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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 14, 1997
KTI, INC.
(Exact name of Registrant as specified in Charter)
New Jersey 33-85234 22-2665282
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(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
Number)
7000 Boulevard East, Guttenberg, New Jersey 07093
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(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code- (201) 854-7777
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Not Applicable
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(Former name and former address, as changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On November 14, 1997, the Company completed the acquisition of three
recycling facilities located in Franklin Park, Illinois, a suburb of Chicago,
Charlestown, Massachusetts, a suburb of Boston, and in Newark, New Jersey. The
facilities will be operated by wholly owned subsidiaries of the Company under
the name of KTI Recycling. The three facilities are capable of processing
approximately 50,000 tons of post consumer and commercial recyclables per month.
The facilities were purchased as part of an asset purchase from Prins
Recycling Corp. and its subsidiaries ("Prins") pursuant to an order of the
Bankruptcy Court for the District of New Jersey entered on November 6, 1997. In
addition to the facilities, the Company purchased substantially all of the
remaining assets of Prins, principally property, plant, and equipment and
accounts receivable, and assumed certain post-petition liabilities. The
purchase price was approximately $14.4 million, including $14.2 million in
cash and the assumption of $200,000 of trade payables.
The purchase was financed in part by a term loan of $7.5 million provided
by Key Bank, National Association, bearing interest at said Bank's base rate
plus 1.25% per annum, amortized with level monthly principal payments amortized
over 60 months. The term loan is secured by a mortgage on the Franklin Park,
Illinois facilities, all property and equipment at the three facilities not
pledged to third parties and accounts receivable of the three facilities. The
balance of the purchase price was paid using cash on hand and by a temporary
draw of $3,000,000 on the Company's revolving line of credit provided by Key
Bank, National Association.
A subsidiary of the Company had operated Prins from May 1, 1997 until the
closing of the purchase. Pursuant to an agreement with Prins' principal secured
lender, the Company received a one-time management fee of $700,000, paid by said
lender.
Item 5. Other Events
The Company completed an amendment to its Amended and Restated Revolving
and Term Loan Agreement with Key Bank, National Association, adding the Term
Loan provision referred to above, effective as of November 14, 1997.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the business acquired.
The audited balance sheets of Prins Recycling Corp. (Debtor-in-possession)
and its subsidiaries as of December 31, 1996 and 1995 and the related statements
of operations, changes in shareholders' equity (deficit), and cash flows for the
years then ended are included on pages F-1 through F-19. In addition, the
interim unaudited financial statements for the periods ending September 30, 1997
and 1996 are included on pages F-19 through F-23.
F-20
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(b) Pro Forma Financial information.
The following pro forma condensed combined financial statements are based
on the historical financial statements of the Company, of PERC, and of Prins.
The pro forma condensed combined statement of operations assumes that the
Company purchased the increased interest in PERC and the Prins assets at the
beginning of the respective periods. The Company's financial statements on Form
10-Q for the quarterly period ended September 30, 1997 consolidate PERC for
balance sheet purposes. Accordingly, the adjustments shown here are for the
consolidation of Prins, and for the increase in ownership of PERC to 71.3%.
The pro forma condensed combined statements of operations are not
necessarily indicative of operating results which would have been achieved had
this transaction been completed at the beginning of the respective periods and
should not be construed as representative of future operations.
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KTI, Inc.
December 30, 1996 and September 30, 1997
Notes to Pro Forma Condensed Combined Financial Statements (Unaudited)
1. Description of Transactions
On September 30 and November 12, 1997, the Company purchased 49.5% and 14.8%
limited partnership interests in Penobscot Energy Recovery Company, Limited
Partnership, a Maine limited partnership ("PERC"), respectively, from The
Prudential Insurance Company of America ("Prudential") for approximately $12
million and $2.1 million, respectively. Prior to September 30, 1997, the
Company held a 7% general partnership interest in PERC. The September purchase
price included a $300,000 option to purchase an additional percentage of PERC,
which was exercised as part of the November 12 transaction.
