SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-Q
[Mark One]
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2000
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
Commission File No. 1-10489
---------------------------------
KIMMINS CORP.
(Exact name of registrant as specified in its charter)
Florida 59-3598343
(State of incorporation) (I.R.S. Employer Identification Number)
1501 Second Avenue, East, Tampa, Florida 33605
(Address of registrant's principal executive
offices, including zip code)
---------------------------------
(Registrant's telephone number, including area code): (813) 248-3878
---------------------------------
Not applicable
---------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
Applicable Only To Corporate Issuers
As of November 1, 2000 there were outstanding 4,872,135 shares of common stock
and 1,666,569 shares of Class B common stock. The aggregate market value of the
voting stock held by non-affiliates of the registrant as of November 1, 2000 was
$1,979,061.
<PAGE>
KIMMINS CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
----
Item 1. Consolidated balance sheets at December 31, 1999 and
September 30, 2000 (unaudited) 3
Consolidated statements of operations for the three months ended
September 30, 1999 and 2000 (unaudited) 5
Consolidated statements of comprehensive income for the three months ended
September 30, 1999 and 2000 (unaudited) 6
Consolidated statements of operations for the nine months ended
September 30, 1999 and 2000 (unaudited) 7
Consolidated statements of comprehensive income for the nine months ended
September 30, 1999 and 2000 (unaudited) 8
Consolidated statements of cash flows for the nine months ended
September 30, 1999 and 2000 (unaudited) 9
Notes to consolidated financial statements
10
Item 2. Management's discussion and analysis of financial condition and
results of operations 20
Item 3. Quantitative and qualitative disclosures about market risk 24
PART II. OTHER INFORMATION
Item 1. Legal proceedings 25
Item 2. Changes in securities 25
Item 3. Defaults upon senior securities 25
Item 4. Submission of matters to a vote of security holders 25
Item 5. Other information 25
Signatures 26
</TABLE>
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------ --------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 194,202 $ 374,855
Marketable securities 11,520,739 8,966,987
Accounts receivable, net
Contract and trade 12,680,628 13,775,473
Other receivables including affiliates 63,702 67,823
Costs and estimated earnings in excess of billings on
uncompleted contracts 148,782 406,655
Deferred income tax, net 1,814,725 1,795,713
Property and equipment held for sale 1,083,182 1,033,181
Other current assets 148,906 698,117
---------------- ------------------
Total current assets 27,654,866 27,118,804
---------------- ------------------
Property and equipment, net 37,247,209 28,168,872
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 8,088,928 7,214,928
Non-current portion of accounts receivable, net
contract and trade 794,495 794,495
Deferred income tax, non-current 2,624,170 1,547,693
Accounts receivable - affiliate 900,000 900,000
Note receivable - affiliate 1,110,764 1,000,000
Investment in Apartments 4,440,840 3,984,364
Investment in Cumberland Technologies, Inc. 4,881,069 5,028,823
---------------- ------------------
Total assets $ 87,742,341 $ 75,757,979
================ ==================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------ --------------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 8,338,812 $ 6,914,605
Income tax payable 247,829 146,389
Accrued expenses 5,496,312 5,742,823
Billings in excess of costs and estimated earnings on
uncompleted contracts 2,345,977 2,058,681
Current portion of long-term debt 16,799,575 15,772,271
Other current liabilities -0- 16,000
----------------- ----------------
Total current liabilities 33,228,505 30,650,769
----------------- ----------------
Long-term debt 43,767,033 32,524,700
Capital lease obligations 413,719 -0-
Minority interest in subsidiary 1,641,517 1,614,227
Related party debt to be converted to common stock 1,000,000 1,000,000
Stockholders' equity:
Common stock, $.001 par value; 32,500,000 shares authorized;
5,072,397 shares issued and 4,872,135 outstanding 5,072 5,072
Class B common stock, $.001 par value; 10,000,000 shares
authorized; 2,291,569 shares issued and 1,666,569 outstanding 1,667 1,667
Capital in excess of par value 20,204,072 20,204,072
Unrealized loss on securities (net of tax) (5,422,319) (5,987,428)
Retained earnings (deficit) (6,287,140) (3,445,315)
----------------- ----------------
8,501,352 10,778,068
Less treasury stock, at cost (200,262 shares) (809,785) (809,785)
----------------- ----------------
Total stockholders' equity 7,691,567 9,968,283
----------------- ----------------
Total liabilities and stockholders' equity $ 87,742,341 $ 75,757,979
================= ================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30,
1999 2000
---- ----
(unaudited) (unaudited)
-------------------- -------------------
<S> <C> <C>
Revenue
Gross revenue $ 14,945,307 $ 14,263,178
Outside services, at cost (943,556) (2,668,968)
-------------------- -------------------
Net revenue 14,001,751 11,594,210
Costs and expenses:
Cost of revenue earned 12,576,084 9,501,958
-------------------- -------------------
Gross profit 1,425,667 2,092,252
Selling, general and administrative expenses 1,975,867 1,181,750
-------------------- -------------------
Operating income (loss) (550,200) 910,502
Gain (loss) on sale of fixed assets -0- 164,096
Minority interest in net operations of subsidiary (133,768) (6,611)
Income from marketable securities 1,502,577 110,569
Interest expense (1,012,780) (1,041,071)
-------------------- -------------------
Income (loss) before provision for income taxes (benefit) (194,171) 137,485
Provision for income taxes (benefit) (75,728) (284,592)
-------------------- -------------------
Net income (loss) $ (118,443) $ 422,077
=================== ===================
Share data:
Basic income (loss) per share $ (.03) $ .09
=================== ===================
Diluted income (loss) per share $ (.03) $ .09
=================== ===================
Weighted average number of shares outstanding used in computations:
Basic 4,702,568 4,872,135
=================== ===================
Diluted 4,702,568 4,872,135
=================== ===================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three months ended September 30,
1999 2000
---- ----
(unaudited) (unaudited)
-------------------- -------------------
<S> <C> <C>
Net income (loss) $ (118,443) $ 422,077
