1235132v1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-Q
[MarkOne]
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 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
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 May 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 May 1, 2000 was
$2,131,559.
<PAGE>
KIMMINS CORP.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated balance sheets at December 31, 1999 and
March 31, 2000 (unaudited) 3
Consolidated statements of operations for the three
months ended March 31, 1999 and 2000 (unaudited) 5
Consolidated statements of comprehensive income for
the three months ended March 31, 1999 and 2000 (unaudited) 6
Consolidated statements of cash flows for the three
months ended March 31, 1999 and 2000 (unaudited) 7
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of financial
condition and results of operations 16
Item 3. Quantitative and qualitative disclosures about
market risk 18
PART II. OTHER INFORMATION
Item 1. Legal proceedings 19
Item 2. Changes in securities 19
Item 3. Defaults upon senior securities 19
Item 4. Submission of matters to a vote of security holders 19
Item 5. Other information 19
Item 6. Exhibits and reports on Form 8-K 19
Signatures 20
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
December 31, March 31,
1999 2000
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 194,202 $ 942,392
Marketable securities 11,520,739 8,234,850
Accounts receivable, net
Contract and trade 12,680,628 12,480,068
Other receivables including affiliates 63,702 2,622,625
Costs and estimated earnings in excess of billings on
uncompleted contracts 148,782 773,316
Deferred income tax, net 1,814,725 1,764,298
Property and equipment held for sale 1,083,182 1,083,182
Other current assets 148,906 213,031
-------------- ---------------
Total current assets 27,654,866 28,113,762
-------------- ---------------
Property and equipment, net 37,247,209 32,494,686
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 8,088,928 6,876,733
Non-current portion of accounts receivable, net
contract and trade 794,495 794,495
Deferred income tax, non-current 2,624,170 3,080,832
Accounts receivable - affiliate 900,000 900,000
Note receivable - affiliate 1,110,764 1,000,000
Investment in Apartments 4,440,840 4,404,442
Investment in Cumberland Technologies, Inc. 4,881,069 4,923,215
-------------- ---------------
Total assets $ 87,742,341 $ 82,588,165
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
December 31, March 31,
1999 2000
---- ----
(unaudited)
Current liabilities:
Accounts payable - trade $ 8,338,812 $ 7,466,945
Income tax payable 247,829 195,725
Accrued expenses 5,496,312 5,201,319
Billings in excess of costs and
estimated earnings on uncompleted contracts 2,345,977 2,401,848
Current portion of long-term debt 16,799,575 15,159,063
--------------- ---------------
Total current liabilities 33,228,505 30,424,900
--------------- ---------------
Long-term debt 43,767,033 42,920,279
Capital lease obligations 413,719 -0-
Minority interest in subsidiary 1,641,517 1,538,213
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) (6,617,538)
Retained earnings (deficit) (6,287,140) (6,078,715)
--------------- --------------
8,501,352 7,514,558
Less treasury stock, at cost (200,262 shares) (809,785) (809,785)
--------------- ---------------
Total stockholders' equity 7,691,567 6,704,773
--------------- ---------------
Total liabilities and stockholders' equity $ 87,742,341 $ 82,588,165
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
(unaudited) (unaudited)
Revenue
Gross revenue $ 16,925,801 $ 14,683,130
Outside services, at cost (1,878,078) (1,629,252)
---------------- ----------------
Net revenue 15,047,723 13,053,878
Costs and expenses:
Cost of revenue earned 13,120,247 10,696,679
--------------- ---------------
Gross Profit 1,927,476 2,357,199
Selling, general and administrative expenses 1,911,875 1,198,017
--------------- ---------------
Operating income (loss) 15,601 1,159,182
Loss on sale of fixed assets -0- (183,122)
Minority interest in net operations of subsidiary (42,118) (39,146)
Income from marketable securities 564,571 724,907
Interest expense (1,318,472) (1,146,044)
