infrastructure services such as water and sewer line installation, replacement
and repair to private and governmental customers primarily in the state of
Florida. Related infrastructure development includes road installation, repair
and widening, and installation, repair and enhancement of drainage and
wastewater services.
Kimmins Contracting Corp. has broadened its array of services by adding
earthwork operations. These operations are mainly directed toward the private
sector in the state of Florida and include land reclamation, dam construction
and other earthwork operations for the phosphate mining industry, and
residential and commercial site work services.
Industrial Demolition, Dismantling, and Abatement Services
The Company offers demolition and dismantling of facilities or
structures; asbestos removal; cleanup, disposal, and reinsulation; removal of
above- and below ground storage tanks; removal and disposal or sale of
industrial equipment; and the sale of equipment and scrap materials.
Demolition and dismantling projects result from the closing or
retooling of facilities due to such factors as technological obsolescence of
facilities, corporate mergers and consolidations of operations, and the
relocation of manufacturing operations to low-cost labor areas or areas subject
to less stringent regulation, primarily in foreign countries. In addition, site
remediation, particularly in the case of environmental contamination of a site,
frequently requires the demolition or dismantling of a contaminated facility.
Dismantling is the precise disassembly of a manufacturing or production
facility on a piece-by-piece basis to recover equipment as complete operating
units that can be reinstalled at another location. Dismantling enhances the
value of the facility above scrap market values. The Company is paid a fee for
dismantling services and, usually, a commission on the sale of non-relocated
equipment.
Demolition usually requires wrecking services for which the Company is
paid a fee by the customer. In certain projects, the Company may also receive
additional revenue from selling the scrap material. The Company's services in
these areas include dismantling large structures (including refineries, and
utility plants); draining liquid wastes from pipes and tanks; removing above and
below-ground tanks; cleaning and disposing of contaminated equipment; and
controlled demolition.
Certain demolition projects also involve asbestos removal, cleanup and
disposal. The Company is continuing to de-emphasize its asbestos abatement
services and generally will only perform these services in conjunction with
other environmental demolition activities.
Hazardous Waste Services
The Company offers a range of services for the removal and disposal of
hazardous materials. The services offered include construction of containment
systems and the excavation and removal of contaminated material. The Company has
de-emphasized its hazardous waste services and will only perform these services
in conjunction with other environmental demolition activities.
<PAGE>
Containment. Containment systems are constructed to prevent the
migration of hazardous materials from a site to the surrounding groundwater,
surface water, soil or air. While containment can be a permanent remedial
solution, it is also used as an interim step followed by excavation and removal
or on-site treatment. The Company installs containment systems that include
containment cells, surface caps, and slurry walls.
Excavation and removal. Excavation and removal involve the excavation
of contaminated materials for containment or off-site disposal. When off-site
disposal is required, the Company subcontracts with licensed third parties for
the transportation of the material for off-site disposal. As part of its quality
control program, the Company regularly samples and analyzes excavated materials
to verify that the contaminants are consistent with those identified in the
remediation plan.
DISCONTINUED OPERATIONS
Solid Waste Management Services:
TransCor adopted a formal plan to dispose of its solid waste management
services operations on July 17, 1998 by selling its wholly owned subsidiary KRC
to Eastern Environmental Services, Inc. (EESI). On August 31, 1998 the Company
completed the sale of the solid waste management services (SWMS) operations. The
assets sold consisted primarily of accounts receivables, contracts, property and
equipment and goodwill. The selling price was approximately $57,800,000 in the
form of cash and EESI common stock. On December 31, 1998, EESI was acquired by
Waste Management, Inc. and the Company received stock of Waste Management, Inc.
in exchange for its EESI stock.
The Company, through its majority-owned subsidiary, TransCor, formerly
provided solid waste management services to commercial, industrial, residential,
and municipal customers. In connection with such services, the Company owned and
operated fully permitted construction and demolition ("C&D") transfer and
recycling ("T&R") facilities in four of the largest metropolitan regions in the
state of Florida; Jacksonville, Clearwater, Tampa and Miami. In addition to its
T&R operations, the Company collected and disposed of all types of non-hazardous
solid waste for industrial and commercial customers in its T&R regions. The
Company also provided residential garbage collection services for several
municipalities located in Lee County and Hillsborough County, Florida. The
Company also engaged, pursuant to several municipal contracts, in the
residential curbside collection of a variety of already segregated recyclable
forms of solid waste, including such materials as newspapers, cardboard,
plastic, metals, and glass.
PERFORMANCE BONDS
The Company is required to post performance bonds in connection with
certain asbestos abatement, waste remediation, demolition, and construction
contracts. For the years ended December 31, 1997 and 1998 most of the Company's
revenue was derived from contracts or projects that required the Company to post
performance bonds. The Company's current bonding capacity for qualification
purposes is $60,000,000 for individual projects and $120,000,000 in the
aggregate. This capacity is not intended to be a limitation nor a commitment as
to the Company's bond capacity, but rather guidelines for qualification
purposes. It is customary for surety bond companies to underwrite each surety
obligation individually; therefore, the potential for more or less capacity
exists based on the merits of the obligation. Historically, the Company has
obtained surety bond support for individual projects in the $53,000,000 range
while the aggregate approached $100 million. The Company has obtained bonding
coverage in amounts up to $8,500,000 for environmental projects.
However, some environmental projects either do not require a bond or
require a bond for less than the complete contract price of the project value.
The Company has obtained bonding coverage for environmental projects for more
than $8,500,000 as a result of personal surety bonds or collateral furnished by
Mr. Francis M. Williams, President of the Company. Mr. Williams has no
obligation to provide surety bonds, collateral or otherwise to assist the
Company in connection with bonding coverage. Management believes that bonding
coverages are adequate for the size and scope of projects being performed.
<PAGE>
MARKETING
The Company's specialty contracting business results primarily from
customers for whom the Company has previously provided services, prior
customer's references, and from direct marketing efforts. In particular, the
Company believes its national reputation as a leading demolition and dismantling
contractor has contributed significantly to its ability to attract specialty
service business.
The Company's specialty contracting subsidiaries direct their marketing
activities through the home office in Tampa, Florida. This office is located in
an area with a high concentration of industrial facilities. The Company believes
that accurate bidding is crucial in securing new contracting projects and
completing them profitably. The Company uses computerized bidding systems in
conjunction with site visits to develop bids for contracting projects. While bid
price is an important factor in obtaining contracts, potential clients also
consider the reputation, experience, safety record and financial strength of the
bidders in awarding contracts.
The Company also obtains contracts for its services through the process
of competitive bidding, purchase orders, or negotiations. The Company's
marketing efforts include door-to-door sales, monitoring trade journals and
other industry sources for bid solicitations by various entities, including
government authorities and related instrumentalities, and responding to such bid
solicitations, which may include requests for proposals ("RFPs") and requests
for qualifications ("RFQs"). The Company also attempts to be included on lists
of qualified bidders frequently contained in RFPs and RFQs. In response to an
RFP or RFQ, the soliciting entity requires a written response within a specified
period. Generally, in the case of an RFP, a bidder submits a proposal detailing
its qualifications, the services to be provided, and the cost of the services to
the soliciting entity; then, such entity, based on its evaluation of the
proposals submitted, awards the contract to the successful bidder. In the case
of an RFQ, a bidder submits a response describing its experience and
qualifications, the soliciting entity then selects the bidder believed to be the
most qualified, and then negotiates all of the terms of the contract, including
the cost of the services.
CUSTOMERS
The primary private customers for the Company's specialty contracting
services are Fortune 500 corporations engaged in heavy manufacturing, such as
chemical mining, petroleum, petrochemical, paper, and steel companies as well as
public utilities and federal, state and local government agencies. For the years
ended December 31, 1996, 1997 and 1998, the following table summarizes the
revenue earned on contracts with significant customers that aggregated more than
10 percent of the continuing operations revenues:
<TABLE>
<CAPTION>
(In thousands)
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Governmental infrastructure $ 14,884 $ 10,648 $ 6,950
Phosphate mining 2,562 25,061 17,594
Commercial real estate developer -0- 12,070 10,039
---------- ------------ -----------
Total from above customers $ 17,446 $ 47,779 $ 34,583
========== ============ ===========
Percentage of total revenue 22.2% 46.5% 45.3%
========== ============ ===========
</TABLE>
For the year ended December 31, 1998, 68 percent and 32 percent,
respectively, of the Company's gross revenue were derived from private and
governmental customers, respectively. This represents a 23% increase in the
amount of private sector revenue as compared to total revenue for the year ended
December 31, 1997. Government contracts, which represent a significant portion
of the Company's gross revenue, are subject to legislation mandating a balanced
budget; delays in funding; lengthy review processes for awarding contracts;
delay or termination of contracts at the convenience of the government; and
termination, reduction or modification of contracts in the event of changes in
the government's policies or because of budgetary constraints. Furthermore,
increased or unexpected costs could result in losses or reduced profits under
fixed-price government as well as commercial contracts. The Company continues to
focus efforts on securing more private customers.
<PAGE>
BACKLOG
As of December 31, 1998, the Company had a backlog of uncompleted
projects under contract aggregating approximately $33,237,000 (compared to
approximately $53,210,000 as of December 31, 1997), of which approximately
$30,442,000 is attributable to earthwork and utility contracting services,
approximately $2,132,000 is attributable to demolition and dismantling services,
approximately $663,000 is attributable to asbestos abatement and other services.
The Company anticipates that it will recognize approximately 99% of the revenues
from these projects by the end of 1999.
COMPETITION
The Company believes that its ability to offer a broad range of
specialty contracting services provides it with significant competitive
advantage. Nevertheless, the Company faces substantial competition from
national, regional and local competitors, many of which are well established and
have much greater marketing, financial, technological and other resources than
the Company.
The Company believes the principal competitive factors in the specialty
contracting services industry are safety, reputation, technical proficiency,
surety bonding capability, managerial experience, price, and breadth of services
offered.
INSURANCE COVERAGE
The Company currently maintains comprehensive general liability
insurance, with total coverage of $51,000,000 for any single occurrence and
$53,000,000 for aggregate claims relating to damage to persons or property.
These policies cover all activities of the Company and its subsidiaries except
for its asbestos-related activities and certain non-asbestos related liabilities
such as pollution liability damage (sudden or gradual) caused by the discharge
or release of any irritant or contaminant. In addition, the Company has
comprehensive general liability coverage that covers, among other things,
specific asbestos-related risks up to $1,000,000. In addition, the Company has
obtained a $2,000,000 per occurrence/$2,000,000 aggregate blanket policy for
contractors pollution liabilities and can obtain additional coverage of up to a
total of $6,000,000 as required on a project-by-project basis.
GOVERNMENT REGULATION
The Company is subject to an extensive and frequently changing
statutory and regulatory framework of federal, state, and local environmental,
health, safety, and transportation authorities, which framework imposes
significant compliance burdens and risks upon the Company. The Company believes
it is in substantial compliance with all material federal, state, and local laws
governing its material business operations. Nevertheless, amendments to existing
statutes and regulations, adoption of new statutes and regulations and the
Company's expansion into other jurisdictions and types of operations could
result not only in the additional risk of noncompliance, but also in the
increase in regulatory burden that could cause related increases in costs and
expenses.
The federal statutes of most importance to the Company are the Resource
Conservation and Recovery Act of 1976, as amended, and the EPA's implementing
regulations (collectively "RCRA") and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980; as amended ("CERCLA"). RCRA establishes
a comprehensive framework for state and federal regulation of solid and
hazardous waste management. It seeks to prevent the release into the
environmental of hazardous waste through the development of solid waste
management plans and the regulation of the generation, treatment, transport,
storage and disposal of hazardous wastes. It also establishes a program to
ensure that non-hazardous wastes are disposed of in environmentally controlled
facilities. While RCRA was implemented to prevent the release of hazardous
wastes into the environment, CERCLA was designed to establish a national
strategy to remediate or improve existing hazardous environmental conditions.
CERCLA establishes liability for cleanup costs and environmental damages for
current and former facility owners and operators and persons who generate,
transport, or arrange for transportation of hazardous substances for disposal at
a particular facility.
<PAGE>
Most states, including Florida, have statutes similar to RCRA and CERCLA
that regulate the handling of hazardous substances, hazardous wastes, and
non-hazardous wastes. Many such states impose requirements that are more
stringent than their federal counterparts. The Company could be subject to
substantial liability under these statutes to private parties and governmental
entities, in some instances without any fault, for fines, remediation costs, and
environmental damage because of the mishandling, release or existence of any
hazardous substances at any of its facilities or the improper operation of such
facilities.
PERMITS AND LICENSES
Many states license such areas of the Company's operations as asbestos
abatement and general contracting. Licensing requires that workers and
supervisors receive training from EPA approved and state certified organizations
and pass required tests. The Company is currently licensed to perform its
services in approximately a dozen states. The Company also operates in certain
states that do not have a special asbestos abatement or general contracting
license requirement; however, these states have adopted regulations regarding
worker safety with which the Company must comply.
The Company may need additional licenses to expand its operations.
Although there can be no assurance, based upon the level of training of its
employees and its experience, the Company currently believes that it can obtain
all such required licenses.
EMPLOYEES
The Company has approximately 667 employees, of which 4 are employed in
executive capacities, 21 in professional capacities, 21 in administrative
capacities, 96 as field supervisors and 525 in field operations. None of the
Company's employees are union members or covered by collective bargaining
agreements. The Company has not experienced any strikes or work stoppages and
considers its relationship with its employees to be satisfactory.
The Company, through its subsidiaries, has implemented employee safety
programs that require each employee to complete a general training and safety
program. Training topics include approved work procedures and instruction on
personal safety and the use of protective equipment. In addition, all employees
engaged in asbestos abatement activities are required to attend a minimum
three-day to four-day course approved by the EPA and Occupational Safety and
Health Administration, and all supervisors of abatement projects are required to
attend a 40-hour safety course annually. Moreover, employees are issued detailed
training materials and are required to attend ongoing safety seminars.
The Company's subsidiaries also conduct job safety analysis in the job
bidding stage. Besides the precautions taken with respect to projects, the
Company takes additional measures to protect its asbestos and site remediation
workers, including providing them with additional protective equipment and
sponsoring periodic medical examinations.
Item 2. Properties
The Company owns its principal executive offices that are located in
approximately 20,600 square feet of office space at 1501 and 1502 Second Avenue,
East, Tampa, Florida 33605. The offices are subject to a mortgage, securing
indebtedness evidenced by a promissory note with an outstanding principal amount
at December 31, 1998, of approximately $1,544,000. This variable rate note
matures on August 24, 1999, and currently bears interest at 2.0 percent above
the lender's prime rate.
<PAGE>
The Company's subsidiary, TransCor owns the following properties:
Fort Myers, Lee County, Florida
TransCor's Fort Myers facility is located on approximately two
acres and is zoned industrial. The facility contains a building of
approximately 6,400 square feet and office areas of approximately 2,200
square feet. The Fort Myers facility, which began operations on October
1, 1995, is subject to a mortgage securing indebtedness evidenced by a
promissory note with an outstanding principal amount at December 31,
1998, of approximately $319,000. The note matures on August 9, 2000,
and bears interest at the rate of 9.25 percent.
As a result of the sale of Kimmins Recycling Corp. and its related
solid waste franchise agreement with the cities of Cape Coral and Fort
Myers, Florida, the Company no longer requires this facility.
The Company has this facility listed for sale.
Nashville, Tennessee
TransCor owns vacant property in an industrial park outside of
Nashville, Tennessee. The land is undeveloped and listed for sale.
In August 1998, the Company sold its solid waste management subsidiary,
Kimmins Recycling Corp. and as part of the sale, the following properties were
transferred to EESI: land and buildings in Clearwater (Pinellas County), Fort
Myers (Lee County), Fort Pierce (St. Lucie County), Miami (Dade County) and
Tampa (Hillsborough County).
Item 3. Legal Proceedings
The Company is involved in various legal actions and claims arising in
the ordinary course of its business, none of which is expected to have a
material effect on the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is currently traded on the National
Association of Securities Dealers, Inc., (NASD) Over-the-Counter (OTC) Bulletin
Board. The Company's common stock was traded on the New York Stock Exchange
(NYSE) under the symbol "KVN" prior to March 1999.
As a result of the Company no longer meeting the continued listing
criteria of the New York Stock Exchange ("NYSE"), the Company was delisted from
the NYSE after the close of business on March 1, 1999. On March 10, 1999, the
Company's application for registration on the National Association of Securities
Dealers (NASD) Over the Counter Bulletin Board (OTCBB) was cleared. On March 11,
1999 the Company began trading on the OTCBB under the symbol "KVNM". The OTCBB
is a regulated quotation service that displays real-time quotes, last-sale
prices, and volume information in over-the-counter (OTC) equity securities. An
OTC equity security generally is any equity that is not listed or traded on
Nasdaq or a national securities exchange. OTCBB securities include national,
regional, and foreign equity issues, warrants, units, American Depository
Receipts (ADRs) and Direct Participation Programs (DPPs). The OTCBB is a
quotation medium for subscribing members, not an issuer listing service, and
should not be confused with the Nasdaq Stock Market. OTCBB securities are traded
by a community of Market Makers that enter quotes and trade reports through a
highly sophisticated closed computer network, which is accessed through Nasdaq
Workstation II. The OTCBB is unlike the NYSE in that it:
* does not impose listing standards;
* does not provide automated trade executions;
* does not maintain relationships with quoted issuers; and
* does not have the same obligations for Market Makers.
