10-Q 1 kimmins10q93002.txt FORM 10-Q -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM 10-Q [MARK ONE] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _____. Commission File No. 1-10489 --------------------------------- KIMMINS CORP. (Exact name of registrant as specified in its charter) FLORIDA 59-3598343 (State of incorporation) (I.R.S. Employer Identification Number) 1501 SECOND AVENUE, EAST, TAMPA, FLORIDA 33605 (Address of registrant's principal executive offices, including zip code) --------------------------------- (Registrant's telephone number, including area code): (813) 248-3878 Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] Applicable Only To Corporate Issuers As of October 31, 2002, there were outstanding 4,872,135 shares of common stock and 1,666,569 shares of Class B common stock. The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 7, 2002 was $969,127. -------------------------------------------------------------------------------- KIMMINS CORP. FORM 10-Q INDEX

2 SECURITIES AND EXCHANGE COMMISSION FORM 10-Q PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KIMMINS CORP. CONSOLIDATED BALANCE SHEETS ASSETS

The accompanying notes are an integral part of these consolidated financial statements. 3 KIMMINS CORP. CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial statements. 4 KIMMINS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements. 5 KIMMINS CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial statements. 6 KIMMINS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements. 7 KIMMINS CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial statements. 8 KIMMINS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements. 9 KIMMINS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Kimmins Corp. and its subsidiaries (collectively, the "Company") operate one business segment: specialty-contracting services. The Company provides specialty-contracting services in the southeastern United States, primarily Florida, including earthwork; infrastructure development; underground construction; roadwork; site remediation services such as excavation, removal and disposal of contaminated soil; facilities demolition and dismantling; and asbestos abatement. The Company formerly provided solid waste management services through its subsidiary, TransCor Waste Services, Inc. ("TransCor"). BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and notes thereto as of and for the year ended December 31, 2001, included in the Company's Form 10-K dated December 31, 2001, as filed with the United States Securities and Exchange Commission. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Kimmins Corp. and its subsidiaries, including TransCor, a 95 percent owned subsidiary. All material intercompany transactions have been eliminated. CONCENTRATIONS OF CREDIT RISK - Financial instruments which subject the Company to concentrations of credit risk consist primarily of trade receivables in the state of Florida and cash equivalents. 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. Collateral is generally not required, however, the Company has the ability to file for a mechanic's lien to protect its interest in contract accounts receivable. Credit losses are provided for in the financial statements and have been within management's expectations. The Company's cash account balances are insured by the F.D.I.C. up to $100,000 per bank. The Company's cash balances on deposit exceeded the balance insured by the F.D.I.C. in the amount of $5,023,000 and $977,000 at December 31, 2001 and September 30, 2002, respectively. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. MARKETABLE SECURITIES - In accordance with 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 $4,456,000 as of September 30, 2002. The Company's cost basis in these investments is approximately $5,216,000 and the net unrealized loss is approximately $451,000 (net of deferred income tax of approximately $285,000 and the minority interest's share of approximately $24,000). Additionally, the Company's allocable share of the unrealized gain on marketable securities held by Cumberland Technologies, Inc. ("Cumberland") is approximately $53,000, net of deferred income taxes of approximately $32,000 for the nine months ended September 30, 2002. The balance of the unrealized loss net of deferred taxes is approximately $5,000 and $403,000 at December 31, 2001 and September 30, 2002 respectively. 10 KIMMINS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