---------------- ---------------
Income (loss) before provision for income taxes (benefit) (780,418) 515,777
Provision for income taxes (benefit) (304,362) 307,353
--------------- --------------
Net income (loss) $ (476,056) $ 208,424
=============== ===============
Share data:
Basic income (loss) per share $ (.11) $ .04
=============== ===============
Diluted income (loss) per share $ (.11) $ .04
=============== ===============
Weighted average number of shares outstanding used
in computations:
Basic 4,288,956 4,872,135
=============== ===============
Diluted 4,913,956 4,872,135
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31,
1999 2000
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net income (loss) $ (476,056) $ 208,424
Unrealized loss on investments in marketable
securities, net of tax benefit of $108,530 and $748,416 (162,796) (1,195,219)
Less minority interest 20,512 83,187
Allocable share of unrealized loss on investments
in marketable securities held by Cumberland (40,459) (34,677)
--------------- ---------------
Comprehensive income (loss) $ (658,799) $ (938,285)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
1999 2000
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (476,056) $ 208,424
Adjustments to reconcile net income from continuing operations to net
cash provided (used) by operating activities:
Depreciation and amortization 2,407,401 2,102,241
Gain on sale of marketable securities (25,326) (724,907)
Minority interest in operations of subsidiary (282,473) 39,146
Gain on disposal of property and equipment -0- 183,122
Accrued interest on term note (17,500) -0-
Equity in losses of equity investees 3,311 (202,987)
Changes in operating assets and liabilities:
Accounts receivable 2,685,250 (2,247,598)
Costs and estimated earnings in excess of billings on uncompleted contracts 156,265 587,661
Income tax refund receivable and payable (305,143) 255,249
Other 122,559 (64,125)
Accounts payable (3,293,781) (871,867)
Accrued expenses (1,552,474) (294,993)
Billings in excess of costs and estimated earnings on
uncompleted contracts (463,959) 55,871
---------------- ----------------
Total adjustments (565,870) (1,183,187)
---------------- ----------------
Net cash provided by (used in) continuing operations (1,041,926) (974,763)
Cash flows from investing activities:
Capital expenditures (80,000) (3,864,311)
Proceeds from sale of property and equipment 155,254 6,473,227
Cash proceeds on sale of marketable securities 498,593 2,439,682
Purchase of marketable securities (212,175) (424,660)
--------------- ---------------
Net cash provided by (used in) investing activities 361,672 4,623,938
--------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt 5,000,000 185,418
Repayments of long-term debt (4,570,638) (2,672,684)
Payments on capital lease obligations (134,461) (413,719)
--------------- ----------------
Net cash provided by (used in) financing activities 294,901 (2,900,985)
--------------- ----------------
Net increase (decrease) in cash (385,353) 748,190
Cash, beginning of period 1,859,275 194,202
=============== ===============
Cash, end of period $ 1,473,922 $ 942,392
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<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 three-month period
ended March 31, 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 $8,235,000 as of March 31,
2000. The Company's cost basis in these investments is approximately
$19,519,000, and the unrealized loss of approximately $11,284,000, net of
deferred income taxes of approximately $4,666,000, 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 $55,000 for the quarter ending March 31,
2000. The balance of unrealized gains and losses net of deferred tax is
approximately $6,618,000 at March 31, 2000
Since July 1999, the Company's investment of $17,000,000 in WMI decreased
approximately $12,131,000 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 $13.69 per share on March 31, 2000. The Company holds 355,742 shares
of WMI at a cost of $47.79 per share.
This unrealized loss is partially offset by an unrealized gain of
approximately $857,000 for the quarter ended March 31, 2000 in a separate
portfolio of mostly blue chip stocks.