On November 14, 1997, the Company completed the acquisition of three recycling
facilities located in Franklin Park, Illinois, a suburb of Chicago, Charlestown,
Massachusetts, a suburb of Boston, and in Newark, New Jersey. The facilities
will be operated by wholly owned subsidiaries of the Company under the name of
KTI Recycling. The three facilities are capable of processing approximately
50,000 tons of post consumer and commercial recyclables per month. The
facilities were purchased as part of an asset purchase from Prins Recycling
Corp. and its subsidiaries ("Prins") pursuant to an order of the Bankruptcy
Court for the District of New Jersey entered on November 6, 1997. In addition to
the facilities, the Company purchased substantially all of the remaining assets
of Prins, principally property, plant, and equipment and accounts receivable,
and assumed certain post-petition liabilities. The purchase price was
approximately $14.4 million, including $14.2 million in cash and the
assumption of $200,000 of trade payables.
The purchase was financed in part by a term loan of $7.5 million provided by
Key Bank, National Association, bearing interest at said Bank's base rate plus
1.25% per annum, amortized with level monthly principal payments amortized over
60 months. The term loan is secured by a mortgage on the Franklin Park,
Illinois facilities, all property and equipment at the three facilities not
pledged to third parties and accounts receivable of the three facilities. The
balance of the purchase price was paid using cash on hand and by a temporary
draw of $3,000,000 on the Company's revolving line of credit provided by Key
Bank, National Association.
2. Pro Forma Adjustments
Balance Sheet as of September 30, 1997
(i) Payment of $14.2 million of cash for the acquisition of Prins assets.
(ii) Purchase of additional interest of 14.8% in PERC for $2,100,000 in cash,
exercise of the $300,000 option to purchase, and the resulting
adjustment of property, plant and equipment and minority interest of
PERC.
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(iii) Recording of goodwill resulting from acquisition of Prins assets.
(iv) Elimination of liabilities paid at closing.
(v) Eliminate Prins liabilities subject to compromise not assumed as part
of purchase price.
(vi) Record term loan of $7,500,000 payable used to finance a portion of
the Prins asset purchase.
(vii) Elimination of Prins' equity accounts.
Results of Operations, year ended December 31, 1996
(1) Elimination of Management fees charged by the Company to PERC.
(2) Reduction in depreciation of property, plant, and equipment as a result of
the adjustment of PERC asset values in connection with the purchase of
the additional PERC partnership interests.
(3) Elimination of the Company's 7% equity earnings in PERC.
(4) Recording of additional minority interest in earnings of PERC.
(5) Dividends on $21,400,000 of 8.75% Preferred Stock. Net proceeds were used
to complete the PERC transactions and the Prins acquisition.
(6) Elimination of antidilutive common stock equivalents.
(7) Amortization of goodwill resulting from Prins acquisition.
(8) Elimination of asset impairment which would not arise based on fair values
assigned to the assets acquired in the Prins acquisition.
(9) Elimination of bankruptcy and reorganization costs incurred by Prins.
(10) Elimination of interest on Prins' debt at default rate and recording of
interest expense on $7,500,000 term loan.
Results of Operations, nine months ended September 30, 1997.
(a) Reduction in depreciation of property, plant, and equipment, as a result
of the adjustment of PERC asset values for the purchase of the additional
PERC partnership interests.
(b) Elimination of pre-acquisition earnings of PERC.
(c) Recording of additional minority interest in earnings of PERC.
(d) Dividends on $21,400,000 of 8.75% Preferred Stock. Net proceeds were used
to complete the PERC transactions and the Prins acquisition.
(e) Additional common shares assumed outstanding based on the dilutive
effect of the Preferred Stock issue at $11.75 per share.
(f) Elimination of fees paid by Prins' principal secured lender to KTI for
management services which the Company provided between April 1997 and the
completion of the asset purchase.
(g) Amortization of goodwill resulting from Prins acquisition.
(h) Elimination of bankruptcy and reorganization costs incurred by Prins.
