<PAGE> 1
FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File No. 0-25490
KTI, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2665282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7000 Boulevard East 07093
Guttenberg, New Jersey (Zip code)
(Address of principal executive offices)
(201) 854-7777
(Registrants telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, No Par Value 13,214,137 Shares as of November 16, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number and Caption Page Number
-----------
<S> <C>
PART I
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8K 21
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KTI, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,178 $ 11,181
Restricted funds - current portion 20,476 13,103
Accounts receivable, net of allowances of
$873 and $294 32,033 22,126
Consumables and spare parts 4,627 4,041
Inventory 4,308 1,219
Notes receivable--officers/shareholders 1,709 110
and affiliates - current
Other receivables 3,593 461
Deferred taxes 2,832 2,751
Other current assets 2,903 793
--------- ---------
Total current assets 80,659 55,785
Restricted funds 4,736 6,527
Other receivables 3,221 271
Deferred costs, net of accumulated amortization
of $2,778 and $676 5,871 2,916
Goodwill and other intangibles, net of
accumulated amortization of $2,141 and $778 107,154 17,483
Other assets 8,047 1,768
Deferred project development costs 933 932
Property, equipment and leasehold
improvements, net of accumulated
depreciation of $24,285 and $17,837 207,418 156,801
--------- ---------
Total assets $ 418,039 $ 242,483
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 15,592 $ 8,779
Accrued expenses 7,176 3,825
Debt, current portion 7,203 19,794
Income taxes payable 2,067 165
Other current liabilities 467 1,184
--------- ---------
Total current liabilities 32,505 33,747
Other liabilities 8,501 1,918
Debt, less current portion 194,252 74,473
Minority interest 24,812 22,105
Convertible subordinated notes 21,099 --
Deferred revenue 33,750 37,500
Commitments and contingencies
Stockholders' equity
Preferred stock; 10,000,000 shares authorized;
Series A, par value $8 per share,
447,500 shares authorized, issued and
outstanding in 1997 -- 3,732
Series B, par value $25 per share, 8.75%,
880,000 shares authorized, 856,000 shares
issued and outstanding in 1997 -- 21,400
Common stock, no par value (stated value $.01
per share); authorized 40,000,000 issued and
outstanding; 12,030,509 in 1998
8,912,630 in 1997 120 89
Additional paid-in capital 98,719 52,762
Retained earnings (deficit) 4,281 (5,243)
--------- ---------
Total stockholders' equity 103,120 72,740
--------- ---------
Total liabilities and stockholders' equity $ 418,039 $ 242,483
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 4
KTI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 49,945 $ 26,848 $ 128,099 $ 66,000
Cost of operations 36,167 20,529 98,137 50,180
------------ ------------ ------------ ------------
Gross Profit 13,778 6,319 29,962 15,820
Selling, general and
administrative 2,468 520 5,582 2,376
Interest expense, net 2,779 977 5,839 3,700
------------ ------------ ------------ ------------
Income before minority
interest, taxes and
extraordinary item 8,531 4,822 18,541 9,744
Minority interest 2,220 883 5,209 1,229
Pre-acquisition earnings of
PERC -- 1,543 -- 3,984
------------ ------------ ------------ ------------
Income before taxes and
extraordinary item 6,311 2,396 13,332 4,531
Income taxes 1,662 -- 2,179 --
------------ ------------ ------------ ------------
Income before extraordinary
item 4,649 2,396 11,153 4,531
Loss on early extinguishment
of debt, net of minority
interest and taxes -- -- 495 --
------------ ------------ ------------ ------------
Net income 4,649 2,396 10,658 4,531
Accretion and accrued and
paid dividends on preferred
stock 156 325 1,134 823
------------ ------------ ------------ ------------
Net income available to
common shareholders $ 4,493 $ 2,071 $ 9,524 $ 3,708
============ ============ ============ ============
EARNINGS PER COMMON SHARE
BASIC
Income before extraordinary
item $ 0.42 $ 0.29 $ 1.02 $ 0.53
Extraordinary item -- -- (0.05) --
------------ ------------ ------------ ------------
Net Income $ 0.42 $ 0.29 $ 0.97 $ 0.53
============ ============ ============ ============
Weighted average common
shares 10,574,888 7,124,387 9,813,650 6,954,670
DILUTED
Income before extraordinary
item $ 0.38 $ 0.23 $ 0.91 $ 0.43
Extraordinary item -- -- (0.04) --
------------ ------------ ------------ ------------
Net Income $ 0.38 $ 0.23 $ 0.87 $ 0.43
============ ============ ============ ============
Weighted average common
shares and common share
equivalents 13,164,161 10,668,229 12,554,132 9,826,110
</TABLE>
See accompanying notes.
