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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 3, 1996
KTI, INC.
(Exact name of Registrant as specified in Chapter)
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
-------------------------------
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 May 3, 1996, the Company's 50.38% owned subsidiary, Maine Energy
Recovery Company LP ("Maine Energy") completed a restructuring of its Power
Purchase Agreement (the "PPA") with Central Maine Power Company ("CMP") and the
sale of its electrical generating capacity to CL Power Sales One, L.L.C. ("CL
One"). At closing Maine Energy received a payment from CL One of $85,000,000 and
the PPA was amended, retroactive to November 6, 1995, to reflect a reduction in
CMP's purchase price per kWh from $0.16 to $0.0718. In addition, the PPA was
extended from the year 2007 to 2012. The Company also received reimbursement of
certain transaction costs, an amount representing interest on its bonds payable
from November 6, 1995 to closing and certain other payments.
Under the terms of the agreements, Maine Energy will be liable to CMP
for liquidated damages of $3,750,000 for any calendar year through the year 2006
and on a prorata basis for the period from January 1 to May 31, 2007 in which it
does not deliver at least 100,000,000 kWh. Also, if during the same period,
Maine Energy fails to deliver at least 15,000,000 kWh in any calendar year
through the year 2006 and on a prorata basis for the period from January 1 to
May 31, 2007 it will be liable to CMP for liquidated damages of $45,000,000 less
the product of $3,750,000 times the number of completed calendar years from and
including 1996 to the year of default. Both of the provisions for liquidated
damages are subject to force majeure events. In order to secure CMP's right to
liquidated damages, Maine Energy has provided an irrevocable letter of credit in
the initial amount of $45,000,000 which will be reduced by $3,750,000 for each
completed year in which no event requiring the payment of liquidated damages
occurs. Under the terms of the letter of credit agreement, Maine Energy is
required to maintain certain restricted funds. Based on these contingencies,
Maine Energy will defer $45,000,000 of the proceeds of the sale of its capacity
and will recognize it as revenue ratably in the future as the contingencies are
eliminated.
Maine Energy has used the proceeds from the sale of its capacity to
repay the $64,500,000 Resource Recovery Bonds and to retire the bank letter of
credit issued to enhance the credit of the bonds. The remaining proceeds were
used together with unrestricted cash balances to repay $29,500,000 of the total
of Subordinated Notes Payable to Limited Partners. Subordinated Notes payable
after the repayment aggregate $13,459,367.
Subsequent to the transaction, the Company acquired additional
partnership interests in Maine Energy aggregating 23.77% from existing limited
partners for $792,340 in cash and a note payable of $164,000. The note bears
interest at prime plus 1% and is payable at the earlier of December 31, 1996 or
the time that the remaining subordinated debt is repaid. In addition one of the
selling limited partners forgave a note payable of $283,000 and accrued interest
of and $63,000. Subsequent to these transactions, the Company's ownership in
Maine Energy is 74.15%.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following pro forma condensed combined financial statements are
based on the historical financial statements of the Company (audited for the
year ended December 31, 1995 and unaudited for the three months ended March 31,
1996.) The pro forma condensed combined balance sheet assumes that (i) the
restructuring of Maine Energy's PPA and the sale of its capacity, (ii) the
acquisition of additional partnership interest in Maine Energy and (iii) the
acquisition of the partnership interest in AART occurred as of March 31, 1996.
The condensed combined statements of operations give effect to the same
transactions assuming they were completed at the beginning of the respective
periods.