The following table sets forth for the periods indicated high and low
sales prices of the Company's common stock as reported by the NYSE:
1998 High Low
---- ---- ---
First Quarter $ 5.3750 $ 4.1875
Second Quarter $ 4.3750 $ 3.0000
Third Quarter $ 5.3125 $ 3.0000
Fourth Quarter $ 3.5000 $ 2.0000
1997 High Low
---- ---- ---
First Quarter $ 4.250 $ 3.000
Second Quarter $ 4.000 $ 2.500
Third Quarter $ 6.000 $ 3.813
Fourth Quarter $ 7.000 $ 4.500
The closing stock price for the Company's stock on March 31, 1999, was
$0.5625. On March 19, 1999, there were approximately 805 holders of record of
the common stock. Certain record holders are brokers and other institutions
holding shares in "street name" for more than one beneficial owner.
Dividends
The payment by the Company of dividends, if any, in the future is
within the discretion of its Board of Directors and will depend upon the
Company's earnings, capital requirements (including working capital needs), and
financial condition, as well as other relevant factors. Certain agreements
between the Company and its lending institutions prohibit the Company from
paying cash dividends without the lenders' consent. Other than a three and
one-third cent per share of a common stock cash dividend paid in July 1989, the
Company has not paid any cash dividends since its inception, and the Board of
Directors does not plan to declare or pay any cash dividends in the future.
<PAGE>
Recent Sales of Unregistered Securities
The following information relates to equity securities of the Company
issued or sold during the year ended December 31, 1998, that were not registered
under the Securities Act in 1993, as amended (the "Securities Act").
The Company issued no securities during 1998 that were exempt from
registration under the Securities Act by virtue of Section 4(2) as a transaction
not involving a public offering.
Item 6. Selected Financial Data
The following selected financial data are derived from the consolidated
financial statements of Kimmins Corp. The data should be read in conjunction
with the consolidated financial statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
HISTORICAL OPERATING STATEMENT DATA:
Years ended December 31,
(In thousands, except per share data)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross revenue $ 73,699 $ 78,978 $ 78,552 $ 102,717 $ 74,051
Net revenue 62,297 63,058 63,288 80,932 59,302
Operating income (loss) 2,564 3,201 (6,930) (2,524) (14,850)
Income (loss)from
continuing operations 1,106 879 (7,231) (5,611) (15,088)
Income (loss)from
discontinued operations (309) 464 (1,452) (2,907) 19,431
Net income (loss) 797 1,343 (8,683) (8,518) 4,343
PER SHARE DATA :
Income (loss)from
continuing operations
per share:
Basic $ .25 $ .20 $ (1.63) $ (1.30) $ (3.51)
Diluted $ .25 $ .19 $ (1.63) $ (1.30) $ (3.51)
Income (loss) from
discontinued operations
per share:
Basic $ (.07) $ .10 $ (.33) $ (.67) $ 4.52
Diluted $ (.07) $ .10 $ (.33) $ (.67) $ 4.52
Net income (loss) per share:
Basic $ .18 $ .30 $ (1.96) $ (1.97) $ 1.01
Diluted $ .18 $ .29 $ (1.96) $ (1.97) $ 1.01
Weighted average
number of shares of
common stock used
in the calculation:
Basic 4,443 4,445 4,420 4,318 4,297
Diluted 4,496 4,578 4,420 4,318 4,297
Dividends per share None None None None None
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL BALANCE SHEET DATA:
As of December 31,
(In thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current assets $ 39,885 $ 44,202 $ 41,381 $ 38,322 $ 47,205
Working capital
(deficiency) 21,219 22,477 16,898 (633) 6,053
Net assets of
discontinued
operations 8,640 6,691 6,073 7,091 -0-
Total assets 59,672 66,816 66,493 110,330 114,300
Long term debt 10,344 10,571 16,556 54,595 50,769
Stockholder's equity 24,514 26,381 17,853 9,393 14,671
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The Company conducts its business in one segment: specialty-contracting
services. This segment provides comprehensive services including earth moving,
land reclamation and site preparation, facilities demolition and dismantling;
installation of sewer lines, water lines and roads; excavation, removal and
disposal of contaminated soil, groundwater treatment and asbestos abatement.
Results of Operations
The following table sets forth for the periods indicated (i) the
percentage of net revenue represented by certain items in the financial
statements of the Company, and (ii) the percentage change in the dollar amount
of such items from period to period.
<TABLE>
<CAPTION>
Percentage of Net Revenue Percentage Increase (Decrease)
Year Ended December 31, Year ended December 31,
----------------------- -----------------------
1996 1997 1998 1998 vs. 1997 1997 vs. 1996
---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross revenues 124.1% 126.9% 124.9% (27.9%) 30.8%
Outside services 24.1% 26.9% 24.9% (32.3%) 42.7%
---------- ---------- ------------- -------------- --------------
Net revenue 100.0% 100.0% 100.0% (26.7%) 27.9%
Cost of revenue earned 97.2% 93.7% 113.1% (11.6%) 23.3%
---------- ---------- ------------- -------------- --------------
Gross profit 2.8% 6.3% (13.1%) (253.5%) 188.2%
Selling, general and
administrative expense 13.7% 9.4% 11.9% (6.8%) (12.6%)
---------- ---------- ------------- -------------- --------------
Operating income (loss) (10.9%) (3.1%) (25.0%) 488.4% (63.6%)
Minority interest in net
(income) loss of subsidiary (0.2%) (0.6%) 6.1%
Interest expense, net 2.5% 3.7% 10.9% 114.4% 88.8%
---------- ---------- ------------- -------------- --------------
Income (loss) before
provision for income taxes
(benefit) (13.2%) (6.2%) (42.1%) 398.2% (40.3%)
Provision for income taxes
(benefit) (1.8%) 0.7% (16.6%) (1,738.9%) (151.7%)
---------- ---------- ------------- -------------- --------------
Net income (loss) from
continued operations (11.4%) (6.9%) (25.5%) 168.9% (22.4%)
Net income (loss) from
discontinued operations (2.3%) (3.6%) 32.8% (768.4%) 100.2%
---------- ---------- ------------- -------------- --------------
Net income (loss) (13.7%) (10.5%) 7.3% (151.0%) (1.9%)
========== ========== ============= ============== ==============
</TABLE>
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
CONTINUING OPERATIONS
Net revenue for the year ended December 31, 1998, decreased by
$21,630,000 or 27 percent to $59,302,000 from $80,932,000 for the same period in
1997. The decrease is due primarily to decreases in the Company's utility
contracting services ($11,217,000 decrease in net revenue, caused by weather
related delays), demolition services ($3,455,000 decrease in net revenue) and to
decreases in remediation services ($6,092,000 decrease in net revenue, caused by
the closing of its New York Operations). In addition, abatement and other
services decreased net revenues by $866,000.
<PAGE>
The Company continues to focus on securing more private customers. During
the year ended December 31, 1998, the Company's percentage of gross revenues
from private customers increased from 56 percent to 68 percent. The increase in
private work is mainly attributable to earthwork projects including land
reclamation and site preparation. The decrease in the percentage of government
work from 44% to 31% for the year ended December 31, 1998 is mainly attributable
to fewer road construction projects with the Florida Department of
Transportation and local municipalities.
Outside services, which largely represent subcontractor costs, decreased,
as a percentage of net revenue to 25 percent for the year ended December 31,
1998 from 27 percent for the same period in 1997. The Company will use the
services of a subcontractor when it determines that it is more economical to do
so than internally providing the services. The Company utilized the services of
subcontractors to a lesser extent during 1998 than 1997 due to the specific
contracts in progress and the associated work requirements, especially due to
the increase in land reclamation work where little or no subcontracting is
utilized and the decrease in road construction work which requires significant
use of subcontractors.
Cost of revenue earned as a percentage of net revenue for the year ended
December 31, 1998 increased to 113 percent from 94 percent for the same period
in 1997. As a result, the gross loss for the year ended December 31, 1998 was
$7,777,000 (negative 13 percent of net revenue) compared to $5,067,000 (6
percent of net revenue) gross profit for the same period in 1997. The decrease
in the dollar amount ($12,844,000) and percentage of gross margin (negative 253
percent) is primarily associated with cost overruns (caused by weather related
delays) in the Company's utility contracting services ($11,465,000 decrease in
gross profit), and demolition services ($1,774,000 decrease in gross profit).
These decreases are partially offset by increases in remediation, asbestos
abatement and other services ($395,000 decrease in gross loss) attributable to
the Company's closure of the northeastern operations.
Depreciation and amortization, included in cost of revenue, increased to
approximately $9,522,000 in 1998 from approximately $4,644,000 in 1997. The
increase relates primarily to depreciation expense, and resulted from the
purchase during the fourth quarter of 1997 of approximately $28,000,000 of heavy
construction equipment that had previously been leased under operating leases.
Included in the Company's operating results for the years ended December
31, 1997 and 1998 is the activity related to the settlement and/or resolution of
contract claims and unapproved change orders. This activity can be summarized as
follows:
Years ended December 31,
1997 1998
---- ----
Claim recoveries $ 431,000 $ 1,058,000
Cost of recoveries 1,278,000 2,311,000
------------- -------------
Gain (loss) on resolved claims $ (847,000) $ (1,253,000)
============= =============
In addition, the Company incurred costs associated with unresolved claims
of $3,216,000 and $500,000 during 1997 and 1998 respectively. The Company also
recorded a reserve of $500,000 during 1998.
The Company had the following balances recorded relating to contract
claims and unsigned change orders at December 31, 1997 and 1998.
Years ended December 31,
1997 1998
---- ----
Claims $ 11,989,000 $ 9,678,000
Unapproved change orders -0- -0-
------------- ------------
$ 11,989,000 $ 9,678,000
============= ============
Cumulative external claim
Preparation costs included $ -0- $ -0-
above
============= ============
<PAGE>
During the year ended December 31, 1998, selling, general and
administrative expenses decreased to $7,072,000 (12 percent of net revenue) from
$7,591,000 (9 percent of net revenue) for the same period in 1997.
The dollar decrease and percentage increase is attributable to reduced revenues.
Interest expense, net of interest income for the year ended December 31,
1998 was approximately $6,489,000 as compared to approximately $3,027,000 for
the year ended December 31, 1997. The average amount of debt increased between
periods, mainly due to approximately $28,000,000 in equipment notes executed
during the fourth quarter of 1997.
The Company's income tax benefit for continuing operations was calculated
using a rate of approximately 40 percent for the year ended December 31, 1998.
The Company's income tax provision for continuing operations was calculated
using a rate of approximately negative 12 percent for the year ended December
31, 1997.
As a result of the foregoing, the Company recorded a loss from continuing
operations of approximately $15,088,000 and $5,611,000 for the years ended
December 31, 1998 and 1997 respectively.
DISCONTINUED OPERATIONS
Discontinued operations from solid waste management services
experienced a 34 percent decrease in revenue of $11,068,000 to approximately
$21,526,000 for the year ended December 31, 1998, compared to approximately
$32,594,000 in 1997. The decrease was primarily the result of the August, 1998
sale of Kimmins Recycling Corp. to EESI and other sales of operating assets,
including customer contracts.
Operating expenses, including depreciation, for the year ended December
31, 1998 were approximately $18,176,000 representing a decrease of $9,593,000 or
35 percent, from approximately $27,769,000 for the year ended December 31, 1997.
This decrease in the percentage of operating expenses was attributable primarily
to the August, 1998 sale of Kimmins Recycling Corp.
Selling, general and administrative expenses, including management fees
for the year ended December 31, 1998 were approximately $4,002,000 representing
a decrease of $4,091,000 or 51 percent, from approximately $8,093,000 for the
same period in 1997. The dollar and percentage decrease in selling, general and
administrative expenses is primarily attributable to reduced overhead costs,
such as administrative, sales, marketing and labor costs that are associated
with facilities that have been closed or sold and from management's actions to
reduce overhead costs.
The Company incurred losses from discontinued solid waste management
services operations of approximately $180,000 for the year ended December 31,
1998 representing a decrease of $2,762,000 or 94 percent from approximately
$2,942,000 for the year ended December 31, 1997. The dollar and percentage
decrease in losses is primarily attributable to reduced overhead costs such as
administrative, sales, marketing and labor costs as a result of facility
closures and management's actions to reduce overhead costs.
In May 1998, the Company sold its Jacksonville area solid waste
collection and recycling operating assets and certain assets of the Miami
front-end load and rear-load commercial waste and recycling business to EESI for
approximately $11,600,000 in cash. This transaction combined with the Company's
sale of certain other vehicles, waste containers and equipment resulted in a
gain of approximately $5,263,000. These assets were primarily utilized in the
Company's commercial and residential waste collection services. This gain is
included in gain on sale of discontinued operations for the year ended December
31, 1998.
The Company's sale of Kimmins Recycling Corp. to EESI for approximately
$57,800,000 resulted in a gain, when combined with the gain in the preceding
paragraph, of $19,611,000 net of taxes of $11,861,000.
The Company reported income from discontinued operations of
approximately $19,431,000 for the year ended December 31, 1998 compared with a
loss of approximately $2,907,000 for the same period during 1997. The increase
in income from discontinued operations is mainly attributable to the gain on the
sale of Kimmins Recycling Corp.
in August 1998.
<PAGE>
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
CONTINUING OPERATIONS
The Company incurred a net loss of approximately $5,611,000 for the
year ended December 31, 1997, compared to a net loss of approximately $7,232,000
for the year ended December 31, 1996. Approximately $6,454,000 of the 1997 loss
was attributable to the Company's specialty contracting segment. During 1998,
TransCor has sold or placed for sale certain of the non-performing assets and
contracts that contributed to the waste management segment losses. Sales of such
assets resulted in proceeds to TransCor in 1998 of approximately $11,600,000.
The net loss in the specialty contracting segment was attributable to a number
of factors, including delays and disruption of contracts during the fourth
quarter of 1997 and the first quarter of 1998, caused by the severe influences
of weather patterns (the "El Nino Effects") that affected the southeast. In
addition, the two remaining contracts in the Company's Northeastern (New
York-based) Division, which the Company has exited, incurred additional losses
in 1997 of approximately $3,409,000 that were due to conditions that arose
during 1997. Finally, certain utility and roadwork contracts with the Florida
Department of Transportation ("FDOT") resulted in losses of approximately
$3,200,000 related to customer-caused and weather-caused delays. The Company has
discontinued any new FDOT contracting, in order to focus on more profitable
specialty contracting services.
During the year ended December 31, 1997, net revenue increased by
approximately $17,644,000, or 28 percent, to approximately $80,932,000 from
approximately $63,288,000 for the year ended December 31, 1996. The increase in
net revenue associated with the Company's utility contracting services
($22,435,000 increase in net revenue) is due to the Company's change in focus
towards non-environmental projects. Net revenue for land reclamation services
increased from approximately $2,562,000 in 1996 to approximately $25,061,000 in
1997 and represents 31 percent of specialty contracting services. This increase
was partially offset by a decrease in other utility contracting services of
approximately $2,626,000. The change in revenue associated with the Company's
remediation services (approximately $6,079,000 decrease in net revenue), is due
to the Company de-emphasizing these services and only performing this work in
conjunction with the Company's other non-environmental activities. In addition,
asbestos abatement services (approximately $649,000 increase in net revenue),
and demolition and other services ($639,000 increase in net revenue). Utility
contracting services net revenue, as a percentage of total net revenue,
increased to approximately 80 percent for the year ended December 31, 1997, from
66 percent for the year ended December 31, 1996. Remediation, abatement and
demolition services combined decreased to 20 percent from 34 percent. The impact
of price increases on net revenue is less than 1 percent.
Outside services, which primarily consist of subcontractor costs,
increased as a percentage of net revenue from approximately 24 percent during
the year ended December 31, 1996, to approximately 27 percent during 1997. The
Company will use the services of a subcontractor when it determines that it is
more economical to do so than internally providing the services. The Company
utilized the services of subcontractors to a higher extent during 1997 than 1996
due to the ongoing contracts and the specific work requirements.
Cost of revenue earned increased to approximately $75,865,000 for the
year ended December 31, 1997, from approximately $61,530,000 for the comparable
period of 1996. As a result, gross profit during the year ended December 31,
1997, increased to approximately $5,067,000 (6 percent of net revenue) from
approximately $1,758,000 (3 percent of net revenue) in 1996. The increase in the
dollar amount and percentage of gross profit primarily is associated with the
Company's utility contracting (approximately $2,949,000 increase in gross
profit), demolition contracting ($1,285,000 decrease in gross loss), asbestos
abatement services (approximately $316,000 decrease in gross loss), and other
services ($40,000 increase in gross profit) and were partially offset by
decreases in gross profit from remediation services (approximately $1,281,000
increase in gross loss). The increase in gross profit from utility contracting
services is attributable mainly to new contracts with higher profit margins
regarding land reclamation services for phosphate mining companies, which was
partially offset by losses on certain FDOT contracts.
<PAGE>
The decrease in losses at the gross margin level for remediation,
abatement and demolition operations is directly related to the closure of the
northeast office. However, losses of $2,948,000, including loss reserves for
future performance, were recorded in 1997 with respect to the two remaining
contracts in the former Northeast Division service area. Costs for legal fees
associated with a claim comprise approximately $304,000 of the total loss of
approximately $405,000 for remediation operations and the majority of costs
included in the $129,000 loss for abatement operations in the northeast.