Unrealized gain (loss) on investments in
marketable securities, net of tax benefit of
$4,734,343 and $254,234 (7,411,954) (423,724)
Less minority interest 563,309 29,491
Allocable share of unrealized loss on investments in
marketable securities held by Cumberland (71,821) 5,646
-------------------- ------------------
Comprehensive income (loss) $ (7,038,909) $ 33,490
==================== ==================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
(unaudited) (unaudited)
------------------- ------------------
<S> <C> <C>
Revenue
Gross revenue $ 50,374,368 $ 45,715,241
Outside services, at cost (5,600,351) (7,105,184)
------------------- ------------------
Net revenue 44,774,017 38,610,057
Costs and expenses:
Cost of revenue earned 38,996,544 31,663,488
------------------- ------------------
Gross Profit 5,777,473 6,946,569
Selling, general and administrative expenses 5,259,056 3,564,535
------------------- ------------------
Operating income (loss) 518,417 3,382,034
Gain (loss) on sale of fixed assets -0- 2,261
Minority interest in net operations of subsidiary (102,851) (200,548)
Income from marketable securities 2,067,148 956,298
Interest expense (3,462,880) (3,473,665)
------------------- ------------------
Income (loss) before provision for income taxes (benefit) (980,166) 666,380
Provision for income taxes (benefit) (382,264) 214,574
------------------- ------------------
Income (loss) from continuing operations (597,902) 451,806
Discontinued operations:
Income (loss) from discontinued solid waste division (net
of tax provision of $1,134,982 in 2000). -0- 2,390,018
------------------- ------------------
Net income (loss) $ (597,902) $ 2,841,824
=================== ==================
Share data:
Basic income (loss) per share from continuing operations $ (.14) $ .13
=================== ==================
Diluted income (loss) per share from continuing operations $ (.14) $ .13
=================== ==================
Basic income (loss) per share from discontinued operations $ .00 $ .45
=================== ==================
Diluted income (loss) per share from discontinued operations $ .00 $ .45
=================== ==================
Total basic income (loss) per share $ (.14) $ .58
=================== ==================
Total diluted income (loss) per share $ (.14) $ .58
=================== ==================
Weighted average number of shares outstanding used in computations:
Basic 4,426,827 4,872,135
=================== ==================
Diluted 4,426,827 4,872,135
=================== ==================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
7
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
(unaudited) (unaudited)
------------------ ------------------
<S> <C> <C>
Net income (loss) $ (597,902) $ 2,841,824
Unrealized gain (loss) on investments in marketable
securities, net of tax benefit of $3,555,737 in 1999
and $346,021 tax benefit in 2000 (5,561,538) (576,702)
Less minority interest 586,742 40,138
Allocable share of unrealized loss on investments
in marketable securities held by Cumberland (113,292) (28,544)
------------------ ------------------
Comprehensive income (loss) $ (5,685,990) $ 2,276,716
================== ==================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
8
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
(unaudited) (unaudited)
--------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (597,902) $ 451,806
Adjustments to reconcile net income (loss) from continuing operations to net
cash provided (used) by operating activities:
Depreciation and amortization 6,690,867 5,861,231
Gain on sale of marketable securities (2,067,148) (966,437)
Minority interest in operations of subsidiary 102,851 200,548
Gain on disposal of property and equipment 41,985) (2,261)
Accrued interest on term note 75,000 -0-
Equity in losses of equity investees 263,506 163,780
Unearned employee compensation from Employee Stock Ownership
Plan Trust 840,000 -0-
Changes in operating assets and liabilities:
Accounts receivable 3,221,193 1,094,845)
Costs and estimated earnings in excess of billings on uncompleted contracts 2,073,842 616,127
Income tax refund receivable and payable (382,084) 14,378
Other (120,241) (442,568)
Accounts payable (4,512,188) (1,424,207)
Accrued expenses 46,173 246,511
Other current liabilities -0- 16,000
Billings in excess of costs and estimated earnings on uncompleted contracts (2,347,385) (287,296)
--------------------- ----------------------
Total adjustments 4,142,401 2,573,401
--------------------- ----------------------
Net cash provided by continuing operations 3,544,499 3,025,207
Gain on sale of discontinued operations -0- 2,390,018
Provision for taxes on gain of sale of discontinued operations -0- 1,134,982
--------------------- ----------------------
Net cash provided by operating activities 3,544,499 6,550,207
--------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (3,684,391) (3,959,874)
Proceeds from sale of property and equipment 4,070,385 7,656,073
Proceeds on sale of marketable securities 979,790 3,439,351
Purchase of marketable securities (1,202,359) (821,748)
--------------------- ----------------------
Net cash provided by investing activities 163,425 6,313,803
--------------------- ----------------------
Cash flows from financing activities:
Proceeds from long-term debt 8,106,739 298,208
Repayments of long-term debt (12,818,743) (12,567,845)
Repayments of capital lease obligations -0- (413,719)
Purchase on treasury stock (45,475) -0-
Repayments of Employee Stock Ownership Plan debt (240,000) -0-
--------------------- ----------------------
Net cash used in financing activities (4,997,479) (12,683,356)
--------------------- ----------------------
Net increase (decrease) in cash (1,289,555) 180,653
Cash, beginning of period 1,859,275 194,202
--------------------- ----------------------
Cash, end of period $ 569,720 $ 374,855
===================== ======================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
9
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Organization - Kimmins Corp. and its subsidiaries (collectively, the
"Company") operate one business segment: specialty-contracting services. The
Company provides specialty-contracting services in the southeastern United
States, primarily Florida, including earthwork; infrastructure development;
underground construction; roadwork; site remediation services such as
excavation, removal and disposal of contaminated soil; facilities demolition and
dismantling; and asbestos abatement. The Company formerly provided solid waste
management services through its subsidiary, TransCor Waste Services, Inc.
