1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 8-K/A CURRENT REPORT AMENDMENT NO. 2 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 - -------------------------------------------------------------------------------- (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification Number) 7000 Boulevard East, Guttenberg, New Jersey 07093 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number including area code- (201) 854-7777 ------------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name and former address, as changed since last report) 2 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-20 through F-23. 3 (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. 4 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. 5 (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. 6 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 ------------ ------------ ------------- ------------ 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 ------------ ------------ ------------- ------------ $233,817,011 $ 10,255,825 $ (7,644,694) $236,428,142 ============ ============ ============= ============ 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 ----------- ------------ ------------- ------------ 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) ----------- ------------ ------------- ------------ Total stockholders' (deficiency) equity 67,683,968 (20,427,612) 20,427,612 67,683,968 ----------- ------------ ------------- ------------ $ 233,817,011 $ 10,255,825 $ (7,644,694) $236,428,142 ============= ============ ============= ============ 7 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. --------- ---- ----- ----------- --------- 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 ------------ ------------ ------------- ------------ ------------- 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 ------------ ------------ ------------- ------------ ------------- 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) ------------ ------------ ------------- ------------ ------------- 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 ------------ ------------ ------------- ------------ ------------- 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 ------------ ------------ ------------- ------------ ------------- Income (loss) from continuing operations for common shareholders $ 16,628,151 $ 6,101,107 $ (50,403,652) $ 25,753,243 $ (1,921,151) ============ ============ ============= ============ ============= Income (loss) from continuing operations per common share and common share equivalent: Primary: ------------ ------------- Income from continuing operations $2.61 ($.33) ============ ============= 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) ============ ============= Weighted average number of common shares and common 6,925,976 (1,134,068) (6) 5,791,908 share equivalents outstanding 8 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. --------- ----- ----------- --------- 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 ------------ ------------- ----------- ------------ 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 ------------ ------------- ----------- ------------ Total Costs and Expenses 56,256,133 16,677,761 (1,001,642) 71,932,252 ------------ ------------- ----------- ------------ 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) ------------ ------------- ----------- ------------ 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 ------------ ------------- ----------- ------------ Income from continuing operations available to Common Shareholders $ 4,530,587 $ (3,148,538) $ 2,355,483 $ 3,037,532 ============ ============ ============ ============= Income (loss) from continuing operations per common share and common share equivalent Primary: ------------ ------------ Income from continuing operations $0.59 $0.39 ============ ============ 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 ============ ============ Weighted Average number of common shares and common 8,040,449 1,507,728 (e) 9,548,177 share equivalents outstanding 9 (c) Exhibits 4.1 News release dated November 13, 1997 4.2 News release dated November 14, 1997 4.3 Financial Statements of Prins Recycling 23.1 Consent of Ernst & Young LLP 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 ---------------------------- Name: Martin J. Sergi Title: President 10 EXHIBIT INDEX ------------- Exhibit Number Description -------------- ----------- 4.1 * News release dated November 13, 1997 4.2 * News release dated November 14, 1997 4.3 Financial Statements of Prins Recycling 23.1 Consent of Ernst & Young LLP ------- * Previously filed