3
<PAGE> 5
KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,658 $ 4,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,534 3,246
Minority interest, net of distributions 2,707 1,229
Deferred revenue (3,750) (2,975)
Provision for losses on accounts receivable 579 --
Interest accrued and capitalized on debt 872 2,529
Gain on sale of assets (19) (7)
Loss on early extinguishment of debt, net 495 --
Security received for sale of power (2,884) --
Changes in operating assets and liabilities
Accounts receivable (886) (2,711)
Consumables, spare parts and inventories (1,316) 65
Other assets (149) 224
Restricted funds 1,971 --
Notes and other receivables (4,220) 648
Accounts payable and accrued expenses (1,415) (1,961)
Income taxes payable 1,724 --
Other liabilities 708 (234)
--------- ---------
Net cash provided by operating activities 13,609 4,584
INVESTING ACTIVITIES
Additions to property, equipment and leasehold
improvements (4,675) (2,336)
Proceeds from sale of assets 1,755 8
Net changes in restricted funds (4,685) (2,107)
Purchase of businesses, net of cash acquired (62,154) (9,125)
Notes receivable -- affiliates (380) (171)
--------- ---------
Net cash (used in) investing activities (70,139) (13,731)
FINANCING ACTIVITIES
Deferred financing costs (3,936) (1,702)
Proceeds from issuance of debt 198,974 2,862
Proceeds from exercise of warrants 1,600 --
Proceeds from exercise of stock options 1,635 --
Proceeds from sale of common stock -- 1,177
Proceeds from sale of preferred stock -- 23,692
Dividends paid on preferred stock (1,092) (6,242)
Principal payments on debt (143,654) --
--------- ---------
Net cash provided by financing activities 53,527 19,787
Increase (decrease) in cash and cash equivalents (3,003) 10,640
Cash and cash equivalents at beginning of period 11,181 5,227
--------- ---------
Cash and cash equivalents at end of period $ 8,178 $ 15,867
========= =========
</TABLE>
- - -Continued-
4
<PAGE> 6
KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 4,802 $ 1,082
======== ========
SUPPLEMENTAL NON CASH INVESTING AND
FINANCE ACTIVITIES
Accretion and warrant valuation on Class $ 42 $ 599
A Preferred Stock
Conversion of convertible subordinated
notes to equity, including accrued interest -- 5,008
Elimination of management fees receivable
from affiliate upon purchase of additional
interest -- 2,742
Purchase of business, net of cash acquired:
Working capital, net of cash acquired (6,040) (5,953)
Property, plant and equipment (51,950) (63,650)
Purchase price in excess of net
assets acquired (91,034) (7,525)
Other assets (4,752) 747
Non current liabilities 52,985 60,967
Common stock issued 38,637 6,289
</TABLE>
See accompanying notes.