("TransCor").
Basis of presentation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and notes thereto as of and for
the year ended December 31, 1999, included in the Company's Form 10-K dated
December 31, 1999, as filed with the United States Securities and Exchange
Commission.
Principles of consolidation - The consolidated financial statements include
the accounts of Kimmins and its subsidiaries, including TransCor, a 93 percent
owned subsidiary. All material intercompany transactions have been eliminated.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Marketable securities - As a result of the sale of Kimmins Recycling Corp.
(KRC) to Eastern Environmental Services, Inc. (EESI), the Company received
555,329 shares of common stock of EESI. Subsequent to the sale of KRC to EESI,
Waste Management, Inc. acquired EESI. Accordingly, the Company now holds 355,742
shares of Waste Management, Inc. (WMI) 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 $8,967,000 as of September
30, 2000. The Company's cost basis in these investments is approximately
$19,222,000, and the unrealized loss of approximately $5,932,000, net of income
taxes and the minority interest's allocable share of approximately $3,800,000
and $444,000, respectively, is reported as a separate component of shareholder's
equity. Additionally, the Company's allocable share of the unrealized loss on
marketable securities held by Cumberland Technologies, Inc. ("Cumberland") is
approximately $46,000 for the nine months ending September 30, 2000. The balance
of unrealized loss net of deferred tax and the minority interest's allocable
share is approximately $5,987,000 at September 30, 2000
Since July 1999, the Company's investment of $17,000,000 in WMI decreased
approximately $10,797,000 before tax as a result of a decline in the current
market value of WMI. The per share price declined from $53.75 per share on June
30, 1999 to $17.44 per share on September 30, 2000. The Company holds 355,742
shares of WMI at a cost of $47.79 per share.
The Company's unrealized loss in its investment in WMI is partially offset
by an unrealized gain of approximately $596,000 for the nine months ended
September 30, 2000 in a separate portfolio of mostly blue chip stocks.
10
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments - The Company's 31.6 percent investment in Cumberland is
accounted for using the equity method of accounting. The Company's 49 percent
investments in Summerbreeze Apartments, Ltd., and Sunshadow Apartments, Ltd.
(the "Apartments"), are also accounted for using the equity method of
accounting. The original carrying amounts in excess of the underlying equity in
these companies is amortized over the estimated useful life of the investment.
The estimated useful lives of these intangibles are twenty years for Cumberland
and thirty years for the Apartments.
2. Costs and estimated earnings in excess of billings on uncompleted contracts
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------ ----------------
(unaudited)
<S> <C> <C>
Expenditures on uncompleted contracts $ 148,053,761 $ 180,916,833
Estimated earnings on uncompleted contracts 1,417,689 7,683,069
------------------ ----------------
149,471,450 188,599,902
Less actual and allowable billings on uncompleted contracts 143,579,717 183,037,000
------------------ ----------------
$ 5,891,733 $ 5,562,902
================== ================
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 8,237,710 $ 7,621,583
Billings in excess of costs and estimated earnings on
uncompleted contracts (2,345,977) (2,058,681)
------------------ ----------------
$ 5,891,733 $ 5,562,902
================== ================
</TABLE>
As of December 31, 1999 and September 30, 2000, the costs and estimated
earnings in excess of billings on uncompleted contracts includes the Company's
cost associated with unapproved or disputed contract change orders and costs
claimed from customers on completed contracts of approximately $10,000,000.
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, 1999 and September 30, 2000, that were not expected to be collected within
twelve months are classified as a non-current asset.
3. Property and equipment held for sale
As a result of management's decision to cease operations in the northeast
and to de-emphasize the performance of certain environmental services within the
specialty-contracting segment, the Company decided to sell its transportable
incineration system. This asset has a carrying value of approximately $1,800,000
as of December 31, 1999 and September 30, 2000. 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. The Company has received
approximately $1,178,000 to date from the buyer towards the purchase. The sale
of the transportable incineration system will be completed upon full receipt of
the purchase price by the Company. The deposits of $1,178,000 have been netted
against the carrying value of the asset resulting in approximately $622,000
being included in "property held for sale" at September 30, 2000.
