SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
[MARK ONE]
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission File No. 1-11822
---------------------------------------
TRANSCOR WASTE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0369288
(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)
---------------------------
(Registrant's telephone number, including area code): (813) 248-3878
Securities registered pursunt to Section 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
- -------------------------------------------- -----------------------------------
Common Stock, $.001 par value None
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by 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 or any
amendment to this Form 10-K. [X]
As of March 17, 1999, there were 3,728,625 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 17, 1999, was $1,847,000.
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
TRANSCOR WASTE SERVICES, INC.
Form 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
No.
PART I
Item 1 Business........................................................................................3
Item 2 Properties......................................................................................5
Item 3 Legal Proceedings...............................................................................6
Item 4 Submission of Matters to a vote of Security Holders.............................................6
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters.......................7
Item 6 Selected Financial Data.........................................................................8
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................9
Item 7A Quantitative and Qualitative Disclosures About Market Risk.....................................16
Item 8 Financial Statements and Supplementary Data....................................................17
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.......................................................................41
PART III
Item 10 Directors and Executive Officers of the Registrant.............................................42
Item 11 Executive Compensation.........................................................................43
Item 12 Security Ownership of Certain Beneficial Owners and Management.................................46
Item 13 Certain Relationships and Related Transactions.................................................47
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................49
</TABLE>
<PAGE>
Note: The discussions in this Form 10-K 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. Statements contained in this Form 10-K that are not historical facts are
forward looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause 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
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 company that provides specialty-contracting services. Kimmins owns
approximately 86 percent of the outstanding stock of the Company as of December
31, 1998.
Discontinued Operations - Solid Waste Management Services
TransCor Waste Services, Inc. (the "Company") adopted a formal plan to
dispose of its solid waste management services operations on July 17, 1998 by
selling its wholly owned subsidiary, Kimmins Recycling Corp. (KRC) to Eastern
Environmental Services, Inc. (EESI). On August 31, 1998 the Company completed
the sale of the solid waste management services (SWMS) operations. The assets
sold consisted primarily of accounts receivables, contracts, property and
equipment and goodwill. The selling price was approximately $57,800,000 in the
form of cash and EESI common stock. In December 1998, EESI was acquired by Waste
Management, Inc. and the Company received stock of Waste Management Inc. in
exchange for its EESI stock. The Company formerly provided solid waste
management services to commercial, industrial, residential, and municipal
customers. In connection with such services, the Company owned and operated
fully-permitted construction and demolition ("C&D") transfer and recycling
("T&R") facilities in four of the largest metropolitan regions in the state of
Florida: Jacksonville, Clearwater, Tampa, and Miami. In addition to its T&R
operations, the Company collected and disposed of all types of non-hazardous
solid waste for industrial and commercial customers in its T&R regions, and it
provided residential garbage collection services for several municipalities in
Lee County and Hillsborough County, Florida. The Company also engaged, pursuant
to several municipal contracts, in the residential curbside collection of a
variety of already segregated recyclable forms of solid waste, including such
materials as newspapers, cardboard, plastic, metals, and glass.
Continuing Operations - Demolition Services
The Company provides demolition services for commercial and residential
customers. The Company is currently winding down these operations. It is
anticipated that all projects will be completed by the second quarter of 1999.
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 approximately $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 main facility. The
Company can provide certain other specialized 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>
For the years ended December 31, 1996, 1997 and 1998, the following table
summarizes the percentages of revenue earned on contracts with significant
customers in the Company's current operations:
1996 1997 1998
---- ---- ----
Brewery 14% 31% *
Municipality 4% 19% 10%
Phosphate Mining 9% 11% 5%
------ ------- ------
Total from above Customers 27% 61% 15%
====== ======= ======
*Less than 1%
Future Operations
As a result of the sale of Kimmins Recycling Corp., the Company exited
its main line of business. Using the remaining proceeds from the sale, the
Company will operate in as yet undetermined new business lines. The Company is
currently investigating opportunities but has not made any determinations as to
future operations.
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 mishandling, release, or existence of any
hazardous substances at any of its facilities or the improper operation of such
facilities.
<PAGE>
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.
As a result of the sale of KRC, the Company holds approximately 68% of
its assets in marketable securities. This could subject the Company to special
rules under the Investment Company Act of 1940, as amended. See additional
discussion on Page 16 under the Investment Company Act.
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. Management believes that
bonding coverage is adequate for the size and scope of projects and contracts
being performed. Francis M. Williams, Chairman of the Company, has indemnified
the performance bond issuer against default by the Company.
Employees
The Company currently has two employees. Prior to selling KRC, the
Company had approximately 250 full-time employees, 2 of whom were executive
officers of the Company, 6 of whom were employed in professional capacities, 43
of whom were employed in administrative capacities, 21 of whom were employed as
field supervisors and 178 of whom were employed in field operations. No
employees are covered by collective bargaining agreements.
The Company considered its relationship with its employees to be satisfactory.
Item 2. Properties
The Company's principal executive offices are located at 1501 Second
Avenue - East, Tampa, Florida 33605.
The Company owns the following properties:
Fort Myers, Lee County, Florida
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,
1998, of approximately $319,000. The note matures on August 9, 2000,
and bears interest at the rate of 9.25 percent.
As a result of the sale of Kimmins Recycling Corp. and its
related solid waste franchise agreement with the cities of Cape Coral
and Fort Myers, Florida, the Company no longer requires this facility.
The Company has this facility listed for sale.
Nashville, Tennesse
The Company owns vacant property in an industrial park near
Nashville, Tennessee. The land is undeveloped and listed for sale.
In August 1998 the Company sold its solid waste management services
subsidiary, Kimmins Recycling Corp. to EESI. As part of the sale, the following
properties were transferred to EESI: land and buildings in Clearwater (Pinellas
County), Fort Myers (Lee County), Fort Pierce (St. Lucie County), Miami (Dade
County) and Tampa (Hillsborough County).
The Company's recorded amount for land, buildings and improvements is
approximately $1,208,000 of which approximately $808,000 is classified as
property held for sale at December 31, 1998.
<PAGE>
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 judgment against the class plaintiff's claim, which
was heard on May 26, 1998. On June 12, 1998, the Court granted Summary Judgment
in favor of KRC, the county and the city. The plaintiffs appealed the Summary
Judgment and Oral Arguments were held on February 16, 1999. To date, no opinion
has been received by the Appellate Court. At December 31, 1998, the total amount
of lien rights was approximately $426,000.
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 1998.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is currently traded on National Association
of Securities Dealers, Inc., (NASD) Over-The-Counter (OTC) Bulletin Board. 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 Company's Common
Stock was traded on The Nasdaq Stock Market under the symbol "TRCW" from August
21, 1995 until June 10, 1998. Effective with the close of business on June 10,
1998, the Company's stock was delisted from the Nasdaq National Market because
the Company could not satisfy the market value public float requirement and was
delinquent in filing its 1997 Form 10-K and its 1998 first quarter Form 10-Q.
The Company's application to Nasdaq to initiate listing with the OTC Bulletin
Board Service became effective on August 17, 1998. The OTC Bulletin Board
("OTCBB") is a regulated quotation service that displays real-time quotes,
last-sale prices, and volume information in over-the-counter (OTC) equity
securities. An OTC equity security generally is any equity that is not listed or
traded on Nasdaq or a national securities exchange. OTCBB securities include
national, regional, and foreign equity issues, warrants, units, American
Depository Receipts (ADRs) and Direct Participation Programs (DPPs). The OTCBB
is a quotation medium for subscribing members, not an issuer listing service,
and should not be confused with the Nasdaq Stock Market. OTCBB securities are
traded by a community of Market Makers that enter quotes and trade reports
through a highly sophisticated closed computer network, which is accessed
through Nasdaq Workstation II. The OTCBB is unlike the Nasdaq Stock Market in
that it:
* does not impose listing standards;
* does not provide automated trade executions;
* does not maintain relationships with quoted issuers; and
* does not have the same obligations for Market Makers.
The following table sets forth, for the periods indicated high and low
bid quotations for the Company's Common Stock as reported by NASDAQ or the OTC
Bulletin Board as applicable.
1998 High Low
- --------------- --------- ----------
First quarter $ 2.703 $ 2.000
Second quarter $ 3.500 $ 2.000
Third quarter $ 5.250 $ 3.000
Fourth quarter $ 4.875 $ 4.125
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
The closing price of the Company's stock on March 17, 1999, was $3.92.
In addition, as of March 17, 1999, there were 28 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 acquisition of new
lines of business. Certain of the Company's financial institutions' debt
agreements contain covenants that prohibit the payment of dividends by the
Company without lender approval.
<PAGE>
Recent Sales of Unregistered Securities
The following information relates to equity securities of the Company
issued or sold during the year ended December 31, 1998, that were not registered
under the Securities Act in 1993, as amended (the "Securities Act").
The Company issued no securities during 1998 that were exempt from
registration under the Securities Act by virtue of Section 4(2) as a transaction
not involving a public offering.
Item 6. Selected Financial Data
The 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.
<TABLE>
<CAPTION>
Historical Operating Statement Data:
<S> <C> <C> <C> <C> <C>
Year ended December 31,
(In thousands, except per share data)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Revenue $ 5,951 $ 8,751 $ 9,504 $ 11,236 $ 7,250
Expenses:
Operating Expenses 4,988 6,913 7,465 9,204 7,129
Selling, general and
administrative expenses 162 398 520 611 715
Management fee to affiliate 89 131 151 337 219
Operating income (loss) 712 1,309 1,368 1,084 (813)
Income (loss) from
continuing operations 475 852 926 878 (240)
Income (loss) from
discontinued operations (309) 464 (1,452) (2,942) 19,431
Net income (loss) 166 1,316 (526) (2,064) 19,191
Income (loss) from continuing
operations per share:
Basic $ .12 $ .21 $ .23 $ .22 $ (.06)
Diluted .12 $ .21 $ .22 $ .21 $ (.06)
Income (loss) from
discontinued
operations per share: $ (.08) $ .12 $ (.36) $ (.74) $ 4.91
Basic (.08) $ .11 $ (.35) $ (.72) $ 4.91
Diluted
Net income (loss) per share:
Basic $ .04 $ .33 $ (.13) $ (.52) $ 4.85
Diluted $ .04 $ .32 $ (.13) $ (.51) $ 4.85
Weighted average number of
shares of common stock
used in the calculation
Basic 4,025 3,994 3,998 4,000 3,957
Diluted 4,025 4,049 4,180 4,064 3,957
Dividends per share None None None None None
<PAGE>
Historical Balance Sheet Data:
December 31
(In thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Total assets $ 17,224 $ 20,038 $ 19,052 $ 17,161 $ 32,463
Working capital 12,657 10,628 8,111 10,883 22,448
Net assets of discontinued
operations 8,640 6,691 6,073 7,091 -0-
Long-term obligations, net of
current maturities 2,003 2,003 2,003 2,327 315
Stockholders' equity 12,318 13,585 13,119 11,055 29,160
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Expenses:
Operating expenses 78.5% 81.3% 97.1%
Depreciation 0% 0.7% 1.2%
Selling, general and
administrative expenses 5.5% 5.4% 9.9%
Management fee to affiliate 1.6% 3.0% 3.0%
----------- ----------- ------------
Operating income (loss) 14.4% 9.6% (11.2%)
Interest income, net 1.6% 2.4% 5.9%
----------- ----------- ------------
Income (loss) before provision
for income taxes (benefit) 16.0% 12.0% (5.3%)
Provision for income taxes (benefit) 6.2% 4.5% (2.0%)
----------- ----------- ------------
Income (loss) from continuing
operations 9.8% 7.5% (3.3%)
----------- ----------- ------------
Income (loss) from discontinued
operations, net of tax (15.3%) (25.9%) 268.0%
----------- ----------- ------------
Net income (loss) (5.5%) (18.4%) 264.7%
=========== =========== ============
</TABLE>
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
CONTINUING OPERATIONS
Revenue for the year ended December 31, 1998 was approximately
$7,250,000 representing a decrease of $3,986,000 or 35 percent from
approximately $11,236,000 for the year ended December 31, 1997. The decrease in
total revenue was primarily attributable to the Company's decision to wind down
its demolition operations. The Company is no longer bidding on new contracts and
expects to complete its remaining contracts by the first quarter of 1999.
