<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-K/A
[MARK ONE]
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to .
Commission File No. 1-11822
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TRANSCOR WASTE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0369288
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(State of incorporation) (I.R.S. Employer
Identification No.)
1502 Second Avenue, East, Tampa, Florida 33605
(Address of registrant's principal executive offices,
including zip code)
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(Registrant's telephone number, including area code):
(813) 248-3878
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
-------------------------------- --------------------------
Common Stock, $.001 par value The NASDAQ Stock Market
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 [ ] No [X]<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A. [ ]
As of March 13, 1998, there were 4,000,000 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 13, 1998, was $1,984,000.
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DOCUMENTS INCORPORATED BY REFERENCE:
NONE<PAGE>
TRANSCOR WASTE SERVICES, INC.
Form 10-K/A
TABLE OF CONTENTS
Page
No.
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PART I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 8
Item 4 Submission of Matters to a vote
of Security Holders . . . . . . . . . . . . . . . . . . . . 9
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . 9
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 10
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . 11
Item 8 Financial Statements and Supplementary Data . . . . . . . 18
PART III
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . . . . . 36
Item 10 Directors and Executive Officers of the Registrant . . . . 36
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . 38
Item 12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 42
Item 13 Certain Relationships and Related Transactions . . . . . . 43
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 45<PAGE>
Note: The discussions in this Form 10-K/A contain forward looking
statements that involve risks and uncertainties. The actual results of
TransCor Waste Services, Inc., and subsidiaries (the "Company") could
differ significantly from those set forth herein. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed in "Business" and "Management s Discussion and Analysis
of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Form 10-K/A. Statements contained in this Form
10-K/A that are not historical facts are forward looking statements that
are subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. A number of important factors could cause
the Company s actual results for 1997 and beyond to differ materially
from those expressed or implied in any forward looking statements made
by, or on behalf of, the Company. These factors include, without
limitation, those listed in "Risk Factors" in the Company s Registration
Statement on Form S-3 (File No. 33-54640).
PART I
Item 1. Business
THE COMPANY
TransCor Waste Services, Inc. (the Company ) provides solid waste
management services to commercial, industrial, residential, and municipal
customers. In connection with such services, the Company currently owns
and operates fully-permitted construction and demolition ( C&D ) transfer
and recycling ( T&R ) facilities in four of the largest metropolitan
regions in the state of Florida: Jacksonville, Clearwater, Tampa, and
Miami. In addition to its T&R operations, the Company collects and
disposes of all types of non-hazardous solid waste for industrial and
commercial customers in its T&R regions, and it provides residential
garbage collection services for several municipalities in Lee County and
Hillsborough County, Florida. The Company also engages, pursuant to
several municipal contracts, in the residential curbside collection of a
variety of already segregated recyclable forms of solid waste, including
such materials as newspapers, cardboard, plastic, metals, and glass. The
Company also provides demolition and other related services in
conjunction with, and as an economic complement to, its solid waste
management services.
The Company was incorporated under the laws of the State of Florida
on November 6, 1992. The Company is a subsidiary of Kimmins Corp.
( Kimmins ), a publicly-held New York Stock Exchange listed company that
provides specialty contracting services. Kimmins owns 74 percent of the
outstanding stock of the Company.<PAGE>
Company Services
Transfer and Recycling Operations
The Company currently owns and operates fully permitted T&R
facilities in four Florida metropolitan regions, which include
Clearwater (Pinellas County), Tampa (Hillsborough County),
Jacksonville (Duval County), and Miami (Dade County). Non-hazardous
C&D debris, and occasionally where permitted, yard waste are
deposited by both the Company s own collection vehicles and by
outside third parties, including competitive waste disposal
companies. Waste material deposited at the Company s facilities is
first weighed on a computerized scale to determine the fee to be paid
to the Company. Then the recyclable waste is segregated by the
Company for resale or donation. The non-recyclable material is
compacted, transferred to trailers, and transported by third-party
haulers to landfills for disposal.
Because the Company s permits allow it to segregate and recycle
part of the C&D debris and yard waste accepted at its T&R facilities
(thereby decreasing the Company s landfill disposal costs) and the
Company can haul economically the non-recyclable waste to outlying
rural landfills (where disposal fees are much lower than those
charged by urban disposal facilities), the Company is frequently able
to charge lower rates at its T&R facilities than those charged by
landfill operators in the same vicinities. In addition, disposal of
debris at the Company s T&R facilities generally requires less time
and causes less damage to waste collection vehicles than landfill
disposal. At landfills, haulers of all types of solid waste and
debris must converge on the same weigh stations and must often travel
up to two to three miles over temporary, debris-laden roads and
contend with hard-to-maneuver tipping conditions. In contrast, the
Company s T&R facilities, which generally accept C&D debris and yard
waste primarily, are only approximately four acres in size and
provide haulers with flat concrete-finished surfaces for driving and
tipping. As a result, the Company believes those waste haulers,
including those in competition with the Company s own collection
services, are provided strong economic and other incentives for
disposing of their C&D debris and yard waste at the Company s T&R
facilities.
Laws requiring recycling or the achievement of recycling goals
have already been passed and continue to be passed throughout the
United States, including the state of Florida. These laws have
resulted from problems associated with the disposal of an increasing
volume of solid waste, and the Company believes that more state and
local governments will mandate recycling of reusable materials and
the composting of yard waste. The Company currently segregates and
recycles C&D debris, and occasionally where permitted, yard waste at
all four of its T&R facilities. In addition, pursuant to its
contracts with the City of Tampa, Lee County, Hillsborough County,
and other municipalities, the Company provides residential curbside
collection of a variety of already segregated recyclable material,<PAGE>
including newspapers, cardboard, plastic, metals, and glass. The
Company disposes of all of the recyclable material it collects to
processors or manufacturers or other recyclers.
The Company s T&R facilities also are used to provide maintenance,
parking, and fueling of the Company s truck fleet and a base of
operations for its regional administrative personnel.
Collection Operations
In addition to its T&R operations, the Company provides solid
waste collection and disposal services for a wide range of customers.
In connection with such services, the Company collects C&D debris and
yard waste for processing at its T&R facilities. It also collects
other forms of non-hazardous solid waste for hauling directly to, and
disposal at, landfills in each of its T&R regions and Fort Myers (Lee
County), Florida (where it has administrative facilities for its
collection operations). The Company currently provides its
collection services to approximately 13,000 commercial and industrial
customers and to approximately 108,000 residential households.
Commercial services are typically provided pursuant to municipal and
private contracts, as well as through a direct marketing program,
with terms of one to three years, industrial services are typically
provided on a project-by-project basis, and residential services are
provided by municipal contract or individual household request.
Municipal contracts typically have a term of five to eight years.
For the years ended December 31, 1995, 1996 and 1997, St. Lucie
County, Florida, provided approximately 8 percent, 7 percent, and 5
percent, respectively, of the Company s revenue pursuant to a five-
year agreement entered into between the Company and St. Lucie County
in January 1994 (the St. Lucie Contract ). Pursuant to such
agreement, the Company provided solid waste collection services to
St. Lucie, including the collection of waste, yard waste, and
recyclable materials from residential customers. The Company s
collection fees are calculated according to specified rates and vary
with the type of waste collected and the method in which collection
services are performed. The Company sold the St. Lucie Contract
during 1997 and the related land and buildings during 1998.
For the years ended December 31, 1995, 1996, and 1997, the City of
Tampa, Florida, provided approximately 1 percent, 6 percent, and 7
percent, respectively, of the Company s revenue pursuant to a five-
year agreement entered into between the Company and the City of Tampa
in August 1995 (the City of Tampa Contract ). Pursuant to such
agreement, the Company provides solid waste collection services to
the City of Tampa, including the collection of waste and recyclable
materials from residential and commercial customers. The Company s
collection fees are calculated according to specified rates and vary
with the type of waste collected and the method in which collection
services are performed.<PAGE>
For the years ended December 31, 1995, 1996 and 1997, Lee County,
Florida, provided approximately 2 percent, 8 percent, and 6 percent,
respectively, of the Company s revenue pursuant to a five-year
agreement entered into between the Company and Lee County in April
1995 (the Lee County Contract ). Pursuant to such agreement, the
Company provides solid waste collection services to Lee County,
including the collection of waste and recyclable materials from
residential and commercial customers. The Company s collection fees
are calculated according to specified rates and vary with the type of
waste collected and the method in which collection services are
performed.
For the year ended December 31, 1997, Hillsborough County,
Florida, provided approximately 3 percent of the Company s revenue
pursuant to an eight-year agreement entered into between the Company
and Hillsborough County in 1997 (the Hillsborough County Contract ).
Pursuant to such agreement, the Company provided solid waste
collection services to Hillsborough County, including the collection
of waste and recyclable materials from residential customers. The
Company s collection fees are calculated according to specified rates
and vary with the type of waste collected and the method in which
collection services are performed. As a result of the Hillsborough
residential contract, the Company is allowed to compete with two
other waste service providers for the commercial and industrial waste
collection business.
Commercial and Industrial Waste Collection
The Company provides commercial and industrial non-hazardous solid
waste collection services to customers who are serviced by the
Company s route collection system at agreed upon schedules or upon
the customer s request. Commercial and industrial customers
generally use waste containers and/or compactors provided by the
Company. Commercial customers use containers that range in size from
one to eight cubic yards or compactor boxes that range in size from
twenty to forty cubic yards. Compactor boxes are used with customer
or Company-owned compactors, which are designed to reduce the volume
of stored waste, thereby permitting less frequent collection.
Commercial containers are lifted and the waste contents are unloaded
into the Company s collection trucks at the customer s site.
Industrial customers use roll-off waste containers that range in
size from 10 to 40 cubic yards. Filled roll-off containers are
collected and replaced by empty containers by the Company s roll-off
trucks.
Fees for both commercial and industrial solid waste collections
jobs vary based on such factors as job duration, collection
frequency, type of equipment furnished, type and volume or weight of
the waste collected, distance to the disposal facility, and cost of
disposal.<PAGE>
Residential Waste Collection
Residential collection services are typically provided either on a
subscription basis, where the individual household contracts directly
with the Company, or on a municipal contract basis, where the Company
contracts with the municipality to collect from all residences within
a specified area. Municipal contracts provide relatively consistent
cash flow during the contract period and require less administration
as individual billing and debt collection systems are not necessary
and because all residents within the area are served. The Company is
currently performing under several municipal contracts that will
provide at least $10,000,000 in collection revenue in 1998. These
contracts are typically competitively bid and have initial terms of
five to eight years. These contracts also require that the Company
provide curbside collection and recycling of already segregated
recyclable materials from individual residences. Substantially all
of the segregated recyclable waste collected by the Company is
delivered to other waste management facilities for processing or
disposal.
Demolition Services
The Company provides demolition services for commercial and
residential customers. Its demolition services include the razing
and dismantling of facilities and structures, the recovery of
demolished material for reuse and recycling, and the disposal of non-
recycled demolition debris. The typical demolition projects of the
Company are single and multistory urban buildings and small
warehouses, manufacturing plants, and other facilities. The Company
enters into separate demolition contracts for each project, which are
usually for a term of less than six months and, to date, have ranged
in amounts from $1,500 to $1,775,000. In connection with the
Company s demolition activities, the Company uses equipment such as
bulldozers, front-end wheel loaders, and roll-off trucks and
containers, all of which are stored at the Company s T&R facilities.
By pursuing demolition projects in its existing markets, the Company
can use its T&R facilities to reduce the costs of demolition waste
disposal, which is traditionally one of the most significant costs
associated with demolition projects.
Other Services and Arrangements
The Company can provide certain other specialized solid waste
management services involving particular needs of customers. The
Company s specialized services include using Company-owned trucks and
loaders to remove waste from demolished buildings, burned-out
structures, and closed scrap yards and to clean customer sites after
natural disasters, such as Hurricane Andrew in South Florida and the
tornadoes in the Pinellas County, Florida, area.<PAGE>
Sales and Marketing
In management s view, both the Company s current T&R operations and
its collection and disposal operations still have growth capacity.
Consequently, the Company has increased its sales and marketing efforts
on attracting potential customers to its T&R facilities by emphasizing
the perceived economic and environmental benefits associated with such
use and on obtaining additional collection routes within its operating
regions. To date, the Company s sales and marketing activities
principally have been conducted through the efforts of the Company s
management and its in-house sales staff. However, during the fourth
quarter of 1996, the Company implemented a program to hire and train
additional sales personnel for its T&R facilities to support the
commercial and industrial markets. This sales force operates on an
incentive-based, industry-standard compensation program that management
believes will yield an increase in revenue growth through 1997 and
beyond. In conjunction with the increased sales effort, the Company
implemented an aggressive advertising program.
The Company generally obtains solid waste collection contracts for
its services or for the operation of certain solid waste management
facilities through the process of competitive bidding, purchase orders,
or negotiations. The Company s marketing efforts include selling door to
door, monitoring trade journals and other industry sources for bid
solicitations by various entities, including government authorities and
related instrumentalities, and responding to such bid solicitations,
which may include requests for proposals ( RFPs ) and requests for
qualifications ( RFQs ). The Company also attempts to be included on
lists of qualified bidders frequently contained in RFPs and RFQs. In
response to an RFP or RFQ, the soliciting entity requires a written
response within a specified period. Generally, in the case of an RFP, a
bidder submits a proposal detailing its qualifications, the services to
be provided, and the cost of the services to the soliciting entity; and
then such entity, based on its evaluation of the proposals submitted,
awards the contract to the successful bidder. In the case of an RFQ, a
bidder submits a response describing its experience and qualifications.
The soliciting entity then selects the bidder believed to be the most
qualified and negotiates all the terms of the contract, including the
cost of the services. The Company s single largest contract was derived
through competitive bidding, and the Company expects that future
significant customers will be obtained through competitive bidding. The
Company also has obtained customers through recommendations and referrals
from existing customers.<PAGE>
Competition
Although developments in the waste management industry have resulted
in the emergence of large private and public solid waste management
companies and in consolidating trends in the industry, the solid waste
management business is characterized by intense competition. The Company
believes that no single company has a dominant market share of the solid
waste management business in the United States or Florida. Although
competition varies by locality and type of service, the Company s
principal sources of competition are local and regional waste management
companies of varying size, which primarily provide collection or disposal
services to customers in a limited geographic area; large regional and
national waste management companies, which operate over more extensive
geographic areas that provide completely integrated waste management
services, own or operate disposal sites, and engage in various transfer
and resource recovery activities; and counties and municipalities that
maintain their own waste collection and disposal services for residents
and businesses in the locality. National companies that compete against
the Company include, among others, Browning-Ferris Industries, Republic
Waste Industries, and the combining U.S.A. Waste and Waste Management,
Inc. Several competitors are or have been customers of the Company s
transfer and recycling facilities. Many of the Company s competitors are
well established and have much greater marketing, financial, and other
resources than the Company. In addition, the counties and municipalities
that compete with the Company often have financial advantages due to
their access to tax revenues and tax-exempt financing.
The Company believes that the principal competitive factors in the
industry are price, reputation, service, managerial experience, financial
assurance capability (particularly as it relates to municipal contracts),
and internalization of costs from vertical integration of services
offered. For instance, the City of Jacksonville reduced its landfill
disposal charges and enacted a 12 percent franchise fee during the second
quarter of 1997 on non-residential solid waste management service
revenues of the Company. This resulted in the Company s Jacksonville T&R
facility being less competitive to outside third party waste disposal
companies as the fee was passed on to customers, causing revenues to
decrease by approximately $2,000,000 from 1996 to 1997.<PAGE>
Government Regulation
The solid waste management business is subject to extensive and
frequently evolving federal, state, and local laws and substantial
regulation under these laws by governmental agencies, including the
United States Environmental Protection Agency (the EPA ), various state
agencies, and county and local authorities acting in conjunction with and
independently of such federal and state entities. Among other things,
these regulatory bodies impose restrictions to control air, soil and
water pollution and requirements that regulate health, safety, zoning,
and land use. Solid waste management companies are required to obtain
and maintain state and local government permits in connection with a
significant part of their operations. Operating permits generally are
required for solid waste management facilities (such as landfills and
recycling operations), transfer stations and certain vehicles, and these
permits are subject to revocation, modification, and renewal.