The Company also has real estate for sale in Nashville, Tennessee, which
has a net book value of approximately $411,000. This amount is also included in
"property held for sale".
11
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and equipment
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------ ----------------
(unaudited)
<S> <C> <C>
Land $ 1,058,234 $ 1,058,234
Buildings and improvements 2,166,984 2,891,805
Construction and recycling equipment 58,455,431 50,065,409
Furniture and fixtures 680,485 676,347
Construction in progress 616,742 -0-
------------------ ----------------
62,977,876 54,691,795
Less accumulated depreciation (25,730,667) (26,522,923)
------------------ ----------------
Net property and equipment $ 37,247,209 $ 28,168,872
================== ================
</TABLE>
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 $6,566,000 and $5,434,000 for the nine
months ended September 30, 1999 and 2000, respectively.
5. Investments in Cumberland Technologies, Inc., Summerbreeze Apartments,
Ltd., and Sunshadow Apartments, Ltd.
Cumberland - In 1988, Cumberland Casualty & Surety Company ("CCS") issued a
surplus debenture to the Company that bears interest at 10 percent per annum in
exchange for $3,000,000. In 1992, such debenture was assigned to Cumberland
Technologies, Inc. ("Cumberland"), a holding company that provides, among other
services, reinsurance for specialty sureties and performance and payment bonds
for contractors. Cumberland entered into a term note agreement with the Company
for the outstanding amount of the debenture, including accrued interest.
Interest accrued on the term note was $506,755 at December 31, 1995 ($372,066 in
1996 prior to the conversion discussed below).
On November 5, 1996, the Company received 1,723,290 shares, or 30 percent
of the outstanding common stock, of Cumberland common stock in exchange for the
term note from affiliate. The Cumberland common stock had a fair market value of
$3.00 per share on the date of the exchange, based upon the quoted market price.
This investment is accounted for under the equity method. The amount of
$3,300,000 in excess of the underlying equity was attributed to goodwill and is
being amortized over twenty years. At 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.
12
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of Cumberland at
September 30, 2000:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------- --------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,000,000 $ 1,978,000
Investments in various marketable securities 8,394,000 9,947,000
Accounts receivable - trade, net 2,896,000 4,045,000
Reinsurance recoverable 2,899,000 3,261,000
Intangibles 1,267,000 1,151,000
Other 3,251,000 3,761,000
------------- --------------
Total assets $ 20,707,000 $ 24,143,000
============= ==============
Policy liabilities and accruals $ 9,788,000 $ 11,875,000
Long-term debt 2,282,000 2,117,000
Other 1,944,000 2,594,000
------------- --------------
Total liabilities 14,014,000 16,586,000
Stockholders' equity 6,693,000 7,557,000
------------- --------------
Total liabilities and stockholders' equity $ 20,707,000 $ 24,143,000
============= ==============
</TABLE>
Cumberland's operating results included revenue of approximately $1,748,000
and $1,609,000 and net income of approximately $285,000 and $202,000 during the
quarters ended September 30, 1999 and 2000. The Company's equity in this net
income was approximately $90,000 and $64,000 during the third quarters of 1999
and 2000 respectively. In addition, approximately $41,000 of amortization
expense was recorded by the Company related to the investment during the third
quarters of 1999 and 2000.
Cumberland's operating results included revenue of approximately $7,069,000
and $8,563,000 and net income of approximately $648,000 and $1,002,000
respectively during the nine month periods ended September 30, 1999 and 2000.
The Company's equity in this net income amounted to approximately $205,000 and
$317,000 during the nine month periods ended September 30, 1999 and 2000,
respectively.
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.
13
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the quarters ended September 30, 1999 and 2000, the Apartments
recognized revenue of approximately $1,071,000 and $1,359,000. During the same
periods, the Apartments recognized net losses of approximately $91,000 and
$114,000, respectively. The Company has recorded its 49.5 percent share of the
net results of operations. In addition, approximately $101,000 of amortization
expense was recorded by the Company related to the investments in the Apartments
for the quarters ended September 30, 1999 and 2000.
The Apartments recognized revenue of approximately $3,311,000 and
$3,510,000 during the nine month periods ended September 30, 1999 and 2000,
respectively. During the same periods, the Apartments recognized net losses of
approximately $439,000 and $313,000. The Company has recorded its 49.5 percent
share of the net results of operations. In addition, approximately $302,000 of
amortization expense was recorded during the nine month periods ended September
30, 1999 and 2000. At September 30, 2000, the Company's balance in its total
investment in the Apartments was approximately $4,884,000, of which $900,000 is
classified as an "account's receivable-affiliate". In addition, approximately
$302,000 of amortization expense was recorded by the Company relating to the
investment for the nine month periods ended September 30, 1999 and 2000.