<PAGE>
Operating expenses, including depreciation, for the year ended December
31, 1998 were approximately $7,129,000 representing a decrease of $2,075,000 or
23 percent, from approximately $9,204,000 for the year ended December 31, 1997.
The decrease in operating expenses is mainly attributable to a reduced level of
operations, resulting from management's decision to wind down the demolition
operations. The increase in the percentage in operating expenses was
attributable primarily to increases in certain major expenses; such as,
equipment and direct labor costs related to the Company's demolition operations
as a result of weather related delays and cost overruns.
Selling, general and administrative expenses, including management
fees, for the year ended December 31, 1998 were approximately $934,000
representing a decrease of $14,000 or 1 percent from approximately $948,000 for
the year ended December 31, 1997.
Interest and dividend income, net of interest expense for the year
ended December 31, 1998 was approximately $429,000 as compared to approximately
$271,000 for the year ended December 31, 1997. The average amount of debt
outstanding decreased between periods. In addition, the Company received
approximately $17,000,000 of marketable securities as proceeds on the sale of
Kimmins Recycling Corp. and purchased approximately $5,000,000 of additional
marketable securities during the year ended December 31, 1998.
The Company's income tax benefit for continuing operations was
calculated using a rate of approximately 37.5 percent for the year ended
December 31, 1998. The Company's income tax provision for continuing operations
was calculated using a rate of approximately 38 percent for the year ended
December 31, 1997.
As a result of the foregoing, the Company recorded a loss from
continuing operations of approximately $240,000 for the year ended December 31,
1998 as compared to income of approximately $843,000 for the year ended December
31, 1997.
DISCONTINUED OPERATIONS
Discontinued operations from solid waste management services
experienced a 34 percent decrease in revenue of $11,068,000 to approximately
$21,526,000 for the year ended December 31, 1998, compared to approximately
$32,594,000 for the same period in 1997. The decrease was primarily the result
of the August, 1998 sale of Kimmins Recycling Corp. to EESI and other sales of
operating assets, including customer contracts.
Operating expenses, including depreciation, for the year ended December
31, 1998 were approximately $18,176,000 representing a decrease of $9,593,000 or
35 percent, from approximately $27,769,000 for the year ended December 31, 1997.
This decrease in the percentage of operating expenses was attributable primarily
to the August, 1998 sale of Kimmins Recycling Corp.
Selling, general and administrative expenses, including management fees
for the year ended December 31, 1998 were approximately $4,002,000 representing
a decrease of $4,091,000 or 51 percent, from approximately $8,093,000 for the
same period in 1997. The dollar and percentage decrease in selling, general and
administrative expenses is primarily attributable to reduced overhead costs,
such as administrative, sales, marketing and labor costs that are associated
with facilities that have been closed or sold and from management's actions to
reduce overhead costs.
The Company incurred losses from discontinued solid waste management
services operations of approximately $180,000 up to the measurement date in the
year ended December 31, 1998 representing a decrease of $2,762,000 or 94 percent
from approximately $2,942,000 for the year ended December 31, 1997. See Note 18
to the Consolidated Financial Statements. The dollar and percentage decrease in
losses is primarily attributable to reduced overhead costs such as
administrative, sales, marketing and labor costs as a result of facility
closures and management's actions to reduce overhead costs.
The Company, in May 1998, sold its Jacksonville area solid waste
collection and recycling operating assets and certain assets of the Miami
front-end load and rear-load commercial waste and recycling business to EESI for
approximately $11,600,000 in cash. This transaction combined with the Company's
sale of certain other vehicles, waste containers and equipment resulted in a
gain of approximately $5,263,000. These assets were primarily utilized in the
Company's commercial and residential waste collection services. This gain is
included in gain on sale of discontinued operations for the year ended December
31, 1998.
<PAGE>
The Company's sale of Kimmins Recycling Corp. to EESI for approximately
$57,800,000, combined with the May 1998 sale of $11,600,000, resulted in a gain
of $19,611,000 net of taxes of $11,861,000. Also included in the gain are losses
of approximately $1,729,000 net of a tax benefit of $1,105,000 from discontinued
solid waste management services operations for the period from the measurement
date on July 14, 1998 through August 31, 1998.
The Company reported income from discontinued operations of
approximately $19,431,000 for the year ended December 31, 1998 compared with a
loss of approximately $2,907,000 for the same period during 1997. The increase
in income from discontinued operations is mainly attributable to the gain on the
sale of Kimmins Recycling Corp.
in August 1998.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
CONTINUING OPERATIONS
Total revenue for the year ended December 31, 1997 was approximately
$11,236,000 representing an increase of approximately $1,732,000 or 18 percent
from approximately $9,504,000 for the year ended December 31, 1996. The net
increase in total revenue of approximately $1,732,000 is primarily attributable
to a one-time increase in revenue as a result of a large contract with a
national company to demolish an obsolete brewery. The contract generated
approximately $3,440,000 and $1,318,000 respectively for the years ended
December 31, 1997 and 1996.
Price increases impacted total revenues by less than 3% for both years.
Operating expenses, including depreciation, for the year ended December
31, 1997 were approximately $9,204,000 representing an increase of $1,739,000 or
23 percent from approximately $7,465,000 for the year ended December 31, 1996.
Operating expenses include direct labor, equipment rental, hauling and disposal
costs. The dollar increase in operating expenses is attributable to the growth
in operations as evidenced by the 18 percent increase in revenue. The increase
in operating expenses, as a percentage of total revenue, was primarily
attributable to a single job, which incurred approximately $618,000 of losses
during 1997. The $618,000 loss was the result of cost overruns on a bridge
demolition project.
Selling, general and administrative expenses, including management
fees, for the year ended December 31, 1997 were approximately $948,000
representing an increase of $277,000 or 41 percent from approximately $671,000
for the year ended December 31, 1996. The increase in selling, general and
administrative costs is attributable to the growth in operations. Administrative
staff increases as a result of the Company's decision to open field offices in
Jacksonville and Lantana, Florida to expand demolition operations. Additionally,
the increase of selling, general and administrative expenses as a percentage of
total revenue is partly attributable to management fees charged to the Company
by Kimmins. Management's fees, which are based on revenue, increased as a
percentage as a result of an increase in the fees from 1.5 percent to 3.0
percent of revenue. The management fee covers the costs of certain executive,
administrative and financial services provided by Kimmins.
Interest income, net of interest expense, for the year ended December
31, 1997 was approximately $271,000 representing an increase of $121,000 or 81
percent from approximately $150,000 for the year ended December 31, 1996. The
increase is mainly attributable to interest from Kimmins on advances. The
average balance receivable was higher in 1997 then in 1996.
The Company's income tax expense for continuing operations for the years
ended December 31, 1997 and 1996 was calculated using rates of approximately 38
percent and 39 percent respectively.
As a result of the foregoing, the Company generated income from
continuing operations of approximately $878,000 for the year ended December 31,
1997 as compared to a net income of approximately $926,000 for the year ended
December 31, 1996.
<PAGE>
DISCONTINUED OPERATIONS
Total revenue for the year ended December 31, 1997, was approximately
$32,594,000, representing a decrease of $2,095,000, or 6 percent, from
approximately $34,689,000 for the year ended December 31, 1996. The net decrease
in total revenue of approximately $2,095,000 is attributable to the loss of
solid waste management service revenues associated with the transfer and
recycling operations of approximately $2,637,000, waste paper wholesaling of
approximately $1,471,000, and other solid waste management services of
$1,527,000. These decreases are partially offset by increases in commercial
roll-off container service of approximately $3,540,000.
The loss of revenue associated with the transfer and recycling
operations is mainly attributable to a decrease of approximately $2,000,000 in
the Company's Jacksonville operations as a result of the city's lower landfill
disposal charges and a newly enacted franchise fee of 12 percent in Duval
County, which made the Company's Jacksonville T&R facility less competitive to
outside third party waste disposal companies.
The loss of revenue associated with waste paper sales is the result of
the Company's management deciding to exit the paper commodities business because
of decreases in the price of waste paper and the closure of its Palm Beach
County facility.
The loss of revenue associated with other solid waste management
services is the result of market pricing pressures and sales of customer
contracts associated with the Company's residential services contract with St.
Lucie County and commercial customer contracts in Pinellas County. The St. Lucie
facility was closed after the residential service contract with St. Lucie County
was sold. On an annual basis, the St. Lucie facility generated approximately
$3,000,000 in revenue. On an annual basis, the Pinellas commercial customer
contracts, which were sold, generated approximately $1,000,000 in revenue
On October 1, 1997, the Company began performing services on its
residential solid waste management and recycling services contract with
Hillsborough County. Revenue generated for the fourth quarter ended December 31,
1997, was approximately $1,549,000, and based on contract provisions and
management projections. The Company's management expected the Hillsborough
County residential contracts and related commercial services to generate
approximately $6,196,000 in annual revenue for eight years.
During the first quarter of 1998, the Company was awarded an exclusive
franchise agreement with the City of Cape Coral, Florida, to provide residential
and commercial solid waste management services. Based on contract provisions and
management projections, the Company expected this franchise agreement to
generate approximately $7,500,000 in annual revenue. The contract was scheduled
to begin October 1, 1998, and last for five years.
The impact of price increases was less than 3 percent for 1997 and 3
percent for 1996.
Operating expenses, including depreciation, for the year ended December
31, 1997, were approximately $27,769,000, representing an decrease of $1,663,000
or 5.6 percent from approximately $29,432,000 for the year ended December 31,
1996. Operating expenses include fees charged by landfills for waste disposal,
(which, prior to the sale of KRC have been the largest component of the
Company's operating expenses), and direct labor costs associated with the
collection, transfer, and recycling of waste. The dollar decrease in operating
expenses is attributable to the decrease in revenue. Decreases in labor and
disposal costs were partially offset by increases in depreciation primarily
attributable to additional equipment acquired during the last quarter of 1995
and during 1996 and 1997 to service the Company's increased level of operations
in Fort Myers and Tampa, Florida, associated with solid waste management service
contracts with the City of Tampa, Hillsborough County, and Lee County. The
increase in operating expenses, as a percentage of total revenue, primarily was
attributable to the increase in revenues from the Company's residential
services, which have historically had lower profit margins than the Company's
other solid waste management operations, and certain reclassifications of costs
from selling, general and administrative to operating costs, including taxes and
insurance of approximately $228,000 and $324,000 respectively
<PAGE>
Selling, general, and administrative expenses, including management
fees, for the year ended December 31, 1997, were approximately $8,093,000,
representing an increase of $1,960,000 or 32 percent from approximately
$6,133,000 for the year ended December 31, 1996. The dollar and percent increase
in selling, general, and administrative expenses was primarily attributable to
advertising costs for a new contract of approximately $500,000, costs associated
with the closing and sale of facilities and operating assets of approximately
$1,173,000, and an increase of approximately $563,000 in compensation expense.