As of December 31, 2001 and September 30, 2002, the costs and estimated earnings in excess of billings on uncompleted contracts includes the Company's cost associated with unapproved or disputed contract change orders and costs claimed from customers on completed contracts of approximately $5,725,000 and $4,056,000, respectively. During the performance of these contracts, the Company encountered site conditions that differed from bid specifications. As a result, the Company incurred additional labor and equipment costs in performing the contract. By their nature, recovery of these amounts is often subject to negotiation with the customer and, in certain cases, resolution through litigation. As a result, the recovery of these amounts may extend beyond one year and at December 31, 2001 and September 30, 2002, approximately $5,725,000 and $4,056,000, respectively, have been classified as a non-current asset. 3. PROPERTY AND EQUIPMENT HELD FOR SALE As a result of management's decision to cease operations in the northeast and to de-emphasize the performance of certain environmental services within the specialty-contracting segment, the Company decided to sell its transportable incineration system. A purchase agreement for the sale of the incinerator for $1,800,000 was executed in February 1998. The sale of the transportable incineration system will be completed upon full receipt of the purchase price by the Company. As of September 30, 2002, the Company has received $1,177,500 which has been netted against the carrying value of the asset resulting in approximately $622,500 being included in non-current property and equipment held for sale. Non-current property and equipment held for sale at September 30, 2002 also includes real estate in Nashville, Tennessee, which has a net book value of approximately $411,000. As of December 31, 2001, the Company had planned to dispose of various pieces of construction equipment and classified these items as held for sale. Due to unanticipated equipment needs, a portion of the unsold assets were placed back in service in the second quarter of 2002. As of September 30, 2002, the Company has approximately $171,000 of construction equipment held for sale, that is reflected as a current asset. 11 KIMMINS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. PROPERTY AND EQUIPMENT December 31, September 30, 2001 2002 ----------------- ---------------- (unaudited) Land $ 1,058,234 $ 1,058,234 Buildings and improvements 2,891,804 2,891,804 Construction equipment 24,341,962 31,855,809 Furniture and fixtures 550,340 488,038 Construction in progress -0- 22,916 ----------------- ---------------- 28,842,340 36,316,801 Less accumulated depreciation (17,057,161) (24,447,336) ----------------- ---------------- Net property and equipment $ 11,785,179 $ 11,869,465 ================= ================ Property and equipment is recorded at cost. Depreciation is provided using the straight-line method over estimated useful lives ranging from 3 to 30 years. Depreciation expense net of equipment credit amortization was approximately $4,060,000 and $2,152,000 for the nine months ended September 30, 2001 and 2002, respectively. 5. INVESTMENT IN CUMBERLAND TECHNOLOGIES, INC. CUMBERLAND - The Company's 31 percent investment in Cumberland Technologies, Inc. (Cumberland) is accounted for using the equity method of accounting. On acquisition, the amount of $3,300,000 in excess of the underlying equity in Cumberland was attributed to goodwill. The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, and ceased amortizing the goodwill balance. The unamortized goodwill balance on January 1, 2002 was approximately $2,472,000. At January 1, 2002, the Company did not have any other intangible assets and has not acquired any subsequent to that time. In September 2002, the Company completed the valuation of the goodwill acquired on acquisition. Fair value was determined based on discounted cash flow and acquisition analysis, valuation models involving guideline public companies, and analysis of Cumberland's historical and projected income. Pursuant to the valuation, the Company expensed approximately $2,472,000 ($1,545,000 net of tax); the remaining unamortized goodwill balance. In accordance with SFAS No. 142, the charge is reflected as a change in accounting principle in the accompanying statements of operations for the three and nine months ended September 30, 2002. As of December 31, 2001 and September 30, 2002, the Company's balance in its investment in Cumberland was approximately $4,927,000 and $1,867,000, respectively. 12 KIMMINS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For illustrative purposes, the following unaudited proforma information gives the effect of the adoption of SFAS No. 142 on prior periods.