The following is a summary of the financial position of the Apartments at
December 31, 1999 and September 30, 2000
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
--------------- ----------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 30,000 $ (5,000)
Accounts receivable - affiliate 946,000 946,000
Land 3,800,000 3,800,000
Buildings, capitalized construction interest,
furniture and equipment, net 15,555,000 14,866,000
Other 602,000 555,000
--------------- ----------------
Total assets $ 20,933,000 $ 20,162,000
=============== ================
Accounts payable and accrued expenses $ 743,000 $ 670,000
Accounts payable to affiliates 1,702,000 1,555,000
Mortgage loan payable 20,833,000 20,711,000
Note payable to partner - Francis M. Williams 2,860,000 2,860,000
--------------- ----------------
Total liabilities 26,138,000 25,796,000
Partners' deficit (5,205,000) (5,634,000)
--------------- ----------------
Total liabilities and partners' deficit $ 20,933,000 $ 20,162,000
=============== ================
</TABLE>
14
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
--------------- ----------------
(unaudited)
<S> <C> <C>
Notes payable, principal and interest payable in monthly installments through
December 1, 2004, interest at varying rates up to 13
percent, collateralized by equipment $ 52,859,023 $ 43,496,718
Term bank line of credit due March 31, 2000 interest payable
monthly at lender's base rate plus .5%. 2,451,885 -0-
Line of credit secured by Waste Management shares due and payable upon demand,
interest payable at lender's base rate of
LIBOR plus .75%. 3,491,153 3,257,543
Mortgage notes, principal and interest payable in monthly installments through
December 1, 2004, interest at varying rates
up to prime plus 1.25%, collateralized by land and buildings. 1,764,547 1,520,456
Installment agreement, payable in monthly installments through
October 19, 2000 -0- 22,254
--------------- ----------------
Total debt 60,566,608 48,296,971
Less current portion (16,799,575) (15,772,271)
---------------- -----------------
Net long term debt $ 43,767,033 $ 32,524,700
================ =================
</TABLE>
At December 31, 1999 and September 30, 2000, there were no borrowings
available under the revolving term bank line of credit. During 1999, the Company
restructured its loan arrangements with one of its financial institutions, which
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. Repayment of the
outstanding loans are guaranteed by Cumberland. The Company's outstanding letter
of credit facility of approximately $1,100,000 is secured by a restricted cash
account at a local financial institution.
There was an outstanding balance of approximately $2,452,000 on the
Company's bank line of credit as of March 31, 2000, which was scheduled to be
paid off during the first quarter of 2000. The Company paid the outstanding
balance on the line of credit during the second quarter of 2000.
The Company's revolving term line of credit with a vendor supplying
financing for heavy construction equipment purchases was discontinued during
1999. The outstanding balance on the revolving term line of credit is now
classified as notes payable.
15
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company established a loan and collateral account agreement with the
firm holding the majority of the Company's marketable securities during the
first quarter of 1999. The margin line of credit provides cash advances to the
Company and is based on the current value of the Waste Management shares held by
the Company.
7. Stockholders' equity
The Company's Class B common stock has the same voting rights as common
stock and is not entitled to participate in cash dividends. Upon liquidation or
dissolution of the Company, the holders of common stock are entitled to receive
up to $9.00 per share, after which the holders of Class B common stock are
entitled to receive up to $9.00 per share. Thereafter, all assets remaining for
distribution will be distributed pro rata to the holders of common stock and
Class B common stock. The right to convert Class B common stock to common stock
occurs in any fiscal year in which the Company achieves net earnings equal to a
specified amount (currently $.84 per share), which is calculated by adding the
total shares outstanding at fiscal year end to the number of shares that could
be converted during the fiscal year.
The holders of the Class B common stock will thereafter have the right to
convert up to 625,000 shares of Class B common stock into common stock on a
share for share basis as follows. Each cumulative incremental increase in net
earnings in any subsequent year of $.21 per share above the specified level of
earnings previously obtained will afford holders the right to convert up to an
additional 625,000 shares of Class B common stock into common stock on a share
for share basis. Holders of Class B common stock will not be entitled to convert
more than 625,000 of such shares in any fiscal year unless the Company achieves
earnings of $1.44 per share of common stock in any fiscal year, which will
entitle holders to convert all shares of Class B common stock into common stock.
In addition, conversion occurs if a sale of part of the Company's business as to
which there is a bona fide offer to purchase would have resulted in
convertibility of any of the outstanding Class B common stock and it is
determined by the Board of Directors of the Company not to approve such a
transaction, then, upon request of the holder or holders of a majority of the
outstanding Class B common stock, the number of shares thereof which would have
become convertible had the transaction occurred would become convertible. A
similar provision provides that if there is an independent valuation of a part
of the business of the Company such that if such part of the business were sold,
the result would allow conversion of all outstanding Class B common stock and if
the Board of Directors of the Company does not authorize such sale, then, upon
request of the holder or holders of a majority of the outstanding Class B common
stock, the outstanding Class B common stock would become convertible. No shares
of Class B common stock became eligible for conversion into common stock during
the years ended December 31, 1996 or 1997.
Based on 1998 earnings, 625,000 shares of Class B common stock became
eligible for conversion into common stock. The 625,000 Class B shares were
converted to common stock in 1999.
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 loss on the Company's marketable securities and the
Company's allocable share of Cumberland's unrealized loss of approximately
$5,987,000, net of taxes and the minority interest's share of approximately
$3,859,000 and $444,000, respectively, are recorded as a decrease to
stockholders' equity as of September 30, 2000.
During the year ended December 31, 1999, the Company acquired 41,821 shares
of treasury stock at a cost of $45,522. At December 31, 1999 and September 30,
2000, the balance of the Company's treasury stock was $809,785.