5
<PAGE> 7
KTI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- -- $ -- 6,836,766 $ 68
Net income -- -- -- -- -- --
Issuance of Series A Preferred Stock
and common stock purchase warrants 487,500 3,376 -- -- -- --
Accretion of Series A Preferred Stock -- 700 -- -- -- --
Issuance of Series B Preferred Stock
and common stock purchase warrants -- -- 856,000 21,400 -- --
Issuance of common stock and
common stock purchase warrants for:
Exercise of options -- -- -- -- 85,353 1
Exercise of warrants -- -- -- -- 692,771 7
Conversion of debt -- -- -- -- 618,609 6
Conversion of preferred stock (40,000) (344) -- -- 40,000 --
Employee savings plan contribution -- -- -- -- 4,117 --
Business combinations -- -- -- -- 635,014 7
Dividends paid on Series B Preferred
Stock -- -- -- -- -- --
------------------------------------------------------------------------------------
Balance at December 31, 1997 447,500 3,732 856,000 21,400 8,912,630 89
Net income -- -- -- -- -- --
Accretion of Series A Preferred Stock -- 42 -- -- -- --
Issuance of common stock and common stock
purchase warrants for:
Exercise of options -- -- -- -- 217,742 2
Exercise of warrants -- -- -- -- 403,888 4
Conversion of preferred stock to
8.75% Convertible Debt -- -- (843,960) (21,099) -- --
Conversion of preferred stock (447,500) (3,774) (12,040) (301) 473,031 5
Employee savings plan contribution -- -- -- -- 4,215 --
Business combinations -- -- -- -- 2,019,033 20
Dividends paid on Series B Preferred
Stock -- -- -- -- -- --
------------------------------------------------------------------------------------
Balance at September 30, 1998 -- $ -- -- $ -- 12,030,539 $120
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID IN EARNINGS
CAPITAL (DEFICIT) TOTAL
------- --------- -----
<S> <C> <C> <C>
Balance at December 31, 1996 $ 38,576 $(12,940) $ 25,704
Net income -- 8,092 8,092
Issuance of Series A Preferred Stock
and common stock purchase warrants 422 -- 3,798
Accretion of Series A Preferred Stock (700) -- --
Issuance of Series B Preferred Stock
and common stock purchase warrants (1,416) -- 19,984
Issuance of common stock and
common stock purchase warrants for:
Exercise of options 502 -- 503
Exercise of warrants 3,611 -- 3,618
Conversion of debt 4,901 -- 4,907
Conversion of preferred stock 344 -- --
Employee savings plan contribution 35 -- 35
Business combinations 6,487 -- 6,494
Dividends paid on Series B Preferred
Stock -- (395) (395)
----------------------------------------------
Balance at December 31, 1997 52,762 (5,243) 72,740
Net income -- 10,658 10,658
Accretion of Series A Preferred Stock -- (42) --
Issuance of common stock and common stock
purchase warrants for:
Exercise of options 1,633 -- 1,635
Exercise of warrants 1,596 -- 1,600
Conversion of preferred stock to
8.75% Convertible Debt -- -- (21,099)
Conversion of preferred stock 4,070 -- --
Employee savings plan contribution 41 -- 41
Business combinations 38,617 -- 38,637
Dividends paid on Series B Preferred
Stock -- (1,092) (1,092)
----------------------------------------------
Balance at September 30, 1998 $ 98,719 $ 4,281 $103,120
==============================================
</TABLE>
6
<PAGE> 8
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
Certain 1997 financial information contained herein has been reclassified to
conform with the 1998 presentation.
2. ACQUISITIONS
In August 1998, KTI, Inc. (the "Company") acquired FCR, Inc. ("FCR") a
diversified recycling company that provides residential and commercial
recycling, processing and marketing services and manufacturers products, in
particular, cellulose insulation, using recycled materials. FCR owns or operates
eighteen material recovery facilities, six cellulose insulation manufacturing
facilities and three plastic reprocessing facilities in twelve states. Payment
of the aggregate purchase price of $63,432 consisted of (i) 1,714,285 shares of
the Company's common stock valued at $18.96 per share (based on the closing
price of the common stock on the date of announcement); (ii) $30,000 in cash and
(iii) incidental payments of approximately $925 in cash. An additional payment
of up to $30,000 may be made for the acquisition of FCR based on the earnings of
FCR for the period July 1, 1998 through December 31, 1998 (the "Earnout"). This
payment will be payable in a combination of cash and the Company's common stock.
The acquisition was recorded using the purchase method of accounting and the
cost of the acquisition exceeded the fair value of the acquired net assets by
approximately $69,156 which has been recorded as goodwill and is being amortized
over 30 years. Any additional payments for the Earnout will be recorded as
goodwill.
In August 1998, the Company acquired Atlantic Coast Fibers, Inc.