The Company's outstanding letter of credit facility of approximately $430,000 required by its insurance carrier is secured by a restricted cash account at a local financial institution. At December 31, 2001 and September 30, 2002, there were no borrowings outstanding against the letter of credit facility. 13 KIMMINS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 7. STOCKHOLDERS' EQUITY The Company's Class B common stock has the same voting rights as common stock and is not entitled to participate in cash dividends. Upon liquidation or dissolution of the Company, the holders of common stock are entitled to receive up to $9.00 per share, after which the holders of Class B common stock are entitled to receive up to $9.00 per share. Thereafter, all assets remaining for distribution will be distributed pro rata to the holders of common stock and Class B common stock. The right to convert Class B common stock to common stock occurs in any fiscal year in which the Company achieves net earnings equal to a specified amount (currently $.84 per share), which is calculated by adding the total shares outstanding at fiscal year end to the number of shares that could be converted during the fiscal year. The holders of the Class B common stock will thereafter have the right to convert up to 625,000 shares of Class B common stock into common stock on a share for share basis as follows. Each cumulative incremental increase in net earnings in any subsequent year of $.21 per share above the specified level of earnings previously obtained will afford holders the right to convert up to an additional 625,000 shares of Class B common stock into common stock on a share for share basis. Holders of Class B common stock will not be entitled to convert more than 625,000 of such shares in any fiscal year unless the Company achieves earnings of $1.44 per share of common stock in any fiscal year, which will entitle holders to convert all shares of Class B common stock into common stock. In addition, conversion occurs if a sale of part of the Company's business as to which there is a bona fide offer to purchase would have resulted in convertibility of any of the outstanding Class B common stock and it is determined by the Board of Directors of the Company not to approve such a transaction, then, upon request of the holder or holders of a majority of the outstanding Class B common stock, the number of shares thereof which would have become convertible had the transaction occurred would become convertible. A similar provision provides that if there is an independent valuation of a part of the business of the Company such that if such part of the business were sold, the result would allow conversion of all outstanding Class B common stock and if the Board of Directors of the Company does not authorize such sale, then, upon request of the holder or holders of a majority of the outstanding Class B common stock, the outstanding Class B common stock would become convertible. During 1999, 625,000 shares of Class B common stock were converted into common stock. The Company has authorized 1,000,000 shares of preferred stock with a par value of $.001, none of which is presently outstanding. Such preferred stock may be issued in series and will have such designations, rights, preferences, and limitations as may be fixed by the Board of Directors. 8. EARNINGS (LOSS) PER SHARE A reconciliation of the numerators and denominators of the basic and diluted income (loss) per share is presented below:

15 9. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal actions and claims arising in the ordinary course of its business. After taking into consideration legal counsel's evaluation of such actions and claims, management is of the opinion that their outcome will not have a material adverse effect on the consolidated financial position of the Company. During 2000, the Company entered into a three year "Club Seat" membership agreement with a local sports venue for a total of approximately $40,000 per year. Part of the cost of the agreement is shared with the Company's affiliate, Cumberland Technologies, Inc. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Net revenue for the three months ended September 30, 2002 increased 31 percent to approximately $11,691,000 from $8,916,000 for the three months ended September 30, 2001. The increase is due primarily the increases in the Company's demolition services ($1,110,000 increase in net revenue), as well as utility services ($1,077,000 increase in net revenue), and mine services ($737,000 increase in net revenue). These were somewhat offset by a decrease in the Company's other services ($149,000 decrease in net revenue). Demand for mining services has increased steadily since December 31, 2001, resulting in increased revenue for the three months ended September 30, 2002, as compared to the three months ended September 30, 2001. The increase in net revenue for utility services was due to a number of larger jobs starting in the three months ended September 30, 2002. The increase in net revenue in demolition services is due to a slow down of demand for these services for the three months ended September 30, 2001. The changes in net revenue are subject to a variety of market factors resulting in temporary fluctuations for the various services. Outside services, which largely represent subcontractor costs increased as a percentage of net revenue to 9 percent for the third quarter of 2002 from 8 percent for the same period of 2001. The Company will use the services of a subcontractor when it determines that an economic opportunity exists as opposed to internally providing the services. The Company utilized the services of subcontractors to a greater extent during the third quarter of 2002 than 2001 due to the specific contracts in progress and the associated work requirements. Cost of revenue earned, as