8
<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>
<S> <C> <C>
December 31, March 31,
1999 2000
---- ----
(unaudited)
Expenditures on uncompleted contracts $ 148,053,761 $ 101,586,540
Estimated earnings on uncompleted contracts 1,417,689 2,361,632
---------------- ---------------
149,471,450 103,948,172
Less actual and allowable billings on uncompleted contracts 143,579,717 98,699,971
================ ===============
$ 5,891,733 $ 5,248,201
================ ===============
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 8,237,710 $ 7,650,049
Billings in excess of costs and estimated earnings on
uncompleted contracts (2,345,977) (2,401,848)
================ ===============
$ 5,891,733 $ 5,248,201
================ ===============
</TABLE>
As of December 31, 1999 and March 31, 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 March 31, 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 March 31, 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 $1,128,000 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 $1,128,000 have been netted
against the carrying value of the asset resulting in approximately $672,000
being included in "property held for sale" at March 31, 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".
9
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and equipment
December 31, March 31,
1999 2000
---- ----
(unaudited)
Land $ 1,058,234 $ 1,058,234
Buildings and improvements 2,166,984 2,887,903
Construction and recycling equipment 58,455,431 51,617,704
Furniture and fixtures 680,485 686,564
Construction in progress 616,742 -0-
---------------- -------------
62,977,876 56,250,405
Less Accumulated Depreciation (25,730,667) (23,755,719)
-------------- -------------
Net Property and Equipment $ 37,247,209 $ 32,494,686
============= ==============
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 $2,266,000 and $1,960,000 for the three
months ended March 31, 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.
10
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of Cumberland at
December 31, 1999 and March 31, 2000:
December 31, March 31,
1999 2000
---- ----
(unaudited)
Cash and cash equivalents $ 2,000,000 $ 2,060,000
Investments in various marketable securities 8,394,000 8,373,000
Accounts receivable - trade, net 2,896,000 2,568,000
Reinsurance recoverable 2,899,000 2,796,000
Intangibles 1,267,000 1,226,000
Other 3,251,000 3,584,000
============= ==============
Total assets $ 20,707,000 $ 20,607,000
============= ==============
Policy liabilities and accruals $ 9,788,000 $ 10,485,000
Long-term debt 2,282,000 2,268,000
Other 1,944,000 898,000
------------- --------------
Total liabilities 14,014,000 13,651,000
Stockholders' equity 6,693,000 6,956,000
------------- --------------
Total liabilities and stockholders' equity $ 20,707,000 $ 20,607,000
============= ==============
Cumberland's operating results included revenue of approximately $2,585,000
and $3,460,000 and net income of approximately $247,000 and $439,000 during the
quarters ended March 31, 1999 and 2000. The Company's equity in this net income
(loss) was approximately $78,000 and $139,000 during the first quarter of 1999
and 2000 respectively. In addition, approximately $41,000 of amortization
expense was recorded by the Company related to the investment during the first
quarter of 1999 and 2000.
Apartments - On October 22, 1997, the Company contributed its note
receivable in an amount of approximately $3,851,000 from the Apartments and
other receivables of $3,059,000 for a non-controlling 49 percent preferred
limited partnership interest in the Apartments and a receivable of $900,000 from
the Apartments. The amount of approximately $12,066,000 in excess of the
underlying equity was attributed to goodwill and is being amortized over thirty
years. The Company will be allocated 49 percent of operating income, losses and
cash flow. The preference in the Company's equity interest in the Apartments
occurs upon the sale of the underlying partnership properties. Upon the
occurrence of a capital transaction, the Company would receive cash flows from
the sale or refinancing of the Apartments' assets equal to its capital
contribution prior to any other partner receiving any proceeds. The Company
accounts for its investment in the Apartments using the equity method.
During the quarters ended March 31, 1999 and 2000, the Apartments
recognized revenue of approximately $1,108,000 and $1,089,000. During the same
periods, the Apartments recognized net losses of approximately $167,000 and
$130,000, respectively. The Company has recorded its 49 percent share of the net
results of operations. In addition, approximately $101,000 of amortization
expense was recorded by the Company related to the investments in the Apartments
for the quarters ended March 31, 1999 and 2000. At March 31, 2000, the Company's
balance in its total investment in the Apartments was approximately $4,535,000
of which $900,000, is considered as an "accounts receivable - affiliate."