Depreciation and amortization, included in cost of revenue, increased
to approximately $4,644,000 in 1997, from approximately $1,909,000 in 1996. The
increase relates primarily to depreciation expense, and resulted from the
purchase during the first and fourth quarters of 1997 of approximately
$39,000,000 of heavy construction equipment that had previously been leased
under operating leases.
Included in the Company's operating results for the years ended December
31, 1997 and 1996 is the activity related to the settlement and/or resolution of
contract claims and unapproved change orders. This activity can be summarized as
follows:
Years ended December 31,
1996 1997
---- ----
Claim recoveries $ 2,013,000 $ 431,000
Cost of recoveries 4,916,000 1,278,000
-------------- ------------
Gain (loss) on resolved claims $ (2,903,000) $ (847,000)
============== ============
In addition, the Company incurred costs associated with unresolved claims
of $2,079,000 and $3,216,000 during 1996 and 1997, respectively.
The Company had the following balances recorded relating to contract claims
and unsigned change orders at December 31, 1996 and 1997:
December 31,
1996 1997
---- ----
Claims $ 5,558,000 $ 11,989,000
Unapproved change orders 3,392,000 -0-
============ ==============
$ 8,950,000 11,989,000
============ ==============
Cumulative external claim
Preparation costs included
above $ 295,000 $ -0-
============ ==============
During 1997, selling, general and administrative expenses decreased to
$7,591,000 (9 percent) from $8,688,000 (14 percent) of net revenues for the year
ended December 31, 1996. The dollar decrease in selling, general, and
administrative expenses primarily is attributable to decreased overhead costs,
such as office salaries and marketing costs. The percentage decrease in selling,
general and administrative expenses primarily was associated with the growth of
the Company's specialty contracting operations.
The percentage decrease in selling, general and administrative expenses
for specialty contracting operations is attributable to the increase in net
revenue of approximately $17,644,000, which represents an increase of 28
percent.
As a result of the foregoing, the Company's operating loss was
approximately $2,524,000 (negative 3 percent of net revenue) during the year
ended December 31, 1997, compared to an operating loss of approximately
$6,930,000 (negative 11 percent of net revenue) during the same period in 1996.
<PAGE>
Minority interest in net loss of the TransCor subsidiary was
approximately $542,000 for the year ended December 31, 1997, compared to
minority interest in net loss of approximately $138,000 for the year ended
December 31, 1996. The minority interest in net income or loss of such
subsidiary reflects an approximate 26 percent ownership interest in TransCor's
earnings as a result of the March 25, 1993, initial public offering of
TransCor's common stock. The decrease in TransCor's earnings between years is
attributable to the lower profit margins earned on certain solid waste
management services in 1997.
Interest expense, net of interest income, increased to approximately
$3,027,000 during the year ended December 31, 1997, compared to approximately
$1,603,000, for the year ended December 31, 1996. The increase is attributable
to increases in average borrowings during the year and to approximately
$43,000,000 of heavy construction equipment financing in the first and fourth
quarters of 1997 relating to the specialty-contracting segment.
During 1997, the Company contributed approximately $6,000,000 in
receivables from affiliates to Sunshadow Apartments, Ltd., and Summerbreeze
Apartments, Ltd., two Florida real estate limited partnerships (collectively,
the "Apartments"), in exchange for 49 percent non-controlling, preferred limited
partnership interests in the Apartments. The amount in excess of the underlying
equity (approximately $12,066,000) was attributed to goodwill and is being
amortized over 30 years. The Company recorded equity in losses in the Apartments
of approximately $81,000, which represents the Company's proportionate share of
the Apartment' net loss for the period October 22, 1997, through December 31,
1997. The Company also recorded equity in income of Cumberland Technologies,
Inc. ("Cumberland") of approximately $51,000 for the year ended December 31,
1997.
The Company's effective tax rate was 12 percent for the year ended
December 31, 1997, compared to a tax benefit rate of 13.9 percent for the year
ended December 31, 1996. The change in the effective tax rate was primarily due
to the net operating loss generated by the Company and the resulting recognition
of future tax benefits from credit and loss carryforwards. The net operating
loss ("NOL") generated in the year ended December 31, 1997, was approximately
$7,465,000. The NOL will be carried forward to offset any taxable income in
future years. For alternative minimum tax purposes, the loss carryforward is
approximately $4,933,000. Management expects to fully utilize these loss and
credit carryforwards before they expire in the year 2011; however, in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," a valuation allowance of approximately $2,801,000 has been recognized.
In addition to the loss carryforwards, the Company has approximately $697,000 of
alternative minimum tax credit carryforwards available to offset future federal
regular income taxes. This credit does not expire.
As a result of the foregoing, the Company incurred a loss from
continuing operations for the year ended December 31, 1997, of approximately
$5,611,000 (7 percent of net revenue) compared to a net loss of approximately
$7,231,000 (11 percent of net revenue) during the same period in 1996.
DISCONTINUED OPERATIONS
Total revenue for the year ended December 31, 1997, was approximately
$32,594,000, representing a decrease of $2,095,000, or 6 percent, from
approximately $34,689,000 for the year ended December 31, 1996. The net decrease
in total revenue of approximately $2,095,000 is attributable to the loss of
solid waste management service revenues associated with the transfer and
recycling operations of approximately $2,637,000, waste paper wholesaling of
approximately $1,471,000, and other solid waste management services of
$1,527,000. These decreases are partially offset by increases in commercial
roll-off container service of approximately $3,540,000.
The loss of revenue associated with the transfer and recycling
operations is mainly attributable to a decrease of approximately $2,000,000 in
the Company's Jacksonville operations as a result of the city's lower landfill
disposal charges and a newly enacted franchise fee of 12 percent in Duval
County, which made the Company's Jacksonville T&R facility less competitive to
outside third party waste disposal companies.
The loss of revenue associated with waste paper sales is the result of
the Company's management deciding to exit the paper commodities business because
of decreases in the price of waste paper and the closure of its Palm Beach
County facility.
<PAGE>
The loss of revenue associated with other solid waste management
services is the result of market pricing pressures and sales of customer
contracts associated with the Company's residential services contract with St.
Lucie County and commercial customer contracts in Pinellas County. The St. Lucie
facility was closed after the residential service contract with St. Lucie County
was sold. On an annual basis, the St. Lucie facility generated approximately
$3,000,000 in revenue. On an annual basis, the Pinellas commercial customer
contracts, which were sold, generated approximately $1,000,000 in revenue
On October 1, 1997, the Company began performing services on its
residential solid waste management and recycling services contract with
Hillsborough County. Revenue generated for the fourth quarter ended December 31,
1997, was approximately $1,549,000, and based on contract provisions and
management projections, the Company's management expected the Hillsborough
County residential contracts and related commercial services to generate
approximately $6,196,000 in annual revenue for eight years.
During the first quarter of 1998, the Company was awarded an exclusive
franchise agreement with the City of Cape Coral, Florida, to provide residential
and commercial solid waste management services. Based on contract provisions and
management projections, the Company expected this franchise agreement to
generate approximately $7,500,000 in annual revenue. The contract was scheduled
to begin October 1, 1998, and last for five years.
The impact of price increases was less than 3 percent for 1997 and 3
percent for 1996.
Operating expenses, including depreciation, for the year ended December
31, 1997, were approximately $27,769,000, representing an decrease of $1,663,000
or 5.6 percent from approximately $29,432,000 for the year ended December 31,
1996. Operating expenses include fees charged by landfills for waste disposal
(which, to date, have been the largest component of the Company's operating
expenses), and direct labor costs associated with the collection, transfer, and
recycling of waste. The dollar decrease in operating expenses is attributable to
the decrease in revenue. Decreases in labor and disposal costs were partially
offset by increases in depreciation primarily attributable to additional
equipment acquired during the last quarter of 1995 and during 1996 and 1997 to
service the Company's increased level of operations in Fort Myers and Tampa,
Florida, associated with solid waste management service contracts with the City
of Tampa, Hillsborough County, and Lee County. The increase in operating
expenses, as a percentage of total revenue, primarily was attributable to the
increase in revenues from the Company's residential services, which have
historically had lower profit margins than the Company's other solid waste
management operations, and certain reclassifications of costs from selling,
general and administrative to operating costs, including taxes and insurance of
approximately $228,000 and $324,000 respectively
Selling, general, and administrative expenses, including management
fees, for the year ended December 31, 1997, were approximately $8,093,000,
representing an increase of $1,960,000 or 32 percent from approximately
$6,133,000 for the year ended December 31, 1996. The dollar and percent increase
in selling, general, and administrative expenses was primarily attributable to
advertising costs for a new contract of approximately $500,000, costs associated
with the closing and sale of facilities and operating assets of approximately
$1,173,000, and an increase of approximately $563,000 in compensation expense.
The $1,173,000 includes an impairment loss of $590,000 to certain land and
buildings, a write-off of intangible assets of approximately $183,000, and an
addition to the reserve for doubtful accounts of $400,000 regarding the sale of
residential service contracts with St. Lucie. None of these costs were recurring
in nature. The increase in compensation costs was primarily attributable to an
increase in staff. During the fourth quarter of 1997, most of these incremental
costs were eliminated by having Kimmins perform additional administrative
services, by transferring certain staff to Kimmins, and by eliminating certain
positions. The management fee covers the cost of certain executive,
administrative, and financial services provided by Kimmins. The management fee
rate increased, effective January 1, 1997, from 1.5 percent to 3 percent of
revenue, resulting in approximately $458,000 of additional management fee
expense.
The Company sold certain contracts and related equipment during the
year ended December 31, 1997, resulting in a gain of approximately $444,000.
These assets were primarily utilized in the Company's commercial and residential
solid waste management services and was related to facility closures. Prior to
the closures, the facilities in Lantana and St. Lucie were generating net losses
before taxes of approximately $62,000 and $24,000 per month, respectively.
<PAGE>
Interest expense, net of interest income, for the year ended December
31, 1997, was approximately $1,409,000, as compared to $1,504,000 for the year
ended December 31, 1996. Interest expense associated with debt decreased to
approximately $1,663,000 from $1,950,000 as a result of the decrease in the
effective interest rates achieved on a refinancing of approximately $7,700,000
of equipment notes. Debt related to equipment financing increased by
approximately $784,000 during the year. Interest expense increased as the result
of expenditures for the purchase of equipment in connection with the Company's
contracts with the City of Tampa, Hillsborough County, and Lee County to provide
solid waste management services.
The Company's income tax benefit for the years ended December 31, 1997
and 1996, was calculated using a rate of approximately 38 percent and 39
percent, respectively. For tax purposes, temporary differences between carrying
amounts of assets and liabilities resulted in a federal net operating loss
("NOL") in 1997 of approximately $3,982,000. The largest component of these
book-tax differences is depreciation on operating assets that created
approximately $1,206,000 of additional depreciation expense in calculating the
1997 tax NOL. The entire 1997 NOL of approximately $3,982,000 will be carried
forward to offset taxable income in future years. Management expects to utilize
this NOL before it expires in the year 2012. An alternative minimum tax NOL will
be carried back resulting in a federal tax refund of approximately $144,000. In
addition to the alternative minimum tax NOL carryback, the Company has a $33,000
alternative minimum tax credit available to offset future federal regular income
tax. This credit does not expire.
As a result of the foregoing, the Company incurred a loss from
discontinued operations of approximately $2,907,000 for the year ended December
31, 1997, as compared to a net loss of approximately $1,452,000 for the year
ended December 31, 1996.
Liquidity and Capital Resources
Cash used in operating activities was approximately $2,666,000, $2,452,000
and $20,333,000 for the years ended December 31, 1996, 1997 and 1998. Cash used
in operations was primarily the result of the sale of the solid waste management
operations. The change in net book value of assets of discontinued operations
resulted in a cash usage of approximately $7,909,000. This, as well as the taxes
on the gain of assets sold (approximately $11,861,000) were the primary reasons
for the net cash used in operating activities.
During 1998, the Company generated cash from investing activities of
$18,938,000. This amount was primarily the result of cash proceeds from the sale
of the solid waste management services operations of approximately $26,869,000
as well as proceeds from the sale of property and equipment used by specialty
contracting operations of approximately $3,225,000. The proceeds were partially
offset by capital expenditures of $6,459,000 and the purchase of marketable
securities for approximately $4,697,000.
Effective May 31, 1998, certain assets, businesses and contracts of the
waste management segment, with a net book value of approximately $6,100,000,
were sold for cash of approximately $11,600,000. Cash from this transaction was
used to pay approximately $3,800,000 of TransCor debt and $1,300,000 was
advanced to Kimmins. The remaining cash is unrestricted and available to the
Company for use in operations.
The August 31, 1998 sale of the common stock of the solid waste
management services operations to EESI for approximately $57,800,000, combined
with the May 31, 1998 asset sale of $11,596,000 resulted in cash proceeds of
$28,869,000 net of debt payoffs of $18,507,000, funding of working capital
adjustment of $6,669,000 and closing costs of $351,000 and stock in EESI of
$17,000,000.
<PAGE>
The Company made capital expenditures of approximately $6,968,000,
$8,341,000 and $6,459,000 in 1996, 1997, and 1998, respectively. These
expenditures were primarily related to the acquisition of equipment associated
with the Company's solid waste management and utility contracting operations. In
addition to cash expenditures for equipment, the Company acquired approximately
$39,000,000 of heavy construction equipment during the first and fourth quarters
of 1997 that, as further discussed below, were previously leased under operating
leases. Since the equipment was financed by the former lessor, the equipment
acquisitions were accounted for as a non-cash financing and investing
activities. Management believes future capital expenditures will be financed by
available cash resources, cash flow from operations and available credit
resources, as needed.
During 1998, the Company used cash in financing activities of approximately
$419,000. Approximately $7,000,000 of the drawings on the line of credit in 1997
was used to pay down an existing line of credit to approximately $4,235,000. The
1998 borrowings and the related payments, resulted in an increase in the total
indebtedness of the Company to approximately $69,039,000 at December 31, 1998
(approximately $67,319,000 at December 31, 1997). Current maturities of total
indebtedness amount to approximately $18,270,000 at December 31, 1998
(approximately $12,724,000 at December 31, 1997).
On February 26, 1997, the Company, through its Kimmins Contracting Corp.
subsidiary, entered into a credit agreement with a financial institution that
provided for unrestricted borrowings up to $11,000,000. On November 24, 1997,
the credit agreement was increased to $16,000,000. As of December 31, 1998, the
Company has drawn approximately $13,700,000 on the facility. Borrowings on this
facility are due in March 31, 2000. In addition, on February 26, 1997, the
Company issued approximately $13,041,000 of term debt to acquire heavy
construction equipment used in the specialty contracting business that had been
leased under operating leases. The term debt requires periodic payments through
February 2004. On November 24, 1997, proceeds of a second term loan of
approximately $28,590,000 were used to finance additional operating assets
currently used in the specialty contracting services segment. The term debt
requires periodic payments through December 2002 and a balloon payment in
January 2003.
The Company is subject to a variety of restrictive covenants under
various debt agreements with one of its institutional lenders. In 1998 the
Company failed to meet the consolidated net income requirement under
approximately $4,235,000 of its bank debt and approximately $54,000,000 of other
financial institution debt. As of December 31, 1998, the Company obtained
waivers for these covenants. While management believes that the Company will
maintain compliance under the terms of the agreements, including those
conditions amended or waived, any further inability to achieve compliance with
the loan covenants could affect the Company's access to further borrowings or
require it to secure additional equity by other means.
As a result of the Company no longer meeting the continued listing
criteria of the New York Stock Exchange ("NYSE"), the Company was delisted from
the NYSE after the close of business on March 1, 1999. 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".
During the years ended December 31, 1997 and 1998, the Company's
average contract and trade receivables were outstanding for 92 and 122 days,
respectively. The Company anticipates sustaining this rate of collection for the
year ended December 31, 1999. Management believes that the number of days
outstanding for its receivables approximates industry norms. Part of the
Company's contracting operations is subcontracted, and any delay in collections
of receivables relating to primary contracts will generally result in a delay of
payment to subcontractors.
<PAGE>
In addition to the sales above, the Company has discontinued the use of
certain assets with a net book value of approximately $2,083,000 and has placed
them for sale. Of these assets, approximately $1,234,000 net of $566,000 of
deposits received relates to assets from the discontinuance of a certain
remediation business in the specialty-contracting segment.
As a result of the 1998 gain on the sale of discontinued operations,
loss from continuing operations which included the accrual of losses for future
contract performance on certain specialty contracting contracts, and the
financing arrangements described above, that had the effect of significantly
increasing current maturities of long-term debt over levels in previous years,
the Company has working capital of $5,960,000 as of December 31, 1998.
Management of the Company anticipates that its projected operations, coupled
with the cash and marketable securities resulting from the aforementioned sale
of the solid waste business, will provide sufficient levels of cash to fulfill
its current and future obligations in the normal course of business.