Federal, state, and local regulations vary; however, they generally
govern disposal activities, govern the location and use of facilities,
and impose restrictions to prohibit or reduce air, soil, and water
pollution. Solid waste management facilities generally are subject to
certain operational, closure, post-closure, monitoring and site
maintenance, and remediation obligations, which could lead to significant
costs for monitoring and corrective measures. Both governmental
authorities and the public have the power to enforce compliance with
these regulations and to obtain injunctions or the imposition of fines
for violations.
The federal statutes of most importance to the Company are the
Resource Conservation and Recovery Act of 1976, as amended, and the EPA s
implementing regulations (collectively, RCRA ), and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, ( CERCLA ). RCRA establishes a comprehensive framework for
state and federal regulation of solid and hazardous waste management. It
seeks to prevent the release into the environment of hazardous waste
through the development of solid waste management plans and the
regulation of the generation, treatment, transport, storage, and disposal
of hazardous wastes. It also establishes a program to ensure that non-
hazardous wastes are disposed of in environmentally controlled
facilities. While RCRA was implemented to prevent the release of
hazardous wastes into the environment, CERCLA was designed to establish a
national strategy to remediate or improve existing hazardous
environmental conditions. CERCLA establishes liability for cleanup costs
and environmental damages for current and former facility owners and
operators and persons who generate, transport, or arrange for
transportation of hazardous substances for disposal at a particular
facility. Most states, including Florida, have statutes similar to RCRA
and CERCLA that regulate the handling of hazardous substances, hazardous
wastes, and non-hazardous wastes. Many such statutes impose requirements
that are more stringent than their federal counterparts. The Company
could be subject to substantial liability under these statutes to private
parties and governmental entities, in some instances without any fault,
for fines, remediation costs, and environmental damage because of the<PAGE>
mishandling, release, or existence of any hazardous substances at any of
its facilities or the improper operation of such facilities.
Certain states have recently implemented or are implementing
legislation that mandates recycling as an integral part of their solid
waste management programs. In 1988, the state of Florida enacted a law
that requires each county in the state to recycle 30 percent of its total
municipal solid waste stream by 1994. In addition, many other states
have adopted similar recycling legislation. Although the Company
believes that such legislation has a beneficial impact on the Company s
existing business, to the extent that the Company executes its expansion
plans and acquires or develops one or more landfills, recycling
legislation would reduce the total volume of waste that would otherwise
be available for disposal. The Company currently recycles certain waste
at all four of its T&R facilities and collects recyclable material for
its commercial, industrial, and residential customers.
Amendments to existing statutes and regulations, changes in
regulatory policies, adoption of new statutes and regulations, and the
Company s expansion into other jurisdictions and solid waste management
services could require the Company and others in the industry to
continually modify solid waste disposal facilities and alter methods of
operations at costs that would likely be substantial, which could
adversely affect the Company. In addition, the Company is and will be
required to obtain and maintain government permits in connection with
almost every aspect of its operations, including its operation of its
transfer stations or future proposed solid waste management facilities.
The permits range in length from one year to five years and all may be
renewed upon expiration. The Company believes that it is in substantial
compliance with all federal, state, and local laws and regulations that
govern its material operations.
Potential Liability and Insurance
The solid waste management industry involves potentially significant
risks of statutory, contractual, and common law liability. The Company
carries a broad range of insurance coverage, which the Company considers
to be sufficient to meet regulatory and customer requirements and to
protect the Company s assets and operations. The Company also obtains
additional insurance as required on a contract-by-contract basis. The
Company attempts to operate in a professional and prudent manner and to
reduce its liability risks through specific risk management efforts.
Nevertheless, an under-insured or completely uninsured claim against the
Company, if successful and of a significant amount, could have a material
adverse effect on the Company. The Company has, in the past, been able to
obtain the types and amounts of insurance necessary to effectively
operate.<PAGE>
By policy, the Company does not deal with or handle hazardous waste,
either in its T&R facilities or in connection with its collection routes.
However, the Company s T&R facilities are located on former industrial or
landfill sites where debris and fill may have accumulated or been
deposited by prior owners. Consequently, there is a risk that these
facilities may contain contaminants at more than permissible levels
caused by the prior owners of the Company s facilities. Environmental
studies have been prepared on these facilities by independent engineers
engaged by the Company that indicate that these facilities are not
violating state and federal standards. The Company does not currently
maintain environmental impairment insurance as it believes that it does
not require this type of insurance. The Company also believes it is
common for solid waste management companies that do not generally
participate in the hazardous waste business to forego such insurance, as
such insurance is not cost-effective for them to maintain.
Performance Bonds
The Company is required, in certain instances, to post performance
and payment bonds in connection with contracts or projects with
government entities and, to a lesser extent, private sector customers.
To date, a significant amount of the Company s revenue has been derived
from contracts or projects that required the Company to post such bonds.
In addition to performance and payment bond requirements, new or proposed
legislation in various jurisdictions requires or will require the posting
of substantial bonds. In addition, legislation will require waste
management companies to provide further assurances covering the closure,
post-closure monitoring, and corrective activities for certain waste
management facilities, especially and primarily landfills. The Company s
current bonding coverage is $30 million per project, with an aggregate of
$100 million. Francis M. Williams, Chairman of the Company, has
indemnified the performance bond issuer against default by the Company.
There can be no assurance that in the future the Company can obtain bonds
in the amounts required or can increase its bonding capacity. To date,
the Company has not experienced any difficulty in obtaining such bonds.
Management believes that bonding coverages are adequate for the size and
scope of projects and contracts being performed.
Employees
The Company has approximately 250 full-time employees, 2 of whom are
executive officers of the Company, 6 of whom are employed in professional
capacities, 43 of whom are employed in administrative capacities, 21 of
whom are employed as field supervisors in all of the Company s
operations, and 178 of whom are employed in field operations. Field
supervisors and employees hired for field operations are hired on a
project basis. No employees are covered by collective bargaining
agreements. The Company considers its relationship with its employees to
be satisfactory.<PAGE>
Item 2. Properties
The Company s principal executive offices are located at 1502 Second
Avenue - East, Tampa, Florida 33605. The office has been subleased from
Kimmins since June 1, 1993, and contains renewal options for subsequent
one-year terms. The lease provides for rental payments based on market
rental rates. The lease provides that the Company is responsible for all
expenses including property taxes, telephone service and trash removal
fees, property insurance premiums, other insurance related costs, and all
maintenance and repair costs.
The Company owns and operates the following facilities:
Clearwater, Pinellas County
The Company s Clearwater facility, located on approximately ten
acres, is zoned heavy industrial and contains a T&R building of
approximately 33,000 square feet with modular office space of
approximately 3,000 square feet. The Clearwater facility is subject
to a mortgage securing indebtedness evidenced by a promissory note
with an outstanding principal amount at December 31, 1997, of
$821,000. The note matures on January 1, 1999, and bears interest at
a rate of 1 percent above the lender s prime rate. As additional
security for the lender, the Company executed an assignment of rents
and leases in the event of a default under the mortgage.
Tampa, Hillsborough County
The Company s Tampa facility is located on approximately four and
one-quarter acres in downtown Tampa. The property is zoned heavy
industrial and contains an approximately 15,000 square foot T&R
building. The Tampa facility is subject to a mortgage securing
indebtedness evidenced by a promissory note with an outstanding
principal amount at December 31, 1997, of $525,000. This note
matures on March 1, 2001, and bears interest at a rate of 1.5 percent
above the lender s prime rate.
Jacksonville, Duval County
The Company s Jacksonville facility is located on approximately
ten acres. The property is zoned light industrial and contains an
approximately 37,500 square foot recycling building, 2,000 square
feet of office space, and a 1,500 square foot maintenance shop. The
Jacksonville facility is subject to a mortgage, securing indebtedness
evidenced by a promissory note with an outstanding principal amount
at December 31, 1997, of $1,314,000. The note matures on January 1,
2012, and bears interest at the rate of 8.75 percent per annum. As
additional security for the payments under the notes and the
Company s performance of its obligations under the mortgage, the
Company executed a modification to the mortgage to assign all rents
from the property or to appoint a receiver in the event of a default
under the mortgage.<PAGE>
Miami, Dade County
The Company s Miami facility is located on approximately four and
one-half acres, is zoned industrial, contains an approximately 60,500
square foot T&R building, and contains an office area of
approximately 2,500 square feet that is used for its Miami collection
operations. The Miami facility is subject to a mortgage, which was
refinanced during 1995, securing indebtedness evidenced by a
promissory note with an outstanding principal amount at December 31,
1997, of approximately $828,000. The note matures on July 30, 2003,
and bears interest at a rate of 1.5 percent above the prime rate of
CitiBank, N.A. As additional security for the lender, the Company
executed a conditional assignment of leases, rents, and profits in
the event of a default under the mortgage.
Fort Pierce, St. Lucie County
The Company s Fort Pierce facility is located on approximately two
acres and is zoned heavy industrial. The facility contains an
approximately 1,000 square foot warehouse and office space of
approximately 1,000 square feet. The Fort Pierce facility is subject
to a mortgage securing indebtedness evidenced by a promissory note
with an outstanding principal amount at December 31, 1997, of
approximately $165,000. The note matures on March 1, 1999, and bears
interest at a rate of 3.75 percent above the lender s prime rate.
The land and building comprising this facility were sold in January
1998. Operations had ceased in this facility on November 1997 when
the contract with St. Lucie County was sold. The mortgage was paid
in full using proceeds from the sale of the facility. The Company
recognized a loss of approximately $90,000 on the sale.
Lantana, Palm Beach County
The Company s Lantana facility is located on approximately five
acres and is zoned industrial. The facility contains an
approximately 36,000 square foot building, an office area of
approximately 3,900 square feet, and a maintenance shop of
approximately 7,000 square feet. The Lantana facility is subject to
a mortgage securing indebtedness evidenced by a promissory note with
an outstanding principal amount of approximately $883,000 at December
31, 1997. The note matures on October 18, 2010, and bears interest
at the rate equal to the lender s prime rate. Operations in the
Lantana facility ceased in August 1997.
The Company s cost for land, buildings and improvements is
approximately $2,011,000. As of December 31, 1997, the Company wrote-
down the recorded value of these assets by $500,000, and the facility
is for sale.<PAGE>
Fort Myers, Lee County
The Company s Fort Myers facility is located on approximately two
acres and is zoned industrial. The facility contains a building of
approximately 6,400 square feet and office areas of approximately
2,200 square feet. The Fort Myers facility, which began operations
on October 1, 1995, is subject to a mortgage securing indebtedness
evidenced by a promissory note with an outstanding principal amount
at December 31, 1997, of approximately $323,000. The note matures on
August 9, 2000, and bears interest at the rate of 9.25 percent.
As a result of the recently awarded solid waste franchise
agreement with the City of Cape Coral, Florida, the Company will
require a larger facility to service an increased revenue base. In
early 1998, the Company made a bid on a competitor s idle facility,
which would meet the Company s expansion needs in the Lee County
area. The bid of $700,000 was for land and buildings. The Company
may sell its current facility if its bid for this property is
successful.
Item 3. Legal Proceedings
The Company is involved in various legal actions and claims arising
in the ordinary course of its business, none of which is expected to have
a material effect on the Company s financial position or results of
operations.
During June 1997, Kimmins Recycling Corp. ( KRC ), St. Lucie County,
a political subdivision of the State of Florida, and the City of Fort
Pierce, a municipality organized under the laws of the State of Florida,
were notified of a class action lawsuit filed in the Nineteenth Judicial
Circuit Court of Florida by three residents of St. Lucie County. This
action challenged the propriety of certain contract provisions included
in KRC s solid waste and recyclable materials collection service
agreement with St. Lucie County, which allow KRC to place liens on the
property of delinquent service recipients. The court, permitting KRC to
file counterclaims against the class members, has with KRC's consent
certified the existence of a class. KRC, the county, and the city have
filed motions for summary judgement against the class plaintiff's claim,
which is set to be heard on May 26, 1998. At December 31, 1997, the
total amount of lien rights was approximately $474,000.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.<PAGE>
PART II
Item 5. Market for the Registrant s Common Equity
and Related Stockholder Matters
The Company s Common Stock has been traded on The Nasdaq Stock Market
under the symbol TRCW since August 21, 1995. The Company s Common
Stock was traded on the Boston Stock Exchange under the symbol TRW from
March 25, 1993, to August 21, 1995. Prior to March 25, 1993, the
Company s Common Stock was not publicly held or traded. The Nasdaq Stock
Market or Nasdaq is a highly-regulated electronic securities market
comprised of competing Market Makers whose trading is supported by a
communications network linking them to quotation dissemination, trade
reporting, and order execution systems. This market also provides
specialized automation services for screen-based negotiations of
transactions, online comparison of transaction, and a range of
informational services tailored to the need of the securities industry,
investors, and issuers. The Nasdaq Stock Market consists of two distinct
market tiers: The Nasdaq National Market and The Nasdaq SmallCap Market.
The Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a
wholly-owned subsidiary of the National Association of Securities
Dealers, Inc.
New quantitative maintenance requirements for continued listing on
the Nasdaq Stock Market became effective on February 23, 1998. One of
the new rules requires that the Company maintain $5,000,000 in market
value of public float. Public float is defined as shares that are not
held by officers, directors, or other persons who are beneficial owners
of more than 10 percent of the total shares outstanding. As of February
20, 1998, the Company s public float was approximately $1,984,000. As
part of Nasdaq s review process, the Company was contacted about
voluntarily moving the Company s listing to The Nasdaq SmallCap Market.
The Company filed the Nasdaq SmallCap Market Transfer Listing Application
on February 23, 1998.
The following table sets forth, for the periods indicated, high and
low bid quotations for the Company s Common Stock as reported by NASDAQ.
1996 High Low
First quarter . . . . . . . . . . $ 9.000 $ 5.250
Second quarter . . . . . . . . . $ 7.000 $ 4.000
Third quarter . . . . . . . . . . $ 5.375 $ 3.500
Fourth quarter . . . . . . . . . $ 6.000 $ 3.500
1997 High Low
First quarter . . . . . . . . . . $ 6.875 $ 3.500
Second quarter . . . . . . . . . $ 4.500 $ 3.000
Third quarter . . . . . . . . . . $ 4.125 $ 2.875
Fourth quarter . . . . . . . . . $ 3.750 $ 2.125<PAGE>
The closing price of the Company s stock on March 13, 1998, was
$2.50. In addition, as of March 13, 1998, there were 38 holders of record
of the Common Stock. Many of such holders are brokers and other
institutions holding shares in street names for more than one
beneficial owner.
Dividends
The Company has not paid any cash dividends since its inception, and
the Board of Directors does not plan to declare dividends in the
foreseeable future. It is the present intention of the Company s Board
of Directors to retain all earnings in the Company to support the future
growth of the Company s business. Certain of the Company s financial
institutions debt agreements contain covenants that prohibit the payment
of dividends by the Company without lender approval.
Recent Sales of Unregistered Securities
The following information relates to equity securities of the Company
issued or sold during the year ended December 31, 1997, that were not
registered under the Securities Act in 1993, as amended (the "Securities
Act"):
The Company issued no securities during 1997 that were exempt from
registration under the Securities Act by virtue of Section 4(2) as a
transaction not involving a public offering.<PAGE>
Item 6. Selected Financial Data
The selected financial information set forth below has been derived
from the audited financial statements of the Company and should be read
in conjunction with the consolidated financial statements, including the
notes thereto appearing elsewhere in this report.
The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the
impact of Statement No. 128, see the Notes to the Consolidated Financial
Statements beginning on page 25.