11
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of the Apartments at
December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
Total investment
----------------
December 31, March 31,
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 15,297,000
Other 602,000 730,000
=============== ===============
Total assets $ 20,933,000 $ 20,778,000
=============== ===============
Accounts payable and accrued expenses $ 743,000 $ 962,000
Accounts payable to affiliates 1,702,000 1,616,000
Mortgage loan payable 20,833,000 20,790,000
Note payable to partner - Francis M. Williams 2,860,000 2,860,000
--------------- ---------------
Total liabilities 26,138,000 26,228,000
Partners' deficit (5,205,000) (5,450,000)
=============== ===============
Total liabilities and partners' deficit $ 20,933,000 $ 20,778,000
=============== ===============
</TABLE>
6. Long-term debt
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, March 31,
1999 2000
---- ----
(unaudited)
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 $ 50,729,790
Term bank line of credit due March 31, 2000 interest payable
monthly at lender's base rate plus .5%. 2,451,885 2,451,885
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 3,139,328
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 1,658,577
Financing agreement, principal and interest payable in monthly ____________ ____________
installments through September 1, 2000, interest
payable at 7.05% -0- 99,762
-------------- -------------
Total debt 60,566,608 58,079,342
Less current portion (16,799,575) (15,159,063)
--------------- ---------------
Net long term debt $ 43,767,033 $ 42,920,279
=============== ===============
</TABLE>
12
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1999 and March 31, 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 is an outstanding balance of approximately $2,452,000 on the
Company's bank line of credit, which was scheduled to be paid off during the
first quarter of 2000. The Company is currently in default since the Company did
not have sufficient excess cash to make the payments required December 31, 1999,
February 15, 2000 and March 31, 2000. The Company is currently in negotiation
with the financial institution to restructure these debt payments.
During 1998 and 1999, the revolving term bank line of credit agreement
contained 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. However, as of October 31, 1999, the Company no
longer had the revolving term bank line of credit available and is therefore, no
longer required to meet debt covenants.
Certain equipment notes and the working capital loan agreements contained
certain covenants, the most restrictive of which required 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 as
of December 31, 1998. The equipment notes and working capital loan are
guaranteed by the Company and previously required 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 obtained waivers of
these financial covenants for the year ended December 31, 1998. These current
debt agreements no longer include debt covenant requirements.
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.
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.
13
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 losses on marketable securities of approximately $6,618,000
net of taxes of $4,666,000 are recorded as a decrease to stockholders' equity as
of March 31, 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 March 31, 2000,
the balance of the Company's treasury stock was $809,785.
14
<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 March 31,
1999 2000
(unaudited) (unaudited)
<S> <C> <C>
Numerator:
- ----------
Income (loss) from continuing operations $ (476,056) $ 208,424
-------------- ---------------
Adjustment for basic earnings per share
Numerator for basic earnings per share -
Income (loss) available to common stockholders (476,056) 208,424
-------------- --------------
Income (loss) applicable to common stockholders
after assumed conversions $ (476,056) $ 208,424
============== ===============
Denominator:
- ------------
Denominator for basic earnings per share -
weighted-average shares 4,288,956 4,872,135
Effective of dilutive securities:
Stock options -0- -0-
Dilutive potential common shares 625,000 -0-
============== ===============
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,913,956 4,872,135
============== ===============
Basic income (loss) per share $ (.11) $ .04
============== ===============
Diluted income (loss) per share $ (.11) $ .04
============== ===============
</TABLE>
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 2000
Net revenue for the three months ended March 31, 2000 decreased 13 percent
to approximately $13,054,000 from $15,048,000 for the three months ended March
31, 1999. The decrease is due primarily to the contraction of the Company's
mining services ($3,678,000 decrease in net revenue) and utility services
($711,000 decrease in net revenue). These decreases were somewhat offset by
increases in the Company's demolition services ($2,396,000 increase in net
revenue).