The Company had a note receivable in an original amount of $3,638,696
from the Apartments, of which Mr. Francis M. Williams is the sole shareholder of
the corporate general partner and the sole limited partner. The note receivable
accrued interest at prime plus 1.375 percent, increasing to prime plus 2
percent, with principal and interest payable in monthly installments through
December 31, 1998, and was guaranteed by Mr. Williams. The Company did not
receive any interest or principal payments during 1997 relating to this note
receivable, and the Company has not recognized interest income since 1996. The
amount due from the Apartments at December 31, 1996, was approximately
$3,851,000. 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 coverage for non-environmental projects
is $60,000,000 for an individual project and $120,000,000 in the aggregate.
Historically, the Company has obtained bonding coverage in amounts up to
$8,500,000 for environmental projects and $53,000,000 for non-environmental
projects. 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 supercedes Financial Accounting Standards No. 14. SFAS
No. 131 uses a management approach to report financial and descriptive
information about a Company's operating segments. Operating segments are
revenue-producing components of the enterprise for which separate financial
information is produced internally for the Company's management. During the
fourth quarter of 1998, the Company adopted the provisions 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.
<PAGE>
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
Some of the Company's older computer programs were written using two
digits rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total 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 with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. There is no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted and
would not have an adverse effect on the Company's systems.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no 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>
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that reflect management's current views with respect to future events
and financial performance. Such statements involve risks and uncertainties, and
there are certain important factors that could cause actual results to differ
materially from those anticipated. Some of the important factors that could
cause actual results to differ materially from those anticipated 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.
Item 7A. 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 $69,000,000 of which
$52,000,000 has a fixed interest rate. The remaining debt of $17,000,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $170,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market risk is not material. As of December
31, 1998, the Company held for other than trading purposes marketable equity
securities of publicly traded companies having a value of approximately
$22,022,000 ($16,452,000 related to Waste Management, Inc.). These securities
are subject to price risk.
Beginning in January 1999, the Company began trading 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
KIMMINS CORP.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Certified Public Accountants............................25
Consolidated balance sheets at December 31, 1997 and 1998.....................26
Consolidated statements of operations for each of the three years
in the period ended December 31, 1998......................................28
Consolidated statements of comprehensive income for each
of the years in the period ended December 31, 1998.........................30
Consolidated statements of stockholders' equity for each of the
three years in the period ended December 31, 1998..........................31
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1998......................................32
Notes to consolidated financial statements....................................33
Financial statement schedule:
Schedule II - Valuation and qualifying accounts...............................54
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Kimmins Corp.
We have audited the accompanying consolidated balance sheets of Kimmins
Corp. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, comprehensive income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Kimmins Corp. at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
April 7, 1999
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1997 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,674,027 $ 1,859,275
Marketable securities -0- 22,022,296
Accounts receivable, net
Contract and trade 19,080,602 17,550,528
Affiliates 104,658 282,903
Costs and estimated earnings in excess of billings on
uncompleted contracts 5,434,123 1,743,644
Income tax refund receivable 247,561 -0-
Deferred income tax, net 1,980,148 1,437,707
Property and equipment held for sale 410,680 2,083,083
Other current assets 298,739 225,677
Net assets of discontinued solid waste operations 7,091,052 -0-
-------------- ---------------
Total current assets $ 38,321,590 $ 47,205,113
-------------- ---------------
Property and equipment, net 48,439,463 45,646,719
Property held for sale 1,801,674 -0-
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 9,130,090 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 -0- 1,010,764
Investment in the Apartments 5,862,067 5,231,080
Investment in Cumberland Technologies, Inc. 4,991,956 4,628,019
Other assets, net 8,840 -0-
-------------- ---------------
Total assets $ 110,329,728 $ 114,300,471
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1998
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 15,583,606 $ 11,799,293
Income tax payable -0- 489,353
Accrued expenses 5,584,209 6,080,388
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,583,533 4,152,522
Current portion of long-term debt 12,723,528 18,270,156
Current portion of Employee Stock Ownership Plan
Trust debt 480,000 360,000
-------------- ---------------
Total current liabilities 38,954,876 41,151,712
-------------- ---------------
Long term debt 54,595,219 50,768,960
Capital lease obligations -0- 1,242,101
Employee Stock Ownership Plan Trust debt 960,000 449,498
Deferred income taxes 3,527,480 1,812,182
Minority interest in subsidiary 2,898,777 4,204,938
Commitments and contingencies (Note 16)
Stockholders' equity:
Common stock, $.001 par value; 32,500,000 shares
authorized; 4,447,397 shares issued and 4,296,969 and 4,447 4,447
4,288,956 outstanding as of December 31, 1997 and 1998,
respectively
Class B common stock, $.001 par value; 10,000,000 shares
authorized, 2,291,569 shares issued and outstanding 2,292 2,292
Capital in excess of par value 18,730,173 19,114,603
Unrealized gain on securities (net of tax) -0- 101,064
Retained earnings (deficit) (7,290,073) (2,947,063)
Unearned employee compensation from Employee Stock
Ownership Plan Trust (1,320,000) (840,000)
-------------- ---------------
10,126,839 15,435,343
Less treasury stock, at cost (150,428 shares and 158,441 (733,463) (764,263)
shares)
-------------- ---------------
Total stockholders' equity 9,393,376 14,671,080
-------------- ---------------
Total liabilities and stockholders' equity $ 110,329,728 $ 114,300,471
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue:
Gross revenue $ 78,551,938 $ 102,717,119 $ 74,051,465
Outside services, at cost (15,264,042) (21,785,161) (14,749,222)
--------------- --------------- ---------------
Net revenue 63,287,896 80,931,958 59,302,243
Costs and expenses:
Cost of revenue earned 61,530,345 75,864,915 67,079,477
Selling, general and administrative expenses 8,687,967 7,591,346 7,072,487
--------------- --------------- ---------------
Operating loss (6,930,416) (2,524,303) (14,849,721)
Minority interest in net operations of subsidiary 138,060 541,904 (3,615,248)
Interest expense (net of interest income of
approximately $569,000, $169,000, and $427,000
for the years ended December 31, 1996, 1997, 1,602,865 3,027,090 6,489,329
and 1998)
--------------- --------------- ---------------
Loss before provision for income taxes (benefit) (8,395,221) (5,009,489) (24,954,298)
Provision for income taxes (benefit)
Current 69,045 601,517 (11,232,732)
Deferred (1,232,753) -0- 1,366,733
--------------- --------------- ---------------
(1,163,708) 601,517 (9,865,999)
--------------- --------------- ---------------
Loss from continuing operations (7,231,513) (5,611,006) (15,088,299)
Discontinued operations:
Loss from discontinued solid waste division
operations- net of tax benefits of $928,281
in 1996, $1,770,226 in 1997 and $81,593 in 1998 (1,451,926) (2,907,234) (180,043)
Gain on sale of discontinued solid waste division
net of tax of $11,860,848 -0- -0- 19,611,352
--------------- --------------- ---------------
Income (loss) from discontinued operations (1,451,926) (2,907,234) 19,431,309
--------------- --------------- ---------------
Net income (loss) $ (8,683,439) $ (8,518,240) $ 4,343,010
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS, continued
Year Ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Share data:
Basic and diluted income (loss) per $ (1.63) $ (1.30) $ (3.51)
share from continuing operations
=========== =========== ===========
Basic and diluted income (loss) per $ (.33) $ (.67) $ 4.52
share from discontinued operations
=========== =========== ===========
Total basic and diluted income (loss) $ (1.96) $ (1.97) $ 1.01
per share
=========== =========== ===========
Weighted average number of shares outstanding
used in computations:
Basic and diluted 4,420,175 4,318,481 4,296,969
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss). $ (8,683,439) $ (8,518,240) $ 4,343,010
Unrealized gains on investments in
marketable securities, net of tax of -0- -0- 198,603
$126,975
Less minority interest -0- -0- (28,639)
Allocable share of unrealized loss on
investments in marketable
securities held by Cumberland 11,575 10,909 (97,539)
------------- -------------- ------------
Comprehensive income (loss) $ (8,671,864) $ 8,507,331 $ 4,415,435
============= ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned
Employee
Compensation
Common Stock Class B Common Stock from
------------ -------------------- Capital Employee
in Excess Retained Stock
of (Deficit) Ownership
Shares Amount Shares Amount Par Value Earnings Plan Trust
------ ------ ------ ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 4,447,397 $ 4,447 2,291,569 $ 2,292 $ 18,730,173 $ 9,911,606 (2,267,082)
December 31,
1995
Employee compensation 467,082
from Employee Stock
Ownership Trust
Purchase of treasury
stock, at cost
Net loss (8,683,439)
---------- -------- ---------- --------- ----------- ------------ --------------
Balance at 4,447,397 4,447 2,291,569 2,292 18,730,173 1,228,167 (1,800,000)
December 31,
1996
Employee compensation 480,000
from Employee Stock
Ownership Trust
Purchase of treasury stock, at
cost
Net loss (8,518,240)
---------- -------- ---------- --------- ----------- ------------ --------------
Balance at 4,447,397 4,447 2,291,569 2,292 18,730,173 (7,290,073) (1,320,000)
December 31,
1997
Net income 4,343,010
Employee compensation 480,000
from Employee Stock
Ownership Trust
Unrealized gain on
net of tax
Changes in ownership 384,430
percentage of subsidiary
due to treasury stock
purchased by subsidiary
Purchase of Treasury
Stock, at cost
---------- -------- ---------- --------- ----------- ------------ --------------
Balance at 4,447,397 $ 4,447 2,291,569 $ 2,292 $ 19,114,603 $ (2,947,063) (840,000)
December 31,
1998
========== ======== ========== ========= =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Gain on Total
Marketable Treasury Stockholders
Securities Stock Equity
---------- ----- ------
<S> <C> <C> <C>
Balance at -0- $ 26,381,436
December 31,
1995
Employee compensation 467,082
from Employee Stock
Ownership Trust
Purchase of treasury (311,783) (311,783)
stock, at cost
Net loss (8,683,439)
-------- ----------- ------------
Balance at (311,783) 17,853,296
December 31,
1996
Employee compensation 480,000
from Employee Stock
Ownership Trust
Purchase of treasury stock, at (421,680) (421,680)
cost
Net loss (8,518,240)
----------- ----------- ------------
Balance at (733,463) 9,393,376
December 31,
1997
Net income 4,343,010
Employee compensation 480,000
from Employee Stock
Ownership Trust
101,064 101,064
marketable securities,
net of tax
Changes in ownership 384,430
percentage of subsidiary
due to treasury stock
purchased by subsidiary
Purchase of Treasury (30,800) (30,800)
Stock, at cost
----------- ----------- ------------
Balance at $ 101,064 $ (764,263) $ 14,671,080
December 31,
1998
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve months ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)from continuing
operations $ (7,231,513) $ (5,611,006) $ (15,088,299)
Adjustments to reconcile net income
from continuing operations to
net cash provided (used) by operating
activities:
Depreciation and amortization 2,038,686 4,721,987 9,871,206
Provision for uncollectible accounts
receivable 430,381 772,522 87,275
Deferred income taxes (1,157,125) (1,112,944) 1,366,733
Minority interest in operations
of subsidiary (138,060) (541,904) 1,306,161
Gain on disposal of property
and equipment 41,833 350,112 (596,465)
Accrued interest on term note (372,066) -0- -0-
Equity in losses of equity investees 36,766 29,556 330,361
Unearned employee compensation from
Employee Stock Ownership Plan Trust 467,082 480,000 480,000
Changes in operating assets and liabilities:
Accounts receivable 710,121 (4,013,391) 1,264,554
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,033,414 1,403,660 4,015,841
Income tax refund receivable and
payable (149,150) 952,214 736,914
Other (97,301) (29,957) (438,065)
Accounts payable 1,071,122 245,866 (3,784,313)
Accrued expenses 926,233 2,012,955 496,179
Billings in excess of costs and
estimated earnings on
uncompleted contracts 145,673 3,831,246 (431,011)
-------------- --------------- --------------
Total adjustments 4,987,609 9,101,922 14,705,370
-------------- --------------- --------------
Net cash provided by (used in) continuing
operations (2,243,904) 3,490,916 (382,929)
Net loss from discontinued operations (1,451,926) (2,907,234) (180,043)
Net book value of assets of discontinued
operations 1,030,329 (3,035,821) (7,909,434)
Taxes on gain of sale of assets of
discontinued operations -0- -0- (11,860,848)
-------------- --------------- --------------
Net cash provided by (used in) operating
activities (2,665,501) (2,452,139) (20,333,254)
-------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures (4,428,705) (2,169,546) (6,459,245)
Proceeds from sale of property and
equipment 191,705 99,589 3,224,897
Cash proceeds on sale of assets of
discontinued operations -0- -0- 26,868,891
Purchase of marketable securities -0- -0- (4,696,719)
-------------- --------------- --------------
Net cash provided by (used in) investing
activities (4,237,000) (2,069,957) 18,937,824
-------------- --------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt 11,041,017 19,320,110 12,573,508
Repayments of long-term debt
and capital leases (3,538,558) (11,190,945) (11,331,528)
Repayments of Employee Stock Ownership
Plan (480,000) (480,000) (630,502)
Cash loan to Cumberland Technologies, Inc. -0- -0- (1,000,000)
Purchase of treasury stock (311,783) (421,680) (30,800)
-------------- --------------- --------------
Net cash provided by (used in) financing
activities 6,710,676 7,227,485 (419,322)
-------------- --------------- --------------
Net increase (decrease) in cash (191,825) 2,705,389 (1,814,752)
Cash, beginning of period 1,160,463 968,638 3,674,027
-------------- --------------- --------------
Cash, end of period $ 968,638 $ 3,674,027 $ 1,859,275
============== =============== ==============
</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 20).
Principles of consolidation - The consolidated financial statements
include the accounts of Kimmins and its subsidiaries, including TransCor, an 86
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.
Concentrations of credit risk - Financial instruments which subject the
Company to concentrations of credit risk consist primarily of trade receivables
in the State of Florida. Trade receivables are comprised primarily of amounts
due from solid waste management customers and on specialty contracting
contracts. Credit is extended based on an evaluation of the customer's financial
condition. Collateral is generally not required; however, the Company has the
ability to file for a mechanic's lien to protect its interest in contract
accounts receivable. Credit losses are provided for in the financial statements
and have been within management's expectations.
Accounts receivable - contract and trade, includes $23,628,000 and
$18,245,000 net of allowance for doubtful accounts of $921,000 and $739,000,
respectively at December 31, 1997 and 1998. These balances include approximately
$724,000 ($213,000 net of allowance for doubtful accounts) and $680,000 ($-0-
net of allowance for doubtful accounts) as of December 31, 1997 and 1998,
respectively, related to a municipal solid waste management contract with St.
Lucie County. Unlike other municipal solid waste management contracts, St. Lucie
County required the Company to bill and collect directly from individual
property owners. Pursuant to St. Lucie County ordinances, property owners that
are delinquent in payment are subject to lien rules. The Company has placed
liens on approximately 2,120 and 1,857 individual properties representing
approximately $474,000 and $426,000 of the balance as of December 31, 1997 and
1998, respectively. Management intends to file additional liens when considered
appropriate and all such liens will be maintained in accordance with applicable
laws until the outstanding balances are recovered by payment, judgment,
foreclosure, or in other action. However, given that the Company no longer has
the contract with St. Lucie County, the Company fully provided for the
outstanding receivables at December 31, 1998.
Marketable Securities - As a result of the sale of Kimmins Recycling
corp. (KRC) to Eastern Environmental Services, Inc. (EESI), the Company received
555,329 shares of common stock of EESI. Subsequent to the sale of Kimmins
Recycling Corp. to EESI, Waste Management, Inc. acquired EESI. Accordingly, the
Company now holds Waste Management, Inc. common stock. 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 $22,022,000 as of December
31, 1998. The Company's cost basis in these investments is approximately
$21,697,000, and the unrealized gain of approximately $199,000, net of deferred
income taxes of approximately $126,000, 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 $12,000, $11,000 and $98,000
for the years ended December 31, 1996, 1997 and 1998, respectively. 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
Intangible assets - Intangible assets consisted primarily of the excess
of cost over fair market value of the net assets of the acquired businesses,
which were being amortized on a straight-line basis over twenty years, and
customer contracts, which were being amortized on a straight-line basis over
five years. Amortization expense was $124,000, $109,000, and $37,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. Accumulated
amortization was approximately $245,000 at December 31, 1997. The intangible
assets were all related to the Company's solid waste management services
operations which were disposed of in 1998 (See Note 20). Consequently, these
assets were included in net assets of discontinued solid waste operations in the
balance sheet and were written off in the sale of these operations.
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.
Other assets - Other assets consisted primarily of pre-contract costs
associated with residential solid waste management contracts obtained during
1997 and 1998, which were being amortized on a straight-line basis over five
years, the term of the contracts, and loan costs, which were amortized over the
term of the loans. Amortization expense was $178,000, $236,000, and $365,000 for
the years ended December 31, 1996, 1997 and 1998, respectively. Accumulated
amortization was $533,000 at December 31, 1997. The other assets were all
related to the Company's solid waste management services operations which were
disposed of in 1998 (See Note 20). Consequently, these assets were included in
net assets of discontinued solid waste operations in the balance sheet and were
written off in the sale of these operations.