The $1,173,000 includes an impairment loss of $590,000 to certain land and
buildings, a write-off of intangible assets of approximately $183,000, and an
addition to the reserve for doubtful accounts of $400,000 regarding the sale of
residential service contracts with St. Lucie. None of these costs were recurring
in nature. The increase in compensation costs was primarily attributable to an
increase in staff. During the fourth quarter of 1997, most of these incremental
costs were eliminated by having Kimmins perform additional administrative
services, by transferring certain staff to Kimmins, and by eliminating certain
positions. The management fee covers the cost of certain executive,
administrative, and financial services provided by Kimmins. The management fee
rate increased, effective January 1, 1997, from 1.5 percent to 3 percent of
revenue, resulting in approximately $458,000 of additional management fee
expense.
The Company sold certain contracts and related equipment during the
year ended December 31, 1997, resulting in a gain of approximately $444,000.
These assets were primarily utilized in the Company's commercial and residential
solid waste management services and was related to facility closures. Prior to
the closures, the facilities in Lantana and St. Lucie were generating net losses
before taxes of approximately $62,000 and $24,000 per month, respectively.
Interest expense, net of interest income, for the year ended December
31, 1997, was approximately $1,409,000, as compared to $1,504,000 for the year
ended December 31, 1996. Interest expense associated with debt decreased to
approximately $1,663,000 from $1,950,000 as a result of the decrease in the
effective interest rates achieved on a refinancing of approximately $7,700,000
of equipment notes. Debt related to equipment financing increased by
approximately $784,000 during the year. Interest expense increased as the result
of expenditures for the purchase of equipment in connection with the Company's
contracts with the City of Tampa, Hillsborough County, and Lee County to provide
solid waste management services.
The Company's income tax benefit for the years ended December 31, 1997
and 1996, was calculated using a rate of approximately 38 percent and 39
percent, respectively. For tax purposes, temporary differences between carrying
amounts of assets and liabilities resulted in a federal net operating loss
("NOL") in 1997 of approximately $3,982,000. The largest component of these
book-tax differences is depreciation on operating assets that created
approximately $1,206,000 of additional depreciation expense in calculating the
1997 tax NOL. The entire 1997 NOL of approximately $3,982,000 will be carried
forward to offset taxable income in future years. Management expects to utilize
this NOL before it expires in the year 2012. An alternative minimum tax NOL will
be carried back resulting in a federal tax refund of approximately $144,000. In
addition to the alternative minimum tax NOL carryback, the Company has a $33,000
alternative minimum tax credit available to offset future federal regular income
tax. This credit does not expire.
As a result of the foregoing, the Company incurred a loss from
discontinued operations of approximately $2,907,000 for the year ended December
31, 1997, as compared to a net loss of approximately $1,452,000 for the year
ended December 31, 1996.
Liquidity and Capital Resources
At December 31, 1998, the Company had a working capital surplus of
approximately $22,448,000 compared to a working capital surplus of approximately
$10,883,000 at December 31, 1997. Working capital was impacted primarily by the
sale of KRC. Net assets for KRC of approximately $10,069,000 were sold,
resulting in the addition of marketable securities of approximately $22,022,000.
In addition, the Company repaid the note payable of $2,003,000 to Kimmins and
provided working capital advances to Kimmins of $1,336,000 during 1998. 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.
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,
1998, the Company had cash and cash equivalents of approximately $885,000, and
marketable equity securities of $22,022,000.
<PAGE>
During the year ended December 31, 1998, net cash used in operating
activities was approximately $17,768,000 compared to net cash used by operating
activities of approximately $3,708,000 for the year ended December 31, 1997. The
cash used in operating activities was primarily associated with the sale of KRC.
Net cash provided by investing activities during the year was approximately
$21,841,000. The sale of discontinued operations resulted in cash proceeds of
$26,869,000 of which approximately $4,697,000 was used to purchase marketable
equity securities. Net cash used in financing activities was $5,304,000, which
was primarily the result of the repayment of the Kimmins note of $2,003,000,
working capital advances to Kimmins of approximately $1,336,000 and the purchase
of treasury stock of approximately $960,000. The Company plans to continue
buying treasury stock during 1999. In addition, the Company provided a cash loan
to Cumberland of $1,000,000.
The August 31, 1998 sale of the common stock of the solid waste management
services operations to EESI for approximately $57,800,000, combined with the May
31, 1998 asset sale of $11,596,000 resulted in cash proceeds of $26,869,000, net
of debt payoffs of $18,507,000, fund working capital adjustment of $6,669,999
and closing costs of $351,000 and stock in EESI of $17,000,000.
New quantitative maintenance requirements for continued listing on the
Nasdaq Stock Market became effective on February 23, 1998. One of the new rules
required 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. Effective with the close of business on June 10, 1998,
the Company's stock was delisted from the Nasdaq National Market because the
Company could not satisfy the market value public float requirement and was
delinquent in filing its 1997 Form 10-K and its 1998 first quarter Form 10-Q.
The Company's application to Nasdaq to initiate listing with the OTC Bulletin
Board Service became effective on August 17, 1998.
Financing Arrangements
As of December 31, 1998, the Company had no outstanding indebtedness to
Kimmins. 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 was 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. This note was repaid in 1998 using proceeds from the
sale of KRC.
As of December 31, 1998, the Company had no outstanding equipment loans
with Associates Commercial Corporation ("Associates"). From December 1992 to
December 1998, the Company, in a series of separate equipment loans, borrowed an
aggregate of approximately $27,622,000 from Associates as a sole borrower and as
a co-borrower with Kimmins and other subsidiaries of Kimmins. Of such
indebtedness, approximately $24,260,000 represented the sum of the Company's
sole borrowings and allocable share of co-borrowings, of which none was
outstanding on December 31, 1998. Interest on such indebtedness ranged from 7.4
percent to 9.7 percent, and payments on outstanding borrowings were made
according to specified payment schedules. The portion constituting the Company's
sole borrowings were guaranteed by Kimmins.
The Company also had outstanding equipment loan indebtedness pursuant
to various agreements with other financial institutions. During the years ended
December 31, 1995 through 1998, the Company borrowed an aggregate of $8,556,000
under such arrangements, all of which were paid off in conjunction with the sale
of KRC.
The Company has an outstanding mortgage note payable which contains no
financial ratio covenants of approximately $319,000 as of December 31, 1998.
This amount is associated with amounts included on the balance sheet under the
caption "Property Held for Sale".
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 $7,350,000 and $4,118,000 at December 31, 1997 and 1998,
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
$11,000,000 and net income not less than $3,000,000. 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 8 of Notes to Consolidated
Financial Statements.)
The Company believes it has sufficient liquidity for its continuing
operations.
<PAGE>
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 June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 requires
that total comprehensive income be displayed in a financial statement with equal
prominence as other financial statements. Comprehensive income is defined as
changes in stockholders' equity exclusive of transactions with owners such as
capital contributions and dividends. The Company adopted the provisions of SFAS
effective January 1, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes Financial Accounting Standards No. 14. SFAS
No. 131 uses a management approach to report financial and descriptive
information about a Company's operating segments. Operating segments are revenue
producing components of the enterprise for which separate financial information
is produced internally for the Company's management. During the fourth quarter
of 1998, the Company adopted the provisions of SFAS No. 131. The adoption of
SFAS No. 131 did not affect the results of operations or financial position of
the Company. Based on management's assessment, the Company operates one dominant
segment.
In June 1998, the Financial Accounting Standards Board Issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
requires the companies to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the statement
to have a significant effect on earnings or the financial position of the
Company.
Given the complexity of the new Standard and that the impact hinges on
market values at the date of adoption, it is extremely difficult to estimate the
impact of adoption unless adoption is imminent.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project is estimated to be $15,000. To date, the Company's incremental
costs for assessment of the Year 2000 issue, the development of a modification
plan, and the purchase of new software have been approximately $13,000.
The majority of software used by the Company is licensed from various
software providers who are currently updating 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.
<PAGE>
The project is estimated to be completed not later than June 1999,
which is prior to any anticipated impact on its operating system. The Company
believes that 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. The Company's contingency plan if the
above plan is not timely implemented, would be to maintain the accounting system
manually and devote additional resources, staff and consultants to complete the
project.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. There is no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted and
would not have an adverse effect on the Company's systems.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no 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.
Investment Company Act
As a result of the sale of KRC, the Company holds approximately 68% of
its assets in marketable securities. Notwithstanding this concentration in
marketable securities, the Company does not consider itself to be an "investment
company" under the Investment Company Act of 1940, as amended (the "1940 Act")
and the regulations promulgated thereunder ("Investment Company Regulations")
because it is not "engaged in the business" of being an investment company
within the meaning of the 1940 Act. In addition, the Company is claiming status
as a "transient investment company" under Rule 3a-2 of the Investment Company
Regulations, which allows a company to hold a large percentage of its assets in
marketable securities for a period of up to one year after a major transaction
(like the sale of Kimmins Recycling Corp.) without registration under the
Investment Company Act. Absent an exemption, companies with more than 45% of
their assets in marketable securities are treated as investment companies and
required to register under the 1940 Act.
To qualify as a transient investment company, the Company must have a
bona fide intention to engage primarily, as soon as reasonably possible to (and
in any event within the one year limit) in a business other than that of
investing, reinvesting, owning, holding or trading in securities. Management
intends to comply with this requirement by the one-year deadline, i.e., August
1999.
The Company may also be exempt from the 1940 Act if there are not more
than 100 beneficial owners (including those holding in street name) of the
Company's outstanding securities. The Company currently has approximately more
than 100 beneficial owners of its Common Stock.
The Company currently does not qualify for registration under the 1940
Act. Registration would require the company to restructure its capital structure
and would be expensive and time consuming. Contracts of unregistered investment
companies are voidable and subject to rescission. In addition, unregistered
investment companies are subject to enforcement actions by the SEC. Failure of
the Company, to continue to qualify for the exemptions under the 1940 Act and
the Investment Company Regulations could have a material adverse effect on the
Company's financial condition and result of operations.
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements 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 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
During 1998, the Company did not enter into any transactions using
derivative financial instruments or derivative commodity instruments. As of
December 31, 1998, the Company has debt of approximately $319,000 with a fixed
interest rate. Accordingly, the Company believes its exposure to interest rate
market risk is not material. As of December 31, 1998, the Company held for other
than trading purposes marketable equity securities of publicly traded companies
having a value of approximately $22,022,000 ($16,452,000 related to Waste
Management, Inc.). These securities are subject to equity price risk.
Beginning in January, 1999, the Company began trading covered options on
Waste Management, Inc. common stock. Management believes that although there is
always price risk in this type of transaction, management is able to reduce this
risk due to its knowledge of the solid waste industry.