Outside services, which largely represent subcontractor costs remained
constant at approximately 12% as a percentage of net revenue. The Company will
use the services of a subcontractor when it determined that an economic
opportunity exists regarding internally providing the services. The Company
utilized the services of subcontractors to the same extent during the first
quarters of 1999 and 2000 due to the specific contracts in progress and the
associated work requirements.
Cost of revenue earned, as a percentage of net revenue, for the first
quarter of 2000 decreased to approximately 82% from 87% for the same period in
1998. As a result, the gross profit for the first quarter of 2000 was $2,357,000
(18% of net revenue) compared to $1,927,000 (13% of net revenue) for the first
quarter of 1999. The increase in the dollar amount and percentage of gross
margin is primarily associated with demolition services ($838,000 increase in
gross margin) and utility services ($503,000 increase in gross margin). These
increases were somewhat offset by decreases in gross margin of mining services
($912,000 decrease in gross margin).
The Company has recognized a significant improvement in gross margin during
the first quarter of 2000 as compared to the first 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 on productivity.
During the three months ended March 31, 2000, selling, general and
administrative expenses decreased to $1,198,000 (9% of net revenue) from
$1,912,000 (13% of net revenue) for the three months ended March 31, 1999. The
dollar decrease and percentage increase were primarily attributable to reduced
revenues. In addition, equity income from the partnerships and Cumberland
increased from approximately $145,000 loss to $61,000 income during the first
three months of 1999 and 2000, respectively.
During the first quarter, 2000, the Company incurred a loss of
approximately $183,000 on the sale of excess heavy construction equipment.
Minority interest in net income of subsidiary was $39,000 for the three
months ended March 31, 2000 compared to minority interest in net income of
$42,000 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 $565,000 and
$725,000 for the first quarters of 1999 and 2000 respectively. During the three
months ended March 31, 1999, TransCor invested $509,000 in covered options and
recognized gains of approximately $538,000 on proceeds of $1,047,000.
Interest expense, net of interest income decreased to $1,146,000 during the
three months ended March 31, 2000 compared to $1,318,000 for the three months
ended March 31, 1999. The decrease is primarily attributable to reductions in
the outstanding debt balance.
As a result of the foregoing, income before provision for income taxes for
the three months ended March 31, 2000 was approximately $516,000 (4% of net
revenue) compared to a net loss before provision for taxes of $780,000 (5% of
net revenue) during the same period in 1999.
The Company's effective tax rate was 39% for the three months ended March
31, 1999 and 60% for the three months ended March 31, 2000. The 60% rate was due
to a change in an estimate of a deferred tax asset.
As a result of the forgoing, the Company recognized net income for the
three months ended March 31, 2000 of approximately $208,000 (2% of net revenue)
as compared with a net loss of approximately $476,000 (3% of net revenue) for
the same period during 1999.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $1,042,000 and $975,000 during the
three months ended March 31, 1999 and 2000, respectively. During the first
quarter of 2000, increases in other accounts receivable and decreases in accrued
expenses were the primary reasons for cash used by operating activities.
The Company had capital expenditures during the three months ended March
31, 1999 and 2000 of $80,000 and $3,864,000, respectively. The purchases in the
first quarter of 2000 were related to equipment purchases for equipment
previously leased.
Net cash provided by investing activities was $362,000 and $4,624,000
during the three months ended March 31, 1999 and 2000. During the first quarter
of 2000, the Company realized approximately $6,473,000 and $2,440,000 proceeds
from the sale of equipment and marketable securities, respectively.
The net cash used in financing activities was approximately $2,901,000
during the first quarter of 2000. The majority of this amount is attributable to
repayments of $3,086,000 long-term debt and capital leases.