a percentage of net revenue, for the third quarter of 2002 decreased to approximately 82% from 100% for the same period in 2001. This is attributable to actual costs exceeding expected costs on several projects for the three months ended September 30, 2001. As a result, the gross profit for the third quarter of 2002 was approximately $2,158,000 (18% of net revenue) compared to a loss of approximately $21,000 (less than 1% of net revenue) for the third quarter of 2001. The primary reason for the increased cost of revenue is attributable to the recognition of the loss of approximately $1,214,000 on a claim settled in 2001 related to a job that closed in 1999. In addition, several projects in progress in the prior year experienced increases in the estimated cost to complete. This resulted in a reduction in the estimated gross profit to be realized for the three months ended September 30, 2001. During the three months ended September 30, 2002, selling, general and administrative expenses increased to approximately $971,000 (8% of net revenue) from approximately $955,000 (11% of net revenue) for the three months ended September 30, 2001. Although there was a small increase in selling, general and administrative expenses, management continues its efforts to contain and reduce administrative costs. The percentage decrease is attributable to increased revenues. Minority interest in net loss of subsidiary was approximately $500 for the three months ended September 30, 2002 compared to minority interest in net loss of approximately $52,000 during the same period in 2001. Investment loss from marketable securities was approximately $13,000 for the third quarter of 2002 compared to losses of approximately $1,224,000 for the third quarter 2001. The change was primarily the result of holding losses on marketable securities held for trading purposes, which were recognized in stockholders' equity prior to being transferred to the trading securities category, and realized trading losses on options during the third quarter 2001. 16 Interest expense, net of interest income decreased to approximately $477,000 during the three months ended September 30, 2002 compared to $713,000 for the three months ended September 30, 2001. The decreased interest expense is attributable to significant reductions in the outstanding debt balance. Loss on the investment in Cumberland was approximately $301,000 (3% of net revenue) and $104,000 (1% of net revenue) for the three months ended September 2002 and 2001, respectively. As a result of the foregoing, the income before provision for income taxes and cumulative effect of changes in accounting principle for the three months ended September 30, 2002 was approximately $396,000 (3 percent of net revenue) compared to a loss before provision for income taxes of approximately $3,148,000 (35 percent of net revenue) during the same period in 2001. The Company's effective tax rate was 37.5 percent for the three months ended September 30, 2002 and September 2001. As a result of the foregoing, the Company recognized net income before cumulative changes in accounting principle for the three months ended September 30, 2002 of approximately $248,000 (2% of net revenue) as compared with net loss of approximately $1,968,000 (22% of net revenue) for the same period during 2001. As a result of loss on the write-off on the goodwill on the Cumberland investment ($1,545,000 net of tax) for the three months ended September 30, 2002, the net loss for the period was approximately $1,297,000. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Net revenue for the nine months ended September 30, 2002 decreased by approximately $252,000 or 1% to $33,498,000 from $33,750,000 for the same period in 2001. The decrease is due primarily to contraction of the Company's demolition services ($3,380,000 decrease in net revenue). This decrease was somewhat offset by increases in mine services ($1,887,000 increase in net revenue), utility services ($383,000 increase in net revenue) and other services ($858,000 increase in net revenue). The change in net revenue in the Company's demolition services was a result of not having as many large projects for the nine months ended September 30, 2002 as compared to the same period in 2001. Demand for mining services has increased steadily since December 31, 2001, resulting in increased revenue for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001. The increase in net revenue for utility services was due to high volume for the nine months ended September 30, 2002. The changes in net revenue are subject to a variety of market factors resulting in temporary fluctuations for the various services. Outside services, which largely represent subcontractor costs, decreased, as a percentage of net revenue, to 10 percent for the nine months ended September 30, 2002, from 11 percent for the same period in 2001. The Company will use the services of a subcontractor when it determines that an economic opportunity exists as opposed to internally providing the services. The Company utilized the services of subcontractors to a lesser extent during 2002 than 2001 due to the specific contracts in progress and the associated work requirements. Cost of revenue earned, as a percentage of net revenue for the nine months ended September 30, 2002 decreased to 83 percent from 92 percent for the same period in 2001. The primary reason for the decreased cost of revenue is attributable to the recognition of a loss of approximately $1,214,000 on a claim settled in July 2001 related to a job that closed in 1999. In addition, several projects in progress in the prior year experienced increases in the estimated cost to complete. This resulted in a reduction in the estimated gross profit to be realized for the nine months ended September 30, 2001. As a result, gross profit for the nine months ended September 