<PAGE>
Item 8. Financial Statements and Supplementary Data
TRANSCOR WASTE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Page
Report of Independent Certified Public Accountants......................................18
Consolidated balance sheets at December 31, 1997 and 1998...............................19
Consolidated statements of operations for each of the three years
in the period ended December 31, 1998..........................................21
Consolidated statements of comprehensive income for each of the three years
in the period ended December 31, 1998..........................................22
Consolidated statements of stockholders equity for each of the three years
in the period ended December 31, 1998..........................................23
Consolidated statements of cash flows for each of the three years in the period
ended December 31, 1998........................................................24
Notes to consolidated financial statements..............................................25
Financial statement schedule:
Schedule II - Valuation and qualifying accounts................................40
</TABLE>
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, 1997 and 1998, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TransCor Waste Services, Inc. at December 31, 1997 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
March 29, 1999
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,115,510 $ 884,541
Marketable securities -0- 22,022,296
Accounts receivable - trade, less allowance for
doubtful accounts of $891,300 and $709,223 at
December 31,1997 and 1998 respectively 1,498,094 1,136,774
Costs and estimated earnings in excess of billings
on uncompleted contracts 415,514 84,599
Income tax refund receivable 143,672 -0-
Deferred income taxes 720,410 499,246
Property held for sale 410,681 807,876
Net assets of discontinued solid waste operations 7,091,052 -0-
-------------- -------------
Total current assets 12,394,933 25,435,332
-------------- -------------
Property and equipment, net 725,874 609,596
Due from affiliates 4,040,110 5,376,295
Note receivable from Cumberland Technologies, Inc. -0- 1,010,764
Deferred tax asset -0- 30,800
------------- --------------
Total Assets $ 17,160,917 $ 32,462,787
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 541,104 $ 570,126
Accrued expenses 954,432 1,610,738
Billings in excess of costs and estimated earnings
on uncompleted contracts 15,978 430,849
Income tax payable -0- 371,835
Current portion of long-term debt -0- 4,268
------------- ----------------
Total current liabilities 1,511,514 2,987,816
------------- ----------------
Long-term debt, net of current maturities (including debt
owed to Kimmins of $2,003,258 at December 31, 1997) 2,326,707 314,515
Deferred income taxes 2,267,742 -0-
Commitments and contingencies (Note 10) -0- -0-
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized;
none issued and outstanding -0- -0-
Common stock, $.001 par value; 10,000,000 shares
authorized; 4,010,000 shares issued and 4,000,000 and
3,799,750 shares outstanding at December 31, 1997 and
1998, respectively 4,010 4,010
Capital in excess of par value 12,193,547 11,868,814
Retained earnings (deficit) (1,094,597) 18,096,873
-------------- ----------------
11,102,960 29,969,697
Unrealized gain on marketable securities,
net of tax of $126,975. -0- 198,603
Less treasury stock at cost (10,000 shares and 210,250 shares
at December 31, 1997 and 1998, respectively) (48,006) (1,007,844)
-------------- ----------------
Total stockholders' equity 11,054,954 29,160,456
-------------- ----------------
Total liabilities & stockholders' equity $ 17,160,917 $ 32,462,787
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue $ 9,504,256 $ 11,235,960 $ 7,249,859
Expenses:
Operating expenses 7,464,923 9,124,908 7,041,402
Depreciation -0- 79,075 87,497
Selling, general and administrative expenses 520,001 610,720 714,665
Management fee to affiliate 151,053 337,009 219,294
------------- -------------- -------------
Operating income (loss) 1,368,279 1,084,248 (812,999)
Interest and dividend income, net of expense 149,729 270,798 429,256
------------- -------------- -------------
Income (loss) before provision for income taxes (benefit) 1,518,008 1,355,046 (383,743)
Provision for income taxes (benefit) 592,023 512,207 (143,904)
------------- -- --------------- -------------
Income (loss) from continuing operations 925,985 842,839 (239,839)
Discontinued Operations:
Loss from discontinued solid waste division operations
(less applicable tax benefit of $928,281 in 1996, $1,770,226 in
1997 and $81,593 in 1998) (1,451,926) (2,907,234) (180,043)
Gain on sale of discontinued solid waste division
net of tax of $11,860,848 19,611,352
------------- --------------- -------------
Income (loss) from discontinued operations (1,451,926) (2,907,234) 19,431,309
------------- --------------- -------------
Net income (loss) $ (525,941) $ (2,064,395) $ 19,191,470
============= =============== =============
Share data:
Basic income (loss) per share from continuing operations $ .23 $ .21 $ (.06)
============= ============== =============
Diluted income (loss) per share from continuing operations $ .22 $ .21 $ (.06)
============= ============== =============
Basic income (loss) per share from discontinued operations $ (.36) $ (.73) $ 4.91
============= =============== =============
Diluted income (loss) per share from discontinued operations $ (.35) $ (.72) $ 4.91
============= ============== =============
Total basic income (loss) per share $ (.13) $ (.52) $ 4.85
============= ============== =============
Total diluted income (loss) per share $ (.13) $ (.51) $ 4.85
============= ============== =============
Weighted average number of shares outstanding used
in computations
Basic 3,997,842 4,000,000 3,957,258
============= ============== =============
Diluted 4,179,842 4,064,275 3,957,258
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ (525,941) $ (2,064,395) $ 19,191,470
Unrealized gains on marketable
securities, net of tax of $126,975 -0- -0- 198,603
------------ ------------- -------------
Comprehensive income (loss) $ (525,941) $ (2,064,395) $ 19,390,073
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Capital in Retained Gain on Total
Excess of Earnings Marketable Treasury Stockholders'
Shares Amount Par Value (Deficit) Securities Stock Equity
------ ------ --------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 4,000,000 $ 4,000 $ 12,133,557 $ 1,495,739 -0- $ (48,006) $ 13,585,290
December
31, 1995
Issuance of
common stock 10,000 10 59,990 -0- -0- -0- 60,000
upon exercise
of stock
warrants
Net loss -0- -0- -0- (525,941) -0- -0- (525,941)
------------ --------- ------------ ------------ ------------ ------------ ---------------
Balance at
December 4,010,000 4,010 12,193,547 969,798 -0- (48,006) 13,119,349
31, 1996
Net loss -0- -0- -0- (2,064,395) -0- -0- (2,064,395)
------------ --------- ------------ ------------ ------------ ------------ ---------------
Balance at
December 4,010,000 4,010 12,193,547 (1,094,597) -0- (48,006) 11,054,954
31, 1997
Purchase of
Treasury Stock -0- -0- -0- -0- -0- (959,838) (959,838)
at cost
Changes in equity and
non-current assets
pushed down by parent
due to the effect
of additional purchases
of Company common
stock at other than
net book value -0- -0- (324,733) -0- -0- -0- (324,733)
Unrealized
gain on -0- -0- -0- -0- 198,603 -0- 198,603
marketable
securities
Net income -0- -0- -0- 19,191,470 -0- -0- 19,191,470
------------ --------- ------------ ------------ ------------ ------------ ---------------
Balance at
December 4,010,000 $ 4,010 $ 11,868,814 $ 18,096,873 $ 198,603 $ (1,007,844) $ 29,160,456
31, 1998
============ ========= ============ ============ ============ ============ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve months ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 925,985 $ 842,839 $ (239,839)
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization -0- 79,075 87,497
Provision for uncollectible accounts receivable 430,382 772,522 87,275
Loss on disposal of equipment -0- -0- 92,585
Deferred income taxes 75,628 (1,112,944) (521,819)
Changes in operating assets and liabilities:
Accounts receivable - trade (710,667) 677,977 274,075
Costs and estimated earnings in excess of billings
on uncompleted contracts 554,604 (184,645) 330,915
Income tax refund receivable 309,384 278,895 143,672
Other -0- -0- (10,764)
Accounts payable - trade (427,339) 117,821 29,022
Income taxes payable -0- -0- 371,835
Accrued expenses 15,669 918,587 656,306
Billings in excess of costs and estimated earnings
on uncompleted contracts (14,100) (154,793) 414,871
------------- ------------- --------------
Total adjustments 233,561 1,392,495 2,422,470
------------- ------------- --------------
Net cash provided by (used in) continuing operations 1,159,546 2,235,334 2,182,631
Net loss from discontinued operations (1,451,926) (2,907,234) (180,043)
Net book value of net assets of discontinued operations
disposed of (1,030,239) (3,035,821) (7,909,434)
Income taxes on gain of sale of discontinued operations -0- -0- (11,860,848)
------------- ------------- --------------
Net cash provided by (used in) operating activities 737,949 (3,707,721) (17,767,694)
Cash flows from investing activities:
Capital expenditures for continuing operations -0- -0- (400,000)
Proceeds from sale of property and equipment -0- -0- 68,500
Cash proceeds on sale of assets of discontinued operations -0- -0- 26,868,891
Purchase of marketable securities -0- -0- (4,696,719)
------------- ------------- --------------
Net cash provided by (used in)investing activities -0- -0- 21,840,672
------------- ------------- --------------
Cash flows from financing activities:
Repayment of long-term debt -0- -0- (4,666)
Payments from (advances to) Kimmins (2,774,640) 4,385,443 (1,336,185)
Repay Kimmins note -0- -0- (2,003,258)
Issuance of common stock upon exercise of
stock warrants 60,000 -0- -0-
Loan to Cumberland -0- -0- (1,000,000)
Purchase of treasury stock -0- -0- (959,838)
------------- ------------- --------------
Net cash provided by (used in) financing activities (2,714,640) 4,385,443 (5,303,947)
------------- ------------- --------------
Net increase (decrease) in cash (1,976,691) 677,722 (1,230,969)
Cash and cash equivalents, beginning of period 3,414,479 1,437,788 2,115,510
------------- ------------- --------------
Cash and cash equivalents, end of period $ 1,437,788 $ 2,115,510 $ 884,541
============= ============= ==============
</TABLE>
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"). At December 31,
1998, Kimmins owns approximately 86 percent of the outstanding common stock of
the Company. The Company provides demolition-contracting services to commercial,
industrial, and residential customers in the state of Florida. The Company
formerly provided solid waste management services (See Note 18).
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, 1997 and 1998, the Company
had working capital advances due from affiliates of approximately $4,040,000,
and $5,376,000, respectively. These advances are unsecured and accrue interest
at a rate of 10 percent per annum. The Company collected $4,385,000 during 1997
and advanced $1,336,000 during 1998. The Company also repaid a $2,003,000
subordinated convertible note to Kimmins during 1998.
Intangible assets - Intangible assets consisted primarily of the excess
of cost over fair market value of the net assets of the acquired businesses,
which were being amortized on a straight-line basis over twenty years, and
customer contracts, which were being amortized on a straight-line basis over
five years. Amortization expense was $124,000, $109,000, and $37,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. Accumulated
amortization was approximately $245,000 at December 31, 1997. The intangible
assets were all related to the Company's solid waste management services
operations which were disposed of in 1998 (See Note 18). Consequently, these
assets were included in net assets of discontinued solid waste operations in the
balance sheet at December 31, 1997 and were written off in the sale of these
operations.
Other assets - Other assets consisted primarily of pre-contract costs
associated with residential solid waste management contracts obtained during
1997 and 1998, which were being amortized on a straight-line basis over five
years, the term of the contracts, and loan costs, which were amortized over the
term of the loans. Amortization expense was $178,000, $236,000, and $365,000 for
the years ended December 31, 1996, 1997 and 1998, respectively. Accumulated
amortization was $533,000 at December 31, 1997. The other assets were all
related to the Company's solid waste management services operations which were
disposed of in 1998 (See Note 18). Consequently, these assets were included in
net assets of discontinued solid waste operations in the balance sheet at
December 31, 1997 and were written off in the sale of these operations.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of credit risk - Financial instruments which subject the
Company to concentrations of credit risk consists primarily of trade receivables
in the State of Florida. Trade receivables are comprised primarily of amounts
due from specialty contracting contracts. Credit is extended based on an
evaluation of the customer's financial condition, and, generally, collateral is
not required.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable - trade, includes $724,000 ($213,000 net of
allowance for doubtful accounts) and $680,000 ($-0- net of allowance for
doubtful accounts) as of December 31, 1997 and 1998, respectively, related to a
municipal solid waste management contract with St. Lucie County. Unlike other
municipal solid waste management contracts, St. Lucie County 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 placed liens on approximately 2,120 and
1,857 individual properties representing approximately $474,000 and $426,000 of
the balance as of December 31, 1997 and 1998, respectively. Management intends
to file additional liens when considered appropriate, and all such liens will be
maintained in accordance with applicable laws until the outstanding balances are
recovered by payment, judgment, foreclosure, or in other action. However, given
that the Company no longer has the contract with St Lucie County, the Company
fully provided for the outstanding receivables at December 31, 1998.