("Atlantic Coast") and Gaccione Bros. & Co., Inc. and PGC Corporation
(collectively, "Gaccione"). Atlantic Coast operates a high-grade paper
processing plant in Passaic, New Jersey. Payment of the aggregate purchase price
for Atlantic Coast of $9,106 consisted of (i) 123,532 shares of the Company's
common stock valued at $20.29 per share (based on the closing price of the
common stock on the date of the announcement); (ii) $6,500 in cash; (iii)
incidental payments of approximately $100 in cash. The acquisition was recorded
using the purchase method of accounting and the cost of the acquisition exceeded
the fair value of the acquired net assets by approximately $7,619 which has been
recorded as goodwill and is being amortized over 30 years.
Gaccione operates a high-grade paper processing facility in Clifton, New
Jersey. Payment of the aggregate purchase price of $6,361 consisted of (i)
$5,200 in cash; (ii) a 7% interest bearing promissory note in the principal
amount of $1,086 due in February 2001; (iii) incidental payments totaling
approximately $75 in cash. The acquisition was recorded using the purchase
method of accounting and the cost of the acquisition exceeded the fair value of
the acquired net assets by approximately $7,157 which has been recorded as
goodwill and is being amortized over 30 years.
In September 1998, the Company agreed to a payment of an additional
purchase price for Atlantic Coast and Gaccione of $3,000 consisting of 150,000
shares valued at $20.00 per share (based on the closing price of the common
stock on the date of closing). This amount was recorded as an addition to
goodwill.
7
<PAGE> 9
In August 1998, the Company acquired First State Recycling, Inc. ("First
State"). First State processes post industrial and other waste plastics. Payment
of the aggregate purchase price of $1,733 consisted of (i) 31,186 shares of the
Company's common stock valued at $19.99 per share (based on the closing price of
the common stock on the date of announcement) and (ii) $1,120 in cash. The
acquisition was recorded using the purchase method of accounting and the cost of
the acquisition exceeded the fair value of the acquired net assets by
approximately $1,182 which has been recorded as goodwill and is being amortized
over 30 years.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, the basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 4,649 $ 2,396 $ 10,658 $ 4,531
Preferred stock dividends 156 224 1,092 224
Accretion of preferred stock -- 101 42 599
--------------------------------------------------------------------
Numerator for basic earnings per
share-net income available to
common stockholders 4,493 2,071 9,524 3,708
Effect of dilutive securities:
Accretion of Preferred Stock -- 101 42 --
Dividends on convertible
preferred stock and interest
on convertible subordinated notes 467 324 1,401 523
--------------------------------------------------------------------
Numerator for diluted earnings
per share-net income available
to common stockholders after
assumed conversions $ 4,960 $ 2,496 $ 10,967 $ 4,231
====================================================================
Denominator:
Denominator for basic earnings
per share-weighted average shares 10,574,888 7,124,387 9,813,650 6,954,670
Effect of dilutive securities:
Employee stock options 511,350 199,771 500,100 128,878
Warrants 272,989 417,629 359,180 303,620
Convertible preferred stock and
convertible subordinated notes 1,804,934 2,926,442 1,881,202 2,438,942
--------------------------------------------------------------------
Dilutive potential common shares 2,589,273 3,543,842 2,740,482 2,871,440
====================================================================
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions 13,164,161 10,668,229 12,554,132 9,826,110
====================================================================
Net income per share-Basic $ 0.42 $ .029 $ 0.97 $ 0.53
====================================================================
Net income per share-Diluted $ 0.38 $ 0.23 $ 0.87 $ 0.43
====================================================================
</TABLE>
4. CONTINGENCIES
The Company is a defendant in certain law suits alleging various claims
incurred in the ordinary course of business. Management of the Company does not
believe that the outcome of these matters, individually or in the aggregate,
will have a material effect on the Company's financial condition, cash flows or
results of operations.
8
<PAGE> 10
5. SEGMENT REPORTING
For the three months ended September 30, 1998, the Company operated in the
business units as indicated below.
