SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
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):
April 11, 1996
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)
(201)854-7777
(Registrant's telephone number including area code)
Not Applicable
(Former name and former address, as changed since last report)
Item 2. Acquisition or Disposition of Assets
On April 11, 1996, the Registrant purchased a 60% interest as a limited
partner in American Ash Recycling of Tennessee, LTD., a Florida limited
partnership. The general partner is American Ash Recycling Corp. of
Tennessee, a Florida corporation. The partnership will carry on the business
of the predecessor corporation. The Registrant has a priority on
distribution of earnings up to a minimum amount.
The purchase price consisted of $500,000 in cash and a promissory note for
$1,600,000.
The partnership owns an incinerator ash recycling plant in Nashville,
Tennessee, which commenced operations in 1993. The plant recycles ash from a
landfill owned by the Metropolitan Government of Nashville and Davidson
County.
The plant had total sales of approximately $2,500,000 in the calendar year
ending December 31, 1995.
The plant processes ash to recover both ferrous and non-ferrous metals, and
after removing unburned material, converts the residue into a high grade
aggregate which is sold for use in asphalt, concrete and roadbed
applications.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the business acquired.
The audited financial statements of American Ash Recycling Corp. of
Tennessee (the predecessor corporation) for the year ended December 31, 1995
together with the independent auditors report thereon are included on pages
F-1 through F-10 hereof.
(b) Proforma Financial information
The required proforma financial information was included on Form 8K
dated May 3, 1996 as filed with the Securities and Exchange Commission on May
18, 1996.
(c) Exhibits
Exhibit
Number
10 First Amendment to the Agreement of Limited Partnership of American Ash
Recycling of Tennessee, LTD., dated as of February 15, 1996. (Filed as
Exhibit 1 to registrant's Current Report on Form 8-K dated April 15, 1996.)
23 Consent of KPMG Peat Marwick 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.
(Registrant)
Dated: May 29, 1996 By: /s/ Martin J. Sergi
Name: Martin J. Sergi
Title: President
Index to Financial Statements
The following financial statements of American Ash Recycling Corp. of
Tennessee are included in item 7.:
Report of Independent Auditors F-2
Balance sheets at December 31, 1995 and 1994 F-3
Statements of operations for the years ended
December 31, 1995 and 1994 F-4
Statements of shareholder's equity for the years ended
December 31, 1995 and 1994 F-5
Statements of cash flows for the years ended
December 31, 1995 and 1994 F-6
Notes to financial statements F-7
Independent Auditors' Report
The Board of Directors
American Ash Recycling Corp. of Tennessee:
We have audited the accompanying balance sheets of American Ash Recycling
Corp. of Tennessee as of December 31, 1995 and 1994, and the related
statements of operations, shareholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Ash Recycling Corp.
of Tennessee as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Jacksonville, Florida
March 12, 1996
AMERICAN ASH RECYCLING CORP. OF TENNESSEE
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,981 35,755
Accounts receivable 120,829 166,147
Prepaid expenses and other
current assets 49,567 58,228
Total current assets 240,377 260,130
Buildings and equipment, net (notes 3
and 4) 2,654,818 2,870,032
Total assets $ 2,895,195 3,130,162
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 197,807 223,548
Accrued expenses 5,868 8,205
Current portion of long-term
debt (note 4) 438,197 444,241
Total current liabilities 641,872 675,994
Deferred income taxes (note 5) 130,130 119,916
Long-term debt, excluding current
portion (note 4) 819,932 624,616
Intercompany payables (note 2) 658,222 1,262,003
Total liabilites 2,250,156 2,682,529
Shareholder's equity:
Common stock, $1 par value;
10,000 shares issued
and outstanding 10,000 10,000
Retained earnings 635,039 437,633
Total shareholder's equity 645,039 447,633
$ 2,895,195 3,130,162
See accompanying notes to financial statements.
</TABLE>
AMERICAN ASH RECYCLING CORP. OF TENNESSEE
Statement of Operations
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenue $ 2,551,471 3,400,139
Cost of operations 1,499,258 1,979,339
Gross profit 1,052,213 1,420,800
General and administrative expenses 242,587 265,521
Depreciation and amortization 354,885 333,527
597,472 599,048
Operating income 454,741 821,752
Interest expense 115,171 130,486
Other expense, net 21,733 23,896
Income before taxes 317,837 667,370
Income tax expense (note 5) 120,431 253,369
Net income $ 197,406 414,001
See accompanying notes to financial statements.