Historical Operating Statement Data:
Year Ended December 31,
(In thousands, except per share data)
-------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Revenue . . . . . . . . $ 24,909 $ 29,007 $ 41,119 $ 44,193 $ 43,830
Expenses:
Operating expenses . . 17,483 22,431 30,462 33,587 33,348
Depreciation . . . . . 1,439 1,866 2,288 3,309 3,625
Selling, general, and
administrative
expenses . . . . . . 2,361 3,459 5,047 6,134 7,726
Management fee to
affiliate . . . . . . 374 435 617 671 1,315
Operating income
(loss) . . . . . . . . 3,252 816 2,704 492 (2,184)
Interest expense . . . 814 547 548 1,354 1,138
Net income (loss) . . . 1,500 166 1,316 (526) (2,064)
Net income (loss) per
share:
Basic . . . . . . . . $ .40 $ .04 $ .33 $ (.13) $ (.52)
Diluted . . . . . . . $ .37 $ .04 $ .32 $ (.13) $ (.52)
Weighted average number
of shares of common
stock used in the
calculation:
Basic . . . . . . . . 3,776 4,025 3,994 3,998 4,000
Diluted . . . . . . . 4,359 4,025 4,049 3,998 4,000
Dividends per share . . None None None None None
<PAGE>
<PAGE>
Historical Balance Sheet Data:
December 31,
(In thousands)
-------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Total assets . . . . . $ 31,455 $ 30,241 $ 46,851 $ 45,642 $ 41,847
Working capital
(deficiency) . . . . . 2,684 2,643 (301) (3,200) (2,646)
Long-term obligations,
net of current
maturities . . . . . . 10,309 8,691 17,972 16,807 16,392
Stockholders' equity . 12,087 12,318 13,585 13,119 11,055
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenue represented by certain items reflected in the
Company's operations statement data:
Year Ended December 31,
-----------------------------------------
1995 1996 1997
------------- ------------- -------------
Revenue . . . . . . . . . . . . 100.0% 100.0% 100.0%
Expenses:
Operating expenses . . . . . . 74.1% 76.0% 76.1%
Depreciation . . . . . . . . . 5.6% 7.5% 8.3%
Selling, general, and
administrative expenses . . . 12.3% 13.9% 17.6%
Management fee to affiliate . 1.5% 1.5% 3.0%
------------- ------------- -------------
Operating income . . . . . . . 6.5% 1.1% (5.0%)
Interest expense . . . . . . . 1.3% 3.1% 2.6%
Income (loss) before provision ------------- ------------- -------------
for income taxes (benefit) . . 5.2% (2.0%) (7.6%)
Provision for income taxes
(benefit) . . . . . . . . . . 2.0% (0.8%) (2.9%)
------------- ------------- -------------
Net income (loss) . . . . . . . 3.2% (1.2%) (4.7%)
============= ============= =============<PAGE>
Year ended December 31, 1997, Compared to Year Ended December 31, 1996
Total revenue for the year ended December 31, 1997, was $43,830,000,
representing an decrease of $363,000, or approximately 1 percent, from
$44,193,000 for the year ended December 31, 1996. The net decrease in
total revenue of $363,000 is attributable to the loss of solid waste
management service revenues associated with the transfer and recycling
operations of approximately $2,637,000, waste paper wholesaling of
approximately $1,471,000, and other solid waste management services of
$1,515,000. These decreases are partially offset by increases in
commercial roll-off container service of $3,540,000 and demolition
contracting services of $1,720,000.
The loss of revenue associated with the transfer and recycling
operations is mainly attributable to a decrease of approximately
$2,000,000 in the Company s Jacksonville operations as a result of the
city's lower landfill disposal charges and a newly enacted franchise fee
of 12 percent in Duval County, which made the Company s Jacksonville T&R
facility less competitive to outside third party waste disposal
companies.
The loss of revenue associated with waste paper sales is the result
of the Company s management deciding to exit the paper commodities
business because of decreases in the price of waste paper and the closure
of its Palm Beach County facility.
The loss of revenue associated with other solid waste management
services is the result of market pricing pressures and sales of customer
contracts associated with the Company s residential services contract
with St. Lucie County and commercial customer contracts in Pinellas
County. The St. Lucie facility was closed after the residential services
contract with St. Lucie County was sold. On an annual basis, the St.
Lucie facility generated approximately $3,000,000 in revenue. On an
annual basis, the Pinellas commercial customer contracts, which were
sold, generated approximately $1,000,000 in revenue
On October 1, 1997, the Company began performing services on its
residential solid waste management and recycling services contract with
Hillsborough County. Revenue generated for the fourth quarter ended
December 31, 1997, was approximately $1,549,000, based on contract
provisions and management projections. The Company s management expects
the Hillsborough County residential contracts and related commercial
services to generate approximately $6,196,000 in annual revenue for eight
years.<PAGE>
During the first quarter of 1998, the Company was awarded an
exclusive franchise agreement with the City of Cape Coral, Florida, to
provide residential and commercial solid waste management services. Based
on contract provisions and management projections, the Company expects
this franchise agreement to generate approximately $7,500,000 in annual
revenue. The contract begins October 1, 1998, and lasts for five years.
The impact of price increases was less than 3 percent for 1997 and 3
percent for 1996.
Operating expenses for the year ended December 31, 1997, were
$33,348,000, representing an decrease of $239,000 or approximately 0.7
percent from $33,587,000 for the year ended December 31, 1996. Operating
expenses include fees charged by landfills for waste disposal (which, to
date, have been the largest component of the Company s operating
expenses), and direct labor costs associated with the collection,
transfer, and recycling of waste. The dollar decrease in operating
expenses is attributable to the decrease in revenue. The increase in
operating expenses, as a percentage of total revenue, primarily was
attributable to the increase in revenues from the Company s residential
services, which have historically had lower profit margins than the
Company s other solid waste management operations, and certain
reclassifications of costs from selling, general and administrative to
operating costs, including taxes of $228,000 and insurance of $324,000.
Depreciation expense for the year ended December 31, 1997, was
$3,625,000, representing an increase of $316,000 or 9.5 percent from
$3,309,000 for the year ended December 31, 1996. The dollar and
percentage increase in depreciation is primarily attributable to the
additional equipment acquired during the last quarter of 1995 and during
1996 and 1997 to service the Company s increased level of operations in
Fort Myers and Tampa, Florida, associated with solid waste management
service contracts with the City of Tampa, Hillsborough County, and Lee
County.
Selling, general, and administrative expenses, including management
fees of $1,315,000 to Kimmins, for the year ended December 31, 1997, were
$9,041,000, representing an increase of $2,237,000 or 33 percent from
$6,804,000 for the year ended December 31, 1996. The dollar and percent
increase in selling, general, and administrative expenses is primarily
attributable to advertising costs for a new contract of approximately
$500,000, costs associated with the closing and sale of facilities and
operating assets of approximately $1,173,000, and an increase of
approximately $563,000 in compensation expense. The $1,173,000 includes
an impairment loss of $590,000 to certain land and buildings, a write-off
of intangible assets of $183,000, and an addition to the reserve for
doubtful accounts of $400,000 regarding the sale of residential service
contracts with St. Lucie. None of these costs are recurring in nature.
The increase in compensation costs is primarily attributable to an
increase in staff. During the fourth quarter of 1997, most of these
incremental costs were eliminated by having Kimmins perform additional
administrative services, by transferring certain staff to Kimmins, and by
eliminating certain positions. The management fee covers the cost of
certain executive, administrative, and financial services provided by<PAGE>
Kimmins. The management fee rate increased, effective January 1, 1997,
from 1.5 percent to 3 percent of revenue, resulting in approximately
$644,000 of additional management fee expense.
The Company sold certain contracts and related equipment during the
year ended December 31, 1997, resulting in a gain of approximately
$444,000. These assets were primarily utilized in the Company s
commercial and residential solid waste management services and were
related to facility closures. Prior to the closures, the facilities in
Lantana and St. Lucie were generating net losses before taxes of
approximately $62,000 and $24,000 per month, respectively.
Interest expense, net of interest income, for the year ended December
31, 1997, was $1,138,000, as compared to $1,354,000 for the year ended
December 31, 1996. Interest expense associated with debt decreased to
$1,663,000 from $1,950,000 as a result of the decrease in the effective
interest rates achieved on a refinancing of approximately $7,700,000 of
equipment notes. Debt related to equipment financing increased by
approximately $784,000 during the year. Interest income related to
receivables from affiliates decreased from $596,000 to $563,000.
Interest expense increased as the result of expenditures for the purchase
of equipment in connection with the Company s contracts with the City of
Tampa, Hillsborough County, and Lee County to provide solid waste
management services.
The Company s income tax benefit for the year ended December 31,
1997, and income tax expense for the year ended December 31, 1996, was
calculated using a rate of approximately 38 percent and 39 percent,
respectively. For tax purposes, temporary differences between carrying
amounts of assets and liabilities resulted in a federal net operating
loss ( NOL ) in 1997 of approximately $3,982,000. The largest component
of these book-tax differences is depreciation on operating assets that
created approximately $1,206,000 of additional depreciation expense in
calculating the 1997 tax NOL. The entire 1997 NOL of approximately
$3,982,000 will be carried forward to offset taxable income in future
years. Management expects to utilize this NOL before it expires in the
year 2012. An alternative minimum tax NOL will be carried back resulting
in a federal tax refund of approximately $144,000. In addition to the
alternative minimum tax NOL carryback, the Company has a $33,000
alternative minimum tax credit available to offset future federal regular
income tax. This credit does not expire.
As a result of the foregoing, the Company incurred a net loss of
approximately $2,064,000 for the year ended December 31, 1997, as
compared to a net loss of $526,000 for the year ended December 31, 1996.<PAGE>
Year ended December 31, 1996, Compared to Year Ended December 31, 1995
Total revenue for the year ended December 31, 1996, was $44,193,000,
representing an increase of $3,074,000 or approximately 7 percent from
$41,119,000 for the year ended December 31, 1995. The increase in
revenue attributable to the Company s industrial and commercial services
($3,356,000 increase in revenue) was due to increased activity in the
Miami and Ft. Myers markets. The increase in revenue attributable to the
Company s residential services ($2,302,000 increase in revenue) was a
result of a full year of services provided due to the commencement of the
City of Tampa and Lee County municipal contracts during October 1995.
The increase in revenue associated with the Company s demolition services
($753,000 increase in revenue) was primarily due to contracts awarded in
1996. The decrease in revenue attributable to the Company s transfer and
recycling services ($3,337,000 decrease in revenue) was due to decreased
activity in the Miami market due to the loss of a significant customer.
The impact of price increases on revenue is less than 3 percent.
Operating expenses for the year ended December 31, 1996, were
$33,587,000, representing an increase of $3,124,000 or approximately 10
percent from $30,463,000 for the year ended December 31, 1995. Operating
expenses include fees charged by landfills for waste disposal (which, to
date, have been the largest component of the Company s operating
expenses), and direct labor costs associated with the collection,
transfer, and recycling of waste. The dollar increase in operating
expenses is attributable to the increase in revenue. The increase in
operating expenses, as a percentage of total revenue, primarily was
attributable to the increase in revenues from the Company s residential
services, which have historically had lower profit margins than the
Company s other solid waste management operations.
Depreciation expense for the year ended December 31, 1996, was
$3,309,000, representing an increase of $1,021,000 or 45 percent from
$2,288,000 for the year ended December 31, 1995. The dollar and
percentage increase in depreciation is primarily attributable to the
additional equipment acquired during the last quarter of 1995 and during
1996 to service the Company s increased level of operations in Fort Myers
and Tampa, Florida.
Selling, general, and administrative expenses, including management
fees of $671,000 to Kimmins, for the year ended December 31, 1996, were
$6,804,000, representing an increase of $1,140,000 or 22 percent from
$5,664,000 for the year ended December 31, 1995. The dollar and
percentage increase in selling, general, and administrative expenses is
primarily attributable to increased overhead costs, such as
administrative, sales, and marketing costs associated with higher
expected levels of operations. The management fee covers the cost of
certain executive, administrative, and financial services provided by
Kimmins.<PAGE>
Interest expense, net of interest income, for the year ended December
31, 1996, was $1,354,000, as compared to $548,000 for the year ended
December 31, 1995. Interest expense associated with debt increased from
$1,040,000 to $1,950,000 as a result of the increase in the amount of
interest-bearing debt outstanding. Interest income related to
receivables from affiliates increased from $492,000 to $596,000 as the
result of expenditures for the purchase of equipment in connection with
the Company s contracts with the City of Tampa and Lee County to provide
solid waste management services.
The Company s income tax benefit for the year ended December 31,
1996, and income tax expense for the year ended December 31, 1995, was
calculated using a rate of approximately 39 percent. For tax purposes,
temporary differences between carrying amounts of assets and liabilities
resulted in a federal net operating loss ( NOL ) of approximately
$1,840,000. The largest component of these book-tax differences is
depreciation on operating assets that created approximately $1,935,000 of
additional depreciation expense in calculating the 1996 tax NOL.
Approximately $1,300,000 of the 1996 NOL is being carried back for tax
purposes, resulting in approximately $320,000 of federal tax refunds.
The remaining NOL of approximately $500,000 will be carried forward to
offset taxable income in future years. Management expects to utilize
this NOL before it expires in the year 2011. In addition to the NOL, the
Company has a $170,000 alternative minimum tax credit available to offset
future federal regular income tax. This credit does not expire.
As a result of the foregoing, the Company incurred a net loss of
$526,000 for the year ended December 31, 1996, as compared to net income
of $1,316,000 for the year ended December 31, 1995.
Liquidity and Capital Resources
At December 31, 1997, the Company had a working capital deficit of
$2,646,000 compared to a working capital deficit of $3,200,000 at
December 31, 1996. Working capital was impacted by decreases in accounts
receivable - trade, income tax refunds receivable, and amounts due from
affiliates and an increase in property held for sale of $700,000. In
addition, balances due from Kimmins decreased by approximately $4,385,000
due to repayment of prior advances. All such working capital advances are
unsecured and accrue interest at a rate of 10 percent per annum. The
Company has no outstanding lines of credit. Historically, Kimmins has
funded any cash needs not provided by cash flow from operations. However,
Kimmins has no formal obligation to provide such advances in the future.
Current financial resources, anticipated funds from operations, and
collection of receivables from affiliates (if needed) are expected to be
adequate to meet cash requirements in the year ahead and the foreseeable
future. At December 31, 1997, the Company had cash of $2,116,000.<PAGE>
During the year ended December 31, 1997, net cash used by operating
activities was $131,000 compared to net cash provided by operating
activities of $4,464,000 for the year ended December 31, 1996. The cash
used by operating activities was primarily due to the Company s net loss,
offset by the effect of depreciation, net of changes in certain operating
assets and liabilities (primarily costs and estimated earnings in excess
of billings on uncompleted contracts and accrued expenses). Net cash
used in investing activities during the period was $4,371,000 as the
result of expenditures for the purchase of equipment and vehicles. Net
cash provided by financing activities was $5,180,000, primarily as a
result of collection of amounts due from Kimmins, which totaled
$4,385,000.
The Company intends to expand the range of services offered, while
increasing the size and scope of the customer base for its current
operations. Expansion of the Company s operations, however, will be
dependent upon, among other things, its ability to attract new customers,
successfully manage growth, provide additional services on a profitable
basis, and obtain the resources necessary to pursue other opportunities.
The Company has no current material commitments for capital expenditures
relating to any other new facilities, other than to acquire vehicles and
equipment for the City of Cape Coral contract, which the Company
estimates to be approximately $3,500,000.
The Company does not maintain environmental impairment insurance.
There can be no assurance that the Company will not face claims and
significant remediation costs (for which the Company may, consequently,
be uninsured and in connection with which it may be unable to obtain
reimbursement from other responsible parties) in connection with its
facilities where contamination has been or may in the future be detected.
New quantitative maintenance requirements for continued listing on
the Nasdaq Stock Market became effective on February 23, 1998. One of
the new rules requires that the Company maintain $5,000,000 in market
value of public float. Public float is defined as shares that are not
held by officers, directors, or other persons who are beneficial owners
of more than 10 percent of the total shares outstanding. As of February
20, 1998, the Company s public float was approximately $1,984,000. As
part of Nasdaq s review process, the Company was contacted about
voluntarily moving the Company s listing to The Nasdaq SmallCap Market.
The Company filed the Nasdaq SmallCap Market Transfer Listing Application
on February 23, 1998.