30, 2002 was approximately $5,592,000 (17 percent of net revenue) compared to $2,598,000 (8 percent of net revenue) for the same period in 2001. The increase in the dollar amount and the percentage of gross margin is primarily associated with the $1,214,000 loss reflected as additional cost of sales for the claim settlement 17 on the job that closed in 1999. The increase in the dollar amount and percentage of gross margin is also associated with utility services ($1,177,000 increase in gross margin) as well as other services ($1,125,000 increase in gross margin). These increases were somewhat offset by a decreases in the gross margin for demolition services ($374,000) and mining services ($148,000 decrease in net revenue). During the nine months ended September 30, 2002, selling, general and administrative expenses decreased to approximately $2,668,000 (8 percent of net revenue) from $2,863,000 (8 percent of net revenue) for the same period in 2001. The dollar decrease was attributable to management's continued efforts to contain and reduce administrative and overhead costs. Minority interest in net income of subsidiary was approximately $400 for the nine months ended September 30, 2002, compared to minority interest in net loss of the subsidiary of $325,000 during the same period in 2001. Investment loss from marketable securities was approximately $34,000 compared to a loss of approximately $7,765,000 for the nine months ended September 30, 2002 and 2001, respectively. The change was primarily the result of recognizing approximately $7,770,000 of holding losses on marketable securities held for trading purposes, which were recognized in stockholder's equity prior to being transferred to the trading securities category in the second quarter of 2001. Interest expense, net of interest income decreased to approximately $1,579,000 during the nine months ended September 30, 2002, compared to $2,495,000 for the same period in 2001. The decrease in interest expense is primarily attributable to a significant decrease in the outstanding debt balance. Loss on the investment in Cumberland was approximately $673,000 (2% of net revenue) and $110,000 (0% in net revenue) for the nine months ended September 30, 2002 and 2001, respectively. As a result of the foregoing, the income before provision for income taxes and cumulative effect of change in accounting principle for the nine months ended September 30, 2002 was approximately $636,000 (2 percent of net revenue) compared to a loss before provision for income taxes of approximately $11,717,000 (35 percent of net revenue) during the same period in 2001. The Company's effective tax rate was 37.5 percent for the nine months ended September 30, 2002, compared to a rate of 37.5 percent for 2001 tax provisions. A significant portion of the Company's tax asset at September 30, 2002 consists of net operating losses for federal income tax purposes. These tax assets begin expiring in 2012 and are exhausted in 2021. The Company generated net income before the cumulative effect of the change in accounting principle of approximately $397,000 (1 percent of net revenue) for the nine months ended September 30, 2002 as compared with a net loss of approximately $7,323,000 (22 percent of net revenue) for the same period during 2001. As a result of the loss on the write-off on the goodwill on the Cumberland investment ($1,545,000 net of tax) for the nine months ended September 30, 2002, the net loss for the period was approximately $1,148,000. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was approximately $5,710,000 during the nine months ended September 30, 2002 compared to approximately $3,486,000 during the nine month period ended September 30, 2001. This increase is largely due to an increase in operating profit for nine months ended September 30, 2002. The Company had capital expenditures of approximately $124,000 and $48,000 during the nine months ended September 30, 2002 and 2001, respectively. Future capital expenditures will be financed by available cash resources, cash flow from operations and available credit resources, as needed. The Company believes that these sources are adequate to fund its operations and meet its commitments for at least the next 12 months. 18 The table below summarizes the Company's debt at September 30, 2002:

Net cash used by investing activities was approximately $4,184,000 for the nine months ended September 30, 2002 as compared to net cash provided of approximately $9,634,000 during the nine months ended September 30, 2001. During the nine months ended of September 30, 2002 and September 30, 2001, the Company realized approximately $1,156,000 and $4,192,000 proceeds from the sale of equipment. In addition, the Company received $-0- and $1,282,000 proceeds from the sale of marketable securities during the nine months ended September 30, 2002 and 2001, respectively. During the first quarter of 2001, the Company also received $4,637,000 proceeds from the sale of the Apartments. The net cash used in financing activities was approximately $5,946,000 during the nine months ended September 30, 2002 and $13,011,000 for the nine months ended September 30, 2001. The majority of these amounts are attributable to significant repayments of long-term debt. The Company's ratio of debt to equity was 3.2 and 3.3 at September 30, 2002 and December 31, 2001, respectively. The decrease in debt is primarily due to significant debt paydowns. During the nine months ended September 30, 2002 and 2001, the Company's average contract and trade receivables less retainage were outstanding for 48 and 58 days, respectively. Management believes that the number of days outstanding for its current receivables approximates industry norms. A portion of the Company's contracting operations is subcontracted and any delay in collections of receivables relating to primary