The pro forma condensed combined statements of operations are not
necessarily indicative of operating results which would have been achieved had
these transactions 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.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Maine Energy
-------------------------------
Additional Combined
KTI Restructuring Partnership Pro
Actual of PPA Interest Subtotal AART Forma
---------- --------------- -------------- ----------- ----------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,414 $ 83,329 (a) $ (792)(k) $ 2,301 $ (494) $ 1,807
(86,650) (j)(i)
Restricted funds - current portion 3,144 4,189 (i) 7,333 7,333
Accounts receivable, net 8,586 (3,477) (d) 5,109 15 5,124
Other current assets 1,591 1,591 173 1,764
-------- -------- ------- --------- ------- --------
Total current assets 19,735 (2,609) (792) 16,334 (306) 16,028
Restricted funds 11,143 (11,143) (i) (0) (0)
Management fees receivable--affiliates 3,050 3,050 3,050
Other receivables 610 610 610
Investment in PERC 3,620 3,620 3,620
Deferred costs, net 4,146 (4,023) (b) 123 123
Goodwill and other intangibles, net 3,433 (2,433) (f) 1,000 1,000
Other assets 2,099 2,099 2,099
Property, plant and equipment 87,661 (7,751) (l) 79,910 3,834 83,744
-------- -------- ------- --------- ------- --------
Total assets $135,497 $(20,208) $(8,543) $ 106,746 $ 3,528 $110,274
======== ======== ======= ========= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,573 $ 3,573 $ 184 $ 3,757
Accrued expenses 5,018 $ (2,247) (j) $ (63) (k) 3,708 11 3,719
1,000 (c)
Current portion of long-term debt 8,297 (2,600) (j) (283) (k) 5,414 1,596 7,010
Income taxes payable 290 290 290
Other current liabilities 696 696 696
-------- -------- ------- --------- ------- --------
Total current liabilities 17,874 (3,847) (346) 13,681 1,791 15,472
Other liabilities 76 76 76
Long-term debt, less current portion 107,465 (88,757) (j) 164 (k) 18,872 727 19,599
Minority interest 2,672 14,801 (g) (8,361) (l) 9,112 1,010 10,122
Deferred gain on sale of capacity 45,000 (e) 45,000 45,000
Stockholders' equity:
Common stock 57 57 57
Additional paid-in capital 33,937 33,937 33,937
Accumulated (deficit) (26,584) 12,595 (h) (13,989) (13,989)
-------- -------- ------- --------- ------- --------
Total stockholders' equity 7,410 12,595 - 20,005 - 20,005
-------- -------- ------- --------- ------- --------
Total liabilities and stockholders'
equity $135,497 $(20,208) $(8,543) $ 106,746 $ 3,528 $110,274
======== ======== ======= ========= ======= ========
</TABLE>
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KTI, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Maine Energy
-------------------------------
Additional Combined
KTI Restructuring Partnership Pro
Actual of PPA Interest AART (g) Forma
---------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Electric power revenues $ 26,470 $ (14,256) (b) $ 12,214
Gain on sale of capacity 36,628 (a) 36,628
Waste processing revenues 8,050 8,050
Other waste handling revenues 3,563 $2,551 6,114
Computer services revenues 10,199 10,199
-------- --------- ------ --------
Total revenues 48,282 22,372 2,551 73,205
-------- --------- ------ --------
Costs and expenses:
Electric power and waste processing 26,139 $ (410) (f) 2,118 27,847
operating costs
Costs of software sales and contracts 4,678 4,678
Selling, general and administrative:
Waste handling 2,941 2,941
Computer services 5,606 5,606
Interest - net 9,379 (6,571) (c) 115 2,923
-------- --------- ------ ------ --------
Total costs and expenses 48,743 (6,571) (410) 2,233 43,995
Equity in net income of PERC 335 335
-------- --------- ------ ------ --------
Income (loss) before minority interest
and income taxes (126) 28,943 410 318 29,545
Minority interest: (1,287) (13,573) (d) 616 (79) (14,323)
-------- --------- ------ ------ --------
Income (loss) before income taxes (1,413) 15,370 1,026 239 15,222
Income taxes 65 120 185
-------- --------- ------ ------ --------
Income (loss) before extraordinary item (1,478) 15,370 1,026 119 15,037
Extraordinary item:
Gain (loss) on extinguishment of debt 148 (4,023) (e) (3,875)
-------- --------- ------ ------ --------
Net income (loss) $ (1,330) $ 11,347 $1,026 $ 119 $ 11,162
======== ========= ====== ====== ========
Pro forma (loss) earnings per share:
(Loss) income before extraordinary item $ (0.30) $ 2.87
======== ========
Net (loss) income $ (0.27) $ 2.13
======== ========
Proforma shares outstanding 5,013 5,238
======== ========
</TABLE>
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KTI, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Maine Energy
-------------------------------
Additional Combined
KTI Restructuring Partnership Pro
Actual of PPA Interest AART (g) Forma
----------- ------------- ----------- ---------------- ------------
Revenues:
<S> <C> <C> <C> <C> <C>
Electric power revenues $ 7,401 $ (6,776) (b) $ 625
Gain on sale of capacity 36,628 (a) 36,628
Waste processing revenues 2,090 2,090
Other waste handling revenues 716 $ 292 1,007
Computer services revenues 2,856 2,856
------- -------- ----- --------
Total revenues 13,063 29,852 292 43,207
------- -------- ----- --------
Costs and expenses:
Electric power and waste processing 6,487 $(135) (f) 302 6,654
operating costs
Costs of software sales and contracts 1,303 1,303
Selling, general and administrative:
Waste handling 859 859
Computer services 1,554 1,554
Interest - net 2,032 (1,030) (c) 31 1,033
------- -------- ----- ----- --------
Total costs and expenses 12,235 (1,030) (135) 333 11,403
Equity in net income of PERC 26 26
Income (loss) before minority interest
and income taxes 854 30,882 135 (41) 31,830
Minority interest:
Minority interest Maine Energy (797) (14,535) (d) 381 (14,951)
Minority interest in AAR Partnerships (34) 16 (18)
------- -------- ----- ----- --------
Income before income taxes 23 16,347 516 (25) 16,861
Income taxes
------- -------- ----- ----- --------
Income (loss) before extraordinary item 23 16,347 516 (25) 16,861
Extraordinary item:
Loss on extinguishment of debt (4,023) (e) (4,023)
------- -------- ----- ----- --------
Net income $ 23 $ 12,324 $ 516 $ (25) $ 12,838
======= ======== ===== ===== ========
Pro forma (loss) earnings per share:
(Loss) income before extraordinary item - $ 2.84
Net (loss) income $ 0.00 $ 2.16
======= ========
Proforma shares outstanding 5,939 5,939
======= ========
</TABLE>
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KTI, INC.