Effective May 31, 1998, certain assets, businesses and contracts of
the waste management segment, with a net book value of approximately
$6,100,000, were sold for cash of $11,600,000. The operations of the
businesses sold had 1997 revenue of approximately $9,200,000 and a net
loss of approximately $1,000,000. Cash from this transaction was used to
pay approximately $3,800,000 of TransCor debt and $1,300,000 was advanced
to Kimmins. The remaining cash is unrestricted and available to the
Company for use in operations.<PAGE>
Financing Arrangements
As of December 31, 1997, the amount of the Company s total
outstanding indebtedness to Kimmins was $2,003,258 that had been
consolidated into the Kimmins Note, which is due and payable on December
1, 2003, with interest accruing at 1 percent per annum in excess of the
stated prime rate established by NationsBank of Florida. Until December
1, 2003, the Kimmins Note may be converted, at the option of Kimmins,
into shares of the Company s Common Stock at an initial conversion price
of $5.00 per share, subject to adjustment, in the event and anytime after
the closing sale price of the Company s Common Stock is $9.00 or more for
twenty consecutive trading days. Kimmins has one demand registration
right during the period from March 25, 1994, until December 1, 2003, with
respect to any shares of Common Stock issuable upon such conversion. The
Kimmins Note is unsecured and subordinated to all senior indebtedness of
the Company. Payments of principal and interest are based on certain net
income levels of the Company. No payment of interest or principal is
required for any year prior to the year the Kimmins Note matures in 2003
unless the Company s earnings before interest and taxes exceed
$1,500,000.
From December 1992 to December 1997, the Company, in a series of
separate equipment loans, borrowed an aggregate of $26,900,000 from
Associates Commercial Corporation ( Associates ) as a sole borrower and
as a co-borrower with Kimmins and other subsidiaries of Kimmins. Of such
indebtedness, $24,260,000 represented the sum of the Company s sole
borrowings and allocable share of co-borrowings, of which $10,455,000 was
outstanding on December 31, 1997. Interest on such indebtedness ranges
from 7.4 percent to 9.7 percent, and payments on outstanding borrowings
are made according to specified payment schedules and generally for five
years. The portion constituting the Company s sole borrowings is
guaranteed by Kimmins. See Item 13, Certain Relationships and Related
Transactions.
The Company also has outstanding equipment loan indebtedness pursuant
to various agreements with other financial institutions. During the
years ended December 31, 1995, 1996, and 1997, the Company borrowed an
aggregate of $8,335,000 under such arrangements, of which $3,737,000 was
outstanding at December 31, 1997. Substantially all of these borrowings
are guaranteed by Kimmins.
In 1992, Kimmins Recycling Corp. offered to certain investors in a
private placement 14 guaranteed secured mortgage Performance Notes (the
Performance Notes ) of $100,000 each to finance the purchase and
development of the Company s T&R facility in Jacksonville, Florida. The
Performance Notes were repaid during 1996, and the Jacksonville facility
was refinanced with an unaffiliated lender.
The Company s separate mortgages and equipment loans are secured by
the underlying properties and do not include any provisions regarding
financial ratio covenants for the Company on a stand-alone basis. See
Item 6, Properties for a description of the Company s facilities and
the related mortgages.<PAGE>
In addition to its own debt (either as an individual borrower or a
co-borrower), the Company has also guaranteed the indebtedness (an
aggregate of approximately $13,110,000 and $7,350,000 at December 31,
1996 and 1997, respectively) of certain Kimmins financial institution
debt. See Item 13, Certain Relationships and Related Transactions.
These debt agreements contain certain covenants, the most restrictive of
which requires, for Kimmins, maintenance of a consolidated tangible net
worth, as defined, of not less than $6,500,000 and net income not less
than $1,500,000. In addition, the covenants prohibit the payment of
dividends by the Company without lender approval. For all periods
presented, the Company believes that Kimmins had complied with or
obtained waivers for all loan documents. (See Note 9 of Notes to
Consolidated Financial Statements.)
Effect of Inflation
Historically, inflation has not had a material effect on the
Company's operations. If inflation increases, the Company will attempt
to increase its prices to offset its increased expenses. No assurance
can be given, however, that the Company will be able to adequately
increase its prices in response to inflation.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings per
Share ( SFAS No. 128 ). Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. The Company adopted the provisions of Statement 128
No. effective December 31, 1997. All earnings per share accounts for all
periods presented have been restated to conform to the Statement No. 128
requirements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ( SFAS No. 130 ). SFAS
No. 130 requires that total comprehensive income and comprehensive income
per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholders
equity exclusive of transactions with owners such as capital
contributions and dividends. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management is currently assessing the
impact of SFAS No. 130, but does not expect its effect to be material.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ( SFAS No. 131 ), which supercedes Financial
Accounting Standards No. 14. SFAS No. 131 uses a management approach to
report financial and descriptive information about a Company s operating
segments. Operating segments are revenue-producing components of the
enterprise for which separate financial information is produced
internally for the Company s management. SFAS No. 131 is effective for
fiscal years beginning after December 31, 1997. Management is currently
assessing the impact of SFAS No. 131, but does not expect its effect to
be material.<PAGE>
Proposed Accounting Standards
In April 1997, the American Institute of Certified Public Accountants
issued an Exposure Draft of a proposed SOP, Reporting on the Costs of
Start-up Activities. Start-up costs are defined broadly in the proposed
SOP as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or
beneficiary, initiating a new process in an existing facility, or
commencing some new operation. Start-up costs, including organizational
costs, would be expensed as incurred under the proposed SOP. The proposed
SOP would be effective for most entities for fiscal years beginning after
December 15, 1998. The SOP will require the Company, upon adoption, to
write off as a cumulative effect of a change in accounting principle any
previously capitalized start-up or organization costs. Therefore, in the
first quarter of 1999, the Company may have to write off the remaining
unamortized balance of contract start-up costs of approximately $875,000
at December 31, 1997.
Impact of Year 2000
Some of the Company s older computer programs were written using two
digits rather than four digits to define the applicable year. As a
result, those computer programs have time-sensitive software that
recognize a date using 00 as the year 1900 rather than the year 2000.
This could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project is estimated to be immaterial to the
financial statements. To date, the Company s incremental costs for
assessment of the Year 2000 issue, the development of a modification
plan, and the purchase of new software have been insignificant.
The majority of software used by the Company is licensed from various
software providers who are currently updating our programs to be Year
2000 compliant. In-house developed programs comprise a small portion of
the total software utilized, and the majority of these programs are
believed to be Year 2000 compliant.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating system.
The Company believes, with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.<PAGE>
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to
which the Company s interface systems are vulnerable to those third
parties failure to remediate their own Year 2000 Issues. There is no
guarantee that the systems of other companies on which the Company s
systems rely will be timely converted and would not have an adverse
effect on the Company s systems.
The costs of the project and the date on which the Company believes
it will complete the Year 2000 modifications are based on management s
best estimates, which were derived utilizing numerous assumptions of
future events, including the continued availability of certain resources
and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
Forward-Looking Information
The foregoing discussion in Management s Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, that reflect management s current views with respect to
future events and financial performance. Such forward looking statements
include, without limitation, statements regarding the Company s future
capital expenditures, facility closures, service demand and market
growth, competitive position, expected revenues from new contracts,
ability to meet cash requirements, and other statements regarding
anticipated changes in the Company s Nasdaq listing, future plans and
strategies, anticipated events or trends, and similar expressions
concerning matters that are not historical facts. Such statements
involve risks and uncertainties, and there are certain important factors
that could cause actual results to differ materially from those
anticipated. Some of the important factors that could cause actual
results to differ materially from those anticipated include, but are not
limited to, economic conditions, competitive factors, increases in
landfill charges, the outcome of competitive bids, unanticipated costs in
connection with facility closures, 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.<PAGE>
Item 8. Financial Statements and Supplementary Data
TRANSCOR WASTE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Certified Public Accountants . . . . . . . . . 19
Consolidated balance sheets at December 31, 1996 and 1997 . . . . . . 20
Consolidated statements of operations for each of the three years
in the period ended December 31, 1997 . . . . . . . . . . . . . . . 22
Consolidated statements of stockholders' equity for each of
the three years in the period ended December 31, 1997 . . . . . . . 23
Consolidated statements of cash flows for each of
the three years in the period ended December 31, 1997 . . . . . . . 24
Notes to consolidated financial statements . . . . . . . . . . . . . 25
Financial statement schedule:
Schedule II - Valuation and qualifying accounts . . . . . . . . . . S-1
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or
because the information required is included in the financial statements
and notes thereto.<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
TransCor Waste Services, Inc.
We have audited the accompanying consolidated balance sheets of
TransCor Waste Services, Inc. as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company s management. Our responsibility is to
express an opinion on these financial statements and the schedule based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of TransCor Waste Services, Inc. at December 31, 1996
and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
April 18, 1998, except for Note 19 as to which the date is May 31, 1998<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
---------------------------
1996 1997
------------- -------------
Current assets:
Cash . . . . . . . . . . . . . . . . . . . $ 1,437,788 $ 2,115,510
Accounts receivable - trade, less allowance
for doubtful accounts of $543,770 and
$891,300 at December 31, 1996 and 1997,
respectively . . . . . . . . . . . . . . . 6,230,484 5,170,966
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . . 230,869 415,514
Income tax refund receivable . . . . . . . 422,567 143,672
Deferred income taxes . . . . . . . . . . . 639,079 720,410
Property held for sale . . . . . . . . . . - 733,659
Other current assets . . . . . . . . . . . 255,552 186,017
------------- -------------
Total current assets . . . . . . . . . . . 9,216,339 9,485,748
------------- -------------
Property and equipment, net . . . . . . . . . 26,115,277 25,061,418
Property held for sale . . . . . . . . . . . - 1,510,723
Intangible assets, net . . . . . . . . . . . 898,853 606,975
Due from affiliate . . . . . . . . . . . . . 8,425,553 4,040,110
Other assets . . . . . . . . . . . . . . . . 985,608 1,142,205
------------- -------------
$ 45,641,630 $ 41,847,179
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
---------------------------
1996 1997
------------- -------------
Current liabilities:
Accounts payable - trade . . . . . . . . . $ 4,255,150 $ 4,290,015
Accrued expenses . . . . . . . . . . . . . 4,536,778 3,163,819
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . . 170,771 15,978
Current portion of long-term debt . . . . . 3,453,168 4,662,310
------------- -------------
Total current liabilities . . . . . . . . 12,415,867 12,132,122
------------- -------------
Long-term debt, net of current maturities
(including debt owed to Kimmins of
$2,003,258 at December 31, 1996
and 1997) . . . . . . . . . . . . . . . . . 16,807,059 16,392,361
Deferred income taxes . . . . . . . . . . . . 3,299,355 2,267,742
Commitments and contingencies (Note 11) . . . - -
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000
shares authorized; none issued and
outstanding . . . . . . . . . . . . . . . - -
Common stock, $.001 par value; 10,000,000
shares authorized; 4,010,000 shares issued
and 4,000,000 shares outstanding . . . . . 4,010 4,010
Capital in excess of par value . . . . . . 12,193,547 12,193,547
Retained earnings (deficit) . . . . . . . . 969,798 (1,094,597)
------------- -------------
13,167,355 11,102,960
Less treasury stock,
at cost (10,000 shares) . . . . . . . . . (48,006) (48,006)
------------- -------------
Total stockholders' equity . . . . . . . . 13,119,349 11,054,954
------------- -------------
$ 45,641,630 $ 41,847,179
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Revenue . . . . . . . . . . . . $ 41,118,762 $ 44,193,226 $ 43,829,908
Expenses:
Operating expenses . . . . . 30,462,528 33,587,242 33,348,316
Depreciation . . . . . . . . 2,288,452 3,309,439 3,625,043
Selling, general, and
administrative
expenses . . . . . . . . . . 5,047,180 6,133,338 7,726,101
Management fee to
affiliate . . . . . . . . . 616,601 671,000 1,314,897
------------- ------------- -------------
Operating income (loss) . . . . 2,704,001 492,207 (2,184,449)
Interest expense, net of
interest income from affiliate
of $492,000, $596,000, and
$563,000 for the years ended
December 31, 1995, 1996, and
1997, respectively . . . . . 548,203 1,354,406 1,137,965
------------- ------------- -------------
Income (loss) before provision
for income taxes (benefit) . 2,155,798 (862,199) (3,322,414)
Provision for income taxes
(benefit) . . . . . . . . . . 840,295 (336,258) (1,258,019)
------------- ------------- -------------
Net income (loss) . . . . . . . $ 1,315,503 $ (525,941) $ (2,064,395)
============= ============= =============
Share data:
Basic income (loss)
per share . . . . . . . . . $ .33 $ (.13) $ (.52)
Diluted income (loss) ============= ============= =============
per share . . . . . . . . . $ .32 $ (.13) $ (.52)
============= ============= =============
Weighted average number of
shares outstanding used in
computations:
Basic . . . . . . . . . . . 3,994,334 3,997,842 4,000,000
============= ============= =============
Diluted . . . . . . . . . . 4,049,113 3,997,842 4,000,000
============= ============= =============
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
<TABLE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Capital in Retained Total
----------------- Excess of Earnings Treasury Stockholders'
Shares Amount Par Value (Deficit) Stock Equity
--------- ------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 . .4,000,000 $4,000 $12,133,557 $ 180,236 $ - $ 12,317,793
Purchase of treasury
stock, at cost . . - - - - (48,006) (48,006)
Net income . . . . . - - - 1,315,503 - 1,315,503
--------- ------- ----------- ----------- --------- -------------
Balance at
December 31, 1995 .4,000,000 4,000 12,133,557 1,495,739 (48,006) 13,585,290
Issuance of common
stock upon exercise
of stock warrants . 10,000 10 59,990 - - 60,000
Net loss . . . . . . - - - (525,941) - (525,941)
--------- ------- ----------- ----------- --------- -------------
Balance at
December 31, 1996 . 4,010,000 4,010 12,193,547 969,798 (48,006) 13,119,349
Net loss . . . . . . - - - (2,064,395) - (2,064,395)
--------- ------- ----------- ----------- --------- -------------
Balance at 4,010,000 $4,010 $12,193,547 $(1,094,597) $(48,006) $ 11,054,954
December 31, 1997 .========= ======= =========== =========== ========= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Cash flows from operating
activities:
Net income (loss) . . . . . $ 1,315,503 $ (525,941) $ (2,064,395)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization . . . . . . 2,446,511 3,611,655 4,153,240
Provision for
uncollectible accounts
receivable . . . . . . . 404,455 430,382 772,522
Gain on disposal of
equipment . . . . . . . (109,708) (64,192) (444,488)
Deferred income taxes . . 627,768 75,628 (1,112,944)
Changes in operating
assets and liabilities:
Accounts receivable -
trade . . . . . . . . (1,567,176) 99,306 286,996
Costs and estimated
earnings in excess of
billings on
uncompleted contracts (540,160) 554,604 (184,645)
Income tax refund
receivable . . . . . . (731,951) 309,384 278,895
Other assets . . . . . (727,853) (437,929) (323,381)
Accounts payable -
trade . . . . . . . . 949,400 312,876 34,865
Income taxes payable . (30,933) - -
Accrued expenses . . . 2,228,598 112,491 (1,372,959)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts . . . . . . 41,694 (14,100) (154,793)
------------- ------------- -------------
Total adjustments . . . . . 2,990,645 4,990,105 1,933,308
------------- ------------- -------------
Net cash provided by operating
activities . . . . . . . . . 4,306,148 4,464,164 (131,087)
------------- ------------- -------------
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Cash flows from investing
activities:
Capital expenditures
including $500,000 of
business acquisitions
during 1996 . . . . . . . $(13,847,589) $ (2,539,304) $ (6,171,915)
Proceeds from sale of
property and equipment . . 402,538 295,130 1,800,837
------------- ------------- -------------
Net cash used by investing
activities . . . . . . . . . (13,445,051) (2,244,174) (4,371,078)
------------- ------------- -------------
Cash flows from financing
activities:
Proceeds from
long-term debt . . . . . . 14,471,763 3,515,315 5,522,064
Repayment of
long-term debt . . . . . . (2,742,364) (4,997,356) (4,727,620)
Purchase of treasury
stock . . . . . . . . . . . (48,006) - -
Issuance of common stock
upon exercise of stock
warrants . . . . . . . . . - 60,000 -
Net (advances) payments from
Kimmins . . . . . . . . . . (2,339,806) (2,774,640) 4,385,443
------------- ------------- -------------
Net cash provided (used) by
financing activities . . . . 9,341,587 (4,196,681) 5,179,887
------------- ------------- -------------
Net increase (decrease)
in cash . . . . . . . . . . . 202,684 (1,976,691) 677,722
Cash, beginning of year . . . . 3,211,795 3,414,479 1,437,788
------------- ------------- -------------
Cash, end of year . . . . . . . $ 3,414,479 $ 1,437,788 $ 2,115,510
============= ============= =============
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Organization - TransCor Waste Services, Inc. (the Company ) was
formed on November 6, 1992, as a subsidiary of Kimmins Corp. ( Kimmins ).