16
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings (loss) per share
As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
-------------- --------------
<S> <C> <C>
(unaudited) (unaudited)
Numerator:
---------
Income (loss) from continuing operations $ (118,443) $ 422,077
-------------- --------------
Adjustment for basic earnings per share -0- -0-
Numerator for basic earnings per share -
Income (loss) available to common stockholders from
continuing operations (118,443) 422,077
Effect of dilutive securities Numerator for diluted earnings per share:
Income (loss) from continuing operations (118,443) 422,077
Income (loss) from discontinued operations -0- -0-
-------------- --------------
Income (loss) applicable to common stockholders
after assumed conversions $ (118,443) $ 422,077
============== ==============
Denominator:
-----------
Denominator for basic earnings per share -
weighted-average shares 4,702,568 4,872,135
Effect of dilutive securities:
Stock options -0- -0-
Dilutive potential common shares -0- -0-
-------------- --------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,702,568 4,872,135
============== ==============
Basic income (loss) per share from continuing operations $ (.03) $ .09
============== ==============
Diluted income (loss) per share from continuing operations $ (.03) $ .09
============== ==============
Basic income (loss) per share from discontinued operations $ -0- $ .00
============== ==============
Diluted income (loss) per share from discontinued operations $ -0- $ .00
============== ==============
Total basic income (loss) per share $ (.03) $ .09
============== ==============
Total diluted income (loss) per share $ (.03) $ .09
============== ==============
</TABLE>
17
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 2000
---------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Numerator:
---------
Income (loss) from continuing operations $ (597,902) $ 451,806
--------------- --------------
Adjustment for basic earnings per share -0- -0-
Numerator for basic earnings per share -
Income (loss) available to common stockholders from
continuing operations (597,902) 451,806
Effect of dilutive securities
Numerator for diluted earnings per share:
Income (loss) from continuing operations (597,902) 451,806
Income (loss) from discontinued operations -0- 2,390,018
--------------- --------------
Income (loss) applicable to common stockholders
after assumed conversions $ (597,902) $ 2,841,824
============== ==============
Denominator:
-----------
Denominator for basic earnings per share -
weighted-average shares
Effect of dilutive securities: 4,426,827 4,872,135
Stock options -0- -0-
Dilutive potential common shares -0- -0-
-------------- --------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,426,827 4,872,135
============== ==============
Basic income (loss) per share from continuing operations $ (.14) $ .09
============== ==============
Diluted income (loss) per share from continuing operations $ (.14) $ .09
============== ==============
Basic income (loss) per share from discontinued operations $ -0- $ .49
============== ==============
Diluted income (loss) per share from discontinued operations $ -0- $ .49
============== ==============
Total basic income (loss) per share $ (.14) $ .58
============== ==============
Total diluted income (loss) per share $ (.14) $ .58
============== ==============
</TABLE>
18
<PAGE>
9. Discontinued operations
In 1998, the Company sold its solid waste management services (SWMS)
operations to Eastern Environmental Services of Florida, Inc. Subsequently,
Eastern Environmental was acquired by Waste Management, Inc. (WMI).
On June 27, 2000, the Company received, net of related legal fees,
$3,525,000 from WMI as final settlement. This settlement was for adjustments
required under the purchase agreement and for other disputes related to the sale
of the SWMS operations
This amount, net of tax of $1,134,982 has been reflected on the statement
of operations as income from discontinued operations.
19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Net revenue for the three months ended September 30, 2000 decreased 17
percent to approximately $11,594,000 from $14,002,000 for the three months ended
September 30, 1999. The decrease is due primarily to the contraction of the
Company's utility services ($3,642,000 decrease in net revenue) and mining
services ($2,461,000 decrease in net revenue). These decreases were somewhat
offset by increases in the Company's demolition services ($2,472,000 increase in
net revenue) as well as other services ($1,224,000 increase in net revenue).
Outside services, which largely represent subcontractor costs increased as
a percentage of net revenue to 23 percent for the third quarter of 2000 from 7
percent for the same period of 1999. The Company uses the services of a
subcontractor when it determines that an economic opportunity exists regarding
internally providing the services. The Company utilized the services of
subcontractors to a greater extent during the third quarter of 2000 than 1999
due to the specific contracts in progress and the associated work requirements.
Cost of revenue earned, as a percentage of net revenue, for the third
quarter of 2000 decreased to approximately 82% from 90% for the same period in
1999. As a result, the gross profit for the third quarter of 2000 was
approximately $2,092,000 (18% of net revenue) compared to approximately
$1,426,000 (10% of net revenue) for the third quarter of 1999. The increase in
the dollar amount and percentage of gross margin is primarily associated with
demolition services ($350,000 increase in gross margin), other services
($260,000 increase in gross margin) and mining services ($98,000 increase in
gross margin). These increases were somewhat offset by decreases in gross margin
of utility services ($42,000 decrease in gross margin) due to reduced revenues.
The Company has recognized continued improvement in gross margin during the
third quarter of 2000 as compared to the third quarter of 1999. Management has
focused their efforts on obtaining project work with higher gross margin
potential. Actual costs have been comparable to cost estimates included in
project bids and the Company has experienced gains in productivity.
During the three months ended September 30, 2000, selling, general and
administrative expenses decreased to approximately $1,182,000 (10% of net
revenue) from $1,976,000 (14% of net revenue) for the three months ended
September 30, 1999. The dollar and percentage decreases were primarily
attributable to management's continued efforts to contain and reduce
administration and overhead costs.