Income taxes - The Company accounts for income taxes using the asset
and liability method pursuant to Statement of Financial Accounting Standards
109, "Accounting for Income Taxes" (Statement No. 109). Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Contracts and revenue recognition - Contracts generally range from 6 to
18 months in duration, and earnings from contracting operations are reported
under the percentage-of-completion method for financial statement purposes. The
estimated earnings for each contract reflected in the accompanying financial
statements represent the percentage of estimated total earnings that costs
incurred to date bear to estimated total costs, based on the Company's current
estimates. With respect to contracts that extend over one or more accounting
periods, revisions in costs and earnings estimates are reflected in the period
the revisions become known. When current estimates of total contract costs
indicate a loss, provision is made for the entire estimated loss in the period
indications of a loss become known. The estimates can be affected by
uncertainties, such as weather related delays, and it is reasonably possible
that a change in estimate could occur in the near term.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Change orders are modifications to an original contract that
effectively change the scope and/or price of the contract. They may include
changes in specifications or design, method or manner of performance,
facilities, equipment, materials, site, or period for completion of the work.
Certain change orders may be priced under the terms of the contract. Other
change orders are unpriced; that is, the work to be performed is defined;
however, the adjustment to the contract price is negotiated subsequent to
performance. Finally, in some cases, both scope and price of a change order may
be unapproved or in dispute. Accounting for change orders depends on the
underlying circumstances, which may differ for each change order depending on
the customer, the contract, and the nature of the change. The Company evaluates
each change order according to its characteristics and the circumstances in
which they occur.
Contract revenue and associated profit are recognized for change orders
that have been approved by the customer and the contractor regarding both scope
and price to the extent performance related to the change order has occurred.
Accounting for change orders, where either scope or price have not been
determined, depends on careful consideration of the underlying characteristics
and the circumstances in which they occur. For all unpriced change orders,
recovery is deemed probable if the terms of the contracts or other applicable
legal principles provide a legal basis for recoverability, the costs incurred
are objective and verifiable, and, finally, all future events necessary for
recovery are more likely than not to occur. The Company considers the following
factors in evaluating whether recovery is probable: the customer's written
approval of the scope and/or price of the change order, the objectivity,
verifiability, and reasonableness of underlying accounting documentation for
change order costs, and the Company's experience in negotiating change orders in
similar instances.
The following guidelines are utilized by the Company in accounting for
change orders under which either the scope or price have not been approved by
the customer.
A. Costs directly attributable to change orders whose scope and/or
price is not determinable are charged directly to operations in
the period in which the costs are incurred if it is not probable
that the costs will be recovered through a change in the contract
price.
B. If it is probable that the costs will be recovered through a
change in the contract price, the costs are treated as costs of
contract performance in the period in which they are incurred and
contract revenue is recognized to the extent of the costs
incurred. Costs incurred in excess of amounts that are probable of
recovery are charged directly to operations when incurred.
C. In the case of change orders that are approved as to scope but
not price, profit recognition is deferred until receipt of the
priced change order.
Contract claims are amounts incurred by the Company related to contract
changes that are unapproved as to both scope and price, or are directly disputed
or contested as to either, by the customer. Claims are amounts in excess of the
agreed upon contract price (or amounts not included in the original contract
price) that are due to customer-caused delays, errors in specification and
designs, contract terminations, or other causes of unanticipated additional
costs. The Company recognizes contract revenue relating to claims to the extent
of its costs incurred only if it is probable that the claim will result in
additional contract revenue and if the amount of contract revenue and related
costs can be reliably estimated. Those two requirements are satisfied by the
existence of all of the following conditions:
A. The contract or other applicable legal principles provides a
legal basis for the claim; or a legal opinion has been obtained,
stating that the Company is entitled to recover amounts under the
contract or other applicable legal principles.
B. Additional costs are caused by circumstances that were unforeseen
at the contract date and are not the result of deficiencies in
the contractor's performance.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. Costs incurred by the Company that are associated with the claim
are identifiable and reasonable in view of the work performed.
D. The evidence supporting the claim is objective and verifiable.
In evaluating the probability of recovery and the estimation of the
amounts that will be recovered, the Company consults with outside consultants
and legal counsel as the claims progress through the stages of negotiations,
actual filing of formal claims, and/or litigation. Legal counsel has been
engaged for the majority of the claims, both in number and recorded amounts.
For those claims (see Note 5) where outside counsel has been engaged to
review the claim, the recorded amount is not in excess of the amounts estimated
by outside counsel to be recoverable.
Except in rare circumstances, claim preparation and legal costs are
expensed as incurred. Exceptions include instances in which the contract
document provides for their recovery or legal costs are incurred to pursue
approved settlements by court ruling, binding arbitration, and otherwise. In all
instances where such amounts are recorded, it is probable that the amounts
associated with claim preparation and legal costs will be recovered. As of
December 31, 1997 and 1998, no claim preparation and legal costs were deferred.
Fees arising from services other than contracting activities are
recognized when the negotiated services are provided.
Advertising costs - Advertising costs are expensed as incurred. For the
years ended December 31, 1996, 1997 and 1998, TransCor expensed approximately
$114,000, $536,000, and $40,000, respectively in advertising costs. All of the
advertising costs are associated with the discontinued solid waste management
operations.
Stock based compensation - The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), and, accordingly, recognizes no
compensation expense for the stock option grants.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 ("SFAS No. 123"), "Accounting and Disclosure of
Stock-Based Compensation," which encourages, but does not require, companies to
recognize stock awards based on their fair value at the date of grant.
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 effective January 1, 1998.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segments - In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which 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 provisions of SFAS No. 131. The
adoption of SFAS No. 131 did not affect the results of operations or financial
position of the Company.
The Company's continuing operations are specialty contracting. See Note 20
for a discussion of discontinued operations. The Company's specialty contracting
is performed for third parties located primarily in the state of Florida. The
Company evaluates the performance of each of its contracts. However, because
each of the contracts have similar economic characteristics, the contracts have
been aggregated into a single dominant segment. All segment measurements are
disclosed in the Company's consolidated financial statements.
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.
Reclassification - Certain amounts in the 1996 and 1997 consolidated
financial statements have been reclassified to conform to the 1998 presentation.
2. Supplemental statements of cash flows information
<TABLE>
<CAPTION>
Years ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash paid:
Interest $ 3,524,000 $ 4,543,000 $ 7,013,000
Income taxes 28,000 30,000 54,815
Non-cash investing and financing activity:
Capitalized leases $ -0- $ -0- $ 2,020,000
Seller financing of equipment addition $ -0- $ 39,408,000 -0-
Receipt of EESI stock $ -0- $ -0- $ 17,000,000
Unrealized gain on marketable
securities $ -0- $ -0- $ 325,578
Transfer to property held for sale
from discontinued operations $ -0- $ -0- $ 397,195
Transfer to discontinued operations
from property and equipment $ -0- $ -0- $ 267,696
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Related party transactions
Mr. Francis M. Williams, the Company's President and majority
stockholder, also controls Cumberland, a property and casualty insurance company
that provides insurance for specialty sureties and performance and payment bonds
for contractors. Through Cumberland, the Company has obtained performance and
payment bonds in connection with certain of its contracts and projects. The fees
that the Company paid for these services for the years ended December 31, 1996,
1997 and 1998, were approximately $2,900, $43,000, and $29,448, respectively.
The Company also has a 31.6 percent investment in Cumberland (see Note 8 of the
Notes to the Consolidated Financial Statements).
Effective July 1, 1997, employees associated with TransCor's demolition
contracting services unit were transferred to Kimmins Contracting Corp. ("KCC"),
a wholly-owned subsidiary of the Company, for administrative and accounting
purposes. As a result, contracting services previously performed by employees of
TransCor were subcontracted to KCC. For the years ended December 31, 1997 and
1998, TransCor paid $3,417,574 and $2,761,000 to KCC for services rendered by
KCC as a subcontractor. In addition, TransCor rents equipment from KCC for use
in performing demolition contracts. TransCor incurred approximately $2,103,000,
$2,573,000, and $1,822,000 in equipment rental charges with KCC for the years
ended December 31, 1996, 1997, and 1998, respectively.
During 1996, the Company paid landfill fees of approximately $139,000,
to a company that is primarily owned by the brother of the Company's President.
In 1997 and 1998, there were no transactions with this related party. The
amounts paid approximated the fair market rate for the type of services
involved.
On August 14, 1998 the Company acquired an additional 297,200 shares of
common stock in TransCor for $3,031,000 from Mr. Francis M. Williams, President
and Chief Executive Officer of the Company. The acquisition increased the
Company's ownership percentage to 81 percent from 74 percent and results in the
ability to consolidate the Company and TransCor for federal income tax purposes
on a prospective basis.
On November 10, 1998, the Company loaned $1,000,000 to Cumberland which
is controlled by Mr. Francis M. Williams, Kimmins' President and majority
stockholder. Cumberland is a property and casualty insurance company. The
$1,000,000 is evidenced by a convertible term note, which is due November 10,
2001. Quarterly interest payments are due beginning January 1, 1999 at a rate of
one half of one percent over the prime rate established by NationsBank. The
Company has the right, after six months, to convert the principal amount of the
note into shares of Common Stock of Cumberland at $3.00 per share. The balance
of the convertible term note, including accrued interest of $10,764 at December
31, 1998, is $1,010,764.
During the year ended December 31, 1998, TransCor contributed $1,000,000 to
the Kimmins Terrier Foundation, a private foundation controlled by Mr. Francis
M. Williams.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Accounts receivable
December 31,
1997 1998
---- ----
Contract and trade:
Billed contract receivables
Completed and uncompleted contracts $ 9,581,464 $ 8,561,529
Retainage 6,042,716 4,045,971
Unbilled contract receivables 4,924,002 5,986,709
Trade receivables 4,000,641 569,590
------------- -------------
24,548,823 19,163,799
Less allowance for doubtful accounts (921,301) (739,223)
------------- -------------
23,627,522 18,424,576
Less noncurrent portion 874,048 874,048
------------- -------------
Less amount included in net assets
of discontinued operations (3,672,872) -0-
------------- -------------
Net accounts receivable -
contract and trade $ 19,080,602 $ 17,550,528
============= =============
All unbilled receivables relate to work performed or material shipped
by the balance sheet date and are billed as soon as administratively feasible.
The portions at December 31, 1997 and 1998 that were not expected to be
collected within twelve months are classified as a non-current asset.
The Company had a note receivable in an original amount of $3,638,696
from Sunshadow Apartments, Ltd., and Summerbreeze Apartments, Ltd., two Florida
real estate limited partnerships (collectively, the "Apartments"). The note
receivable originally accrued interest at prime plus 1.375 percent, increasing
to prime plus 2 percent on July 1, 1995, with principal and interest payable in
monthly installments through December 31, 1998, and was guaranteed by Mr.
Francis M. Williams, majority owner of the Company. The Company did not receive
any interest or principal payments during 1997 relating to this note receivable,
and management of the Company discontinued recognition of interest income in
1996. The amount due from the Apartments at December 31, 1996, was approximately
$3,851,000.
During 1997, the note receivable and other receivables were contributed
to the Apartments in exchange for 49 percent non-controlling preferred limited
partnership interests in the Apartments. See Note 8 of Notes to Consolidated
Financial Statements for additional information.
Most of these receivables were contributed as an investment in the
Apartments as described above. At December 31, 1997 and 1998, the balance of
accounts receivable - affiliates was $1,004,658 and $1,182,903, of which
$900,000 is classified as a long-term receivable and is guaranteed by Mr.
Francis M. Williams.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Costs and estimated earnings in excess of billings on uncompleted contracts
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Expenditures on uncompleted contracts $ 115,708,567 $ 140,139,011
Estimated earnings on uncompleted contracts 6,141,672 (1,242,975)
-------------- --------------
121,850,239 138,896,036
Less actual and allowable billings on
uncompleted contracts 111,869,559 132,500,186
-------------- --------------
$ 9,980,680 $ 6,395,850
============== ==============
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 14,564,213 $ 10,548,372
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,583,533) (4,152,522)
-------------- --------------
$ 9,980,680 $ 6,395,850
============== ==============
</TABLE>
During the years ended December 31, 1996 and 1997, the Company
recognized revenue from contract claims of approximately $38,000 and $56,000
respectively. The Company recognized no revenue from contract claims during the
year ended December 31, 1998. During 1996, 1997 and 1998, the Company settled
contract claims that resulted in net losses of approximately ($2,903,000),
($847,000) and ($1,253,000), respectively.
As of December 31, 1997 and 1998, the costs and estimated earnings in
excess of billings on uncompleted contracts includes the Company's cost
associated with unapproved or disputed contract change orders and costs claimed
from customers on completed contracts of approximately $12,000,000 and
$10,000,000, respectively. During the performance of these contracts, the
Company encountered site conditions that differed from bid specifications. As a
result, the Company incurred additional labor and equipment costs in performing
the contract. By their nature, recovery of these amounts is often subject to
negotiation with the customer and, in certain cases, resolution through
litigation. As a result, the recovery of these amounts may extend beyond one
year. The portions at December 31, 1997 and 1998, that were not expected to be
collected within twelve months are classified as a non-current asset.
6. 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 1997. 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 by $40,000 in 1997 to
reflect the fair market value based on the purchase agreement. During the years
ended December 31, 1997 and 1998, the Company received approximately $566,000
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 $566,000 have been netted against
the carrying value of the asset resulting in $1,234,000 being included in
"property held for sale" at December 31, 1998.
As a result of the Company's sale of its solid waste operations, all of
the Company'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.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
7. Property and equipment
December 31,
1997 1998
---- ----
Land $ 4,323,053 $ 1,058,234
Buildings and improvements 6,235,460 2,166,984
Construction and recycling equipment 88,085,391 60,752,336
Furniture and fixtures 1,503,217 698,628
Construction in progress 48,419 548,816
-------------- --------------
100,195,540 65,224,998
Less accumulated depreciation (27,420,533) (19,578,279)
-------------- --------------
72,775,007 45,646,719
P&E, discontinued operations (24,335,544) -0-
-------------- --------------
Net P&E $ 48,439,463 $ 45,646,719
============== ==============
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 $5,219,000, $8,000,000 and
$11,202,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Approximately $3,309,000, $3,625,000 and $2,248,000 for the years ended December
31, 1996, 1997 and 1998 respectively, of depreciation expense 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.
8. 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 December 31, 1998, the
market value of the Cumberland common stock held by the Company was
approximately $3,447,000 based on a stock price of $2.00.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of Cumberland at
December 31, 1998:
December 31, 1998
Cash and cash equivalents $0 4,202,000
Investments in various marketable securities 0 3,987,000
Accounts receivable - trade, net 0 1,810,000
Reinsurance recoverable 0 2,306,000
Intangibles 0 1,456,000
Other 2,584,000
------------
Total assets $ 16,345,000
=============
Policy liabilities and accruals $ 8,085,000
Long-term debt 2,331,000
Other 580,000
-------------
Total liabilities 10,996,000
Stockholders' equity 5,349,000
-------------
Total liabilities and stockholders' equity $ 16,345,000
=============
Cumberland's operating results included revenue of approximately
$9,010,000 and a net loss of approximately $321,000 during the year ended
December 31, 1998. The Company's equity in this net loss amounted to
approximately $102,000. In addition, approximately $165,000 of amortization
expense was recorded by the Company related to the investment.
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 period from October 22 through December 31, 1997 and the
year ended December 31, 1998, the Apartments recognized revenue of approximately
$722,000 and $4,495,000. During the same periods, the Apartments recognized net
income of approximately $4,000 and a net loss of approximately $467,000,
respectively. The Company has recorded its 49 percent share of the net results
of operations. In addition, approximately $67,000 and $402,000 of amortization
expense was recorded by the Company related to the investments in the
Apartments. At December 31, 1997 and 1998, the Company's balance in its total
investment in the Apartments was approximately $6,762,000 and $6,131,000,
respectively.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of the Apartments
at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Total investment
1997 1998
---- ----
<S> <C> <C>
Cash and cash equivalents $ 63,000 $ 66,000
Accounts receivable - affiliate 959,000 -0-
Land 3,800,000 3,800,000
Buildings, capitalized construction interest,
furniture and equipment, net 17,194,000 16,420,000
Other 550,000 638,000
------------- ---------------
Total assets $ 22,566,000 $ 20,924,000
============= ===============
Accounts payable and accrued expenses $ 783,000 $ 846,000
Accounts payable to affiliates 1,670,000 1,489,000
Mortgage loan payable 21,141,000 20,993,000
Note payable to partner - Francis M. Williams 2,860,000 2,860,000
------------- ---------------
Total liabilities 26,454,000 26,188,000
Partners' deficit (3,888,000) (5,264,000)
------------- ---------------
Total liabilities and partners' deficit $ 22,566,000 $ 20,924,000
============= ===============
</TABLE>
9. Accrued expenses
December 31,
1997 1998
---- ----
Accrued insurance $ 3,743,584 $ 2,435,280
Deferred revenue 919,631 -0-
Accrued interest 383,088 285,780
Accrued disposal costs 407,229 -0-
Accrued property taxes 601,682 1,210,800
Accrued salaries, wages and 404,880 729,786
payroll taxes
Other 1,333,502 1,418,742
-------------- -------------
$ 7,793,596 $ 6,080,388
Accrued expenses, (2,209,387) -0-
discontinued operations -------------- -------------
Total accrued expenses $ 5,584,209 $ 6,080,388
============== =============
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Long-term debt
December 31,
1997 1998
---- ----
<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 $ 63,076,321 $ 51,712,212
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 percent. At December 31, 1998 the rate is 8.25 percent 4,235,377 1,764,003
Revolving term line of credit, $16,000,000 maximum, due March
31, 2000, interest payable monthly at lender's base
rate of LIBOR plus 2.5 percent, collateralized by equipment.