Kimmins owns approximately 74 percent of the outstanding common stock
of the Company. The Company provides solid waste management services to
commercial, industrial, residential, and municipal customers in the state
of Florida.
Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in preparing the financial statements.
Net due from affiliate - As of December 31, 1996 and 1997, the
Company had working capital advances due from an affiliate of
approximately $8,425,000 and $4,040,000, respectively. These advances
are unsecured and accrue interest at a rate of 10 percent per annum. The
Company collected $4,385,000 during 1997.
Intangible assets - Intangible assets consist primarily of the excess
of cost over fair market value of the net assets of the acquired
businesses, which are being amortized on a straight-line basis over
twenty years, and customer contracts, which are being amortized on a
straight-line basis over five years. Amortization expense was $67,000,
$124,000, and $109,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Accumulated amortization was approximately $191,000
and $245,000 at December 31, 1996 and 1997, respectively.
Other assets - Other assets consist primarily of pre-contract costs
associated with residential solid waste management contracts obtained
during 1996 and 1997, which are being amortized on a straight-line basis
over five years, the term of the contracts, and loan costs, which are
amortized over the term of the loans. Amortization expense was $91,000,
$178,000, and $236,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Accumulated amortization was $296,000 and $533,000 at
December 31, 1996 and 1997, respectively.
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.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
(continued)
Concentrations of credit risk - Financial instruments which subject
the Company to concentrations of credit risk consist primarily of trade
receivables in the State of Florida. Trade receivables are comprised
primarily of amounts due from solid waste management customers and
specialty contracting contracts. Credit is extended based on an
evaluation of the customer s financial condition, and, generally,
collateral is not required.
A significant portion of the Company s solid waste management
business is conducted under contracts with municipal customers in
Florida. These contracts have varying terms and are typically subject to
renegotiation or reproposal by the respective municipalities. Revenue
from these contracts amount to 15 percent, 24 percent, and 22 percent of
total revenue during 1995, 1996 and 1997, respectively. No individual
municipal contract contributed revenue greater than 10 percent of total
net revenue in any year presented.
Accounts receivable - trade, includes $1,382,000 ($1,263,000 net of
allowance for doubtful accounts) and $724,000 ($213,000 net of allowance
for doubtful accounts) as of December 31, 1996 and 1997, respectively,
related to a municipal solid waste management contract with St. Lucie
County. Unlike other municipal solid waste management contracts, St.
Lucie County requires the Company to bill and collect directly from
individual property owners. Pursuant to St. Lucie County ordinances,
property owners that are delinquent in payment are subject to lien rules.
The Company has placed liens on approximately 2,250 and 2,120 individual
properties representing approximately $511,000 and $474,000 of the
balance as of December 31, 1996 and 1997, respectively. Management
intends to file additional liens when considered appropriate, and all
such liens will be maintained in accordance with applicable laws until
the outstanding balances are recovered by payment, judgement,
foreclosure, or in other action.
Revenue recognition - The Company recognizes revenue from solid waste
management and recycling operations when the services are performed.
Billings prior to the rendering of services are classified as deferred
revenue. Demolition contract earnings are recognized on the percentage-
of-completion basis for financial statement purposes. The estimated
earnings for each contract reflected in the accompanying consolidated
financial statements represent the percentage of estimated total earnings
that costs incurred to date bear to estimated total costs. When current
estimates of total contract costs indicate a loss, provision is made for
the entire estimated loss. Revenue from demolition contract services
totaled approximately $8,751,000, or 21.3 percent, $9,504,000, or 21.5
percent, and $11,236,000, or 25.6 percent, of the Company s total revenue
for the years ended December 31, 1995, 1996 and 1997, respectively.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
(continued)
Advertising costs - Advertising costs are expensed as incurred. For
the years ended December 31, 1995, 1996 and 1997, the Company expensed
approximately $88,000, $114,000, and $536,000, respectively, in
advertising costs.
Income taxes - Income taxes have been provided using the liability
method in accordance with Financial Accounting Standards Board ( FASB )
Statement No. 109, Accounting for Income Taxes.
Stock based compensation - The Company grants stock options for a
fixed number of shares to employees with an exercise price equal to the
fair value of the shares at the date of grant. The Company accounts for
stock option grants in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ( APB No.
25 ), and, accordingly, recognizes no compensation expense for the stock
option grants.
In October 1995, the Financial Accounting Standards Board ( FASB )
issued Statement of Financial Accounting Standards No. 123, Accounting
and Disclosure of Stock-Based Compensation ( SFAS No. 123 ), which
encourages, but does not require, companies to recognize stock awards
based on their fair value at the date of grant. Pro forma financial
information, assuming that the Company had adopted the measurement
standards of SFAS No. 123, is presented in Note 13.
Earnings (loss) per share - In February 1997, the FASB issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
( SFAS No. 128 ), which establishes standards for computing and
presenting earnings per share. SFAS No. 128 replaces the presentation of
primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share are computed
by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share are computed similar to fully diluted earnings per
share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS No. 128
requirements.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
(continued)
Recently issued accounting standards - In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ( SFAS No. 131 ),
which supercedes Financial Accounting Standards No. 14. SFAS No. 131 uses
a management approach to report financial and descriptive information
about a Company s operating segments. Operating segments are revenue-
producing components of the enterprise for which separate financial
information is produced internally for the Company s management. SFAS No.
131 is effective for fiscal years beginning after December 31, 1997.
Management is currently assessing the impact of SFAS No. 131, but does
not expect its effects to be material.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ( SFAS No. 130 ). SFAS
No. 130 requires that total comprehensive income and comprehensive income
per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholders
equity exclusive of transactions with owners such as capital
contributions and dividends. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management is currently assessing the
impact of SFAS No. 130, but does not expect its effects to be material.
Proposed accounting standards - In April 1997, the American Institute
of Certified Public Accountants issued an Exposure Draft of a proposed
SOP, Reporting on the Costs of Start-up Activities. Start-up costs are
defined broadly in the proposed SOP as those one-time activities related
to opening a new facility, introducing a new product or service,
conducting business in a new territory, conducting business with a new
class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Start-up costs, including
organizational costs, would be expensed as incurred under the proposed
SOP. The proposed SOP would be effective for most entities for fiscal
years beginning after December 15, 1998. The SOP will require the
Company, upon adoption, to write off as a cumulative effect of a change
in accounting principle any previously capitalized start-up or
organization costs. Therefore, in the first quarter of 1999, the Company
will have to write off the remaining unamortized balance of contract
start-up costs, which approximate $875,000 at December 31, 1997.
Reclassification - Certain amounts in the 1996 consolidated financial
statements have been reclassified to conform to the 1997 presentation.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business acquisitions
On February 21, 1996, Kimmins Recycling Corp. ( KRC ), a wholly-owned
subsidiary of the Company, acquired certain assets from Automated
Resource Recovery, Inc., for $300,000 relating to its solid waste
management operations. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has
been allocated to the assets acquired (approximately $150,000) based on
the estimated fair values at the date of acquisition. The purchase price
associated with the acquisition exceeded the net assets acquired by
approximately $150,000, which was assigned to intangible assets,
including customer lists. The operating results associated with this
business acquisition are included in the Company s consolidated results
of operations for the periods ended December 31, 1996 and 1997.
On May 31, 1996, KRC acquired certain assets from Paper Stock
Dealers, Inc., for $200,000 relating to its solid waste management
operations. This acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired (approximately $112,000) based on the
estimated fair values at the date of acquisition. The purchase price
associated with the acquisition exceeded the net assets acquired by
approximately $88,000, which was assigned to intangible assets, including
customer lists. The operating results associated with this business
acquisition are included in the Company s consolidated results of
operations since June 1, 1996.
The Company sold a number of contracts in its Pinellas area. As part
of a deemphasis of paper wholesaling in Pinellas, the Company wrote-off
the net intangible assets of $70,000 associated with the 1996 acquisition
of assets from Paper Stock Dealers, Inc.
On March 31, 1995, KRC acquired certain assets from County
Sanitation, Inc., for $2,267,000 relating to its solid waste management
operations. This acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired (approximately $1,415,000) based on the
estimated fair values at the date of acquisition. The purchase price
associated with the acquisition exceeded the net assets acquired by
approximately $852,000, which was assigned to intangible assets,
including goodwill. The operating results associated with this business
acquisition are included in the Company s consolidated results of
operations since April 1, 1995.
The pro-forma effects of the acquisitions are considered by
management to be immaterial for purposes of pro-forma presentation.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Related party transactions
During the years ended December 31, 1995, 1996, and 1997, the Company
entered into transactions with Kimmins and companies affiliated with
Kimmins through common ownership. Kimmins provides the Company
accounting, data processing, financial, tax and other administrative
services for a fee based on gross revenue. In 1997, to reflect the
increased level of services received from Kimmins, the fee was increased
from 1.5 percent of revenue to 3.0 percent of revenue. The amounts
charged were approximately $617,000, $671,000, and $1,315,000, for the
years ended December 31, 1995, 1996, and 1997, respectively.
The Company is insured or co-insured with Kimmins on various
insurance policies of the Company or Kimmins. The Company pays its
allocable share of the cost of such policies based on specifically
identified costs or on a combination of its revenues, payroll, assets,
and incurred losses as a percentage of the combined total of such items
of all insured parties, as appropriate for each particular insurance
policy or coverage. For the years ended December 31, 1995, 1996, and
1997, the Company paid Kimmins approximately $811,000, $849,000, and
$1,205,000, respectively. The Company pays directly for any coverage for
which it is the only insured.
At December 31, 1995, the Company had $500,000 of mortgage notes
payable to affiliated parties: $400,000 to the president of Kimmins, his
wife, and his son and $100,000 to a director of Kimmins. These notes
were refinanced during 1996 with an unaffiliated lender.
Effective July 1, 1997, employees associated with the Company s
demolition contract services unit were transferred to Kimmins Contracting
Corp. ( KCC ), a wholly-owned subsidiary of Kimmins, for administrative
and accounting purposes. As a result, contracting services previously
performed by employees of the Company were subcontracted to KCC. For the
year ended December 31, 1997, the Company subcontracted $3,417,574 with
KCC. In addition, the Company rents equipment from KCC for use in
performing demolition contracts. The Company incurred approximately
$670,000, $2,103,000 and $2,573,000 in equipment rental charges with KCC
for the years ended December 31, 1995, 1996 and 1997, respectively.
In addition to the above transactions, the Company has advanced funds
to Kimmins for working capital needs. These advances are unsecured and
bear interest at 10 percent. The balances at December 31, 1996 and 1997
were $8,425,553 and $4,040,110, respectively.
In addition, the Company has a convertible subordinated note payable
to Kimmins in the amount of $2,003,258. See Note 9 and Item 13 for
additional information.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Accounts receivable - trade
December 31,
---------------------------
1996 1997
------------- -------------
Contract and trade:
Billed contract receivables:
Completed and uncompleted
contracts . . . . . . . . . . . . . . $ 1,469,473 $ 950,215
Retainage . . . . . . . . . . . . . . 230,409 206,123
Unbilled contract receivables . . . . . 353,708 776,764
Trade receivables . . . . . . . . . . . 4,720,664 4,129,164
------------- -------------
6,774,254 6,062,266
Allowance for doubtful accounts . . . . . (543,770) (891,300)
------------- -------------
$ 6,230,484 $ 5,170,966
============= =============
5. Costs and estimated earnings in excess of
billings on uncompleted contracts
December 31,
---------------------------
1996 1997
------------- -------------
Expenditures on uncompleted contracts . . $ 3,841,201 $ 7,574,018
Estimated earnings on uncompleted
contracts . . . . . . . . . . . . . . . 1,579,433 524,598
------------- -------------
Less actual and allowable billings on 5,420,634 8,098,616
uncompleted contracts . . . . . . . . . 5,360,536 7,699,080
------------- -------------
$ 60,098 $ 399,536
============= =============
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . $ 230,869 $ 415,514
Billings in excess of costs and
estimated earnings on uncompleted (170,771) (15,978)
contracts . . . . . . . . . . . . . . . ------------- -------------
$ 60,098 $ 399,536
============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Property held for sale
As a result of management s review of the Company s various regional
solid waste operating facilities, a decision was made to dispose of less
profitable operating assets. The Company sold its residential solid waste
services contract with St. Lucie County to a competitor and ceased
operations at its Lantana, Florida, facility. The Lantana and St. Lucie
facilities contributed losses of approximately $1,111,000 and $476,000,
respectively, of the $2,184,000 operating loss of the Company for the
year ended December 31, 1997. The Company wrote off intangible assets of
$183,000 associated with these operations. Also, in accordance with SFAS
No. 121, Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, the Company wrote down certain land and buildings that
management believed had carrying amounts higher than their fair market
value.
The impairment loss of $590,000 was determined by comparing the
carrying amount of impaired assets of approximately $2,834,000 with
recent offers on the properties held for sale. The $590,000 impairment
loss is included in selling, general and administrative expenses on the
consolidated statements of operations for the year ended December 31,
1997. The land and buildings that were impaired at December 31, 1997, and
as of the date of these financial statements had executed contracts for
sale, are expected to be sold during 1998. Accordingly, the carrying
value of these assets of approximately $734,000, net of the impairment
loss of $90,000, is classified as a current asset under the caption
Property Held for Sale in this consolidated balance sheet.
7. Property and equipment
December 31,
---------------------------
1996 1997
------------- -------------
Land . . . . . . . . . . . . . . . . . . $ 4,610,323 $ 3,019,969
Building and improvements . . . . . . . . 5,621,962 4,068,476
Vehicles . . . . . . . . . . . . . . . . 13,459,891 16,936,386
Waste containers and equipment . . . . . 12,508,751 13,133,877
Furniture and fixtures . . . . . . . . . 547,739 700,711
Construction in progress . . . . . . . . 33,462 48,419
------------- -------------
36,782,128 37,907,838
Less accumulated depreciation . . . . . . (10,666,851) (12,846,420)
------------- -------------
$ 26,115,277 $ 25,061,418
============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Property and equipment (continued)
Property and equipment is recorded at cost. Depreciation is provided
using the straight-line method over estimated useful lives, which range
from three to thirty years. Depreciation expense was $2,289,000,
$3,309,000, and $3,625,000 for the years ended December 31, 1995, 1996
and 1997, respectively. Construction in progress is depreciated over the
estimated useful lives when placed into service.