Minority interest in net income of subsidiary was approximately $7,000 for
the three months ended September 30, 2000 compared to minority interest in net
income of $134,000 during the same period in 1999. The minority interest in net
income or loss of the subsidiary had reflected approximately 26% of TransCor's
earnings as a result of the March 25, 1993 initial public offering of TransCor's
common stock. In September 1998, the Company acquired approximately 297,000
shares of TransCor stock from Francis M. Williams the majority owner of the
Company and Chairman of the Board of the Company and of TransCor. This purchase
of approximately 7% of the outstanding shares increased the Company's ownership
in TransCor to 81%. Also, since August 1998 TransCor acquired 514,925 shares of
Treasury Stock on the open market effectively increasing the Company's ownership
an additional 12% to 93%.
Investment income from marketable securities was $111,000 and approximately
$1,503,000 for the third quarters of 2000 and 1999 respectively. The Company
held a larger share of marketable securities including covered options in 1999
as compared to 2000.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the third quarter 2000, the Company incurred a gain of approximately
$164,000 on the sale of excess heavy construction equipment.
Interest expense, net of interest income increased to approximately
$1,041,000 during the three months ended September 30, 2000 compared to
$1,013,000 for the three months ended September 30, 1999. The increase is
primarily attributable to interest adjustments associated with final payoff of
the Company's line of credit balance during June, as well as a change in
accounting for accrued interest on outstanding debt. These increases were
partially offset by decreased interest expense attributable to reductions in the
outstanding debt balance.
Provision for income tax benefit was $97,699 for the three months ended
September 30, 2000 compared to $75,728 for the three months ended September 30,
1999.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Net revenue for the nine months ended September 30, 2000 decreased 14
percent to approximately $38,610,000 from $44,774,000 for the nine months ended
September 30, 1999. The decrease is due primarily to the contraction of the
Company's utility services ($8,398,000 decrease in net revenue) and mine
services ($6,237,000 decrease in net revenue). These decreases were somewhat
offset by increases in the Company's demolition services ($6,892,000 increase in
net revenue) and other services ($1,579,000 increase in net revenue).
Outside services, which largely represent subcontractor costs increased to
approximately 18% as a percentage of net revenue for the nine months ended
September 30, 2000 from 13% for the same period of 1999. The Company uses the
services of a subcontractor when it determines that an economic opportunity
exists regarding internally providing the services. The Company utilized the
services of subcontractors to a greater extent during the third quarter of 2000
than in 1999 due to the specific contracts in progress and the associated work
requirements.
Cost of revenue earned, as a percentage of net revenue, for the nine months
ended September 30, 2000 decreased to approximately 82% from 88% for the same
period in 1999. As a result, the gross profit for the nine months ended
September 30, 2000 was approximately $6,947,000 (18% of net revenue) compared to
$5,777,000 (13% of net revenue) for the same period in 1999. The increase in the
dollar amount and percentage of gross margin is primarily associated with
demolition services ($1,554,000 increase in gross margin) and other services
($400,000 increase in gross margin). These increases were somewhat offset by
decreases in gross margin of utility services ($636,000 decrease in gross
margin) and mining services ($149,000 decrease in gross margin).
The Company has recognized a significant improvement in gross margin during
the third quarter of 2000 as compared to the third quarter of 1999. Management
has focused their efforts on obtaining project work with higher gross margin
potential. Actual costs have been comparable to cost estimates included in
project bids and the Company has experienced continual gains in productivity.
During the nine months ended September 30, 2000, selling, general and
administrative expenses decreased to $3,565,000 (9% of net revenue) from
$5,259,000 (12% of net revenue) for the nine months ended September 30, 1999.
The dollar decrease and percentage increase is primarily attributable to reduced
revenues. In addition, equity income from the partnerships and Cumberland
increased from approximately $12,000 loss to $297,000 income during the first
nine months of 1999 and 2000, respectively.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Minority interest in net income of subsidiary was approximately $201,000
for the nine months ended September 30, 2000 compared to minority interest in
net income of $103,000 during the same period in 1999. The minority interest in
net income or loss of the subsidiary had reflected approximately 26% of
TransCor's earnings as a result of the March 25, 1993 initial public offering of
TransCor's common stock. In September 1998, the Company acquired approximately
297,000 shares of TransCor stock from Francis M. Williams the majority owner of
the Company and Chairman of the Board of the Company and of TransCor. This
purchase of approximately 7% of the outstanding shares increased the Company's
ownership in TransCor to 81%. Also, since August 1998 TransCor acquired 514,925
shares of Treasury Stock on the open market effectively increasing the Company's
ownership an additional 12% to 93%.
Investment income from marketable securities was approximately $956,000 and
$2,067,000 for the nine months ended September 30, 2000 and 1999 respectively.
The Company held a larger share of marketable securities including covered
options in 1999 as compared to 2000.
Interest expense, net of interest income increased slightly to
approximately $3,474,000 during the nine months ended September 30, 2000
compared to $3,463,000 for the nine months ended September 30, 1999. The
increase is primarily attributable to interest adjustments associated with final
payoff of the Company's line of credit balance during June 2000, as well as a
change in accounting for accrued interest on outstanding debt. These increases
were mostly offset by decreased interest expense attributable to reductions in
the outstanding debt balance.