Marketable Securities - As a result of the sale of Kimmins Recycling
Corp. (KRC) to Eastern Environmental Services, Inc. (EESI), the Company received
555,329 shares of common stock of EESI. Subsequent to the sale of KRC to EESI,
EESI was purchased by Waste Management, Inc. Accordingly, the Company received
Waste Management, Inc. common stock in exchange for the EESI common stock.
Additionally, commencing in September 1998, the Company began purchasing common
stocks and other marketable securities with a portion of the cash proceeds
received from the sale of KRC. In accordance with the Statement of Financial
Accounting Standards No. 115, " Accounting for Certain Investments in Debt and
Equity Securities", the investments are classified as available-for-sale
securities. Such securities are carried at an aggregate market value of
approximately $22,022,000 as of December 31, 1998. The Company's cost basis in
these investments is approximately $21,697,000, and the unrealized gain of
approximately $199,000, net of deferred income taxes of approximately $126,000,
is reported as a separate component of stockholder's equity.
Revenue recognition - The Company recognizes revenue from demolition
contract earnings 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 estimate total costs. Contracts
generally range from one to six months in duration and earnings from contracting
operations are reported under the percentage of completion method for financial
statement purposes. With respect to contracts that extend over one or more
accounting periods, revisions in costs and earnings estimates are reflected in
the period the revisions become known. When current estimates of total contract
costs indicate a loss, provision is made for the entire estimated loss in the
period indications of a loss become known. The estimates can be affected by
uncertainties, such as weather related delays, and it is reasonably possible
that a change in estimate could occur in the near term.
Change orders are modifications to an original contract that
effectively change the scope and/or price of the contract. They may include
changes in specifications or design, method or manner of performances,
facilities, equipment, materials, site or period for completion of the work.
Certain change orders may be priced under the terms of the contract. Other
change orders are unpriced; that is, the work to be performed is defined;
however, the adjustment to the contract price is negotiated subsequent to
performance. Finally, in some cases, both scope and price of a change order may
be unapproved or in dispute. Accounting for change orders depends on the
underlying circumstances, which may differ for each change order depending on
the customer, the contract, and the nature of the change. The Company evaluates
each change order according to its characteristics and the circumstances in
which they occur.
Contract revenue and associated profit are recognized for change orders
that have been approved by the customer and the contractor regarding both scope
and price to the extent performance related to the change order has occurred.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1997 and 1998, the following table
summarizes the percentages of revenue earned on contracts with significant
customers in the Company's demolition operations:
1996 1997 1998
---- ---- ----
Brewery 14% 31% *
Municipality 4% 19% 10%
Phosphate mining 9% 11% 5%
======= ======= ======
Total from above Customers 27% 61% 15%
======= ======= ======
*Less than 1%
Advertising costs - Advertising costs are expensed as incurred. For the
years ended December 31, 1996, 1997 and 1998, the Company expensed approximately
$114,000, $536,000, and $40,000, respectively, in advertising costs. All of the
advertising costs are associated with the discontinued solid waste management
operations.
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 12.
Earnings (loss) per share - In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"),
which establishes standards for computing and presenting earnings per share. The
Company adopted the provisions of SFAS No. 128 effective December 31, 1997 and
all earnings per share amounts for all periods presented, and where appropriate,
have been restated to conform to SFAS No. 128 requirements.
Comprehensive income - In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130").
SFAS No. 130 requires that total comprehensive income be displayed in a
financial statement with equal prominence as other financial statements.
Comprehensive income is defined as changes in stockholders' equity exclusive of
transactions with owners such as capital contributions and dividends. The
Company adopted the provisions of SFAS effective January 1, 1998.
Segments - In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which supersedes Financial Accounting Standards
No. 14. SFAS No. 131 uses a management approach to report financial and
descriptive information about a Company's operating segments. Operating segments
are revenue-producing components of the enterprise for which separate financial
information is produced internally for the Company's management. During the
fourth quarter of 1998, the Company adopted the provisions of SFAS No. 131. The
adoption of SFAS No. 131 did not affect the results of operations or financial
position of the Company.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's continuing operations are demolition contracting. The
Company's demolition contracting is performed for third parties located in the
state of Florida. The Company evaluates the performance of each of its
contracts. However, because each of the contracts have similar economic
characteristics, the contracts have been aggregated into a single dominant
segment. All segment measurements are disclosed in the Company's consolidated
financial statements. See Note 18 for a discussion of discontinued operations.
Proposed accounting standards - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 1999. The Statement requires companies to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives are either
offset against the change in fair value of assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the Statement to have a significant affect on
earnings or the financial position of the Company.
Reclassification - Certain amounts in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998 presentation.
2. Related party transactions
During the years ended December 31, 1996, 1997, and 1998, 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 $671,000, $1,315,000, and
$861,000 for the years ended December 31, 1996, 1997, and 1998, respectively.
For 1998, $220,000 was related to continuing operations and the remainder of
$641,000 was related to discontinued solid waste operations.
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, 1996,
1997, and 1998, the Company paid Kimmins approximately $849,000, $1,205,000, and
$769,000 respectively. The Company pays directly for any coverage for which it
is the only insured.
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 and 1998
the Company subcontracted approximately $3,418,000 and $2,761,000 with KCC. In
addition, the Company rents equipment from KCC for use in performing demolition
contracts. The Company incurred approximately $2,103,000, $2,573,000, and
$1,822,000 in equipment rental charges with KCC for the years ended December 31,
1996, 1997 and 1998, respectively.
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, 1997 and 1998 were
$4,040,110, and $5,376,000, respectively.
In addition, the Company had a convertible subordinated note payable to
Kimmins in the amount of $2,003,258. The note was repaid in full during 1998
using proceeds from the sale of KRC. See Note 8 and Item 13 for additional
information.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 10, 1998, the Company loaned $1,000,000 to Cumberland
Technologies Inc. (Cumberland) which is controlled by Mr. Francis M. Williams,
President and majority stockholder of Kimmins and Chief Executive Officer of the
Company. Cumberland is a property and casualty insurance company. The $1,000,000
is evidenced by a convertible term note, which is due November 10, 2001.
Quarterly interest payments are due beginning January 1, 1999 at a rate of one
half of one percent over the prime rate established by Nations Bank. The Company
has the right, after six months, to convert the principal amount of the note
into shares of Common Stock of Cumberland at $3.00 per share. The balance of the
convertible term note, including accrued interest of $10,764 at December 31,
1998 is $1,010,764.
3. Accounts receivable - trade
December 31
1997 1998
---- ----
Contract and trade:
Billed contract receivables:
Completed and uncompleted contracts $ 950,215 $ 692,487
Retainage 206,123 253,712
Unbilled contract receivables 776,764 218,653
Trade receivables 4,129,164 681,145
------------- ------------
6,062,266 1,845,997
Allowance for doubtful accounts (891,300) (709,223)
Less amount included in net assets of
discontinued operations (3,672,872) -0-
------------- -------------
Net accounts receivable - trade $ 1,498,094 $ 1,136,774
============= =============
4. Costs and estimated earnings in excess of billings on uncompleted contracts
December 31
-----------
1997 1998
---- ----
Expenditures on uncompleted contracts $ 7,574,018 $ 4,445,722
Estimated earnings on uncompleted contracts 524,598 (9,164)
------------ -----------
8,098,616 4,436,558
Less actual and allowable billings on
uncompleted contracts 7,699,080 4,782,808
------------ -----------
$ 399,536 $ (346,250)
------------ -----------
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 415,514 $ 84,599
Billings in excess of costs and estimated
earnings on uncompleted contracts (15,978) (430,849)
============ ===========
$ 399,536 $ (346,250)
============ ===========
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property held for sale
As a result of the Company's sale of its solid waste operations in
1998, all of the Company's operating facilities were disposed of with the
exception of an idle facility in Ft. Myers, Lee County, Florida. At December 31,
1998, property held for sale included this facility and certain land held for
sale.
In accordance with SFAS No. 121, "Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" in 1997, the Company wrote down certain
assets held for sale that management believed had carrying amounts higher than
their fair market value. The impairment loss of $90,000 was determined by
comparing the carrying amount of impaired assets with recent offers on the
properties held for sale. The $90,000 impairment loss was included in selling,
general and administrative expenses on the consolidated statements of operations
for the year ended December 31, 1997. The land and buildings are listed for sale
and are expected to be sold during 1999. Accordingly, the carrying value of
these assets of approximately $808,000 is classified as a current asset under
the caption "Property Held for Sale" in this consolidated balance sheet.
6. Property and equipment
December 31
1997 1998
---- ----
Land $ 3,019,969 $ 400,000
Building and improvements 4,068,476 -0-
Vehicles 16,936,386 -0-
Waste containers and equipment 13,133,877 501,211
Furniture and fixtures 700,711 4,003
Construction in progress 48,419 -0-
--------------- ------------
Total fixed assets 37,907,838 905,214
Less accumulated depreciation (12,846,420) (295,618)
--------------- ------------
Subtotal 25,061,418 609,596
Less amount included in net assets of
discontinued operations 24,335,544 -0-
--------------- ------------
Property and equipment, net $ 725,874 $ 609,596
=============== ============
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 approximately $3,309,000,
$3,625,000 and $2,335,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Construction in progress is depreciated over the estimated useful
lives when placed into service. Approximately $3,309,000, $3,625,000 and
$2,248,000 for the years ended December 31, 1996, 1997 and 1998 respectively, of
depreciation expense is attributable to discontinued operations and the
remaining depreciation is attributable to continuing operations.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Accrued expenses
December 31
-----------
1997 1998
---- ----
Deferred revenue $ 919,631 $ -0-
Accrued insurance 926,049 990,100
Accrued disposal costs 407,229 -0-
Accrued real estate and property taxes 349,682 7,765
Accrued sales and other taxes -0- 485,394
Other 561,228 127,479
-------------- ------------
Subtotal 3,163,819 1,610,738
Less amount included in net assets of
discontinued operations (2,209,387) -0-
-------------- ------------
Accrued expenses, net $ 954,432 $ 1,610,738
============== ============
8. Long term debt
<TABLE>
<CAPTION>
December 31
1997 1998
---- ----
<S> <C> <C>
Notes payable, due through March 1, 2001
payable in monthly installments with interest at
varying rates up to 13 percent, collateralized by $ 14,191,400 -0-
equipment
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 -0-
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 4,860,013 318,783
------------- ------------
21,054,671 318,783
Less current portion (4,662,310) (4,268)
------------- ------------
16,392,361 314,515
Less amount included in net assets of
discontinued operations 14,065,654 -0-
------------- -------------
$ 2,326,707 $ 314,515
============= ============
</TABLE>
Annual principal maturities for years subsequent to December 31, 1998
are as follows:
1999 $ 4,268
2000 314,515
2001 -0-
2002 -0-
Thereafter -0-
-----------
$ 318,783
===========
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998, 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 ("ESOP"),
which had an outstanding balance of approximately $809,000 that is recorded in
the financial statements of Kimmins.