At December 31, 1998 the rate is 8.2656 percent 12,200,000 13,700,000
Mortgage notes, principal and interest payable in monthly
installments through January 1, 2012, interest at
varying rates up to prime plus 1.75 percent, collateralized
by land and buildings. At December 31, 1998 the average
rate is 9 percent. 6,535,013 1,862,901
-------------- --------------
Total debt 86,046,711 69,039,116
Less debt of discontinued operations 18,727,964 -0-
-------------- --------------
Net total debt 67,318,747 69,039,116
Less current portion 12,723,528 18,270,156
-------------- --------------
Net long term debt $ 54,595,219 $ 50,768,960
============== ==============
</TABLE>
Annual principal maturities subsequent to December 31, 1998, are as
follows:
1999 $ 18,270,156
2000 23,942,917
2001 12,162,043
2002 8,313,549
2003 6,350,451
--------------
$ 69,039,116
==============
At December 31, 1998, 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, and repayment is guaranteed
by Cumberland.
The revolving term line of credit of $16,000,000 is secured by a pledge
of the trade receivables of Kimmins Contracting Corp.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 1998, the Company was in compliance with or
obtained waivers for all loan covenants.
During 1997, Kimmins Contracting Corp. ("KCC"), a wholly-owned
subsidiary of the Company, entered into four separate debt agreements. KCC
converted equipment previously rented under operating leases into equipment
notes of approximately $13,041,000 in February 1997 and $28,590,000 in November
1997 under terms similar to the Company's other equipment notes outstanding. In
addition, KCC obtained a working capital loan with a revolving term bank line of
credit of $16,000,000 as of December 31, 1997 and 1998.
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
$13,700,000 and outstanding equipment notes of approximately $38,386,000, 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 year ended December 31, 1998. In addition, the Company received a
modification of the covenants for the year ended December 31, 1999, with which
the Company believes it will comply.
11. Employee Stock Ownership Plan Trust Debt
In March 1990, the Company's Employee Stock Ownership Plan Trust
("ESOP") (Note 13) originally was funded from a $5,100,000 loan. This loan was
refinanced during December 1995 and bears interest at prime plus 0.5 percent,
with quarterly principal and monthly interest payments through October 2000. The
balance at December 31, 1997, was approximately $1,440,000. The loan is
guaranteed by the Company as to payment of principal and interest and,
therefore, the unpaid balance of the borrowing is reflected as debt of the
Company. An equivalent amount representing unearned employee compensation, less
the Company's accrued contribution (Note 13), is recorded as a deduction from
stockholders' equity.
Annual principal maturities for each of the next four years are as
follows:
1999 $ 360,000
2000 449,498
----------
$ 809,498
==========
12. Leasing arrangements
The Company rents equipment and machinery as needed, as well as office
space, under operating leases for varying periods not to exceed one year. Rental
expense for the years ended December 31, 1996, 1997, and 1998, was approximately
$11,808,000, $11,853,000 and $11,858,000, respectively.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's future minimum lease payments under non-cancelable
operating leases are as follows:
1999 $ 2,952,120
2000 $ 2,183,364
2001 $ 26,500
13. Pension and other benefit plans
Employee Stock Ownership Plan. On January 1, 1989, the Company, for the
benefit of its employees, formed the ESOP to purchase shares of the Company's
common stock from time to time in the open market or in negotiated transactions
at prices deemed to be attractive. Contributions to the ESOP are made at the
discretion of the Board of Directors. During 1989, the ESOP acquired from the
Company's President 257,371 shares of common stock at a cost of $5,100,000. The
shares were acquired in exchange for a note payable to the Company's President.
Simultaneous with this purchase, the Company's President purchased certain
receivables and interests in certain investments from the Company for a purchase
price of approximately $5,100,000, which was paid by the assignment to the
Company of the note received from the ESOP. The note originally was funded
during March 1990, through a long-term bank financing agreement guaranteed by
the Company (Note 11). As the debt is repaid, shares are released from
collateral and allocated to active employees, based on the proportion of debt
service paid in the current year. Debt of the ESOP is recorded as debt, and the
shares pledged as collateral are reported as unearned employee compensation in
the balance sheet. For financial statement purposes, as of December 31, 1997 and
1998, the unearned employee compensation is reflected as a reduction in
stockholders' equity. The Company's accounting treatment for the ESOP as
described above is in accordance with SOP 76-3 for grandfathered plans
established prior to 1993.
Interest and compensation expenses relating to the ESOP are as follows:
Years ended December 31,
1996 1997 1998
---- ---- ----
Interest $ 185,7285 $28 133,023 $ 102,852
Compensation $ 467,082 $ 480,000 $ 480,000
The ESOP shares were as follows:
December 31,
1997 1998
---- ----
Allocated shares 183,000 214,525
Shares released for allocation -0- -0-
Unreleased shares 72,000 40,475
---------- ----------
Total ESOP shares 255,000 255,000
========== ==========
Market value of unreleased shares $ 383,000 $ 83,000
========== ==========
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plan. The Company originally reserved 975,000 shares of
its common stock for issuance upon the exercise of options to be granted under
the Company's 1987 Stock Option Plan (the Company Plan). The exercise price of
an incentive stock option granted under the Company Plan may not be less than
the fair market value of the common stock at the time the option is granted. The
exercise price of a non-qualified stock option granted under the Company Plan
may be any amount determined by the Board of Directors but not less than the par
value of the common stock on the date of the grant. Options granted under the
Company Plan must, in general, expire no later than ten years from the date of
the grant.
The Company's Plan has the option to acquire an aggregate of 975,000
shares of common stock that may be granted to employees, officers, directors and
consultants of the Company. The Plan authorizes the Board of Directors (the
"Board") to issue incentive stock options ("ISOs"), as defined in Section
422A(b) of the Internal Revenue Code, and stock options that do not conform to
the requirements of that Code section ("Non-ISOs"). The Board has discretionary
authority to determine the types of stock options to be granted, the persons
among those eligible to whom options will be granted, the number of shares to be
subject to such options, and the terms of the stock option agreements. Options
may be exercised in the manner and at such times as fixed by the Board, but may
not be exercised after the tenth anniversary of the grant of such options.
The following table summarizes the transactions for the three years
ended December 31, 1998, relating to the Plan:
Number of
Shares Exercise Price
------------ -----------------
Outstanding January 1, 1996: 208,243 $ 3.33 - $ 4.50
Granted -0- -0-
Exercised -0- -0-
Canceled (51,167) $ 3.33 - $4.50
-------------
Outstanding December 31, 1996: 157,076 $ 3.33 - $4.50
Granted 270,742 $ 2.62 - $3.94
Exercised -0- $ -0-
Canceled (153,743) $ 3.33 - $4.50
-------------
Outstanding December 31, 1997 274,075 $ 2.62 - $4.50
Granted -0- -0-
Exercised -0- -0-
Canceled (16,476) $ 2.62 - 4.50
-------------
Outstanding December 31, 1998 257,599 $ 2.62 - 4.50
=============
Exercisable December 31, 1998 104,373 $ 2.62 - 4.50
=============
Pro forma information regarding net income (loss) and earnings per
share is required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1993, under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998; risk-free interest rates of 5.5 percent; a
dividend yield of zero; volatility factors of the expected market price of the
Company's common stock based on historical trends; and a weighted-average
expected life of the options of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Proforma net income (loss) attributable to stockholders $ (8,685,767) $ (8,549,501) $ 4,271,103
Proforma income (loss) per common share:
Basic and diluted (1.96) (1.98) .99
</TABLE>
Multi-Employer Defined Contribution Plan. The Company made payments to
collectively bargained, multi-employer defined contribution plans covering
Company union employees. Under the Multi-Employer Pension Plan Amendment Act, a
withdrawing employer is required to continue funding its share of the plan's
unfunded vested benefits. The Company does not possess sufficient information to
determine its portion of the unfunded vested benefits, if any. Contributions to
such plans for the years ended December 31, 1996, 1997, and 1998, were not
significant. As of December 31, 1998 there were no union employees.
14. Income taxes
As of December 31, 1997, the Company had consolidated income tax net
operating loss ("NOL") carryforwards for federal tax purposes of approximately
$17,909,000. Of this amount, approximately $13,927,000 was generated by the
Company and approximately $3,982,000 was generated by TransCor, which previously
filed separate income tax returns, as explained below. TransCor's NOL
carryforward is being utilized against 1998 taxable income. Of the Company's NOL
carryforward from 1997, approximately $6,900,000 is being utilized against 1998
taxable income. The remaining consolidated federal tax NOL carryforward of
$7,076,000 will expire through the year 2012 if not used. For alternative
minimum tax ("AMT") purposes, the NOL carryforward is approximately $1,435,000.
The Company also has alternative minimum tax credit carryforwards of
approximately $887,000 available to reduce future federal regular income taxes.
The AMT credit carryforwards do not expire.
Prior to August 15, 1998, TransCor and the Company were not permitted
to file consolidated income tax returns because the Company owned less than 80%
of TransCor. On August 15, 1998, the Company acquired an additional 6% of the
stock of TransCor, raising its ownership above 80% thereby permitting the filing
of consolidated tax returns prospectively.
At December 31, 1997, the Company had net deferred tax assets of
approximately $4.5 million. Because of the Company's net cumulative losses and
the uncertainty of being able to utilize those net deferred tax assets, the
Company recorded a valuation allowance of approximately $4.5 million. Because
the Company and TransCor can now file consolidated tax returns, the Company may
utilize the net deferred tax credits of approximately $1.8 million of TransCor
to offset the deferred tax assets by that amount. Consequently, the Company
reduced the valuation allowance by $1.8 million with a corresponding reduction
in the recorded amount paid for the additional 6% interest in TransCor.
Additionally, the Company had previously recorded deferred income tax credits of
approximately $600,000 for the additional taxes on its share of TransCor's
earnings. Because the Company and TransCor can now file consolidated income tax
returns, this deferred income tax credit is no longer required. Accordingly, the
Company reduced the deferred income tax credits by $600,000 with a corresponding
reduction in the recorded amount paid for the additional 6% interest in
TransCor.
As of December 31, 1998, management has determined that a valuation
allowance is not necessary because the Company now has net deferred tax credits.
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the provision for income taxes are attributable to
continuing operations as follows:
1996 1997 1998
---- ---- ----
Current $ 69,045 $ 601,517 $ (11,232,732)
Deferred (1,232,753) -0- 1,366,733
-------------- ------------- ---------------
$ (1,163,708) $ 601,517 $ (9,865,999)
============== ============= ===============
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
December 31,
1997 1998
---- ----
Deferred tax assets
Net Operating loss carryforward $ 6,741,983 $ 2,389,217
Valuation allowance (4,507,740) -0-
Allowance for doubtful accounts 354,602 11,250
Costs deferred for tax expensed for books 304,207 509,549
Alternate minimum tax credit carryforwards 696,623 886,682
Accrued worker's compensation 1,217,647 942,772
Uncompleted long-term contracts 167,690 110,126
State tax credit carryforward 52,730 -0-
Other 599,011 790,722
------------- -------------
5,626,753 5,640,318
------------- -------------
Deferred tax liabilities:
Excess of tax over book depreciation 6,488,973 5,878,803
Unrealized gain on marketable securities -0- 126,975
Costs deferred for book expensed for tax 425,864 9,014
Outside basis difference in TransCor 259,248 -0-
------------- -------------
7,174,085 6,014,792
------------- -------------
Net deferred tax liability 1,547,332 374,476
Less current net deferred asset 1,980,148 1,437,707
------------- -------------
Net non-current deferred liability $ 3,527,480 $ 1,812,183
============= =============
Factors causing the effective tax rate to differ from the statutory
rate are as follows:
Years ended December 31,
1996 1997 1998
---- ---- ----
Federal statutory rate (34.0%) (34.0%) (34.0%)
Valuation allowance 20.4% 59.5% (10.0%)
State income taxes, net of
federal benefit (3.5%) (3.1%) (2.7%)
Additional tax (benefit) on the
Company's shares of
TransCor's earnings 3.0% (11.4%) 5.4%
Other .2% 1.0% 1.8%
---------- ---------- ----------
Effective tax rate (13.9%) 12.0% (39.5%)
========== ========== ==========
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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 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. Thus, subsequent to year end, the Board of Directors
will set the conversion date and the holder of the Class B Common Stock, Mr.
Francis M. Williams, will be entitled to convert 625,000 Class B shares into
common stock.
Had this occurred on January 1, 1998, the affect on the calculation of earnings
per share would be as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Actual Conversion
------------ -------------
<S> <C> <C>
Share data:
Basic and diluted income (loss) per share from continuing operations $ (3.51) $ (3.07)
============ =============
Basic and diluted income per share from discontinued operations $ 4.52 $ 3.95
============ =============
============ =============
Total basic and diluted income per share $ 1.01 $ .88
============ =============
Weighted average number of shares outstanding used in computations:
Basic and diluted 4,296,969 4,921,969
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has authorized 1,000,000 shares of preferred stock with a par
value of $.001, none of which is presently outstanding. Such preferred stock may
be issued in series and will have such designations, rights, preferences, and
limitations as may be fixed by the Board of Directors.
Net unrealized gains on marketable securities of approximately $228,000 net
of taxes of $127,000 are recorded as an increase to stockholders' equity as of
December 31, 1998.
During the year ended December 31, 1997 and 1998, the Company acquired
76,600 and 8,013 shares of treasury stock at a cost of $267,331 and $30,800,
respectively. At December 31, 1998, the balance of the Company's treasury stock
was $764,263.
16. Commitments and Contingencies
The Company is involved in various legal actions and claims arising in the
ordinary course of its business. After taking into consideration legal counsel's
evaluation of such actions and claims, management is of the opinion that their
outcome will not have a material adverse effect on the consolidated financial
position of the Company.
17. Fourth quarter adjustments
During the fourth quarters of 1997 and 1998, the Company revised its
estimates of costs to complete certain contracts primarily as a result of work
slowdowns caused by excessive rainfall and recorded certain charges related to
contract claim and change order settlements. The aggregate effect of these
revised estimates on the Company's pretax income for 1997 and 1998 was a
reduction of approximately $10,000,000 and $5,000,000, respectively.
Approximately $1,000,000 of the total 1997 fourth quarter adjustments of
$10,000,000 are related to contract claim and change order settlements.
During the fourth quarter of 1998, the Company evaluated its self insurance
accounts and determined that they were over reserved by approximately
$1,600,000. The reserve for insurance claims was accordingly reduced by
$1,600,000.
18. Fair value of financial instruments
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Cash, accounts receivable, note receivable - affiliate, and accounts
payable. The carrying amount reported in the balance sheet for cash, accounts
receivable, and accounts payable approximates their fair value.
Marketable Securities - The carrying amount reported in the balance sheet
for marketable securities approximates their fair value based on price
quotations listed on national markets.
Long-term debt. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
carrying value of the Company's long-term debt approximates the fair value.
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. 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:
Years ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Numerator:
- ----------
Income (loss) from continuing $ (7,231,513) $ (5,611,006) $ (15,088,299)
operations
Adjustment for basic earnings per -0- -0- -0-
share
------------- ------------- --------------
Numerator for basic earnings per
share -
income (loss) available to (7,231,513) (5,611,006) (15,088,299)
common stockholders
from continuing operations
Effect of dilutive securities -0- -0- -0-
Numerator for diluted earnings per
share:
Income (loss) from continuing (7,231,513) (5,611,006) (15,008,299)
operations
Income (loss) from discontinued (1,451,926) (2,907,234) 19,431,309
operations
------------- ------------- --------------
Income (loss) applicable to common
stockholders after assumed
conversions $ (8,653,439) $ (8,518,240) $ 4,343,010
============= ============= ==============
Denominator:
- ------------
Denominator for basic earnings per
share -
weighted-average shares 4,420,175 4,318,481 4,296,969
Effective of dilutive securities:
Stock options -0- -0- -0-
Dilutive potential common shares -0- -0- -0-
------------- ------------- --------------
Denominator for diluted earnings
per share - adjusted
weighted-average shares and
assumed conversions $ 4,420,175 $ 4,318,481 $ 4,296,969
============= ============= ==============
Basic and diluted earnings per
share from continuing operations $ (1.63) $ (1.30) $ (3.51)
============= ============= ==============
Basic and diluted earnings per
share from discontinued operations $ (.33) $ (.67) $ (4.52)
============= ============= ==============
Basic and diluted earnings per share $ (1.96) $ (1.97) $ 1.01)
============= ============= ==============
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unexercised options to purchase 92,000, 56,000 and 104,000 shares of
common stock for 1996, 1997 and 1998, respectively, were not included in the
computations of diluted loss per share because the assumed conversion would be
antidilutive.
20. Discontinued Operations
On May 31, 1998, the Company sold its Jacksonville area waste
collection and recycling operating assets and certain assets of the Miami
front-end load and rear-load commercial waste and recycling business to Eastern
Environmental Services of Florida, Inc., for approximately $11,600,000 in cash.
The proceeds exceeded the net book value of the underlying assets sold by
approximately $5,200,000. This gain is shown in the Consolidated Statements of
Operations as part of "gain on sale of 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.