8. Accrued expenses December 31,
---------------------------
1996 1997
------------- -------------
Deferred revenue . . . . . . . . . . . . $ 1,641,857 $ 919,631
Accrued insurance . . . . . . . . . . . . 1,171,965 926,049
Accrued disposal costs . . . . . . . . . 744,229 407,229
Accrued real estate and property taxes . 291,080 349,682
Other . . . . . . . . . . . . . . . . . . 687,647 561,228
------------- -------------
$ 4,536,778 $ 3,163,819
============= =============
9. Long-term debt December 31,
---------------------------
1996 1997
------------- -------------
Notes payable, due through March 1, 2001,
payable in monthly installments with
interest at varying rates up to 13
percent, collateralized by equipment . . $ 13,055,213 $ 14,191,400
Convertible subordinated term note to
Kimmins, interest payable in monthly
installments, principal due December 1,
2003, interest at bank's base rate (8.5
percent) plus 1 percent . . . . . . . . . 2,003,258 2,003,258
Mortgage notes, principal and interest
payable in monthly installments through
August 1, 2010, interest at varying
rates up to prime plus 1.5 percent,
collateralized by land and buildings . . 5,201,756 4,860,013
------------- -------------
20,260,227 21,054,671
Less current portion . . . . . . . . . . (3,453,168) (4,662,310)
------------- -------------
$ 16,807,059 $ 16,392,361
============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-term debt (continued)
Annual principal maturities for years subsequent to December 31,
1997, are as follows:
1998 . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,662,310
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 4,962,703
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 4,220,631
2001 . . . . . . . . . . . . . . . . . . . . . . . . . 2,512,241
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 975,505
Thereafter . . . . . . . . . . . . . . . . . . . . . . 3,721,284
-------------
$ 21,054,674
=============
As of December 31, 1997, the Company is a co-borrower and has
guaranteed a loan agreement on behalf of Kimmins and other subsidiaries
of Kimmins in connection with the Kimmins Employee Stock Ownership Plan,
which had an outstanding balance of $1,440,000 that is recorded in the
financial statements of Kimmins.
The Company is a co-borrower with joint and several liability on
approximately $5,910,000 of financial institution debt of Kimmins. The
debt agreements contain certain covenants, the most restrictive of which
require, for Kimmins for 1997, maintenance of a consolidated tangible net
worth, as defined, of not less than $6,500,000 and net income not less
than $1,500,000. In addition, the covenants prohibit the payment of
dividends by the Company without lender approval. For all periods
presented, the Company believes that Kimmins had complied with or
obtained waivers for all loan covenants.
Francis M. Williams has guaranteed approximately $10,455,000 of the
total notes payable of $14,191,000. The Company is also a co-borrower on
approximately $2,645,000 of Kimmins notes payable.
The lenders prime rate under the Company s notes was 8.5 percent at
December 31, 1997.
Included in the notes payable of approximately $14,191,000 are
equipment notes of the Company for $5,700,000 that are due in July 1998.
The Company has executed a commitment agreement that refinances the
$5,700,000 until January 1, 2000 and, accordingly, has classified the
debt pursuant to the expected maturity schedule.
10. Leasing arrangements
The Company rents equipment and machinery, as needed, as well as
office space, under non-cancellable operating leases for varying periods.
Rental expense for the years ended December 31, 1995, 1996, and 1997 were
approximately $763,000, $2,230,000, and $2,938,000, respectively.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and contingencies
The Company has no current material commitments for capital
expenditures relating to any other new facilities, other than to acquire
vehicles and equipment for the City of Cape Coral contract, which the
Company estimates to be approximately $3,500,000.
The Company is involved in various legal actions and claims arising
in the ordinary course of its business. After taking into consideration
legal counsel s evaluation of such actions and claims, management is of
the opinion that their outcome will not have a material adverse effect on
the consolidated financial position of the Company.
12. Stockholders equity
The Company has authorized 1,000,000 shares of preferred stock with a
par value of $.001 per share, none of which has been issued. 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.
Warrants to purchase 100,000 shares of the Company s common stock at
$6.00 per share were issued in 1993 to the underwriters of the Company s
initial public offering. Warrants to purchase 10,000 shares of common
stock were exercised during March 1996. The remaining warrants to
purchase 90,000 shares are exercisable through March 25, 1998.
The convertible subordinated term note is convertible into 400,652
shares of the Company s common stock at the time the market value per
share equals or exceeds $9.00 for 20 consecutive trading days. Should
this occur, Kimmins, at its option and with written notification to the
Company, can convert the note into common stock in $10,000 increments.
13. Pension and other benefit plans
On January 1, 1989, Kimmins formed the Kimmins Corp. Employee Stock
Ownership Plan Trust (the ESOP ) for the benefit of employees of Kimmins
and its subsidiaries, including those of the Company, to purchase shares
of Kimmins s common stock from time to time on the open market or in
negotiated transactions at prices deemed to be attractive. Contributions
to the ESOP, which have not been material, are made at the discretion of
the Board of Directors of Kimmins.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Pension and other benefit plans (continued)
The Company has 250,000 shares of its common stock reserved for
issuance upon the exercise of options to be granted under the Company s
1992 Stock Option Plan (the TransCor Plan ). The exercise price of an
incentive stock option granted under the TransCor Plan may not be less
than the fair market value of the common stock at the time the option is
granted. The exercise price of a non-qualified option is within the
discretion of the Board of Directors but may not be less than the par
value of such shares. Options granted under the TransCor Plan must, in
general, vest over five years from the date of grant and expire no later
than ten years from the date of the grant.
The TransCor Plan has an option to acquire an aggregate of 250,000
shares of common stock for options that may be granted to employees,
officers, directors and consultants of the Company. The Plan authorizes
the Board of Directors (the Board ) to issue incentive stock options
( ISOs ), as defined in Section 422(b) of the Internal Revenue Code, and
stock options that do not conform to the requirements of that Code
section ( Non-ISOs ). The Board has discretionary authority to determine
the types of stock options to be granted, the persons among those
eligible to whom options will be granted, the number of shares to be
subject to such options, and the terms of the stock option agreements.
Options may be exercised in the manner and at such times as fixed by the
Board, but may not be exercised after the tenth anniversary of the grant
of such options.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Pension and other benefit plans (continued)
The following table summarizes the transactions for the three years
ended December 31, 1997, relating to the TransCor Plan:
Number of Per Share
Shares Option Price
------------- -------------
Outstanding January 1, 1995 . . . . . . 70,000 $ 2.00
Granted . . . . . . . . . . . . . . . 17,000 $ 2.00-$4.38
Exercised . . . . . . . . . . . . . . - $ -
Canceled . . . . . . . . . . . . . . . - $ -
-------------
Outstanding December 31, 1995: . . . . 87,000 $ 2.00-$4.38
Granted . . . . . . . . . . . . . . . 5,000 $ 4.00
Exercised . . . . . . . . . . . . . . - $ -
Canceled . . . . . . . . . . . . . . . - $ -
-------------
Outstanding December 31, 1996: . . . . 92,000 $ 2.00-$4.38
Granted . . . . . . . . . . . . . . . 148,000 $ 2.50-$4.00
Exercised . . . . . . . . . . . . . . - $ -
Canceled . . . . . . . . . . . . . . . (80,000) $ 3.12-$4.38
-------------
Outstanding December 31, 1997: . . . . 160,000 $ 2.00-$2.50
=============
Exercisable December 31, 1997: . . . . 80,000
=============
The Board of Directors has reserved 100,000 shares of common stock in
connection with stock warrants that may be issued to consultants of the
Company as may be determined by the Board of Directors.
Pro forma information regarding net income (loss) and earnings per
share is required by Statement 123, which also requires that the
information be determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994, under the
fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1995, 1996 and
1997; risk-free interest rates of 5.5 percent; a dividend yield of zero;
volatility factors of the expected market price of the Company s common
stock based on historical trends; and a weighted-average expected life of
the options of seven years.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Pension and other benefit plans (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferrable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company s employee stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management s opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
1995 1996 1997
------------- ------------- -------------
Pro forma net income (loss)
attributable to
stockholders . . . . . . . . $ 1,302,869 $ (539,486) $ (2,080,437)
Pro forma income (loss) per
common share:
Basic income (loss) .33 (.13) (.52)
per share . . . . . . . .
Diluted income (loss)
per share . . . . . . . . .32 (.13) (.52)<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company s deferred tax
liabilities and assets are as follows:
December 31,
---------------------------
1996 1997
------------- -------------
Deferred tax liabilities:
Tax over book depreciation . . . . . . $ 3,457,713 $ 3,537,148
Costs deferred for books expensed for
tax . . . . . . . . . . . . . . . . . 328,433 416,850
------------- -------------
Total deferred tax liabilities . . . . 3,786,146 3,953,998
------------- -------------
Deferred tax assets:
Allowance for doubtful accounts . . . . 209,552 343,352
Accrued workers' compensation . . . . . 409,644 356,529
AMT credit carryforward . . . . . . . . 172,730 32,924
Federal and state NOL carryforwards . . 240,082 1,545,618
State credit carryforwards . . . 32,730 52,730
Costs deferred for tax expensed for
books . . . . . . . . . . . . . . . . 61,132 75,513
------------- -------------
Total deferred tax assets . . . . . . . 1,125,870 2,406,666
------------- -------------
Net deferred tax liabilities . . . . . . 2,660,276 1,547,332
Current deferred assets . . . . . . . . . 639,079 720,410
------------- -------------
Net non-current deferred liabilities . $ 3,299,355 $ 2,267,742
============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income taxes (continued)
The components of the provision for income taxes are as follows:
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Current . . . . . . . . . . $ 212,527 $ (411,886) $ (145,075)
Deferred . . . . . . . . . 627,768 75,628 (1,112,944)
------------- ------------- -------------
$ 840,295 $ (336,258) $ (1,258,019)
============= ============= =============
As of December 31, 1997, the Company had consolidated regular tax net
operating loss carryforwards for federal tax purposes of approximately
$3,982,000 available to be carried to future periods. The loss
carryforward expires through the year 2012 if not used. The net operating
loss carryforward available for alternative minimum tax is $1,900,000.
The Company has alternative minimum tax credit carryforwards of
approximately $33,000 at December 31, 1997, that are available to reduce
future federal regular income taxes. The alternative minimum tax net
operating loss and credit carryforwards can be utilized over an
indefinite period.
Factors causing the effective tax rate to differ from the statutory
rate are as follows:
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Federal statutory rate . . 34.0% (34.0%) (34.0%)
State income taxes . . . . 5.0% (5.0%) (3.8%)
Effective tax rate . . . . ------------- ------------- -------------
39.0% (39.0%) (37.8%)
============= ============= =============
15. Supplemental disclosures of cash flow information
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
Cash paid:
Interest . . . . . . . . $ 1,040,000 $ 1,950,000 $ 1,640,000
Income taxes . . . . . . $ 960,000 $ 2,000 $ 2,000 <PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Fair value of financial instruments
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash, accounts receivable, and accounts payable. The carrying amount
reported in the balance sheet for cash, accounts receivable, and accounts
payable approximates their fair value.
Long-term debt. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
December 31, 1996 December 31, 1997
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
Liabilities:
Notes
payable . . $ 20,260,227 $ 20,076,000 $ 21,055,000 $ 20,874,000 <PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. 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:
Year ended December 31,
----------------------------------------
1995 1996 1997
------------- ------------- -------------
NUMERATOR:
Net income (loss) . . . . . $ 1,315,503 $ (525,941) $ (2,064,395)
Adjustment for basic
earnings per share . . . 0 0 0
------------- ------------- -------------
Numerator for basic
earnings per share -
income available to
common stockholders . . . 1,315,503 (525,941) (2,064,395)
Effect of dilutive
securities:
Interest on convertible
subordinated term note . 0 0 0
Less tax effect of
interest . . . . . . . . 0 0 0
------------- ------------- -------------
Numerator for diluted
earnings per share -
income available to
common stockholders after
assumed conversions . . . $ 1,315,503 $ (525,941) $ (2,064,395)
============= ============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Earnings (loss) per share (continued)
Year ended December 31,
----------------------------------------
1995 1996 1997
DENOMINATOR: ------------- ------------- -------------
Denominator for basic
earnings per share -
weighted-average shares . 3,994,334 3,997,842 4,000,000
Effective of dilutive
securities:
Stock options . . . . . . . 54,779 0 0
Warrants . . . . . . . . . 0 0 0
Convertible subordinated 0 0 0
term note . . . . . . . . ------------- ------------- -------------
Dilutive potential common 54,779 0 0
shares . . . . . . . . . ------------- ------------- -------------
Denominator for diluted
earnings per share -
adjusted weighted-average
shares and assumed
conversions . . . . . . . 4,049,113 3,997,842 4,000,000
============= ============= =============
Basic earnings per
share . . . . . . . . . . $ 0.33 $ (0.13) $ (0.52)
============= ============= =============
Diluted earnings per
share . . . . . . . . . $ 0.32 $ (0.13) $ (0.52)
============= ============= =============
Unexercised options to purchase 92,000 and 160,000 shares of common
stock for 1996 and 1997, respectively, and the convertible subordinated
debt (Note 12) were not included in the computations of diluted loss per
share because the assumed conversion would be antidilutive.
18. Fourth quarter 1996 and 1997 adjustments
During the fourth quarter of 1996, the Company revised its estimate
regarding the collectibility of a contract claim, resulting in a pre-tax
charge to operations of $205,000. In addition, subsequent to December
31, 1996, the Company agreed to a settlement of another contract claim,
resulting in a pre-tax charge to operations of approximately $101,000
during the fourth quarter of 1996.
During the fourth quarter of 1997, the Company revised its estimate
for accrued workers compensation insurance claims, resulting in a pre-
tax reduction to costs of operations of approximately $200,000, and
recorded $229,000 of compensation expense associated with the start-up of
the Hillsborough County residential solid waste services contract.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Subsequent event to December 31, 1997
On May 31, 1998, the Company sold its Jacksonville area waste
collection and recycling operations assets and certain assets of the
Miami front-end load and rear-load commercial waste and recycling
business to Eastern Environmental Services of Florida, Inc., for
$11,600,000 in cash, which exceeded the carrying value of the underlying
assets. <PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures
None.
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
--------------------------------------- --------------------------------
Joseph M. Williams . . . . . . 42 President and Secretary
Francis M. Williams . . . . . . 56 Chief Executive Officer and
Chairman of the Board of
Directors
Norman S. Dominiak . . . . . . 53 Vice President, Chief Financial
Officer, and Treasurer
R. Donald Finn . . . . . . . . 54 Director
Barry W. Ridings . . . . . . . 46 Director
All directors of the Company hold office until the next annual
meeting of shareholders and the election and qualification of their
successors. Officers of the Company are elected annually by the Board of
Directors and hold office at the discretion of the Board.
Joseph M. Williams has been President and Chief Executive Officer of
the Company since September 1997, Secretary of the Company since November
1992, and Treasurer from November 1992 until May 1995. Mr. Williams has
served as Secretary of Kimmins since June 1988. Since November 18, 1991,
Mr. Williams has also served as President and has been a Director of
Cumberland Holdings, Inc., a holding company whose wholly-owned
subsidiaries provide reinsurance for specialty sureties and performance
and payment bonds. Since June 1986, Mr. Williams has served as President
and Vice President and has been a Director of Cumberland Real Estate
Holdings, Inc., a company specializing in property management. Mr.
Williams has been employed by Kimmins and its subsidiaries in various
capacities since January 1984. From January 1982 to December 1983, he
was the managing partner of Williams and Grana, a firm engaged in public
accounting. From January 1978 to December 1981, Mr. Williams was
employed as a senior tax accountant with Price Waterhouse & Co. Joseph
M. Williams is the nephew of Francis M. Williams.
Ira D. Cohen resigned as President of the Company in August 1997.<PAGE>
Francis M. Williams has been Chairman of the Board of Directors of
the Company since November 1992 and President of the Company from July 1,
1994 until July 1996. He has been President and Chairman of the Board of
Kimmins since its inception in 1987. From 1981 to 1988, Mr. Williams was
the Chairman of the Board and Chief Executive Officer of Kimmins Corp.
and its predecessors and was sole owner of K Management Corp., the former
parent company of Kimmins Corp. From June 1981 until January 1988, Mr.
Williams was the President and a Director of College Venture Equity
Corp., a small business investment company. Mr. Williams has also been a
Director of the National Association of Demolition Contractors and a
member of the Executive Committee of the Tampa Bay International Trade
Council.
Norman S. Dominiak has been the Treasurer of the Company since May
1995 and its Chief Financial Officer since January 1994. Mr. Dominiak has
also been Vice President of Kimmins since March 1995 and Chief Financial
Officer of Kimmins since January 1994. Mr. Dominiak served as controller
of ThermoCor Kimmins, Inc., a subsidiary of Kimmins, from October 1990
until January 1994. From May 1988 until September 1991, Mr. Dominiak
served as Senior Vice President of Creative Edge, a company engaged in
the manufacturing and distribution of educational products. From October
1982 until April 1988, Mr. Dominiak served as Senior Vice President of
Cecos Environmental Services, Inc., a company engaged in treatment,
transportation, and disposal of hazardous waste. From 1965 until 1982,
Mr. Dominiak was employed in various financial capacities for the
Carborundum Company.