The Company is a co-borrower with joint and several liability on
approximately $4,118,000, which includes the above $809,000 ESOP note, of
financial institution debt of Kimmins. The debt agreements contain certain
covenants, the most restrictive of which require, for Kimmins for 1998,
maintenance of a consolidated tangible net worth, as defined, of not less than
$11,000,000 and net income not less than $3,000,000. 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.
The lenders' prime rate under the Company's notes was 7.75 percent at
December 31, 1998.
9. Leasing arrangements
The Company rents equipment and machinery, as needed, as well as office
space, under non-cancelable operating leases for varying periods. Rental expense
for the years ended December 31, 1996, 1997, and 1998 was approximately
$127,000, $356,000, and $112,000 respectively, all of which was attributable to
discontinued operations.
10. Commitments and contingencies
The Company has no current material commitments for capital
expenditures relating to any other new facilities.
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.
11. 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
expired on April 1, 1998.
Unrealized gains on marketable securities of approximately $326,000 net of
taxes of $127,000 are recorded as a reduction of stockholders' equity as of
December 31, 1998.
The Company used part of the proceeds from the sale of KRC to
repurchase Company stock at prevailing market prices. There were 10,000 and
210,250 shares of treasury stock with a cost of approximately $48,000 and
$1,008,000 at December 31, 1997 and December 31, 1998, respectively.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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'
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.
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.
The following table summarizes the transactions for the three years
ended December 31, 1998, relating to the TransCor Plan:
Number of Per Share
Shares Option Price
----------- ------------
Outstanding January 1, 1996: 87,000 $ 2.00 - 4.38
Granted 5,000 $ 4.00
Exercised -0- -0-
Canceled -0- -0-
----------- -------------
Outstanding December 31, 1996: 92,000 $ 2.00 - 4.38
Granted 148,000 $ 2.50 - 4.00
Exercised -0- -0-
Canceled (80,000) $ 3.12 - 4.38
----------- -------------
Outstanding December 31, 1997: 160,000 $ 2.00 - 2.50
Granted 49,000 $ 2.25
Exercised -0-
Canceled (94,000) $ 2.00 - 2.50
----------- -------------
Outstanding December 31, 1998 115,000 $ 2.00 - 2.50
=========== =============
Exercisable December 31, 1998 68,000 $ 2.00 - 2.50
=========== =============
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1996, 1997 and 1998; risk-free interest rates of 5.5 percent; a
dividend yield of zero; volatility factors of the expected market price of the
Company's common stock based on historical trends; and a weighted-average
expected life of the options of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
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:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (loss) attributable
to stockholders $ (539,486) $ (2,080,437) $ 19,172,609
Pro forma income (loss) per common share:
Basic income (loss) per share $ (.13) $ (.52) $ 4.84
Diluted income (loss) per share $ (.13) $ (.51) $ 4.84
</TABLE>
13. 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:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 3,537,148 $ 0
Unrealized gain on marketable securities 0 126,975
Costs deferred for books expensed for tax 416,850 0
------------ --------------
Total deferred tax liabilities 3,953,998 126,975
Deferred tax assets:
Book over tax depreciation 30,800
Allowance for doubtful accounts 343,352
Accrued workers' compensation 356,529 371,288
AMT credit carryforward 32,924
Federal and state NOL carryforwards 1,545,618
State credit carryforwards 52,730
Costs deferred for tax expensed for books 75,513 254,933
------------ --------------
Total deferred tax assets 2,406,666 657,021
------------ --------------
Net deferred tax liabilities (assets) 1,547,332 (530,046)
Current deferred assets 720,410 499,246
------------ --------------
Net non-current deferred liabilities (assets) $ 2,267,742 $ (30,800)
============ ==============
</TABLE>
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to August 15, 1998, the Company was required to file its own
separate company tax return. On August 15, 1998, its parent, Kimmins
Environmental Services, Inc. (the Parent) acquired an additional 6% interest in
the Company, raising the Parent's total ownership over 80%. The Company is thus
affiliated with its Parent on this date and will be included in the Parent's
consolidated tax return for the period beginning on the day following the
acquisition.
In accordance with FASB Statement 109, the tax expense for the
consolidated group, which includes the Company and its Parent after the
acquisition date, has been allocated among the members of the group. The
methodology for determining the income taxes allocated to the Company is to
compute the Company's current and deferred tax expense based on a separate
return (i.e., as if the Company were not included in a consolidated income tax
return with its Parent).
As of December 31, 1998, the Company has a current tax payable of
$13,272,574 to its Parent.
The components of the provision for income taxes are attributable to
continuing operations as follows:
Year ended December 31,
1996 1997 1998
---- ---- ----
Current $ 516,755 $ 459,092 $ (89,085)
Deferred 75,268 53,115 (54,819)
---------- ------------ -------------
$ 592,023 $ 512,207 $ (143,904)
========== ============ =============
As of December 31, 1997, the Company had consolidated regular tax net
operating loss carryforwards for federal tax purposes of approximately
$3,982,000 which are being utilized against taxable income for the year ended
December 31, 1998.
Factors causing the effective tax rate to differ from the statutory
rate are as follows:
Year ended December 31,
1996 1997 1998
---- ---- ----
Federal statutory rate $ 34.0% $ 34.0% $ (34.0%)
State income taxes 5.0% 3.8% (3.5%)
------------- ------------ -------------
Effective tax rate $ 39.0% $ 37.8% $ (37.5%)
============= ============ =============
14. Supplemental disclosures of cash flow information
Year ended December 31,
1996 1997 1998
---- ---- ----
Cash paid:
Interest $ 1,950,000 $ 1,640,000 $ 1,497,176
Income taxes $ 2,000 $ 2,000 $ 1,000
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31,
1996 1997 1998
---- ---- ----
Non-cash investing &
financing activity:
Receipt of EESI stock $ -0- $ -0- $ 17,000,000
Unrealized gain on
marketable securities $ -0- $ -0- $ 325,578
Transfer to property
held for sale from
discontinued operations $ -0- $ -0- $ 397,195
Transfer to discontinued
operations from property
and equipment $ -0- $ -0- $ 267,696
15. 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.
Marketable Securities. The carrying amount reported in the balance
sheet for marketable securities approximates their fair value based on price
quotations listed on national markets.
Long-term debt. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of long-term debt at December 31, 1997 and 1998 was $2,306,705 and
$318,783 respectively.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Earnings (loss) per share
As required by FASB Statement No. 128, the following table sets forth
the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Numerator:
- ----------
Income (loss) from continuing operations $ 925,985 $ 842,839 $ (239,839)
Adjustment for basic earnings per share -0- -0- -0-
-------------- ------------- --------------
Numerator for basic earnings per share -
income (loss) available to common
stockholders from continuing
operations 925,985 842,839 (239,839)
Effect of dilutive securities:
Interest on convertible subordinated
term note -0- -0- -0-
Numerator for diluted earnings per share:
Income (loss) from continuing operations 925,985 842,839 (239,839)
Income (loss) from discontinued (1,451,926) (2,907,234) 19,431,309
operations
-------------- ------------- --------------
Income (loss) applicable to common
stockholders after assumed
conversions $ (525,941) $ (2,064,395) $ 19,191,470
============== ============= ==============
Denominator:
- ------------
Denominator for basic earnings per share -
weighted-average shares 3,997,842 4,000,000 3,957,258
Effect of dilutive securities:
Stock options 92,000 64,275 -0-
Warrants 90,000 -0- -0-
Convertible subordinated term note -0- -0- -0-
-------------- ------------- --------------
Dilutive potential common shares 182,000 64,275 -0-
-------------- ------------- --------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 4,179,842 4,064,275 3,957,258
============== ============= ==============
Basic income (loss) per share from $ .23 $ .21 $ (.06)
continuing operations
Diluted income (loss) per share from
continuing operations $ .22 $ .21 $ (.06)
Basic income (loss) per share from
discontinued operations $ (.36) $ (.73) $ 4.91
Diluted income (loss) per share from
discontinued operations $ (.35) $ (.72) $ 4.91
Total basic income (loss) per share $ (.13) $ .52 $ 4.85
Total diluted income (loss) per share $ (.13) $ .51 $ 4.85
</TABLE>
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unexercised options to purchase shares of common stock for 1998 were
not included in the computations of diluted loss per share because the assumed
exercise would be antidilutive.
17. Fourth quarter 1997 and 1998 adjustments
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.
18. Discontinued Operations
On May 31, 1998, the Company sold its Jacksonville area waste
collection and recycling operating assets and certain assets of the Miami
front-end load and rear-load commercial waste and recycling business to Eastern
Environmental Services of Florida, Inc., for approximately $11,600,000 in cash.
The proceeds exceeded the net book value of the underlying assets sold by
approximately $5,200,000. This gain is shown in the Consolidated Statements of
Operations as part of "gain on sale of discontinued operations."
On July 17, 1998, the Company adopted a formal plan to sell its solid
waste management services operations to EESI. On August 31, 1998 the Company
completed the sale of the solid waste management services (SWMS) operations. The
assets sold consisted primarily of accounts receivables, contracts and property
and equipment.
The selling price was approximately $57,800,000 in the form of cash and EESI
common stock.
Revenues and expenses of the SWMS operations for the years ending
December 31, 1996 and 1997 and 1998 are shown separately in the schedule below.
The consolidated statements of operations for the year ended December 31, 1996
and 1997 have been restated to show separately the operating results of the SWMS
operations. These amounts are included in the income or loss from discontinued
operations portion of the accompanying consolidated statements of operations.
Approximately $7,610,000 of these net revenues was received after the Company's
adoption of the plan to sell the SWMS operations. Information related to the
discontinued SWMS operations of KRC for the years ended December 31, 1996, 1997
and 1998, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenue $ 34,689,000 $ 32,594,000 $ 21,526,000
Operating expenses, including 29,432,000 27,769,000 18,176,000
depreciation
Selling, general and administrative 6,133,000 8,093,000 4,002,000
expenses
-------------- ------------- --------------
Operating loss 876,000 3,268,000 652,000
Interest expense, net 1,504,000 1,409,000 913,000
-------------- ------------- --------------
Loss before provision for income
tax benefits 2,380,000 4,677,000 1,565,000
Provision for income tax benefits 928,000 1,770,000 618,000
-------------- ------------- --------------
Loss from discontinued operations $ 1,452,000 $ 2,907,000 $ 947,000
============== ============= ==============
</TABLE>
For the year ended December, 1998, approximately $180,000 is shown as a
loss from discontinued operations and the remainder of approximately $767,000,
in accordance with APB No. 30, income or loss incurred after the measurement
date is included in the gain on the sale of discontinued operations. Included in
the determination of the gain is a $1,000,000 charitable contribution to a
private foundation controlled by Mr. Francis M. Williams. The loss from
discontinued operations included write-offs of intangible and other assets.
<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net assets sold have been separately classified in the accompanying balance
sheet at December 31, 1997.
The sale of the Company's SWMS operations resulted in a gain of
approximately $19,611,000 net of taxes approximately $11,861,000. Approximately
$18,507,000 of the cash proceeds were used to pay off debt on the property and
equipment of the SWMS operations. An additional $6,669,999 was used to fund the
working capital deficit of the SWMS operations at August 31, 1998.
<PAGE>
Schedule II - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Additions Charged to Deductions from Balance at end
Description Beginning of Period Costs and Expenses Allowances (a) of Period
----------- ------------------- ------------------ -------------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 $ 891,300 $ 87,275 $ (269,352) $ 709,223
Year ended December 31, 1997 $ 543,770 $ 772,522 $ (424,992) $ 891,300
Year ended December 31, 1996 $ 306,809 $ 430,382 $ (193,421) $ 543,770
(a) Balance represents the write-off of uncollectible accounts.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
Joseph M. Williams 42 President and Secretary
Francis M. Williams 57 Chief Executive Officer and
Chairman of the Board of Directors
Norman S. Dominiak 54 Vice President, Chief Financial
Officer and Treasurer
Edward A. Mackowiak 55 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 of Cumberland Technologies, 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.