Revenues and expenses of the SWMS operations for the years ending
December 31, 1996, 1997 and 1998 are shown separately in the schedule below. The
consolidated statements of operations for the year ended December 31, 1996, 1997
and 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.
Approximately $7,610,000 of these net revenues 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 years ended December 31, 1996, 1997
and 1998, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenue $ 34,689,000 $ 32,594,000 $ 21,526,000
Operating expenses, including 29,432,000 27,769,000 18,176,000
depreciation
Selling, general and administrative 6,133,000 8,093,000 4,002,000
expenses
-------------- ------------- --------------
Operating loss 876,000 3,268,000 652,000
Interest expense, net 1,504,000 1,409,000 913,000
-------------- ------------- --------------
Loss before provision for income 2,380,000 4,677,000 1,565,000
tax benefit
Provision for income tax benefit 928,000 1,770,000 618,000
-------------- ------------- --------------
Loss from discontinued operations $ 1,452,000 $ 2,907,000 $ 947,000
============== ============= ==============
</TABLE>
For the year ended December, 1998, approximately $180,000 is shown as a
loss from discontinued operations and the remainder of approximately $767,000,
in accordance with APB No. 30, income or loss incurred after the measurement
date is included in the gain on the sale of discontinued operations. Included in
the gain is a $1,000,000 charitable contribution to a private foundation
controlled by Mr. Francis M. Williams. The loss from discontinued operations
included write-offs of intangible and other assets.
Net assets sold have been separately classified in the accompanying
balance sheet at December 31, 1997.
The sale of the Company's SWMS operations resulted in a gain of
approximately $19,611,000 net of taxes approximately $11,861,000. Approximately
$15.1 million of the cash proceeds were used to pay off debt on the property and
equipment of the SWMS operations. An additional $6.6 million was used to fund
the working capital deficit of the SWMS operations at August 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
Additions
Balance at Charged to Deductions
Beginning Costs and from Balance at
Description of Period Expenses Allowances (a) End of Period
----------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 $ 921,301 $ 87,275 $ (269,353) $ 739,223
Year ended December 31, 1997 $ 616,708 $ 772,522 $ (467,929) $ 921,301
Year ended December 31, 1996 $ 397,211 $ 430,381 $ (210,884) $ 616,708
(a) Balance represents the write-off of uncollectible accounts.
</TABLE>
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Francis M. Williams 57 President, Chief Executive Officer and Director
Norman S. Dominiak 54 Vice President
Joseph M. Williams 42 Secretary and Treasurer
Michael Gold 50 Director
R. Donald Finn 55 Director
All directors of the Company hold office until the next annual meeting
of stockholders and the election and qualification of their successors. Officers
of the Company are elected annually by the Board of Directors and hold office at
the discretion of the Board of Directors.
Francis M. Williams has been President and Chairman of the Board of the
Company since its inception and Chairman of the Board of Directors of TransCor
since November 1992. For more than five years prior to November 1988, Mr.
Williams was the Chairman of the Board and Chief Executive Officer of Kimmins
Corp. and its predecessors and sole owner of K Management Corp. From June 1981
until January 1988, Mr. Williams was also the President and a Director of
College Venture Equity Corp., a small business investment company. Mr. Williams
has also been a Director of the National Association of Demolition Contractors
and a member of the Executive Committee of the Tampa Bay International Trade
Council.
Norman S. Dominiak has been Vice President of the Company since March 1995
and has been employed by the Company as its Chief Financial Officer since
January 1994. Mr. Dominiak has also been Chief Financial Officer of TransCor
since January 1994. Mr. Dominiak served as Controller of ThermoCor Kimmins,
Inc., a subsidiary of the Company, from October 1991 until January 1994. From
May 1988 until September 1991, Mr. Dominiak served as Senior Vice President of
Creative Edge, a company engaged in the manufacturing and distribution of
educational products. From October 1982 until April 1988, Mr. Dominiak served as
Senior Vice President of Cecos Environmental Services, Inc., a company engaged
in treatment, transportation, and disposal of hazardous waste. From 1965 until
1982, Mr.Dominiak was employed in various financial capacities for the
Carborundum Company.
Joseph M. Williams has been the Secretary and Treasurer of the Company
since October 1988. Since September 1997, Mr. Williams has been President and
Chief Executive Officer of TransCor. Since November 1991, Mr. Williams has
served as President and has been a Director of Cumberland Technologies, Inc., a
holding company whose wholly owned subsidiaries provide reinsurance and
specialty sureties and performance and payment bonds. Since June 1986, Mr.
Williams has served as President and Vice President and has been a Director of
Cumberland Real Estate Holdings, Inc., the corporate general partner of
Sunshadow Apartments, Ltd. ("Sunshadow") and Summerbreeze Apartments, Ltd.
("Summerbreeze"), both of which are limited partnerships. Mr. Williams has been
employed by the Company and its subsidiaries in various capacities since January
1984. From January 1982 to December 1983, he was the managing partner of
Williams and Grana, a firm engaged in public accounting. From January 1978 to
December 1981, Mr. Williams was employed as a senior tax accountant with Price
Waterhouse & Co. Joseph M. Williams is the nephew of Francis M. Williams.
Michael Gold has been a Director of the Company since November 1987. For
more than the past five years, Mr. Gold has been a partner in the Niagara Falls,
New York law firm of Gold and Gold.
R. Donald Finn has been a Director of the Company since November 1992. For
more than the last five years, Mr. Finn has been a partner in the Law Firm of
Gibson, McAskill & Crosby located in Buffalo, New York, where Mr. Finn has
practiced law for more than the last 25 years.
<PAGE>
Set forth below is information regarding certain key employees of the
Company:
John V. Simon Jr., 42, has been President and General Manager of
Kimmins Contracting Corp., responsible for supervising utility construction,
since May 1981, and served as a Vice President of the Company from 1981 until
October 1988. From January 1978 to May 1981, Mr. Simon owned Simon Construction
Company, a company that performed site work and utilities and demolition
projects.
Section 16(a) Beneficial Ownership Reporting Compliance. Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company's executive officers and directors and any persons
holding more than 10 percent of the Company's common stock are required to file
with the Securities and Exchange Commission and the New York Stock Exchange
reports of their initial ownership of the Company's common stock and any changes
in ownership of such common stock. Specific due dates have been established, and
the Company is required to disclose in its Annual Report on Form 10-K and Proxy
Statement any failure to file such reports by these dates. Copies of such
reports are required to be furnished to the Company. Based solely on its review
of the copies of such reports furnished to the Company, or written
representations that no reports were required, the Company believes that, during
1996, all of its executive officers (including the Named Executive Officers),
directors and persons owning more than 10 percent of its common stock complied
with the Section 16(a) requirements.
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table. The following table provides certain
summary information concerning compensation paid or accrued by the Company and
its subsidiaries to the Chief Executive Officer and all other executive officers
whose salary and bonus exceeded $100,000 for the year ended December 31, 1998
(the "Named Executives"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options/SAR's (#) Compensation
- ------------------ ---- ------ ----- ------------ ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Francis M. Williams 1998 $ 119,991 $ 193,217 $-0- $ -0- $ 996 (*)
Chairman of the 1997 172,120 $ -0- $-0- $ -0- $ 996 (*)
Board 1996 184,810 $ -0- $-0- $ -0- $ 995 (*)
President and
Chief Executive
Officer
John V. Simon, Jr. 1998 $ 126,069 $ 30,000 $-0- $ -0- $ 1,698 (*)
President of 1997 $ 100,019 $ 108,032 $-0- $ 71,666 $ 1,698 (*)
Kimmins 1996 $ 95,000 $ 25,000 $-0- $ -0- $ 1,655 (*)
Contracting
Corp.
Michael D. O'Brien 1998 $ 63,942 $ 167,155** $-0- $ -0- $ 695 (*)
Vice President 1997 $ 105,427 $ -0- $-0- $ 2,000 $ 695 (*)
of Transcor 1996 $ 95,000 $ -0- $-0- $ -0- $ 695 (*)
TransCor
Norman S. Dominiak 1998 $ 80,673 $ 20,000 $-0- $ -0- $ -0-
Vice President 1997 -0- -0- $-0- -0- -0-
and 1996 -0- -0- $-0- -0- -0-
Chief Financial
Officer
Joseph M. Williams 1998 $ -0- $ 380,000** $-0- $ 10,000 $ -0-
Secretary and 1997 -0- -0- $-0- 25,000 -0-
Treasurer 1996 -0- -0- $-0- -0- -0-
</TABLE>
(*) Represents the Company's contribution to the employee's account of the
Company's 401(k) Plan and premiums paid by the Company for term life insurance
and long-term disability. These plans, subject to the terms and conditions of
each plan, are available to all employees.
(**) Mr. O'Brien's and Mr. Williams' salaries and other compensation are not
paid by the Company. Their bonuses were paid by TransCor and were strictly
incentive based.
<PAGE>
Stock Option/SAR Grants in the Last Fiscal Year. There were no stock
options or stock appreciation rights granted to Named Executives during the year
ended December 31, 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year- End
Option/SAR Values. The following table summarizes the net value realized on the
exercise of options in 1998 and the value of outstanding options as of December
31, 1998, for the Named Executives.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Year-End (#) Year-End ($) (1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Norman S. Dominiak 0 $0 3,000/4,500 $0/$0
John V. Simon, Jr. 0 $0 28,666/43,000 $0/$0
(1) Value is calculated using the Company's closing stock price on December 31,
1998, per share less the exercise price for such shares.
</TABLE>
TEN-YEAR OPTION/SAR REPRICINGS
There were no stock options or SAR repricings during the year ended December 31,
1998.
Compensation Committee Interlocks and Insider Participation. During the
year ended December 31, 1998, Mr. Francis M. Williams, the Company's President
and Chairman of the Board of Directors, served as President and Chairman of the
Board of Directors of TransCor, and Mr. Norman S. Dominiak served as Chief
Financial Officer of the Company and TransCor.
Compensation of Directors. During the year ended December 31, 1998, the
Company paid non-officer Directors an annual fee of $5,000 and $1,000 per board
meeting attended. Directors are reimbursed for all out-of-pocket expenses
incurred in attending Board of Directors and committee meetings. In addition,
Mr. Gold received $20,000 as compensation for option buyouts.
Stock Option and Other Plans
1987 Stock Option Plan
The Company adopted a stock option plan (the "Plan") pursuant to which
975,000 shares of common stock were originally reserved for issuance to persons
upon exercise of options designated as "incentive stock options," within the
meaning of Section 422A of the Internal Revenue code of 1986 (the "Code"), and
non-qualified stock options. The purpose of the Plan is to attract, retain, and
motivate officers and other full-time employees of the Company, and certain
other persons instrumental to the success of the Company, and to provide them
with a means to acquire a proprietary interest in the Company.
<PAGE>
The Plan is administered by a committee consisting of three members of
the Board of Directors. The exercise price of an incentive stock option granted
under the Plan may not be less than the fair market value of the common stock at
the time the option is granted (110 percent of fair market value in the case of
an incentive stock option granted to an employee owning more than 10 percent of
the voting stock of the Company). The exercise price of a non-qualified stock
option granted under the Plan may be any amount determined by the Board of
Directors but not less than the par value of the common stock on the date of the
grant. Options granted under the Plan must, in general, expire no later than ten
years from the date of the grant (five years from the date of grant in the case
of an incentive stock option granted to an employee owning more than 10 percent
of the voting stock of the Company). All options granted to date provide that
the grantees' rights vest over five years from the date of grant. At December
31, 1998, Joseph M. Williams held 63,333 options to purchase the Company's stock
at $2.62 per share of which 25,333 shares are exercisable. At December 31, 1998,
John V. Simon, Jr., held 71,666 options to purchase the Company's stock at $2.62
per share, of which 28,666 shares are exercisable. At December 31, 1998, Norman
S. Dominiak held 7,500 options to purchase the Company's common stock at $2.62
per share of which 3,000 options are exercisable.
Savings and Profit-Sharing Plan
The Company offers a savings and profit sharing plan (the "401(k)
Plan"), which qualifies under Sections 401(a) and (k) of the Code. Employees of
the Company and certain affiliates who have been employed for a specified period
of time are eligible to participate in the 401(k) Plan. All contributions made
by the employees' vest immediately. Amounts contributed by the Company vest 20
percent after three years of service and 20 percent each year thereafter.
Employee Stock Ownership Plan
Effective January 1, 1989, the Company formed the ESOP for the benefit
of the employees of the Company and its subsidiaries to purchase shares of the
Company's common stock from time to time on the open market or in negotiated
transactions at prices deemed to be attractive and, simultaneously, the Profit
Participation Plan was merged into the ESOP. Contributions to the ESOP are made
at the discretion of the Board of Directors. During 1989, the ESOP acquired from
the Company's President approximately 772,000 shares of common stock at a cost
of $5,100,000. The shares were acquired in exchange for a note payable to the
President. Simultaneously with such purchase, the President purchased certain
receivables and interests in certain investments from the Company for a purchase
price of $5,100,000, which was paid by the assignment to the Company of the note
received from the ESOP. The note was funded, during March 1990, through a
long-term bank financing agreement guaranteed by the Company. Expenses with
respect to the ESOP include the recognition of interest expense relating to the
ESOP debt and to earned compensation. For the year ended December 31, 1998,
interest expense and compensation expense relating to the ESOP were $102,000 and
$480,000, respectively. As of December 31, 1998, the unpaid ESOP debt is also
reflected as a reduction in stockholders' equity of approximately $840,000.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the Company's
common stock beneficially owned as of March 31, 1999, by (i) persons known by
the Company to own more than 5 percent of the Company's outstanding common
stock, (ii) by each Named Executive and director of the Company, and (iii) all
executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Percent of
Percent Total
Name and Address of of Voting
Beneficial Owner(1) Title of Class Number of Shares Class Power
------------------- -------------- ---------------- ----- -----
<S> <C> <C> <C> <C>
Francis M. Williams Common Stock 1,858,975 (2) 41.8% 61.6%
Class B Common Stock 2,291,569 100.0%
Joseph M. Williams Common Stock 366,917 (3) 8.2% 5.4%
John V. Simon, Jr. Common Stock 24,167 (4) * *
Michael Gold Common Stock 13,523 (5) * *
George Chandler Common Stock 6,714 (6) * *
Norman S. Dominiak Common Stock 1,500 (8) * *
All executive officers and Common Stock 2,280,354 (2)(3) 51.1%
directors as a group (5)(7)
(five persons) Class B Common Stock 2,291,569 (8) 100.0% 67.8%
</TABLE>
(1) The addresses of all officers and directors of the Company above are in
care of the Company at 1501 Second Avenue, East, Tampa, Florida 33605.
(2) Includes 1,479,136 shares owned directly by Mr. Francis M. Williams;
133,333 shares owned by Summerbreeze and 121,750 shares owned by Sunshadow,
both of which Mr. Williams is the sole shareholder of the corporate general
partner and a 50 percent limited partner (see Item 13, "Certain
Relationships and Related Transactions"); 48,908 shares owned by Mr.
Williams' wife; 30,493 shares held by Mr. Williams as Trustee for his wife
and children; 37,913 shares held by Mr. Williams as Custodian under the New
York Uniform Gifts to Minors Act for his children; 6,375 shares held by the
Company's 401(k) and ESOP Plans of which Mr. Williams is fully vested; and
1,067 shares held by Kimmins Realty Investment, Inc., which is owned 100
percent by Mr. Williams.
(3) Includes 10,000 shares owned by Mr. Joseph M. Williams; 25,333 shares
issuable upon exercise of currently exercisable stock options; 3,030 shares
held by the Company's 401(k) and ESOP Plans of which Mr. Williams is fully
vested; and 341,220 shares held by the Company's 401(k) Plan and ESOP of
which Mr. Williams is a trustee with shared voting and investment power.
(4) Includes 1,500 shares owned by Mr. Simon; 28,666 shares issuable upon
exercise of currently exercisable stock options; and 8,334 shares held by
the Company's 401(k) and ESOP plans of which Mr. Simon is fully vested.
(5) Includes 1,150 shares owned by Mr. Gold; 5,775 shares currently owned by
Mr. Gold's wife; 2,898 held by Mr. Gold as trustee for Mr. Gold's minor
children; and 3,700 shares issuable upon exercise of currently exercisable
stock options.
(6) Includes 3,114 shares owned by Mr. Chandler; and 3,600 shares issuable upon
exercise of currently exercisable stock options.
<PAGE>
(7) Includes 38,995 shares issuable upon exercise of currently exercisable
stock options; 23,102 shares held by the Company's 401(k) and ESOP Plans of
which certain officers of the Company are fully vested; and 341,471 shares
held by the Company's 401(k) and ESOP Plans of which the Secretary of the
Company is a trustee.
(8) Includes 3,000 shares that may be purchased by Mr. Dominiak pursuant to
immediately exercisable options. Does not include 6,000 shares issuable to
him upon exercise of options vesting at various times commencing in April
1999.
* Less than one percent.
Item 13. Certain Relationships and Related Transactions
During 1996, 1997 and 1998, the Company paid landfill fees of
approximately $139,000, $0, and $-0-, respectively, to a company that is owned
primarily by the brother of Mr. Francis M. Williams. The amount paid
approximated fair market rates for the type of services involved.