R. Donald Finn has been a Director of the Company since November
1992. For more than the last five years, Mr. Finn has been a partner in
the Law Firm of Gibson, McAskill & Crosby located in Buffalo, New York,
where Mr. Finn has practiced law for more than the last 25 years.
Barry W. Ridings has been a Director of the Company since November
1992. For more than the past five years, Mr. Ridings has been a managing
director of the investment banking firm, Alex, Brown & Sons, Inc. Mr.
Ridings is currently a Director of Norex America, Inc., SubMicron
Systems, Inc., Noodle Kidoodle, Inc., New Valley Corp., Search Capital
Group, Inc., and Telemundo Group, Inc.
Set forth below is information regarding certain key employees of the
Company:
Michael D. O'Brien, 47, has been employed by the Company (including
its predecessor) as Vice President since October 1992. From June 1987 to
October 1992, Mr. O'Brien has served as the Regional Manager of the
Northeast Region of Kimmins Industrial Service Corp., a wholly-owned
subsidiary of Kimmins. From July 1983 to June 1987, Mr. O'Brien served
as Vice President of Jordan Foster Scrap Corporation in Buffalo, New
York, a company specializing in demolition and preparation of scrap for
sale.<PAGE>
John V. Simon, Jr., 42, has been a Vice President of the Company
(including its predecessor) since November 1989. Since May 1981, he has
served as President of Kimmins Contracting Corp. He served as a Vice
President of Kimmins from July 1985 until October 1988.
Section 16(a) Beneficial Ownership Reporting Compliance. Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company's executive officers and directors and any
persons holding more than 10 percent of the Company's common stock are
required to file with the Securities and Exchange Commission reports of
their initial ownership of the Company's common stock and any changes in
ownership of such common stock. Specific due dates have been
established, and the Company is required to disclose in its Annual Report
on Form 10-K/A and Proxy Statement any failure to file such reports by
these dates. Copies of such reports are required to be furnished to the
Company. Based solely on its review of the copies of such reports
furnished to the Company, or written representations that no reports were
required, the Company believes that, during 1996, all of its executive
officers (including the Named Executive Officers), directors and persons
owning more than 10 percent of its common stock complied with the Section
16(a) requirements, except that Francis M. Williams filed four Form 4s
late to report four transactions.<PAGE>
Item 11. Executive Compensation
Summary Compensation Table. The following table provides certain
summary information concerning compensation paid or accrued by the
Company for the chief executive officers for the year ended December 31,
1997. No other executive officers of the Company earned in excess of
$100,000 in salary and bonus for the year ended December 31, 1997:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
---------------------------
Annual Compensation Awards Payouts
---------------------- ------------------- -------
Securi-
Other ties All
Annual Restricted Under- Other
Compen- Stock lying LTIP Compen-
Name and Salary Bonus sation Award(s) Options/ Payouts sation
Principal Position Year ($) ($) ($) ($) SARs (#) ($) ($)
--------------------- ---- -------- ------- ------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Francis M. Williams 1997 $ 172,120 $0 $0 $0 0 $0 $996(d)
Chief Executive (a)1996 $ 184,810 $0 $0 $0 0 $0 $995(d)
Officer 1995 $ 271,137 $0 $0 $0 0 $0 $989(d)
Joseph M. Williams 1997 $0 $0 $0 $0 25,000 $0 $0 (d)
President and (b)
Secretary
Ira D. Cohen 1997 $ 67,660 $0 $0 $0 25,000 $0 $993(d)
President (c)1996 $ 57,692 $0 $0 $0 0 $0 $0 (d)
Michael D. O Brien 1997 $ 105,427 $0 $0 $0 25,000 $0 $695(d)
Vice President 1996 $ 95,000 $0 $0 $0 0 $0 $695(d)
1995 $ 91,261 $13,740 $0 $0 5,000 $0 $695(d)
(a) Mr. Francis M. Williams' salary and other compensation are paid by Kimmins.
(b) Mr. Joseph M. Williams employment commenced in September 1997. As a result, no
information regarding compensation prior to such date is provided herein. Mr.
Williams salary and other compensation are not paid by the Company; however, his
services are covered by the management fees paid to Kimmins.
(c) Mr. Cohen's employment commenced in July 1996 and terminated in August 1997. As a
result, no information regarding compensation prior to such date is provided herein.
The Company bought out Mr. Cohen's options upon his resignation.
(d) Represents the Company's contribution to the employee's account of the Company's
401(k) Plan and premiums paid by the Company for term life insurance and long-term
disability. These plans, subject to the terms and conditions of each plan, are
available to all employees.
/TABLE
<PAGE>
During the year ended December 31, 1997, the services of certain of
the Company s officers were provided to the Company by Kimmins and
included in an administrative fee of approximately $1,315,000 paid to
Kimmins during 1997 for such executive services and other services.
Pursuant to the Management Services Agreement, Kimmins provides the
services of Messrs. Francis M. Williams, Joseph M. Williams, Norman S.
Dominiak, and John V. Simon, Jr., as Chairman of the Board, President and
Secretary, Treasurer, and Vice President of the Company, respectively,
as needed, as well as certain financial, accounting, data processing,
and other administrative services, for an annual fee equal to the lower
of the actual cost of such services or 3.0 percent for 1997 and 1.5
percent for 1996 of the gross revenues of the Company. From the list of
executives and key employees, included under Item 10, Directors and
Executive Officers, only Mr. Cohen and Mr. O Brien received compensation
directly from the Company. During 1995, 1996, and 1997, Mr. Francis M.
Williams received salary and other compensation totaling $271,137,
$184,810, and $172,120, respectively, from Kimmins for work performed on
the behalf of Kimmins and its subsidiaries, including the Company. These
amounts were not allocated to any Kimmins subsidiary. The Company and
Kimmins estimate that during 1997 approximately 10 percent of the
professional time of Francis M. Williams was spent on matters concerning
the Company and that the services provided by John V. Simon, Jr., to the
Company were essentially incidental to their overall responsibilities to
Kimmins and no part of their services was allocable to the Company. The
Company estimates that no more than 10 percent of the total professional
time of any of such persons in 1997 has been spent on the affairs of the
Company, except for Joseph M. Williams and Norman S. Dominiak who spent
approximately 50 percent of their total professional time during the
second half of 1997 on affairs of the Company.
1992 Stock Option Plan
In November 1992, the Company adopted a stock option (the Option
Plan ) pursuant to which 250,000 shares of Common Stock have been
reserved for issuance upon the exercise of options designated as either
(i) options intended to constitute incentive stock options ( ISOs ) under
the Internal Revenue Code of 1986, as amended (the Code ) or (ii) non-
qualified options. ISOs may be granted under the Option Plan to
employees and officers of the Company. Non-qualified options may be
granted to consultants, directors (whether or not any such director is an
employee), employees, or officers of the Company.<PAGE>
The purpose of the Option Plan is to attract and retain the best
available talent and encourage the highest level of performance to serve
the best interests of the Company and its shareholders. The Option Plan
is administered by the Board of Directors or, at their discretion, by a
committee appointed by the Board of Directors to perform such function.
The Board of Directors or such committee, as the case may be, within the
limitations of the Option Plan, determine, among other things, when to
grant options, the persons to whom options will be granted, the number of
shares to be covered by each option, whether the options granted are
intended to be ISOs or non-qualified options, the duration and rate of
exercise of each option, the option purchase price per share and the
manner of exercise, and whether restrictions such as repurchase rights in
the Company are to be imposed on shares subject to options. In
determining the employees, officers, consultants, and directors to whom
options should be granted and the number of shares to be covered by each
option, the Board of Directors or committee, as the case may be, will
take into account the nature of their duties, their present and potential
contributions to the success of the Company, and other such factors as it
will deem relevant.
ISOs granted pursuant to the Option Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of
grant (or 110 percent of fair market value in the case of persons holding
10 percent or more of the voting stock of the Company). The aggregate
fair market value of shares for which ISOs granted to any employee are
exercisable for the first time by such employee during any calendar year
(pursuant to all stock option plans of the Company and any related
corporation) may not exceed $100,000. Non-qualified options granted
under the Option Plan may be granted at a price determined by the Board
of Directors or committee but may not be less than the par value of such
shares. Options granted pursuant to the Option Plan will expire not more
than ten years from the date of grant (five years in the case of ISOs
granted to persons holding 10 percent or more of the voting stock of the
Company).
Options granted pursuant to the Option Plan are not transferable
during an optionee s lifetime; however, they are transferable at death by
will or by the laws of descent and distribution.
As of December 31, 1997, the Company has granted ten-year options
that are exercisable to purchase an aggregate of 160,000 shares. Of such
options, options to purchase 27,000 shares were granted to Mr. Michael D.
O Brien and 25,000 shares to Mr. John V. Simon, Jr. Options to purchase
45,000 shares were granted to Joseph M. Williams, and options to purchase
20,000 shares were granted to each of Messrs. Barry W. Ridings and R.
Donald Finn. The 70,000 options granted with an exercise price of $5.00
per share were cancelled during 1994 and subsequently reissued during
1994 with an exercise price of $2.00. All options granted to date are
exercisable at the rate of 20 percent per year, and become fully vested
by December 2002. In addition, 80,000 options granted between May 1,
1995, and October 1, 1997, with exercise prices between $3.12 and $4.38
were canceled during 1997 and subsequently reissued in December 1997 at
an exercise price of $2.50.<PAGE>
Stock Option/SAR Grants in the Last Fiscal Year. No stock options
or stock appreciation rights were granted to Mr. Francis M. Williams
during the year ended December 31, 1997. During 1997 Mr. Cohen was
granted 25,000 options that were canceled effective with his resignation.
In addition, Mr. Williams and Mr. Cohen do not have any stock options or
stock appreciation rights that were granted in previous years.
<TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
--------------------------------------------
Potential
Realizable
Percent Value at
of Total Assumed Annual
Number of Options/ Rates of
Securities SARs Stock Price
Underlying Granted Appreciation
Options/ to Exercise for Option Term
SARs Employees or Base (2)
Granted in Fiscal Price Expiration -----------------
Name (#)(1) Year ($/Sh)(1) Date 5% ($) 10% ($)
----------------------- ----------- --------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Williams (3) 25,000 16.9%$ 3.12 09/11/07 $ 49,054 $124,312
Joseph M. Williams . . 25,000 16.9% 2.50 12/04/07 39,306 99,609
Ira D. Cohen . . . (4) 25,000 16.9% 4.50 02/01/07 70,751 179,296
Michael D. O Brien (3) 2,000 1.4% 3.12 10/01/07 3,924 9,945
Michael D. O Brien . . 2,000 1.4% 2.50 12/04/07 3,144 7,969
R. Donald Finn . . (3) 5,000 3.4% 3.12 09/11/07 9,811 24,862
R. Donald Finn . . . . 5,000 3.4% 2.50 12/04/07 7,861 19,922
R. Donald Finn . . . . 10,000 6.8% 2.50 12/04/07 15,722 39,844
Barry Ridings . . . (3) 5,000 3.4% 3.12 09/11/07 9,811 24,862
Barry Ridings . . . . . 5,000 3.4% 2.50 12/04/07 7,861 19,922
Barry Ridings . . . . . 10,000 6.8% 2.50 12/04/07 15,722 39,844
(1) All options vest and are exercisable in 20 percent increments annually for five
years after the date of grant. The exercise price of all options is the fair
market value of the Company's stock at the time of the grant.
(2) These amounts represent assumed rates of appreciation for the market value of the
Company's stock from the date of the grant until the end of the option period at
rates arbitrarily set by the Securities and Exchange Commission. They are not
intended to forecast possible future appreciation in the Company's stock and any
actual gains on exercise of options are dependent on the future performance of the
Company's stock.
(3) Canceled and reissued on December 4, 1997, with an exercise price of $2.50.
(4) Terminated upon Mr. Cohen's resignation in August 1997.
/TABLE
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-
End Option/SAR Values. No stock options or stock appreciation rights
were granted to Mr. Francis M. Williams during the year ended December
31, 1997. During 1997 Mr. Cohen was granted 25,000 options that were
canceled effective with his resignation. In addition, Mr. Williams and
Mr. Cohen do not have any stock options or stock appreciation rights that
were granted in previous years. There were no stock options exercised by
named executive officers during the fiscal year ended December 31, 1997.
The following table summarizes the net value realized on the exercise
of options in 1996 and the value of outstanding options as of December
31, 1997, for the Named Executives.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options/SARs Options/SARs at
on Value at Year-End (#) Year-End ($)(1)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
------------------------ --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Joseph M. Williams . . . . . 0 $0 21,000/24,000 $4,000/$1,000
Michael D. O Brien . . . . . 0 $0 19,400/7,600 $4,093/$1,062
R. Donald Finn . . . . . . . 0 $0 7,000/13,000 $1,000/$250
Barry W. Ridings . . . . . . 0 $0 7,000/13,000 $1,000/$250
(1) Value is calculated using the Company's closing stock price on December 31, 1997,
of $2.25 per share less the exercise price for such shares.
/TABLE
<PAGE>
<TABLE>
TEN YEAR OPTION/SAR REPRICINGS
<CAPTION>
Market Length of
Price Original
Number of of Stock Exercise Option
Securities at Time Price at Term
Underlining of Time of Remaining
Options/ Repricing Repricing New Date of
SARs or or Exercise Repricing
Repriced or Amendment Amendment Price or
Name Date Amended (#) ($) ($) ($) Amendment
------------------------------ ------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Williams . 10/30/94 20,000 $2.00 $5.00 $2.00 4 years
Secretary 12/04/97 25,000 $2.50 $3.12 $2.50 5 years
Michael D. O'Brien . 10/30/94 20,000 $2.00 $5.00 $2.00 4 years
Vice President 12/04/97 2,000 $2.50 $3.12 $2.50 5 years
John V. Simon, Jr. . 10/30/94 20,000 $2.00 $5.00 $2.00 4 years
Vice President
</TABLE>
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Company s Board of Directors consists
solely of Barry W. Ridings. During the year ended December 31, 1997,
Francis M. Williams, the Company s Chairman of the Board of Directors and
former President, has served as President and Chairman of the Board of
Directors of Kimmins, and Norman S. Dominak has served as Chief Financial
Officer of the Company and Kimmins.
Compensation of Directors. During the year ended December 31, 1997,
the Company paid each outside director an annual fee of $5,000 and $1,000
for each board meeting attended. In addition, Directors are reimbursed
for all out-of-pocket expenses incurred in attending Board of Directors
and audit committee meetings.
Other Benefit Arrangements
On November 12, 1992, the Company and Kimmins entered into an
agreement for the proportional sharing of employee benefit costs,
pursuant to which the Company s employees are entitled to participate in
all of Kimmins employee benefit plans, and the Company is required to
contribute its pro rata share of the costs of such plans, calculated
according to formulae contained in the agreement. The agreement may be
terminated by either party anytime upon 180 days prior written notice.
Pursuant to the agreement, Kimmins and the Company have agreed to
indemnify each other against any loss, liability, claim, damage, or
expense incurred by the failure by either party to comply with the terms
of the agreement.<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the Company s
common stock beneficially owned as of March 13, 1998, by (i) each person
known by the Company to be the owner of more than 5 percent of the
outstanding shares of Common Stock, (ii) each of the Named Executives,
(iii) each director, and (iv) all executive officers and directors as a
group:
Amount and Percentage of
Nature of Outstanding
Name and address Beneficial Shares Owned
of Beneficial Owner Ownership (1) (1)
---------------------------------- ---------------------- --------------
Kimmins Corp.