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. Mr. Williams is also majority owner and Chairman of the Board
of Cumberland Technologies, Inc. Additionally, Kimmins owns 30% of Cumberland.
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.
<PAGE>
Set forth below is information regarding certain key employees of the
Company:
Edward A. Mackowiak, has been a Director since September, 1998. Since
1994, Mr. Mackowiak has been President of Qualex Consulting Group. He has
previously served as Vice President of the Parent, Kimmins Environmental
Services Corp., now known as Kimmins Corp. from 1993 to 1994. Prior to this he
was President of Kimmins International from 1991 to 1993 and Vice President of
Kimmins Contracting Corp. from 1989 to 1991. From September 1974 to October
1988, he served as Vice President and later President and Chief Operating
Officer of MCI Constructors, a construction company primarily engaged in general
construction of heavy industrial waste water and water treatment facilities,
power plants, large commercial buildings and large utility projects.
Section 16(a) Beneficial Ownership Reporting Compliance. Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company's executive officers and directors and any persons
holding more than 10 percent of the Company's common stock are required to file
with the Securities and Exchange Commission reports of their initial ownership
of the Company's common stock and any changes in ownership of such common stock.
Specific due dates have been established, and the Company is required to
disclose in its Annual Report on Form 10-K and Proxy Statement any failure to
file such reports by these dates. Copies of such reports are required to be
furnished to the Company. Based solely on its review of the copies of such
reports furnished to the Company, or written representations that no reports
were required, the Company believes that, during 1996, all of its executive
officers (including the Named Executive Officers), directors and persons owning
more than 10 percent of its common stock complied with the Section 16(a)
requirements, except that Francis M. Williams filed four Form 4s late to report
four transactions.
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, 1998. No other
executive officers of the Company earned in excess of $100,000 in salary and
bonus for the year ended December 31, 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other Securities
Name and Annual Underlying All other
Principal Year Salary($) Bonus ($) Compensation ($) Options/SAR's (#) Compensation ($)
Position
--------- ---- --------- --------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Francis M. 1998 119,991 193,217 -0- -0- 995 (d)
Williams (a)
Chief 1997 172,120 -0- -0- -0- 996 (d)
Executive
Officer
1996 184,810 -0- -0- -0- 995 (d)
Joseph M. 1998 -0- 380,000 -0- 10,000 -0- (d)
Williams (b)
President and 1997 -0- -0- -0- 25,000 -0- (d)
Secretary
Michael D. 1998 63,942 167,155 -0- -0- 695 (d)
O'Brien (c)
Vice President 1997 105,427 -0- -0- 2,000 695 (d)
1996 95,000 -0- -0- -0- 695 (d)
</TABLE>
(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. Mr. Williams had no base salary. His bonus was strictly
incentive based.
(c) Mr. O'Brien's employment terminated in August 1998. Mr. O'Brien's severance
package included bonuses for performance and surrender of his stock
options.
<PAGE>
(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.
During the year ended December 31, 1998, the services of certain of the
Company's officers were provided to the Company by Kimmins and included in an
administrative fee of approximately $861,000 paid to Kimmins for such executive
services and other services. Pursuant to the Management Services Agreement,
Kimmins provides the services of Messrs. Francis M. Williams, and Norman S.
Dominiak, as Chairman of the Board, President and Secretary, Treasurer, 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 1998 and 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. O'Brien and Mr. Joseph Williams received compensation
directly from the Company. During 1996, 1997, and 1998, Mr. Francis M. Williams
received salary and other compensation totaling $184,810, $172,120, and
$313,208, 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 1998
approximately 10 percent of the professional time of Francis M. Williams was
spent on matters concerning 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 1997 and 1998
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.
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.
<PAGE>
As of December 31, 1998, the Company has granted ten-year options that
are exercisable to purchase an aggregate of 115,000 shares. Of such options,
options to purchase 35,000 shares to Mr. John V. Simon, Jr. and options to
purchase 55,000 shares were granted to Joseph M. Williams. All options granted
to date are exercisable at the rate of 20 percent per year, and become fully
vested by December 2002. Options (80,000) 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
$2.50.
Stock Option/SAR Grants in the Last Fiscal Year. No stock options or
stock appreciation rights were granted to Mr. Francis M. Williams during the
year ended December 31, 1998. In addition, Mr. Williams does not have any stock
options or stock appreciation rights that were granted in previous years.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Potential Realizable
Number of Percent of Total Value at Assumed Annual
Securities Options/SAR's Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for Option
Options/SAR's Employees in Price Expiration Term (2)
Name Granted (#)(1) Fiscal Year ($/Sh)(1) Date 5%($) 10%($)
---- -------------- ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Williams 10,000 20.4% 2.25 10/05/08 14,150 35,859
Michael D. O'Brien (3) 3,000 6.1% 2.25 10/05/08 4,245 10,758
</TABLE>
(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 in December, 1998.
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, 1998. In addition,
Mr. Williams does 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, 1998.
The following table summarizes the value of outstanding options as of December
31, 1998, for the Named Executives.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SAR's at Year- Options/SAR's at Year-
Shares Acquired Value End (#) Exercisable/ End ($)(1)Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Joseph M. Williams -0- -0- 32,000/23,000 62,500/39,375
(1) Value is calculated using the Company's closing stock price on December 31,
1998 of $4.125 per share less the exercise price for such shares.
</TABLE>
<PAGE>
TEN YEAR OPTION/SAR REPRICINGS
There were no stock options or SAR repricings during the fiscal year ended
December 31, 1998.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Company's Board of Directors consists solely of
Edward A. Mackowiak. During the year ended December 31, 1998, 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. Dominiak has served as Chief Financial Officer of the Company and
Kimmins.
Compensation of Directors. During the year ended December 31, 1998, the
Company paid each outside director an annual fee of $5,000 and $1,000 for each
board meeting attended. Directors are also reimbursed for all out-of-pocket
expenses incurred in attending Board of Directors and audit committee meetings.
In addition, Mr. Finn and Mr. Ridings were each paid $106,500 as compensation
for option buyouts and consulting fees.
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.
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 2, 1999, 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:
Percentage of
Name and address Amount and nature of Beneficial Outstanding
of Beneficial Owner Ownership Shares Owned (1)
- ------------------- ------------------------------- ----------------
Kimmins Corp.
1501 Second Avenue East
Tampa, FL 33605 3,251,950 (2)(3) 85.6%
Francis M. Williams
1501 Second Avenue East
Tampa, FL 33605 3,265,950 (2)(3)(4) 86.0%
Joseph M. Williams
1501 Second Avenue East Less
Tampa, FL 33605 32,000 (4) than 1%
Norman S. Dominiak
1501 Second Avenue East Less
Tampa, FL 33605 -0- (5) than 1%
All officers and directors (2)(3)(4)
as a group (6 persons) 3,286,950 (5) 87.9%
<PAGE>
(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), that are exercisable within sixty days, have been
exercised.
(2) Represents 3,251,950 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. Included in
the total are 297,200 shares that were acquired in August, 1998 from
Francis M. Williams. Mr. 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 8, 1999, 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) Includes 6,000 shares owned by Mr. Williams' wife; and 8,000 shares owned
by Mr. Williams' children.
(4) Represents 32,000 shares that may be purchased by Mr. Williams pursuant to
immediately exercisable options. Does not include 23,000 shares issuable to
him upon exercise of options vesting at various times commencing in October
1999.
(5) Includes 5,000 shares owned by Mr. Simon and 26,000 shares that may be
purchased by Mr. Simon pursuant to immediately exercisable options. Does
not include 9,000 shares issuable to him upon exercise of options vesting
at various times commencing in October 1999. Also includes 10,000 shares
that may be purchased by Mr. Dominiak pursuant to immediately exercisable
options.
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, 1996, 1997, and 1998, Kimmins billed
the Company an aggregate of approximately $671,000, $1,315,000, and $861,000,
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),
until September 1997 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 1998 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 years ended December 31, 1997 and
1998, the Company subcontracted $3,418,000 and $2,761,000 with KCC. In addition,
the Company rents equipment from KCC for use in performing demolition contracts.
The Company incurred approximately $2,103,000, $2,573,000, and $1,822,000 in
equipment rental charges with KCC for the years ended December 31, 1996, 1997
and 1998, respectively.
<PAGE>
On November 10, 1998, the Company loaned $1,000,000 to Cumberland
Technologies Inc. (Cumberland) which is controlled by Mr. Francis M. Williams,
Kimmins President and majority stockholder. Cumberland is a property and
casualty insurance company. The $1,000,000 is evidenced by a convertible term
note that is due November 10, 2001. Quarterly interest payments are due
beginning January 1, 1999 at a rate of one half of one percent over the rate
established by Nations Bank. The Company has the right, after six months, to
convert the principal amount of the note into shares of Common Stock of
Cumberland at $3.00 per share. The balance of the convertible term note,
including accrued but unpaid interest of $10,764 at December 31, 1998 is
$1,010,764.
As of December 31, 1998, the Company had no outstanding indebtedness to
Kimmins. 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 could have
been 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 was subordinated to all senior indebtedness of the
Company. Payments of principal and interest were to be based on certain net
income levels of the Company. No payments of principal or interest were required
prior to the maturity date in 2003 unless the Company earns in excess of
$1,500,000 earnings before interest and taxes. The Company repaid the note in
full during 1998 using proceeds from the sale of KRC.
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,
1998, $809,000 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, 1996, 1997 or 1998, the
Company paid Kimmins approximately $849,000, $1,205,000, and $769,000,
respectively. The Company pays directly for any coverage for which it is the
only insured.
As of December 31, 1997 and 1998, the Company had working capital advances
due from an affiliate of approximately $4,040,000, and $5,376,000, respectively.
These advances are unsecured and accrue interest at a rate of 10 percent per
annum. The Company collected $4,385,000, and advanced $1,336,000 during 1997 and
1998.
During 1998, the Company made a $1,000,000 charitable contribution to the
Kimmins Terrier Foundation, a private foundation controlled by Francis M.
Williams.
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, 1997 and 1998
- Consolidated statements of operations for each of the
three years in the period ended December 31, 1998
- Consolidated statements of comprehensive income for each of
the three years in the period ended December 31, 1998
- Consolidated statements of stockholder's equity for each of
the three years in the period ended December 31, 1998
- Consolidated statements of cash flows for each of the three
years in the period ended December 31, 1998
- Notes to consolidated financial statements
2. Financial statement schedule
Schedule
Number
--------
II - Valuation and qualifying accounts
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:
3 (a) * - Restated Certificate of Incorporation of
Registrant, as amended
3 (b) * - Bylaws of Registrant
10.1** - Stock Purchase Agreement Between the Company and
Eastern Environmental Services dated July 17, 1998
10.2 - Convertible Term Note Between the Company and
Cumberland Technologies, Inc. dated November 10,
1998
21 - Subsidiaries of the registrant
27 - Financial Data Schedule - 1998 (for SEC use only)
27.1 - Restated Financial Data Schedule - 1997
(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.
** Previously filed as part of Registrant's amended Form 8-K filed on
August 4, 1998.
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized.
TRANSCOR WASTE SERVICES, INC.