MARCH 31, 1996
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(TABLES IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. DESCRIPTION OF TRANSACTIONS
On April 11, 1996, the Company completed the acquisition of a 60%
limited partnership interest in American Ash Recycling Co. of Tennessee
("AART"), a limited partnership. The transaction will be accounted for as a
purchase. The purchase price was $2,100,000, including a capital contribution of
$500,000 to provide working capital to AART. The partnership agreement affords
the Company preference in distributions until it has received a 15% return on
its investment after which distributions are made on the basis of ownership. The
assets of American Ash Recycling Corp. Of Tennessee were conveyed to AART on
April 11, 1996. AART owns and operates a facility located in Nashville, TN,
which converts ash obtained from a municipal waste incinerator, through a
proprietary process, to aggregate material which can be used for road bed
underlayment and for similar purposes. AART also recycles ferrous and other
metals recovered from the unprocessed ash stream. The operations of AART will be
included in the Company's consolidated financial statements beginning at the
date of acquisition.
See Item 2: Acquisition or Disposition of Assets for a description the
restructuring of Maine Energy's PPA and the sale of its capacity and the
acquisition of additional partnership interest in Maine Energy.transactions.
2. PRO FORMA ADJUSTMENTS
BALANCE SHEET
(a) Proceeds of the restructuring of Maine Energy's PPA and the sale of its
capacity, net of expenses paid at closing:
<TABLE>
<CAPTION>
<S> <C>
Receipts:
Payment for sale of capacity $85,000
Reimbursement for transaction costs 1,238
Per diem payments for interest 1,566
Other payments 1,713
-------
Subtotal 89,517
Disbursements:
Adjustment to electricity payments retroactive to November 6, 1995 3,299
Transaction costs paid at closing 2,889
-------
Net proceeds $83,329
=======
</TABLE>
(b) Write off of deferred costs including deferred financing costs related to
the bonds and existing letter of credit.
(c) Record certain accrued expenses
(d) Adjustment of accounts receivable to reflect revised rates.
(e) Deferral of a portion of the proceeds pending the elimination of
contingencies.
(f) Write off of certain intangibles.
(g) Minority interest in the gain on the restructured PPA transaction.
(h) Gain on restructured PPA transaction.
(i) Utilization of and reclassification of restricted cash balances to reflect
revised requirements.
(j) Repayment of debt and accrued interest.
(k) Purchase of additional 23.77% partnership interest in Maine Energy.
(l) Adjustment to property plant and equipment to reflect bargain purchase of
additional partnership interest.
(m) See Note 1. Description of Transactions.
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STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31,1995 MARCH 31, 1996
---------------- --------------
<S> <C> <C>
Maine Energy PPA restructuring and capacity sale:
(a) Payments received:
Payment for sale of capacity $85,000 $85,000
Reimbursement of transaction costs 1,238 1,238
Other payments 1,713 1,713
------- -------
$87,951 $87,951
======= =======
Less:
Transaction costs 3,889 3889
Deferred gain 45,000 45,000
Adjust carrying value of PPA 2,433 2,433
------- -------
$36,628 $36,628
======= =======
(b) Adjustment to power rates (retroactive to
November 6, 1995 for the three months
ended March 31, 1996.) $14,256 $ 6,776
======= =======
(c) Adjustments to interest expense:
Per diem adjustment retroactive to November 6, 1995 $ (345)
Reduction in interest on debt assumed paid at the be-
ginning of the period. $ 6,571 1,375
------- -------
$ 6571 $ 1,030
======= =======
(d) Minority interest in the restructuring of the
PPA and other transactions. $13,573 $14,535
======= =======
(e) Write off of deferred costs including deferred financing
costs related to the bonds and existing letter of credit. $ 4,023 $ 4,023
======= =======
(f) Reduction in depreciation of assets written down to
reflect the bargain purchase of additional
partnership interest. $ 410 $ 135
======= =======
(g) Adjustments to reflect the purchase of the interest in AART.
</TABLE>
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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.
---------------------------------
(Registrant)
Dated: May 18, 1996 By: /s/ Leffert G. Carroll
---------------------------------
Name: Leffert G. Carroll
Title: Senior Vice President
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