1501 Second Avenue, East
Tampa, FL 33605 . . . . . . . . 2,950,000 (2)(3) 72.8%
Francis M. Williams
1501 Second Avenue, East
Tampa, FL 33605 . . . . . . . . 3,206,300 (2)(3)(4) 79.1%
Joseph M. Williams
1501 Second Avenue, East
Tampa, FL 33605 . . . . . . . . 21,000 (5) *
Barry W. Ridings . . . . . . . . 22,000 (6) *
R. Donald Finn . . . . . . . . . 7,000 (7) *
John V. Simon, Jr. . . . . . . . 24,000 (8) *
All officers and directors (2)(3)(4)
as a group (6 persons) . . . . 3,304,700 (5)(6)(7)(8) 81.0%
----------------------------------
* Less than 1 percent
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within sixty days upon the exercise of
warrants or options. Each beneficial owner s percentage ownership is
determined by assuming that options or warrants held by such person
(but not those held by any other person), which are exercisable
within sixty days, have been exercised.<PAGE>
(2) Represents 2,950,000 shares of Common Stock owned of record and
beneficially by Kimmins. Kimmins has sole voting and investment
power with respect to all shares of Common Stock beneficially owned
by it. Mr. Francis M. Williams, the Company s Chairman, beneficially
owns approximately 61.5 percent of the total voting shares of Kimmins
and, accordingly, controls Kimmins. As of March 13, 1998, all
executive officers and directors of the Company as a group, including
Mr. Francis M. Williams, beneficially own an aggregate of
approximately 67.2 percent of the voting shares of Kimmins.
(3) Excludes 400,652 shares issuable upon the conversion of the Kimmins
Note. See Item 13, Certain Relationships and Related Transactions.
(4) Includes 100,000 shares that Mr. Francis M. Williams acquired upon
the consummation of the Company s initial public offering during
March 1993; 142,300 shares owned directly by Mr. Francis M. Williams;
6,000 shares owned by Mr. Williams wife; and 8,000 shares owned by
Mr. Williams children.
(5) Represents 21,000 shares that may be purchased by Mr. Williams
pursuant to immediately exercisable options. Does not include 24,000
shares issuable to him upon exercise of options vesting at various
times commencing in October 1998.
(6) Includes 15,000 shares owned by Mr. Ridings, and 7,000 shares that
may be purchased by Mr. Ridings pursuant to immediately exercisable
options. Does not include 13,000 shares issuable to him upon
exercise of options vesting at various times commencing in October
1998.
(7) Represents 7,000 shares that may be purchased by Mr. Finn pursuant to
immediately exercisable options. Does not include 13,000 shares
issuable to him upon exercise of options vesting at various times
commencing in October 1998.
(8) Includes 5,000 shares owned by Mr. Simon and 19,000 shares that may
be purchased by Mr. Simon pursuant to immediately exercisable
options. Does not include 6,000 shares issuable to him upon exercise
of options vesting at various times commencing in October 1998. Also
includes 19,400 shares and 5,000 shares that may be purchased by Mr.
O'Brien and Mr. Dominiak pursuant to immediately exercisable options.<PAGE>
Item 13. Certain Relationships and Related Transactions
Since its inception, the Company has entered into various
transactions with Kimmins and companies affiliated through common
ownership with Kimmins. To date, the Company has been substantially
dependent on Kimmins for various management, administrative, and
financial services; and Kimmins has charged the Company a monthly fee
based on the gross annual revenue of the Company for such services. For
the years ended December 31, 1995, 1996, and 1997, Kimmins billed the
Company an aggregate of approximately $617,000, $671,000, and $1,315,000,
respectively, for such services. As of March 25, 1993, Kimmins and the
Company formalized this arrangement by executing a Management Services
Agreement. The agreement provides that Kimmins will continue to provide
various administrative services for the Company and that Francis M.
Williams (President, Chairman of the Board, and Chief Executive Officer
of Kimmins), Norman S. Dominiak (Chief Financial Officer and Treasurer),
Joseph M. Williams (Secretary of Kimmins), and John V. Simon, Jr.
(President of Kimmins Contracting Corp.) will render management services
to or on behalf of the Company. Under the agreement, the Company has
appointed Francis M. Williams, Norman S. Dominiak, Joseph M. Williams,
and John V. Simon, Jr., as Chairman of the Board, Treasurer, President
and Secretary, and Vice President, respectively, of the Company.
Pursuant to the agreement, the Company will continue to pay Kimmins an
annual fee, payable monthly, equal to the lower of actual costs of such
services or 3.0 percent for 1997 and 1.5 percent for 1996 of the
Company s gross revenue. This agreement may be extended upon agreement
of both parties, and the Company may terminate the agreement, at will,
upon thirty days prior written notice to Kimmins.
Effective July 1, 1997, employees associated with the Company s
demolition contract services unit were transferred to Kimmins Contracting
Corp. ( KCC ), a wholly-owned subsidiary of Kimmins for administrative
and accounting purposes. As a result, contracting services previously
performed by employees of the Company were subcontracted to KCC. For the
year ended December 31, 1997, the Company subcontracted $3,417,574 with
KCC. In addition, the Company rents equipment from KCC for use in
performing demolition contracts. The Company incurred approximately
$670,000, $2,103,000 and $2,573,000 in equipment rental charges with KCC
for the years ended December 31, 1995, 1996 and 1997, respectively.<PAGE>
As of December 31, 1997, the amount of the Company s total
outstanding indebtedness to Kimmins was $2,003,258 that had been
consolidated into the Kimmins Note, which is due and payable on December
1, 2003, with interest accruing at 1 percent per annum in excess of the
stated prime rate established by NationsBank of Florida. Until December
1, 2003, the Kimmins Note may be converted, at the option of Kimmins,
into shares of the Company s Common Stock at an initial conversion price
of $5.00 per share, subject to adjustment, in the event and anytime after
the closing sale price of the Company s Common Stock is $9.00 or more for
twenty consecutive trading days. Kimmins has one demand registration
right during the period from March 25, 1994, until December 1, 2003, with
respect to any shares of Common Stock issuable upon such conversion. The
Kimmins Note is subordinated to all senior indebtedness of the Company.
Payments of principal and interest are based on certain net income levels
of the Company. No payments of principal or interest are required prior
to the maturity date in 2003 unless the Company earns in excess of
$1,500,000 earnings before interest and taxes.
In March 1990, the Company, along with Kimmins and other subsidiaries
of Kimmins, guaranteed all obligations under a loan by Fleet Bank,
formerly known as Norstar Bank, to the trustees for the Kimmins Employee
Stock Ownership Plan ( ESOP ). The proceeds of such loan were used to
acquire shares of the Common Stock of Kimmins for the creation of the
ESOP in which the Company s employees participate. This loan was
refinanced during December 1995 with SouthTrust Bank of Alabama, N.A.,
under similar terms of the original loan. As of December 31, 1997,
$1,440,000 of such indebtedness remained outstanding.
On November 12, 1992, the Company and Kimmins entered into an
agreement for the proportional sharing of employee benefit costs,
pursuant to which the Company s employees are entitled to participate in
all of Kimmins employee benefit plans, and the Company is required to
contribute its pro rata share of the costs of such plans, calculated
according to formula contained in the agreement. The agreement may be
terminated by either party anytime upon 180 days prior written notice.
Pursuant to the agreement, Kimmins and the Company have agreed to
indemnify each other against any loss, liability, claim, damage, or
expense incurred by the failure by either party to comply with the terms
of the agreement.
The Company is an insured or co-insured with other Kimmins entities
on various insurance policies of the Company or Kimmins. The Company
pays its allocable share of the cost of such policies based on a
combination of revenues, payroll, assets, and incurred losses as a
percentage of the combined total of such items of all insured parties, as
appropriate for each particular insurance policy or coverage. For the
years ended December 31, 1995, 1996 or 1997, the Company paid Kimmins
approximately $811,000, $849,000, and $1,205,000, respectively. The
Company pays directly for any coverage for which it is the only insured. <PAGE>
As of December 31, 1996 and 1997, the Company had working capital
advances due from an affiliate of approximately $8,425,000 and
$4,040,000, respectively. These advances are unsecured and accrue
interest at a rate of 10 percent per annum. The Company collected
$4,385,000 during 1997.
In addition, the Company has a convertible subordinated note payable
to Kimmins in the amount of $2,003,258. See Note 9 for additional
information.
Effective as of March 25, 1993, the Company and Kimmins have entered
into an affiliate transactions agreement pursuant to which the Company
may not, for a period of three years, either directly or indirectly,
conduct any business or enter into any transaction or series of related
transactions, with or for the benefit of any affiliate of the Company,
having a total value per transaction or series of related transactions
greater than $50,000, without the approval of most of the disinterested
members of the Company s Board of Directors and the approval of most of
the Company s shareholders who are not affiliates of the Company. The
Company and Kimmins have agreed to evaluate and extend the affiliate
transactions agreement on an annual basis.<PAGE>
PART IV
Item 14. Exhibits, Financial Statement, Schedules, and
Reports on Form 8-K
(a) List of documents filed as part of this Report
1. Financial statements
- Report of Independent Certified Public Accountants
- Consolidated balance sheets at December 31, 1996 and 1997
- Consolidated statements of operations for each of the
three years in the period ended December 31, 1997
- Consolidated statements of stockholders' equity for each
of the three years in the period ended December 31, 1997
- Consolidated statements of cash flows for each of the
three years in the period ended December 31, 1997
- Notes to consolidated financial statements
2. Financial statement schedule
Schedule Page
Number Number
II - Valuation and qualifying accounts . . . . . . . . . . S-1
All other financial statement schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require submission of the schedules or because the
information required is included in the financial statements and notes
thereto.
3. The following documents are filed as exhibits to this
annual report on Form 10-K/A:
3(a)* - Restated Certificate of Incorporation
of Registrant, as amended
3(b)* - Bylaws of Registrant
21 - Subsidiaries of the registrant
23 - Consent of Ernst & Young LLP
27 - Financial Data Schedule (for SEC use only)
27.1 - Restated Financial Data Schedule - 1996 (for SEC use
only)
27.2 - Restated Financial Data Schedule - 1995 (for SEC use
only)
* Previously filed as part of Registrant's Registration
Statement on Form S-3, File No. 33-54640 and
incorporated herein by reference thereto.
(b) Reports on Form 8-K - None<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunder duly
authorized.
TRANSCOR WASTE SERVICES, INC.
Date: July 6, 1998 By: /s/ Joseph M. Williams
---------------------------- ---------------------------------------
Joseph M. Williams
President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: July 6, 1998 /s/ Francis M. Williams
---------------------------- ---------------------------------------
Francis M. Williams
Chief Executive Officer and Director
(Principal Executive Officer)
Date: July 6, 1998 /s/ Norman S. Dominiak
---------------------------- ---------------------------------------
Norman S. Dominiak
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting
and Financial Officer)
Date: July 6, 1998 /s/ R. Donald Finn
---------------------------- ---------------------------------------
R. Donald Finn, Director
Date: July 6, 1998 /s/ Barry W. Ridings
---------------------------- ---------------------------------------
Barry W. Ridings, Director
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Country
Name of Company of Incorporation
------------------------------------------------------------------------
Kimmins Recycling Corp. . . . . . . . . . . . . . . . . Florida
Fourth Avenue Holdings, Inc. . . . . . . . . . . . . . Florida
40th Street, Inc. . . . . . . . . . . . . . . . . . . . Florida
Lantana Eighth Avenue Corp. . . . . . . . . . . . . . . Florida
Factory Street Corporation . . . . . . . . . . . . . . Tennessee
Bay Area Recycling Fibers, Inc. . . . . . . . . . . . . Florida<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-54640) of TransCor Waste Services, Inc., and
related Prospectus, of our report dated April 18, 1998, except for Note
19, as to which the date is May 31, 1998, with respect to the
consolidated financial statements and schedule of TransCor Waste
Services, Inc., included in this Annual Report (Form 10-K/A) for the year
ended December 31, 1997.
/s/ Ernst & Young LLP
Tampa, Florida
June 30, 1998<PAGE>
TRANSCOR WASTE SERVICES, INC.
Schedule II - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
Balance Additions
at Charged Deductions Balance
Beginning to Costs from at
of and Allowances End of
Description Period Expenses (a) Period
------------------------------------ ---------- ----------- ----------
Year ended
December 31, 1995 . . . $ 557,595$ 404,455 $ (655,241)$ 306,809
Year ended
December 31, 1996 . . . $ 306,809$ 430,382 $ (193,421)$ 543,770
Year ended
December 31, 1997 . . . $ 543,770$ 772,522 $ (424,992)$ 891,300
(a) Balance represents the write-off of uncollectible accounts.
S-1<PAGE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] $2,115,510
[SECURITIES] $0
[RECEIVABLES] $6,062,266
[ALLOWANCES] $(891,300)
[INVENTORY] $0
[CURRENT-ASSETS] $9,485,748
[PP&E] $37,097,838
[DEPRECIATION] $(12,846,420)
[TOTAL-ASSETS] $41,847,179
[CURRENT-LIABILITIES] $12,132,122
[BONDS] $0
[PREFERRED-MANDATORY] $0
[PREFERRED] $0
[COMMON] $4,010
[OTHER-SE] $11,050,944
[TOTAL-LIABILITY-AND-EQUITY] $41,847,179
[SALES] $43,829,908
[TOTAL-REVENUES] $43,829,908
[CGS] $36,973,359
[TOTAL-COSTS] $36,973,359
[OTHER-EXPENSES] $9,040,998
[LOSS-PROVISION] $0
[INTEREST-EXPENSE] $1,137,965
[INCOME-PRETAX] $(3,322,414)
[INCOME-TAX] $(1,258,019)
[INCOME-CONTINUING] $(2,064,395)
[DISCONTINUED] $0
[EXTRAORDINARY] $0
[CHANGES] $0
[NET-INCOME] $(2,064,395)
[EPS-PRIMARY] $(.52)
[EPS-DILUTED] $(.52)
</TABLE>
[ARTICLE] 5
[RESTATED]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] $1,437,788
[SECURITIES] $0
[RECEIVABLES] $6,774,254
[ALLOWANCES] $(543,770)
[INVENTORY] $0
[CURRENT-ASSETS] $9,216,339
[PP&E] $36,782,128
[DEPRECIATION] $(10,666,851)
[TOTAL-ASSETS] $45,641,630
[CURRENT-LIABILITIES] $12,415,867
[BONDS] $0
[PREFERRED-MANDATORY] $0
[PREFERRED] $0
[COMMON] $4,010
[OTHER-SE] $13,115,339
[TOTAL-LIABILITY-AND-EQUITY] $45,641,630
[SALES] $44,193,226
[TOTAL-REVENUES] $44,193,226
[CGS] $36,896,681
[TOTAL-COSTS] $36,896,681
[OTHER-EXPENSES] $6,804,338
[LOSS-PROVISION] $0
[INTEREST-EXPENSE] $1,354,406
[INCOME-PRETAX] $(862,199)
[INCOME-TAX] $(336,258)
[INCOME-CONTINUING] $(525,941)
[DISCONTINUED] $0
[EXTRAORDINARY] $0
[CHANGES] $0
[NET-INCOME] $(525,941)
[EPS-PRIMARY] $(.13)
[EPS-DILUTED] $(.13)
</TABLE>
[ARTICLE] 5
[RESTATED]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[CASH] $3,414,479
[SECURITIES] $0
[RECEIVABLES] $7,066,981
[ALLOWANCES] $(306,809)
[INVENTORY] $0
[CURRENT-ASSETS] $12,389,185
[PP&E] $34,750,506
[DEPRECIATION] $(7,634,156)
[TOTAL-ASSETS] $47,273,433
[CURRENT-LIABILITIES] $12,689,850
[BONDS] $0
[PREFERRED-MANDATORY] $0
[PREFERRED] $0
[COMMON] $4,000
[OTHER-SE] $13,581,290
[TOTAL-LIABILITY-AND-EQUITY] $47,273,433
[SALES] $41,118,762
[TOTAL-REVENUES] $41,118,762
[CGS] $32,750,980
[TOTAL-COSTS] $32,750,980
[OTHER-EXPENSES] $5,663,781
[LOSS-PROVISION] $0
[INTEREST-EXPENSE] $548,203
[INCOME-PRETAX] $2,155,798
[INCOME-TAX] $840,295
[INCOME-CONTINUING] $1,315,503
[DISCONTINUED] $0
[EXTRAORDINARY] $0
[CHANGES] $0
[NET-INCOME] $1,315,503
[EPS-PRIMARY] $.33
[EPS-DILUTED] $.32
</TABLE>