(i) Elimination of interest on Prins debt at default rate and recording of
interest expense on $7,500,000 term loan.
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KTI Inc.
Pro Forma Combined Balance Sheet
September 30, 1997
Prins
Recycling Pro Forma Pro Forma
KTI, Inc. Corp. Adjustments KTI, Inc.
--------- --------- ----------- ---------
Assets
Current Assets
Cash and cash equivalents $ 15,866,847 $ - $ (8,300,000)(i),(ii)(iv) $ 7,566,847
Restricted Funds, current portion 15,397,651 (500,000)(i) 14,897,651
Accounts receivable, net 19,274,847 2,739,093 22,013,940
Consumables and Spare Parts 5,669,746 120,494 5,790,240
Notes Receivable, current portion 441,151 18,012 459,163
Other Receivables 552,474 552,474
Prepaid expenses and other current assets 1,631,759 75,500 (300,000) (ii) 1,407,259
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Total current assets 58,834,475 2,953,099 (9,100,000) 52,687,574
Restricted Funds, net of current portion 4,828,519 4,828,519
Deferred Costs, net 4,354,847 4,354,847
Goodwill and other intangibles, net 12,192,534 4,189,204 (iii) 16,381,738
Other assets 1,374,135 465,751 1,839,886
Property, plant, and equipment, net 152,232,501 6,836,975 (2,733,898) (ii) 156,335,578
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$233,817,011 $ 10,255,825 $ (7,644,694) $236,428,142
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Liabilities and stockholders' (deficiency)
equity
Current liabilities
Accounts payable $ 7,820,304 $ 4,338,412 $ (4,138,412) (iv) $ 8,020,304
Accrued expenses 2,143,435 33,286 (33,286) (iv) 2,143,435
Liabilities subject to compromise 26,266,710 (26,266,710) (v) -
Capital leases, current portion 45,029 45,029
Short-term and current portion of long-term
debt 12,258,403 1,500,000 (vi) 13,758,403
Other current liabilities 1,739,718 1,739,718
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Total current liabilities 23,961,860 30,683,437 (28,938,408) 25,706,889
Other Liabilities 2,513,741 2,513,741
Amounts payable to banks, less current portion 75,361,922 6,000,000 (vi) 81,361,922
Minority Interest 26,795,520 (5,133,898) (ii) 21,661,622
Deferred income 37,500,000 37,500,000
Stockholders' (deficiency) equity
Preferred stock, 10,000,000 shares
authorized:
Series A 3,707,744 3,707,744
Series B 19,984,240 19,984,240
Common Stock 82,709 16,604 (16,604) (vii) 82,709
Additional paid-in capital 52,318,330 42,177,202 (42,177,202) (vii) 52,318,330
Accumulated deficit (8,409,055) (62,621,418) 62,621,418 (vii) (8,409,055)
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Total stockholders' (deficiency) equity 67,683,968 (20,427,612) 20,427,612 67,683,968
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$ 233,817,011 $ 10,255,825 $ (7,644,694) $236,428,142
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KTI, Inc.
Pro Forma Condensed Combined Statement of Operations (Unaudited)
Year ended December 31, 1996
Pro forma Pro forma
KTI, Inc. PERC Prins Adjustments KTI, Inc.