The Company's ratio of debt to equity was 9.7 and 10.1 at December 31, 1999
and March 31, 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.
During the three months ended March 31, 1999 and 2000, the Company's
average contract and trade receivables less retainage were outstanding for 79
and 81 days, respectively. Management believes that the number of days
outstanding for its current receivables approximates industry norms. A portion
of the Company's contracting operations is subcontracted and any delay in
collections of receivables relating to primary contracts will usually result in
the ability of the Company to delay payment of offsetting subcontract payments.
On October 22, 1999, 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% 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% of
operating income, losses and cash flow. The preference in the Company's equity
interest in the Apartments occurs upon the sale of the underlying partnership
properties. Upon the occurrence of a capital transaction, the Company would
receive cash flows from the sale or refinancing of the Apartments' assets equal
to its capital contribution prior to any other partner receiving any proceeds.
The Company accounts for its investment in the Apartments using the equity
method.
The Company's current bonding capacity for qualification purposes is
$60,000,000 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
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 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.
17
<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 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
March 31, 2000, the Company has debt of approximately $58,079,000 of which
$56,420,000 has a fixed interest rate. The remaining debt of $1,659,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $17,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market interest rate risk is not material.
As of March 31, 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 $8,235,000 ($4,869,000 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 three months ended
March 31, 2000 the Company had no outstanding covered options.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
Effective with the close of business on March 1, 1999 Kimmins' stock was
delisted from the New York Stock Exchange (NYSE) because the Company could not
satisfy the continuing maintenance criteria of the NYSE. On March 10, 1999, the
Company's application for registration on the National Association of Securities
Dealers (NASD) Over the Counter Bulletin Board (OTCBB) was cleared. On March 11,
1999 the Company began trading on the OTCBB under the symbol "KVNM".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following document is filed as an exhibit to this Quarterly Report on
Form 10-Q:
27.1 - Financial Data Schedule - March 31, 2000 (for SEC use only)
27.2 - Financial Data Schedule - March 31, 1999 (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
19
<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.
May 15, 2000 By:/S/ FRANCIS M. WILLIAMS
-------------------------------------------
Francis M. Williams
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on May 20, 2000.
Date: May 15, 2000 /S/ FRANCIS M. WILLIAMS
------------------------------------------------
Francis M. Williams
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 /S/ NORMAN S. DOMINIAK
------------------------------------------------
Norman S. Dominiak
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 942,392
<SECURITIES> 8,234,850
<RECEIVABLES> 15,102,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,113,762
<PP&E> 58,349,370
<DEPRECIATION> (24,771,502)
<TOTAL-ASSETS> 82,588,165
<CURRENT-LIABILITIES> 30,424,900
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 6,698,034
<TOTAL-LIABILITY-AND-EQUITY> 82,588,165
<SALES> 14,683,130
<TOTAL-REVENUES> 13,053,878
<CGS> 10,696,679
<TOTAL-COSTS> 12,116,964
<OTHER-EXPENSES> (724,907)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,146,044
<INCOME-PRETAX> 515,777
<INCOME-TAX> (307,353)
<INCOME-CONTINUING> 208,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208,424
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,473,922
<SECURITIES> 21,489,879
<RECEIVABLES> 15,264,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,276,545
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,058,690
<CURRENT-LIABILITIES> 40,328,881
<BONDS> 68,276,701
(22,887,799)
0
<COMMON> 6,739
<OTHER-SE> 14,415,838
<TOTAL-LIABILITY-AND-EQUITY> 108,058,690
<SALES> 16,925,801
<TOTAL-REVENUES> 15,047,723
<CGS> 13,120,247
<TOTAL-COSTS> 15,032,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,318,472
<INCOME-PRETAX> (780,418)
<INCOME-TAX> 304,362
<INCOME-CONTINUING> (476,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,056)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