The Company had a note receivable in an original amount of $3,638,696
from Sunshadow Apartments, Ltd., and Summerbreeze Apartments, Ltd., two Florida
real estate limited partnerships (collectively, the "Apartments"), of which Mr.
Francis M. Williams is the sole shareholder of the corporate general partner and
was the sole limited partner. The note receivable originally accrued interest at
prime plus 1.375 percent, increasing to prime plus 2 percent on July 1, 1995,
with principal and interest payable in monthly installments through December 31,
1998, and was guaranteed by Mr. Williams. The Company did not receive any
interest or principal payments during 1997 relating to this note receivable, and
management of the Company discontinued recognition of interest income of
approximately $551,000 for the year. Amounts due from the Apartments at December
31, 1996, were approximately $3,851,000.
On October 22, 1997, the Company contributed its note receivable in an
original amount of approximately $3,851,000 from Sunshadow Apartments, Ltd., and
Summerbreeze Apartments, Ltd., and other receivables of approximately $3,059,000
for a non-controlling 49 percent preferred limited partnership interest in the
Apartments. 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. See Note 8 of
Notes to Consolidated Financial Statements for additional information.
On November 5, 1996, the Company received 1,723,290 shares of
Cumberland common stock in exchange for the term note of $5,169,870 due from
Cumberland. 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, and the Company's interest
in Cumberland represents an ownership share of approximately 31.6 percent. At
December 31, 1997 and 1998, the market value of the Cumberland common stock held
by the Company was approximately $4,739,000 and $3,447,000, respectively.
On November 10, 1998, TransCor loaned $1,000,000 to Cumberland. The
TransCor loan to Cumberland is evidenced by a convertible term note which is due
November 10, 2001. Quarterly interest payments are due beginning January 1, 1999
at a rate of one half of one percent over the rate established by NationsBank.
TransCor has the right, after six months, to convert the principal amount of
note into shares of common stock of Cumberland at $3.00 per share.
Effective July 1, 1997, employees associated with TransCor's demolition
contracting services unit was transferred to Kimmins Contracting Corp. ("KCC"),
a wholly-owned subsidiary of the Company, for administrative and accounting
purposes. As a result, contracting services previously performed by employees of
TransCor were subcontracted to KCC. For the years ended December 31, 1997 and
1998, TransCor paid $3,418,000 and $2,761,000 to KCC for services rendered by
Kimmins as a subcontractor. In addition, TransCor rents equipment from KCC for
use in performing demolition contracts. TransCor incurred approximately
$2,103,000, $2,573,000, and $1,822,000 in equipment rental charges with KCC for
the years-ended December 31, 1996, 1997, and 1998, respectively.
<PAGE>
On August 14, 1998, the Company acquired an additional 297,200 shares
of common stock in TransCor from Francis M. Williams, President and Chief
Executive Officer. The acquisition increased the Company's ownership percentage
to 81 percent from 74 percent and results in the ability to consolidate the
Company and TransCor for federal income tax purposes on a prospective basis.
During the year ended December 31, 1998, TransCor contributed
$1,000,000 to the Kimmins Terrier Foundation, a private foundation controlled by
Francis M. Williams.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement, Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this Report
1. Financial Statements
- Report of Independent Certified Public Accountants
- Consolidated balance sheets at December 31, 1997 and 1998
- Consolidated statements of operations for each of the three years
in the period ended December 31, 1998
- Consolidated statements of comprehensive income for each of the
three years in the period ended December 31, 1998
- Consolidated statements of stockholders' equity for each of the
three years in the period ended December 31, 1998
- Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1998
- Notes to consolidated financial statements
2. Financial Statement Schedule
II- Valuation and Qualifying Accounts
All other Schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
Schedules, or because the information required is included in the financial
statements and notes thereto.
3. The following documents are filed as exhibits to this Annual Report on
Form 10-K:
3(a) --Restated Certificate of Incorporation of Registrant, as
amended.
3(b) 1 --By-laws of Registrant
10.1 2 -- Stock Option Plan
10.2 2 --Form of Stock Option Agreement for Executives
10.3 3 --The Apartments Partnership Agreements
10.4 3 --Term Notes for equipment financed with Caterpillar Financial
Services
10.5 Stock Purchase Agreement dated August 14, 1998 between
the Company and Francis M. Williams
10.6 4 Stock Purchase Agreement between TransCor and Eastern
Environmental Services dated July 17, 1998
21 --Subsidiaries of the Registrant
23 --Consent of Ernst & Young LLP
27 --Financial Data Schedule (for SEC use only)
1 Previously filed on March 17, 1987, as part of Registrant's Registration
Statement on Form S-1, File No. 33-12677, and incorporated herein by
reference thereto.
2 Previously filed on June 29, 1989, as part of Registrant's Form S-8, File
No. 33-29612, and incorporated herein by reference thereto.
3 Previously filed on July 2, 1998 as part of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997, File No. 1-10489 and
incorporated herein by reference thereto.
4 Previously filed as part of TransCor's amended Form 8-K, File No. 1-11822,
filed on August 4, 1998
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized.
KIMMINS CORP.
Date: , 1999 By: /s/ Francis M. Williams
----------------------------- -----------------------
Francis M. Williams
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: , 1999 /s/ Francis M. Williams
------------------------------ -----------------------------
Francis M. Williams
President and Director
(Chief Executive Officer)
Date: , 1999 /s/ Joseph M. Williams
------------------------------ -----------------------------
Joseph M. Williams
Secretary/Treasurer
Date: , 1999 /s/ Norman S. Dominiak
------------------------------ -----------------------------
Norman S. Dominiak
Vice President and Chief
Financial Officer
(Principal Accounting and
Financial Officer)
Date: , 1999 /s/ Michael A. Gold
------------------------------ -----------------------------
Michael A. Gold, Director
Date: , 1999 /s/ R. Donald Finn
------------------------------ -----------------------------
R. Donald Finn, Director
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Providence
of Incorporation
Company or Organization
- --------------------------------------------------------------------------------
Kimmins Contracting Corp.............................. Florida
Kimmins Ltd........................................... Ontario, Canada
Kimmins Industrial Service Corp....................... Delaware
Kimmins Abatement Corp................................ Delaware
ThermoCor Kimmins, Inc................................ Florida
(f/k/a Kimmins Thermal Corp.)
Kimmins Specialty Contracting, Inc.................... Florida
Kimmins Associates, Inc............................... Delaware
Kimmins Equipment Leasing Corp....................... Florida
TransCor Waste Services, Inc.......................... Florida
Bay Area Recycling and Fibers, Inc.................... Florida
Kimmins Incorporated.................................. Texas
Kimmins International................................. Florida
Factory Street Corporation............................ Tennessee
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-29612) pertaining to the 1987 Stock Option Plan of
Kimmins Corp. and in the related Prospectus, of our report dated April 7, 1999,
with respect to the consolidated financial statements and schedule of Kimmins
Corp.
included in the Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Tampa, Florida
April 14, 1999
CONVERTIBLE TERM NOTE
$1,000,000 Tampa, Florida
November 10, 1998
FOR VALUE RECEIVED, CUMBERLAND TECHNOLOGIES, INC. ("Borrower") promises to
pay to the order of TRANSCOR WASTE SERVICES, INC. ("Lender") the sum of One
Million Dollars ($1,000,000) on November 10, 2001 ("Maturity Date"), together
with interest thereon and subject to optional prepayment as set forth herein.
1. INTEREST. Subject to accrual as hereinafter set forth, interest on this
Note shall be paid on the first day of January 1999 and on the first day of each
calendar quarter thereafter with respect to the immediately preceding calendar
quarter at the "Base Interest Rate" (as hereinafter defined) so long as any
principal of this Note is outstanding. All accrued and unpaid interest shall be
payable on the Maturity Date. After maturity, whether by acceleration or
otherwise, interest shall accrue and be payable at a rate per annum equal to one
and one half percent per annum in excess of the Base Interest Rate. Interest
shall be calculated on the basis of 360 days per year and 30 days per month.
As used herein, "Base Interest Rate" shall mean an annual rate of interest
equal to one half of one percent per annum in excess of the interest rate per
annum ("Stated Interest Rate") established by NationsBank from time to time as a
guide for determining actual lending rates charged to its customers and shall
change simultaneously with each change in the Stated Interest Rate; in no event,
however, shall any interest charged on this Note be at a rate in excess of the
maximum interest rate permitted by applicable law.
2. OPTIONAL PREPAYMENT OF PRINCIPAL. This Note may be prepaid at any time
in whole or in part, for the first six months outstanding without penalty or
premium, provided however, that any partial prepayment shall be in the minimum
amount of Ten Thousand Dollars ($10,000) or in multiples of One Thousand Dollars
($1,000) in excess thereof and will first be applied to payment of accrued and
unpaid interest to the date of prepayment and then to payment of principal.
After the six-month anniversary, the note shall not be pre-payable without
first giving Lender an opportunity to convert such outstanding amount to common
stock under the conversion formulas. Lender shall have ten (10) days from notice
to convert the note into stock, otherwise the note shall be repayable without
penalty on the 10th day.
3. CONVERSION. Lender shall have the right at any time, subsequent to the
six month anniversary, and prior to the close of business on the maturity date,
at any time during ordinary business hours to convert, subject to the terms and
provisions herein stated, the principal amount of this Note, or a portion
thereof as hereinafter provided, into such number of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock of Borrower (as
such shares shall be constituted at the time of conversion, calculated as to
each conversion to the nearest one one-hundredth (.01) of one share) at $3.00
per share, adjusted, if required as provided below. The Lender may convert this
Note upon surrender to Borrower, of this Note so to be converted accompanied by
written notice, executed by Lender of election to convert the principal thereof
into Common Stock (and in the case of the conversion of less than the entire
principal amount of this Note surrendered, specifying the portion thereof, which
shall in integral multiplies of $10,000, to be converted).
No payment or adjustment shall be made on conversion of this Note for
interest accrued thereon or for dividends on securities issued upon such
conversion.
The Conversion Price referred to in this Section 3 shall be subject to
adjustment from time to time as follows:
If Borrower shall at any time after the date hereof subdivide or combine
the outstanding shares of Common Stock or issue additional shares of Common
Stock as a dividend or other distribution on the Common Stock, the Conversion
Price in effect immediately prior to such subdivision or combination of shares
or share dividend or distribution shall be proportionately adjusted so that,
with respect to each such subdivision of shares or share dividend or
distribution, the number of shares of the Common Stock deliverable upon
conversion shall be increased in proportion to the increase in the number of
shares of the then outstanding Common Stock resulting from such subdivision of
shares or share dividend or distribution, and with respect to each such
combination of shares, the number of shares of the Common Stock deliverable upon
conversion of this Note shall be decreased in proportion to the decrease in the
number of shares of the then outstanding Common Stock resulting from such
combination of shares. Any such adjustment in the Conversion Price shall become
effective, in the case of any such subdivision or combination of shares, at the
close of business on the effective date thereof, and, in the case of any such
share dividend or distribution, at the close of business on the record date
fixed for the determination of shareholders entitled thereto or on the first
business day during which the stock transfer books of Borrower shall be closed
for the purpose of such determination, as the case may be.
At any time commencing one year from the date of this Note, and provided
that the Borrower is indebted to Lender pursuant to this Note, Lender shall have
the right to require Borrower to prepare and file one new registration
statement, if then required under the Securities Act of 1933 (the "Act")
covering all or any portion of the shares issued upon conversion hereof as
hereinafter provided. Borrower will within five (5) days of receipt of the
demand to register the shares, acknowledge in writing that Borrower is obligated
to register the shares. Borrower shall use its best efforts to cause such
registration to become effective to the extent required or desirable to permit
Lender to dispose of such shares in compliance with applicable laws without any
volume or holding restrictions under the Act. The Borrower shall bear all
expenses incurred in the preparation and filing of such registration statement,
except the holder of the shares issuable upon conversion of this Note shall pay
any underwriting discounts or commissions and the expenses of its own legal
counsel.
4. DEFAULT. Upon the occurrence of any of the following specified events
(each sometimes hereinafter referred to as an "Event of Default"), the entire
unpaid balance of principal of and interest on this Note shall become
immediately due and payable at the option of Lender.
(a) Failure of Borrower to pay, within ten (10) days after the due
date therefor, any installment of the principal of, or interest on, this
Note; or
(b) Failure of Borrower to promptly pay all of its taxes, assessments
and other governmental charges prior to the date on which penalties are
attached thereto, establish adequate reserves for the payment of taxes and
assessments or make all required withholding and other tax deposits, except
as to any liabilities being contested in good faith; or
(c) Failure of Borrower to keep all of its properties so insurable (i)
insured at all times with responsible insurance carriers against fire,
theft and other hazards in such manner and to the extent that like
properties are usually insured by others operating properties of a similar
character in the same genera locality and (ii) adequately insured at all
times with responsible insurance carriers against liability on account of
damage to persons or property and under all applicable workers'
compensation laws; or
(d) Failure of Borrower to maintain its corporate existence in good
standing or to remain or to become duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction in which the conduct
of its business requires such qualification or license and the failure to
be so qualified would have a material adverse effect on the Borrower's
business; or
(e) Borrower's failure to cause all of its and its subsidiaries
properties used or useful in the conduct of its business to be maintained
and kept in good working order and all related licenses and permits to be
kept current and valid, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
provided, however, that nothing herein shall prevent the Borrower from
discontinuing the operations and maintenance of such properties if such
discontinuance is in the judgment of the Borrower desirable in the conduct
of such business and not disadvantageous in any material respect to the
Lender.
(f) The making of a general assignment by Borrower for the benefit of
creditors, or the institution by Borrower of any type of bankruptcy,
reorganization or insolvency proceeding under any state or federal law or
of any formal or information proceeding for the dissolution or liquidation
of, settlement of claims against or winding up of affairs or Borrower; or
(g) The appointment of a receiver or trustee for Borrower or for any
assets of Borrower or the institution against Borrower of any type of
bankruptcy, reorganization or insolvency proceeding under any state or
federal law or any proceeding for the liquidation or winding up of the
affairs of Borrower and the failure to have such proceeding dismissed
within sixty (60) days.
No omission or delay by Lender or other holder hereof in exercising any
right or power under this Note will impair such right or power or be construed
to be a waiver of or acquiescence in any default hereunder, and no waiver by the
Lender or other holder hereof of any breach or default hereunder shall be deemed
to be a waiver of any right or power upon the later occurrence or recurrence of
any such breach or default.
Borrower agrees to pay to Lender the reasonable expenses incurred by the
Lender in connection with the origination of this Note and the enforcement of
Lender's rights hereunder, including, without limitation, the reasonable fees
and disbursements of legal counsel.
Any notice or demand required under this Note or by law shall be in writing
and shall be deemed to have been delivered by hand delivery to or by mailing the
same by certified mail, return receipt requested, to the respective parties at
the following address:
To Lender: Mr. Joseph M. Williams
TransCor Waste Services, Inc.
1501 E. 2nd Avenue
Tampa, FL 33605
To Borrower: Mr. Joseph M. Williams
Cumberland Technologies, Inc.
4311 W. Waters Avenue
Suite #401
Tampa, FL 33614
IN WITNESS WHEREOF, the parties hereto have caused this Term Note to be
duly executed the date first stated above.
SIGNATURES WITNESSED TRANSCOR WASTE SERVICES, INC.
-------------------------------------
As Lender By: Joseph M. Williams
Title: President
CUMBERLAND TECHNOLOGIES, INC.
-------------------------------------
As to Borrower By: Joseph M. Williams
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,859,275
<SECURITIES> 22,022,296
<RECEIVABLES> 18,289,751
<ALLOWANCES> 739,223
<INVENTORY> 0
<CURRENT-ASSETS> 47,205,113
<PP&E> 65,224,998
<DEPRECIATION> 19,578,279
<TOTAL-ASSETS> 114,300,471
<CURRENT-LIABILITIES> 41,151,712
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 14,664,341
<TOTAL-LIABILITY-AND-EQUITY> 114,300,471
<SALES> 59,302,243
<TOTAL-REVENUES> 59,302,243
<CGS> 67,079,477
<TOTAL-COSTS> 67,079,477
<OTHER-EXPENSES> 7,072,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,489,329
<INCOME-PRETAX> (24,954,298)
<INCOME-TAX> (9,865,999)
<INCOME-CONTINUING> (15,088,299)
<DISCONTINUED> 19,431,309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,343,010
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE ANNUAL PERIOD ENDED DECEMBER 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,674,027
<SECURITIES> 0
<RECEIVABLES> 20,001,903
<ALLOWANCES> 921,301
<INVENTORY> 0
<CURRENT-ASSETS> 38,321,590
<PP&E> 64,274,993
<DEPRECIATION> 15,835,530
<TOTAL-ASSETS> 110,329,728
<CURRENT-LIABILITIES> 38,954,876
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 9,386,637
<TOTAL-LIABILITY-AND-EQUITY> 110,329,728
<SALES> 80,931,958
<TOTAL-REVENUES> 80,931,958
<CGS> 75,864,915
<TOTAL-COSTS> 75,864,915
<OTHER-EXPENSES> 7,591,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,027,090
<INCOME-PRETAX> (5,009,489)
<INCOME-TAX> 601,517
<INCOME-CONTINUING> (5,611,006)
<DISCONTINUED> (2,907,234)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,518,240)
<EPS-PRIMARY> (1.97)
<EPS-DILUTED> (1.97)
</TABLE>