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Revenues
Electric Power Revenues $ 20,820,860 $ 18,478,405 $ 39,299,265
Gain on Sale of Capacity 33,203,252 33,203,252
Waste Processing Revenues 11,024,265 11,807,454 $ (530,786) (1) 22,300,933
Other Waste Handling Revenues 3,459,546 $ 24,997,168 28,456,714
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Total Revenues
68,507,923 30,285,859 24,997,168 (530,786) 123,260,164
Costs and Expenses
Electric power and waste processing and handling
operating costs 26,453,290 15,660,582 19,235,108 (319,685) (2) 60,498,509
(530,786) (1)
Selling, general, and administrative expenses 2,389,008 5,353,385 22,488,360 837,841 (7) 31,068,594
Impairment of Long-lived Assets 26,678,000 (26,678,000) (8) -
Reorganization Costs 800,000 (800,000) (9) -
Interest, net 4,463,873 3,170,785 3,480,822 (2,749,572) (10) 8,365,908
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Total Costs and Expenses 33,306,171 24,184,752 72,682,290 (30,240,202) 99,933,011
Equity in net income of PERC 332,655 (332,655) (3) -
Loss on Sale and abandonment of Assets (2,718,530) (2,718,530)
Loss of Sale of Investments (296,459) (296,459)
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Income (loss) from continuing operations before
minority interest 35,237,948 6,101,107 (50,403,652) 29,376,761 20,312,164
Minority Interest 18,609,797 1,751,018 (4) 20,360,815
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Income (loss) from continuing operations available
for Shareholders 16,628,151 6,101,107 (50,403,652) 27,625,743 (48,651)
Preferred Dividends 1,872,500 (5) 1,872,500
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Income (loss) from continuing operations for common
shareholders $ 16,628,151 $ 6,101,107 $ (50,403,652) $ 25,753,243 $ (1,921,151)
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Income (loss) from continuing operations per common
share and common share equivalent:
Primary: ------------ -------------
Income from continuing operations $2.61 ($.33)
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Weighted average number of common shares and common 6,359,593 (567,685) (6) 5,791,908
share equivalents outstanding
Fully Diluted: ------------ -------------
Income from continuing operations $2.40 ($.33)
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Weighted average number of common shares and common 6,925,976 (1,134,068) (6) 5,791,908
share equivalents outstanding
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KTI, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
Nine months ended September 30, 1997
Pro forma Pro Forma
KTI, Inc. Prins Adjustments KTI, Inc.
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Revenues
Electric Power Revenues $ 30,389,250 $ 30,389,250
Waste Processing Revenues 19,513,711 19,513,711
Other Waste Handling Revenues 16,096,812 13,529,223 (700,000) (f) 28,926,035
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Total Revenues 65,999,773 13,529,223 78,828,996
Costs and Expenses
Electric Power and Waste Processing Operating Costs 50,180,577 12,793,456 $ (239,764) (a) 62,734,269
Selling, General, and Administrative expenses 2,375,680 1,945,608 628,381 (g) 4,949,669
Reorganization Costs 1,205,803 (1,205,803) (h) -
Interest, Net 3,699,876 732,894 (184,457) (i) 4,248,314
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Total Costs and Expenses 56,256,133 16,677,761 (1,001,642) 71,932,252
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Income from Continuing Operations before Minority Interest 9,743,640 (3,148,538) 1,001,642 6,896,744
Pre-acquisition Earnings Minority Interest (3,983,766) 3,983,766 (b) -
Minority Interest in Subsidiaries (1,229,287) (1,229,399) (c) (2,458,686)
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Income from Continuing Operations before Minority
Interest 4,530,587 (3,148,538) 3,756,010 4,438,059
Preferred Dividends 1,400,527 (d) 1,400,527
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Income from continuing operations available to Common
Shareholders $ 4,530,587 $ (3,148,538) $ 2,355,483 $ 3,037,532
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Income (loss) from continuing operations per common
share and common share equivalent
Primary: ------------ ------------
Income from continuing operations $0.59 $0.39
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Weighted Average number of common shares and common 7,726,900 7,726,900
share equivalents outstanding
Diluted: ------------ ------------
Income from continuing operations $0.59 $0.46
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Weighted Average number of common shares and common 8,040,449 1,507,728 (e) 9,548,177
share equivalents outstanding
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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 hereunto duly authorized.
KTI, Inc.
(the Registrant)
Dated: January 26, 1998 By: /s/ Martin J. Sergi
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Name: Martin J. Sergi
Title: President
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EXHIBIT INDEX
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Exhibit Number Description
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4.1 * News release dated November 13, 1997
4.2 * Release dated November 14, 1997
4.3 Financial Statements of Prins Recycling
23.1 Consent of Ernst and Young LLP
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* As previously filed