</TABLE>
AMERICAN ASH RECYCLING CORP. OF TENNESSEE
Statements of Shareholder's Equity
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
<S> <C> <C> <C> <C>
Balance, December 31, 1993 10,000 $ 10,000 23,632 33,632
Net income - - 414,000 414,000
Balance, December 31, 1994 10,000 10,000 437,633 447,633
Net income - - 197,406 197,406
Balance, December 31, 1995 10,000 $ 10,000 635,039 645,039
See accompanying notes to financial statements.
</TABLE>
AMERICAN ASH RECYCLING CORP. OF TENNESSEE
Statements of Cash Flows
Years ended December 31,1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income 197,406 414,001
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 354,885 333,527
Deferred income taxes 10,214 102,716
Changes in assets and liabilities:
Accounts receivable 45,318 (37,467)
Prepaid expenses and other
current assets 8,661 (42,227)
Accounts payable (25,618) 33,291
Accrued expenses (2,460) (13,557)
Net cash provided by operating
operating activities 588,406 790,284
Cash flows from investing activities:
Purchases of buildings and equipment (141,171) (174,547)
Proceeds from sale of equipment and vehicles 1,500 -
Net cash used in investing
activities (139,671) (174,547)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 499,785 190,912
Repayment of long-term debt (310,513) (524,689)
Change in intercompany payables (603,781) (257,789)
Net cash used in financing
activities (414,509) (591,566)
Net increase in cash and
cash equivalents 34,226 24,171
Cash and cash equivalents at beginning
of year 35,755 11,584
Cash and cash equivalents at end of year 69,981 35,755
See accompanying notes to financial statements.
</TABLE>
AMERICAN ASH RECYCLING CORP. OF TENNESSEE
Notes to Financial Statements
December 31,1995 and 1994
(1) Company Ownership and Operations
American Ash Recycling Corp. of Tennessee (the Company) is a wholly-
owned subsidiary of American Ash Recycling Corp. (AAR) which is a
wholly-owned subsidiary of Environmental Capital Holdings, Inc. (ECH).
The Company, through the comprehensive technologies of ECH, recycles
Municipal Waste Combustor (MWC) ash. Combining the technology for the
recovery of both ferrous and non-ferrous metals from MWC ash and the
proprietary air classification equipment (Windzifter and Stijzifter)
licensed from its affiliate, Duos Engineering (USA), Inc., the Company
is able to remove substantially all metals and unburned materials,
thereby rendering the remaining ash suitable to be recycled for
beneficial reuse as aggregate in asphalt and concrete, as base and sub-
base in road construction and as landfill cover, thereby avoiding the
need to landfill the ash.
The Company entered into a MWC ash recycling contract with the
Metropolitan Government of Nashville and Davidson County, Tennessee in
January 1993. The terms of the contract are for a two year period
commencing 120 days after execution of the contract with the
Metropolitan Government having the option to extend the contract in one
year increments for three additional increments. Simultaneously, the
Company was granted the first permit for commercial (i.e., beneficial)
reuse of aggregate derived from MSW incinerator ash for road
construction applications by the State of Tennessee. The Company
commenced construction of its Nashville ash recycling facility in May of
1993 and commenced commercial operations of the facility in September
1993. The facility was completed at a total capital cost of
approximately $3.3 million dollars. As of December 31, 1995, the
facility has successfully recycled over 220,000 tons of MWC ash since
startup.
On February 15, 1996, the Company entered into a Limited Partnership
Agreement - American Ash Recycling of Tennessee, Ltd. - with KTI, Inc.
for the purpose of acquiring and continuing to operate the Company's
facility in Nashville, Tennessee. The Company expects to realize a gain
in 1996 of approximately $720,000 on the sale of certain assets in this
transaction, as well as an additional deferred gain of $480,000 which
will be amortized over thirty months. The Company will be the managing
general partner with a forty percent equity interest and KTI will
contribute all equity required for the project in exchange for a sixty
percent limited partnership interest.
