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GROWING PAINS STRIKE KIMMINS STOCK

KIMMINS ENVIRONMENTAL Service Corp. is growing up fast -- and some industry analysts are wondering if events swirling around the company are moving too quickly.

The Tampa, Fla.-based hazardous waste management firm's sales have nearly tripled since 1985. And its stock has more than tripled in value since the company went public early in 1988.

The company, which has a regional office in Niagara Falls and is controlled by Western New York native Francis M. Williams, also has started getting more attention in March after its stock began trading on the New York Stock Exchange.

But lately, not all of the attention has been flattering. Kimmins is locked in a series of lawsuits charging that the company mishandled three separate cleanup projects and the company's stock has plummeted 26 percent since hitting a high of 9 1/8 on May 8.

"They've had some growing problems," says Dennis Schleider, an analyst who follows Kimmins for Ladenburg, Thalmann & Co. Inc. in New York City.

And Kimmins' woes were thrust into the national spotlight earlier this month when Forbes ran a critical story on the company under a headline that said "Out of control."

"The article was very negative," Schleider says. In fact, it was so negative that Kimmins stock fell from 6 7/8 to 5 7/8 in the two days after the story appeared. It's now back up to 6 3/4 .

Still, Williams says Kimmins' problems aren't as bad as they might seem. Williams says he doesn't think the lawsuits against his company have any merit and he believes that Kimmins has great potential for even more growth, as the firm expands its hazard
ous waste operations and moves into the solid waste business.

"I have never had a business with as much upside potential as Kimmins," Williams says. The company expects to set up solid waste operations in 10 cities, mostly in the South, by the end of the year and have 29 of those offices running by 1995.

Still, Williams is looking to do some damage control following the Forbes article. Williams says he is planning to hold about 60 meetings with Kimmins' customers, as well as financial industry executives and investors, to tell the company's side of the story.

Casting a cloud over Kimmins, however, are the lawsuits, which charge that the company's work on three cleanup projects was less than satisfactory.

Manville Corp. filed a lawsuit Feb. 5 in Colorado state District Court alleging that Kimmins was guilty of "persistent and repeated safety violations" during its work at an $11 million asbestos-abatement project in Manville, N.J.

Manville claims that the alleged safety violations prompted it to order Kimmins to stop work on the project twice last summer and then to issue three more partial stop-work orders in January. Manville removed Kimmins from the half-finished project in early February.

In response, Kimmins has filed a countersuit agains Manville, seeking $14.3 million in compensatory and punitive damages for breach of contract.

But the Manville project could have even deeper implications, because Kimmins already has booked about $5 million in sales and $1 million in profits from the project, even though the company has collected only about $3 million from Manville. Still, Williams says he's not too worried about that, since he expects the lawsuit to be settled in Kimmins' favor.

More lawsuits

There are other lawsuits, as well. Diversified Industries Inc., a St. Louis metals and reclamation firm, filed a suit against Kimmins in May 1989 seeking $12 million in punitive and compensatory damages for breach of contract and fraud during a demolition project.

According to Forbes, Kimmins was supposed to demolish three foundry buildings and carry away the debris. But Diversified alleges that a lot of the debris was just buried at the site. So far, Diversified says it has dug up 1,327 tons of scrap metal and 1,350 cubic yards of trash, as well as about 60 metal drums that the company alleges once contained hazardous waste.

"We didn't do a very good job there," Williams says, which is why Kimmins went back and spent another $750,000 to correct some of the problems with that project. "There was scrap metal buried on the site. That's why we went back."

And the U.S. Environmental Protection Agency is suing Kimmins because the company allegedly failed to take precautions to keep asbestos fibers from getting into the air during a demolition project in Florida.

The government is seeking a penalty of $25,000 a day for each day there was a violation. Kimmins says the charges are "unfounded" and has filed motions to have the charges dismissed for all but one of the days the government alleges there were violations.

In fact, the Florida Department of Environmental Regulations offered to settle the dispute back in 1988 for a $4,600 fine, but Williams says Kimmins turned down the offer because it doesn't believe it violated any regulations.

Schleider says lawsuits are common in the waste cleanup business, and he doesn't think Kimmins is the subject of an unusually high number of legal claims.

But the lawsuits still are a risk for investors, especially since Kimmins hasn't made any provisions in its books in case the company loses one of those cases.

"One or more partially or completely uninsured claims against the company, if successful and of sufficient magnitude, could have a material adverse effect on the company and its financial condition," Kimmins says in a recent prospectus for a new stock sale.

In addition, Schleider says the lawsuits could hurt the company's reputation, which might make it harder for Kimmins to win new contracts in the future.

"We have a spectacular reputation," Williams says. "For every project that has problems, you have 1,000 that go right." Besides, he says, "there are a lot of lawsuits in this business and you've got to be able to handle that" as an investor.

Will issue stock

To help finance its expansion into the solid waste business, Kimmins plans to sell another 800,000 shares of its common stock. Some of the proceeds of the stock sale also will be used to help cut the company's debt.

"All the money that we're raising today will be directed toward solid waste," Williams says.

The plans to put another 800,000 shares into circulation also may help explain the drop in Kimmins' stock, since new stock issues typically depress the price of the existing shares by 5 percent to 10 percent, Williams says.

In addition, Williams thinks a California firm specializing in short selling has been spreading bad news about the company in an attempt to depress the stock's price. Short sellers make profits by selling borrowed shares, hoping the stock will fall in price, which would allow them to buy back the shares at a lower price and pocket the difference.

And while the Forbes story would seem to be a dark cloud over the company, Williams says he sees a tiny silver lining: At least people across the country are hearing about Kimmins, and he hopes they'll remember the firm if it comes through its latest problems unscathed.

"Long term, the Forbes article is very positive because very few people know about Kimmins," Williams says. For many of them, though, the company started off on the wrong foot.

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