Date: April 15, 1999 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: April 15, 1999 /s/ Francis M. Williams
----------------------------- ----------------------
Francis M. Williams
Chief Executive Officer and Director
(Principal Executive Officer)
Date: April 15, 1999 /s/ Joseph M. Williams
----------------------------- ----------------------
Joseph M. Williams
President and Secretary
Date: April 15, 1999 /s/ Norman S. Dominiak
----------------------------- ----------------------
Norman S. Dominiak
Vice President, Chief Financial
Officer, and Treasurer
(Principal Accounting and
Financial Officer)
Date: April 15, 1999 /s/ Edward A. Mackowiak
----------------------------- ----------------------
Edward A. Mackowiak, Director
CONVERTIBLE TERM NOTE
$1,000,000 Tampa, Florida
November 10, 1998
FOR VALUE RECEIVED, CUMBERLAND TECHNOLOGIES, INC. ("Borrower") promises to
pay to the order of TRANSCOR WASTE SERVICES, INC. ("Lender") the sum of One
Million Dollars ($1,000,000) on November 10, 2001 ("Maturity Date"), together
with interest thereon and subject to optional prepayment as set forth herein.
1. INTEREST. Subject to accrual as hereinafter set forth, interest on this
Note shall be paid on the first day of January 1999 and on the first day of each
calendar quarter thereafter with respect to the immediately preceding calendar
quarter at the "Base Interest Rate" (as hereinafter defined) so long as any
principal of this Note is outstanding. All accrued and unpaid interest shall be
payable on the Maturity Date. After maturity, whether by acceleration or
otherwise, interest shall accrue and be payable at a rate per annum equal to one
and one half percent per annum in excess of the Base Interest Rate. Interest
shall be calculated on the basis of 360 days per year and 30 days per month.
As used herein, "Base Interest Rate" shall mean an annual rate of interest
equal to one half of one percent per annum in excess of the interest rate per
annum ("Stated Interest Rate") established by NationsBank from time to time as a
guide for determining actual lending rates charged to its customers and shall
change simultaneously with each change in the Stated Interest Rate; in no event,
however, shall any interest charged on this Note be at a rate in excess of the
maximum interest rate permitted by applicable law.
2. OPTIONAL PREPAYMENT OF PRINCIPAL. This Note may be prepaid at any time
in whole or in part, for the first six months outstanding without penalty or
premium, provided however, that any partial prepayment shall be in the minimum
amount of Ten Thousand Dollars ($10,000) or in multiples of One Thousand Dollars
($1,000) in excess thereof and will first be applied to payment of accrued and
unpaid interest to the date of prepayment and then to payment of principal.
After the six-month anniversary, the note shall not be pre-payable without
first giving Lender an opportunity to convert such outstanding amount to common
stock under the conversion formulas. Lender shall have ten (10) days from notice
to convert the note into stock, otherwise the note shall be repayable without
penalty on the 10th day.
3. CONVERSION. Lender shall have the right at any time, subsequent to the
six month anniversary, and prior to the close of business on the maturity date,
at any time during ordinary business hours to convert, subject to the terms and
provisions herein stated, the principal amount of this Note, or a portion
thereof as hereinafter provided, into such number of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock of Borrower (as
such shares shall be constituted at the time of conversion, calculated as to
each conversion to the nearest one one-hundredth (.01) of one share) at $3.00
per share, adjusted, if required as provided below. The Lender may convert this
Note upon surrender to Borrower, of this Note so to be converted accompanied by
written notice, executed by Lender of election to convert the principal thereof
into Common Stock (and in the case of the conversion of less than the entire
principal amount of this Note surrendered, specifying the portion thereof, which
shall in integral multiplies of $10,000, to be converted).
No payment or adjustment shall be made on conversion of this Note for
interest accrued thereon or for dividends on securities issued upon such
conversion.
The Conversion Price referred to in this Section 3 shall be subject to
adjustment from time to time as follows:
If Borrower shall at any time after the date hereof subdivide or combine
the outstanding shares of Common Stock or issue additional shares of Common
Stock as a dividend or other distribution on the Common Stock, the Conversion
Price in effect immediately prior to such subdivision or combination of shares
or share dividend or distribution shall be proportionately adjusted so that,
with respect to each such subdivision of shares or share dividend or
distribution, the number of shares of the Common Stock deliverable upon
conversion shall be increased in proportion to the increase in the number of
shares of the then outstanding Common Stock resulting from such subdivision of
shares or share dividend or distribution, and with respect to each such
combination of shares, the number of shares of the Common Stock deliverable upon
conversion of this Note shall be decreased in proportion to the decrease in the
number of shares of the then outstanding Common Stock resulting from such
combination of shares. Any such adjustment in the Conversion Price shall become
effective, in the case of any such subdivision or combination of shares, at the
close of business on the effective date thereof, and, in the case of any such
share dividend or distribution, at the close of business on the record date
fixed for the determination of shareholders entitled thereto or on the first
business day during which the stock transfer books of Borrower shall be closed
for the purpose of such determination, as the case may be.
At any time commencing one year from the date of this Note, and provided
that the Borrower is indebted to Lender pursuant to this Note, Lender shall have
the right to require Borrower to prepare and file one new registration
statement, if then required under the Securities Act of 1933 (the "Act")
covering all or any portion of the shares issued upon conversion hereof as
hereinafter provided. Borrower will within five (5) days of receipt of the
demand to register the shares, acknowledge in writing that Borrower is obligated
to register the shares. Borrower shall use its best efforts to cause such
registration to become effective to the extent required or desirable to permit
Lender to dispose of such shares in compliance with applicable laws without any
volume or holding restrictions under the Act. The Borrower shall bear all
expenses incurred in the preparation and filing of such registration statement,
except the holder of the shares issuable upon conversion of this Note shall pay
any underwriting discounts or commissions and the expenses of its own legal
counsel.
4. DEFAULT. Upon the occurrence of any of the following specified events
(each sometimes hereinafter referred to as an "Event of Default"), the entire
unpaid balance of principal of and interest on this Note shall become
immediately due and payable at the option of Lender.
(a) Failure of Borrower to pay, within ten (10) days after the due
date therefor, any installment of the principal of, or interest on, this
Note; or
(b) Failure of Borrower to promptly pay all of its taxes, assessments
and other governmental charges prior to the date on which penalties are
attached thereto, establish adequate reserves for the payment of taxes and
assessments or make all required withholding and other tax deposits, except
as to any liabilities being contested in good faith; or
(c) Failure of Borrower to keep all of its properties so insurable (i)
insured at all times with responsible insurance carriers against fire,
theft and other hazards in such manner and to the extent that like
properties are usually insured by others operating properties of a similar
character in the same genera locality and (ii) adequately insured at all
times with responsible insurance carriers against liability on account of
damage to persons or property and under all applicable workers'
compensation laws; or
(d) Failure of Borrower to maintain its corporate existence in good
standing or to remain or to become duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction in which the conduct
of its business requires such qualification or license and the failure to
be so qualified would have a material adverse effect on the Borrower's
business; or
(e) Borrower's failure to cause all of its and its subsidiaries
properties used or useful in the conduct of its business to be maintained
and kept in good working order and all related licenses and permits to be
kept current and valid, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
provided, however, that nothing herein shall prevent the Borrower from
discontinuing the operations and maintenance of such properties if such
discontinuance is in the judgment of the Borrower desirable in the conduct
of such business and not disadvantageous in any material respect to the
Lender.
(f) The making of a general assignment by Borrower for the benefit of
creditors, or the institution by Borrower of any type of bankruptcy,
reorganization or insolvency proceeding under any state or federal law or
of any formal or information proceeding for the dissolution or liquidation
of, settlement of claims against or winding up of affairs or Borrower; or
(g) The appointment of a receiver or trustee for Borrower or for any
assets of Borrower or the institution against Borrower of any type of
bankruptcy, reorganization or insolvency proceeding under any state or
federal law or any proceeding for the liquidation or winding up of the
affairs of Borrower and the failure to have such proceeding dismissed
within sixty (60) days.
No omission or delay by Lender or other holder hereof in exercising any
right or power under this Note will impair such right or power or be construed
to be a waiver of or acquiescence in any default hereunder, and no waiver by the
Lender or other holder hereof of any breach or default hereunder shall be deemed
to be a waiver of any right or power upon the later occurrence or recurrence of
any such breach or default.
Borrower agrees to pay to Lender the reasonable expenses incurred by the
Lender in connection with the origination of this Note and the enforcement of
Lender's rights hereunder, including, without limitation, the reasonable fees
and disbursements of legal counsel.
Any notice or demand required under this Note or by law shall be in writing
and shall be deemed to have been delivered by hand delivery to or by mailing the
same by certified mail, return receipt requested, to the respective parties at
the following address:
To Lender: Mr. Joseph M. Williams
TransCor Waste Services, Inc.
1501 E. 2nd Avenue
Tampa, FL 33605
To Borrower: Mr. Joseph M. Williams
Cumberland Technologies, Inc.
4311 W. Waters Avenue
Suite #401
Tampa, FL 33614
IN WITNESS WHEREOF, the parties hereto have caused this Term Note to be
duly executed the date first stated above.
SIGNATURES WITNESSED TRANSCOR WASTE SERVICES, INC.
-------------------------------------
As Lender By: Joseph M. Williams
Title: President
CUMBERLAND TECHNOLOGIES, INC.
-------------------------------------
As to Borrower By: Joseph M. Williams
Title: President
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Country
Name of Company of Incorporation
- ---------------------------------------------------------- ---------------------
Factory Street Corporation............................. Tennessee
Bay Area Recycling Fibers, Inc........................ Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894096
<NAME> TRANSCOR WASTE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 884,541
<SECURITIES> 22,022,296
<RECEIVABLES> 1,845,997
<ALLOWANCES> 709,223
<INVENTORY> 0
<CURRENT-ASSETS> 25,435,332
<PP&E> 905,214
<DEPRECIATION> 295,618
<TOTAL-ASSETS> 32,462,787
<CURRENT-LIABILITIES> 2,987,816
<BONDS> 0
0
0
<COMMON> 4,010
<OTHER-SE> 29,156,446
<TOTAL-LIABILITY-AND-EQUITY> 32,462,787
<SALES> 7,249,859
<TOTAL-REVENUES> 7,249,859
<CGS> 7,128,899
<TOTAL-COSTS> 7,128,899
<OTHER-EXPENSES> 933,959
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (429,256)
<INCOME-PRETAX> (383,743)
<INCOME-TAX> (143,904)
<INCOME-CONTINUING> (239,839)
<DISCONTINUED> 19,431,309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,191,470
<EPS-PRIMARY> 4.85
<EPS-DILUTED> 4.85
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000894096
<NAME> TRANSCOR WASTE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,115,510
<SECURITIES> 0
<RECEIVABLES> 2,389,394
<ALLOWANCES> 891,300
<INVENTORY> 0
<CURRENT-ASSETS> 12,394,933
<PP&E> 933,995
<DEPRECIATION> 208,121
<TOTAL-ASSETS> 17,160,917
<CURRENT-LIABILITIES> 1,511,514
<BONDS> 0
0
0
<COMMON> 4,010
<OTHER-SE> 11,050,944
<TOTAL-LIABILITY-AND-EQUITY> 17,160,917
<SALES> 11,235,960
<TOTAL-REVENUES> 11,235,960
<CGS> 9,203,983
<TOTAL-COSTS> 9,203,983
<OTHER-EXPENSES> 947,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (270,798)
<INCOME-PRETAX> 1,355,046
<INCOME-TAX> 512,207
<INCOME-CONTINUING> 842,839
<DISCONTINUED> (2,907,234)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,064,395)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.51)
</TABLE>