As a result of the foregoing, income before provision for income taxes for
the nine months ended September 30, 2000 was approximately $666,000 (2% of net
revenue) compared to a net loss before provision for taxes of $980,000 (2% of
net revenue) during the same period in 1999.
The Company's effective tax rate was 39% for the nine months ended
September 30, 1999 and 32% for the nine months ended September 30, 2000. The
decrease in the tax rate was due to a change in an estimate of a deferred tax
asset.
The Company generated net income from continuing operations for the nine
months ended September 30, 2000 of approximately $452,000 (1% of net revenue) as
compared with a net loss of approximately $598,000 (1% of net revenue) for the
same period during 1999.
The Company received income from discontinued operations of approximately
$2,390,000 net of tax of $1,135,000 as final settlement due the Company as a
result of the sale of the SWMS operations.
As a result of the foregoing, the Company reported net income for the nine
months ended September 30, 2000 of approximately $2,842,000 (7% of net revenue)
as compared with a net loss of $598,000 (1% of net revenue) for the same period
during 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $3,544,499 and $6,550,207 during
the nine months ended September 30, 1999 and 2000, respectively. Depreciation
and amortization were the primary sources of cash provided by continuing
operations during 1999 and 2000. In 2000, the Company received a $3,525,000 cash
settlement from WMI.
The Company had capital expenditures during the nine months ended September
30, 1999 and 2000 of $3,684,391 and $3,959,874, respectively. These purchases
were primarily related to equipment purchases for equipment previously leased.
Net cash provided by investing activities was $163,425 and $6,313,802
during the nine months ended September 30, 1999 and 2000. During 2000, the
Company realized approximately $11,095,000 proceeds from the sale of equipment
and marketable securities.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The net cash used in financing activities was approximately $12,683,000
during the nine months ended September 30, 2000 and $4,997,000 for the nine
months ended September 30, 1999. The majority of the amount used during the nine
months ended September 30, 2000 is attributable to repayments of approximately
$12,982,000 of long-term debt and capital leases.
The Company's ratio of debt to equity was 6.0 and 5.2 at September 30, 1999
and September 30, 2000, respectively. The decrease in debt is primarily due to
the debt paydowns exceeding new debt and the decrease in stockholders' equity is
primarily related to the increase in the unrealized loss on marketable
securities since September 30, 1999.
During the nine months ended September 30, 1999 and 2000, the Company's
average contract and trade receivables less retainage were outstanding for 92
and 89 days, respectively. Management believes that the number of days
outstanding for its current receivables approximates industry norms. A portion
of the Company's contracting operations is subcontracted and any delay in
collections of receivables relating to primary contracts will usually result in
the ability of the Company to delay payment of offsetting subcontract payments.
The Company's current bonding capacity for qualification purposes 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
$53,000,000. However, bonding coverage is not guaranteed on projects up to the
above limits because each project has its own distinct and separate bond
requirements and it is customary for surety bonding companies to underwrite each
surety obligation individually. Management believes that bonding coverages are
adequate for the size and scope of projects being performed.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. The Financial
Accounting Standards Board has issued Statement No. 137 Accounting for
Derivative Instruments and Hedging Activities - Deferral of the effective date
of SFAS No. 133, which delays the implementation date of SFAS 133 for one year,
to fiscal years beginning after June 15, 2000. The Statement requires the
Company 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 are
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 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.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that reflect management's current views with respect to future events
and financial performance. Such statements involve risks and uncertainties, and
there are certain important factors that could cause actual results to differ
materially from those anticipated. Some of the important factors that could
cause actual results to differ from those anticipated include, but are not
limited to, economic conditions, competitive factors, changes in market prices
of the Company's investments and other uncertainties, all of which are difficult
to predict and many of which are beyond the control of the Company. Due to such
uncertainties and risk, readers are cautioned not to place undue reliance on
such forward-looking statements, which speak only as of the date hereof.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations. If inflation increased, the Company will attempt to
increase its prices to offset its increased expenses. No assurance can be given,
however that the Company will be able to adequately increase its prices in
response to inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
During 2000, the Company has not entered into any transactions using
derivative financial instruments or derivative commodity instruments. As of
September 30, 2000, the Company has debt of approximately $48,297,000 of which
$46,777,000 has a fixed interest rate. The remaining debt of $1,520,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $15,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market interest rate risk is not material.
As of September 30, 2000, the Company's 93% owned subsidiary TransCor, held for
other than trading purposes, marketable equity securities of publicly traded
companies having a value of approximately $8,967,000 ($6,203,000 related to
Waste Management, Inc.). These securities are subject to price risk.
Beginning in January 1999, TransCor 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. During the nine months ended
September 30, 1999, TransCor invested approximately $3,696,000 in covered
options and recognized income of approximately $1,996,000 on proceeds of
$5,692,000. Subsequent to September 30, 1999, the Company has not entered into
additional option transactions.
24
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following document is filed as an exhibit to this Quarterly Report
on Form 10-Q:
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMMINS CORP.
By: /s/ Francis M. Williams
------------------------------------------
Francis M. Williams
President and Chief Executive Officer
November 14,2000
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on November 14, 2000.
Date: November 14, 2000 /s/ Francis M. Williams
--------------------------------------------
Francis M. Williams
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 /s/ Norman S. Dominiak
--------------------------------------------
Norman S. Dominiak
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
26