contracts will usually result in the ability of the Company to delay payment of offsetting subcontract payments. The Company's current bonding capacity for qualification purposes is $15,000,000 for an individual project and $30,000,000 in the aggregate. Historically, the Company has obtained bonding coverage in amounts up to $53,000,000. However, bonding coverage is not guaranteed on projects up to the above limits because each project has its own distinct and separate bond requirements and it is customary for surety bonding companies to underwrite each surety obligation individually. Management believes that bonding coverages are adequate for the size and scope of projects being performed. Management of the Company is considering a possible "going private" transaction, which might involve a reverse stock split or a stock repurchase program. Any such transaction would be reviewed and approved by the Board of directors of the Company prior to completion, and may require shareholder approval. The actual amount of funds needed to implement a transaction is not known, but management believes that it would not have a material impact on the financial condition of the Company. However, any such transaction may have the effect of enabling the Company to terminate the registration of its common stock, and its reporting obligations, under the Securities Exchange Act of 1934. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses financial accounting and reporting for all business combinations and requires that all business combinations entered into subsequent to June 2001 be recorded under the purchase method. This statement also addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets at acquisition. This statement also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. These statements were adopted by the Company on January 1, 2002. The financial impact of adopting SFAS No. 142 is reflected and discussed in footnote 5 "Investment in Cumberland Technologies, Inc." The adoption of SFAS No. 141 is not expected to have a material effect on the Company's financial position, results of operations or cash flows. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets. The statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30. SFAS No. 144 removes goodwill from its scope, as goodwill is addressed in the impairment test described above under SFAS No. 142. The Company adopted SFAS No. 144 on January 1, 2002. The adoption is not expected to have a material effect on the Company's financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities by requiring that expenses related to the exit of an activity or disposal of long-lived assets be recorded when they are incurred and measurable. Prior to 19 SFAS No. 146, these charges were accrued at the time of commitment to exit or dispose of an activity. The Company will adopt SFAS 146 on January 1, 2003 and it is not expected to have a material effect on the Company's financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 address the accounting for gains and losses from the extinguishments of debt, economic effects and accounting practices of sale-leaseback transactions and makes technical corrections to existing pronouncements. The Company adopted SFAS No. 145 on July 1, 2002, and it has not had a material effect on the Company's financial position, results of operations or cash flows. FORWARD LOOKING INFORMATION The foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements that reflect management's current views with respect to future events and financial performance. Such statements involve risks and uncertainties, and there are certain important factors that could cause actual results to differ materially from those anticipated. Some of the important factors that could cause actual results to differ from those anticipated include, but are not limited to, economic conditions, competitive factors, changes in market prices of the Company's investments and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Due to such uncertainties and risk, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. CRITICAL ACCOUNTING POLICIES In December 2001, the SEC requested that all registrants list their three to five most "critical accounting policies" in MD&A. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the notes to the consolidated financial statements. We believe that our following accounting policies fit this definition: Revenue Recognition: Percentage-of-Completion Method -- Kimmins' significant accounting policies are described in Note B to the consolidated financial statements included in Item 8 of the December 31, 2001 Form 10-K. Kimmins believes its most critical accounting policy is revenue recognition from long-term contracts for which Kimmins uses the percentage-of-completion method of accounting. Percentage of completion accounting is the prescribed method of accounting for long-term contracts in accordance with accounting principles generally accepted in the United States and accordingly the method used for revenue recognition within Kimmins' industry. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for each contract at completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Application of percentage-of-completion accounting results in the recognition of costs and estimated earnings in excess of billings on uncompleted contracts within the consolidated balance sheets. Cost and estimated earnings in excess of billings on uncompleted contracts reflected on the consolidated balance sheets arise when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Costs and estimated earnings in excess of billings on uncompleted contracts also includes amounts Kimmins seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs. Such amounts are recorded at estimated net realizable value. Due to uncertainties inherent within estimates employed to apply percentage-of-completion accounting, it is possible that estimates will be revised as project work progresses. Application of percentage of completion accounting requires that the impact of those revised estimates be reported in the consolidated financial statements prospectively. A number of factors relating to our business affect the recognition of contract revenue. Total estimated costs, and thus contract income, are impacted by changes in productivity, scheduling, and the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing approvals, labor availability, governmental regulation and politics, may also affect the progress and estimated cost of a 20 project's completion and thus the timing of income and revenue recognition. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined. Revenue from change orders, extra work, variations in the scope of work and claims is recognized when realization is reasonably assured. We believe that our operating results should be evaluated over a relatively long term horizon during which major contracts are completed and change orders, extra work, variations in the scope of work and cost recoveries and other claims are negotiated and realized. Some of our contracts provide for termination of the contract for the convenience of the client. In the event a contract would be terminated at the convenience of the client prior to completion, we will typically be compensated for progress up to the time of termination and any termination costs. In addition, many contracts are subject to certain completion schedule requirements with liquidated damages in the event schedules are not met as the result of circumstances that are within our control. Litigation: Management's current estimated range of liability related to some of the pending litigation is based on claims for which our management can estimate the amount and range of loss. We have recorded the minimum estimated liability to those claims, where there is a range of loss. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operation and financial position. Accounting for income taxes: As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations. EFFECT OF INFLATION Inflation has not had, and is not expected to have, a material impact upon the Company's operations. If inflation increased, the Company would attempt to increase its prices to offset its increased expenses. No assurance can be given; however, that the Company will be able to adequately increase its prices in response to inflation. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During 2002, the Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments. As of September 30, 2002, the Company has debt of approximately $24,901,000 of which $23,966,000 has a fixed interest rate. The remaining debt of $935,000 has variable interest rates. An increase in the rates of 1% would increase the Company's expense by $9,000 per year, exclusive of the effect of income taxes. Accordingly, the Company believes its exposure to market interest rate risk is not material. As of September 30, 2002, the Company's 95% owned subsidiary TransCor, held available-for-sale, marketable equity securities of publicly traded companies having a market value of approximately $4,456,000. These securities are subject to price risk. ITEM 4. CONTROLS AND PROCEDURES In the 90 day period before the filing of this report, the Chief Executive and Chief Financial Officers of the Company have evaluated the effectiveness of the Company's disclosure controls and procedures. These disclosure controls and procedures are those controls and other procedures we maintain, which are designed to insure that all of the information required to be disclosed by the Company in all its periodic reports filed with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information 21 required to be disclosed by the Company in its reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to Company management, including the Chief Executive and Chief Financial Officers of the Company, as appropriate to allow those persons to make timely decisions regarding required disclosure. Subsequent to the date when the disclosure controls and procedures were evaluated, there have not been any significant changes in the Company's disclosure controls or procedures or in other factors that could significantly affect such controls or procedures. No significant deficiencies or material weaknesses in the controls or procedures were detected, so no corrective actions needed to be taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Articles of Incorporation (Incorporated by reference to Appendix B to the Registrant's Definitive Proxy Statement filed with the SEC on August 16, 1999) 3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 10-Q filed with the SEC on October 19, 1999). 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 2002 /s/ Francis M. Williams ------------------------- ------------------------------------------- Francis M. Williams President and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2002 /s/ Karl F. Burgin ------------------------- ------------------------------------------- Karl F. Burgin Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 23 KIMMINS CORP., CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-Q I, Francis M. Williams, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kimmins Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Francis M. Williams ----------------------------------------- Francis M. Williams Chairman of the Board, President and Chief Executive Officer 24 Kimmins Corp., Certification for Quarterly Report on Form 10-Q I, Karl Burgin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kimmins Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Karl Burgin ----------------------------------------- Karl Burgin, Chief Financial Officer 25 1557431

KIMMINS CORP/DE 10-Q