(2) Summary of Significant Accounting Policies
(a) Income Recognition
Ash recycling fees are charged on a "per ton" basis and recognized
based upon actual scale receipts.
(b) Buildings and Equipment
Buildings and equipment are stated at cost and are depreciated over
the estimated life of the related contract or estimated useful life
of the asset, whichever is less. Currently, the depreciable lives
average ten years for buildings and five to seven years for heavy
equipment and vehicles.
(c) Intercompany Payables
The intercompany payables relate primarily to the amounts due for
income taxes and operating expenses paid for by the parent company,
AAR.
(d) Income Taxes
Along with its parent AAR, the Company's results of operations are
included in the U.S. federal and Florida income tax return of ECH.
The tax provisions and deferred taxes recorded by the Company have
been determined as if the Company was a standalone business filing
separate returns. The current tax liability has been recorded as an
intercompany payable.
The Company follows the asset and liability method of accounting
for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under Statement 109, deferred tax assets and deferred tax
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in years in which those temporary differences are expected
to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(e) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
(f) Fair Value of Financial Instruments
The fair value of the Company's long-term debt approximates the
carrying value based on the rates currently offered to the Company
for debt of similar average terms and maturities.
(3) Buildings and Equipment
At December 31, 1995 and 1994, buildings and equipment consisted of the
following:
1995 1994
Buildings and other improvements $ 1,543,865 1,495,879
Heavy equipment and vehicles 1,978,037 1,895,561
3,521,902 3,391,440
Accumulated depreciation and amortization (867,084) (521,408)
$ 2,654,818 2,870,032
(4) Long-Term Debt
Long-term debt at December 31, 1995 and 1994, consisted of the
following:
1995 1994
Installment notes payable with interest at 9.62%
to 9.94%, due in August, 1998, collateralized
by equipment. $1,190,380 1,059,378
Installment notes payable with interest at 11%
to 13.63%, due at varying dates through
2000, collateralized by vehicles. 67,749 9,479
1,258,129 1,068,857
Less current portion (438,197) (444,241)
$ 819,932 624,616
Future maturities of long-term debt at December 31, 1995, are as
follows:
1996 $ 438,197
1997 474,340
1998 340,009
1999 3,412
2000 2,171
$ 1,258,129
(5) Income Taxes
Income tax expense amounted to $120,431 (an effective rate of
37.9%) and $253,369 (an effective rate of 37.9%) for the years
ended December 31, 1995 and 1994. The actual tax expense for 1995
and 1994 differs from the "expected" tax expense (computed at the
federal rate of 34%) as follows:
1995 1994
Computed "expected" tax expense $ 108,065 226,095
State tax, net of federal benefit 11,617 24,300
Other, net 749 2,974
$ 120,431 253,369
Components of income tax expense for the year ended December 31,
1995 and 1994 is as follows:
1995 1994
Current income tax expense:
Federal $ 94,108 128,633
State 16,109 22,020
110,217 150,653
Deferred income tax expense:
Federal 8,721 87,918
State 1,493 14,798
10,214 102,716
Net income tax expense $ 120,431 253,369
There are no deferred tax assets at December 31, 1995 and 1994. The
effects of temporary differences that give rise to significant portions
of the deferred tax liabilities are a result of differences in
depreciation of buildings and equipment.
(6) Related Party Transactions
The Company pays a monthly management fee to ECH of 5% and 10% of net
revenues for the years ended December 31, 1995 and 1994, respectively.
Management fees amounted to $101,078 and $265,321 in 1995 and 1994,
respectively.
Beginning in 1995, the Company pays a royalty fee of 7% of net revenues
to ECH for use of technology developed by and licensed from Duos
Engineering (USA), Inc. Royalty fees amounted to $141,509 for 1995.
Exhibit 23.
Accountant's Consent
The Board of Directors
American Ash Recycling Corp.
Of Tennessee:
We consent to the inclusion of our report dated March 12, 1996, with respect
to the balance sheets of American Ash Recycling Corp. of Tennessee as of
December 31, 1995 and 1994, and the related statements of operations,
shareholder s equity, and cash flows for the years then ended, which report
appears in the Form 8-KA of KTI, Inc. Dated May 28, 1996.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Jacksonville, Florida
May 29, 1996