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL FINISHED
WASTE-TO-ENERGY RECYCLING RECYCLING PRODUCTS
--------------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues
Unaffiliated customers $23,250 $ 4,371 $18,189 $ 4,135
Intersegment revenues 705 12 4,512 365
------- ------- ------- -------
Total Revenues $23,955 $ 4,383 $22,701 $ 4,500
======= ======= ======= =======
Segment Profit $10,295 $ 455 $ 272 $ 288
======= ======= ======= =======
Depreciation and
Amortization $ 2,281 $ 427 $ 501 $ 261
======= ======= ======= =======
</TABLE>
For the three months ended September 30, 1997 the Company operated in the
business units indicated below.
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL FINISHED
WASTE-TO-ENERGY RECYCLING RECYCLING PRODUCTS
--------------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues
Unaffiliated customers $19,927 $ -- $ 6,921 $ --
Intersegment revenues 600 -- -- --
------- ------ ------- -----
Total Revenues $20,527 $ -- $ 6,921 $ --
======= ====== ======= =====
Segment Profit $ 5,633 $ -- $ 166 $ --
======= ====== ======= =====
Depreciation and
Amortization $ 2,278 $ -- $ 96 $ --
======= ====== ======= =====
</TABLE>
For the nine months ended September 30, 1998, the Company operated in the
business units as indicated below.
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL FINISHED
WASTE-TO-ENERGY RECYCLING RECYCLING PRODUCTS
--------------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues
Unaffiliated customers $ 64,558 $ 7,104 $ 51,404 $ 5,033
Intersegment revenues 2,244 12 13,685 882
-------- -------- -------- --------
Total Revenues $ 66,802 $ 7,116 $ 65,089 $ 5,915
======== ======== ======== ========
Segment Profit $ 23,228 $ 932 $ (112) $ 332
======== ======== ======== ========
Depreciation and
Amortization $ 6,343 $ 710 $ 1,225 $ 256
======== ======== ======== ========
</TABLE>
9
<PAGE> 11
For the nine months ended September 30, 1997, the Company operated in the
business units indicated below.
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL FINISHED
WASTE-TO-ENERGY RECYCLING RECYCLING PRODUCTS
--------------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues
Unaffiliated customers $55,935 $ -- $10,065 $ --
Intersegment revenues 894 -- -- --
------- ----- ------- -----
Total Revenues $56,829 $ -- $10,065 $ --
======= ===== ======= =====
Segment Profit $13,142 $ -- $ 302 $ --
======= ===== ======= =====
Depreciation and
Amortization $ 6,756 $ -- $ 152 $ --
======= ===== ======= =====
</TABLE>
The segment reporting detailed above reconciles to Consolidated Revenues
and Income Before Taxes and Extraordinary Items on the accompanying unaudited
consolidated statement of operations as follows:
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
ended ended ended ended
September September September September
30, 1998 30, 1997 30, 1998 30, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Total unaffiliated customers
revenue for reportable segments $ 49,945 $ 26,848 $ 128,099 $ 66,000
Intersegment revenues for
reportable segments 5,594 600 16,823 894
Elimination of intersegment revenues (5,594) (600) (16,823) (894)
--------- --------- --------- ---------
Total consolidated revenues $ 49,945 $ 26,848 $ 128,099 $ 66,000
========= ========= ========= =========
PROFIT AND LOSS
Total segment profit $ 11,310 $ 5,799 $ 24,380 $ 13,444
Unallocated amounts:
Interest expense, net (2,779) (977) (5,839) (3,700)
Minority interest (2,220) (883) (5,209) (1,229)
Pre-acquisition earnings of PERC -- (1,543) -- (3,984)
--------- --------- --------- ---------
Income before taxes and extraordinary item $ 6,311 $ 2,396 $ 13,332 $ 4,531
========= ========= ========= =========
</TABLE>
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
As a result of the acquisitions completed in the third quarter of 1998,
KTI began reporting the results of operations by the following four business
units: waste-to-energy, residential recycling, commercial recycling and finished
products
REVENUES
Consolidated revenue for the three months and nine months ended September
30, 1998, compared with the same periods in 1997, increased $23,097 or 86.0% and
$62,099 or 94.1%, respectively.
WASTE-TO-ENERGY
The waste-to-energy business unit consists of the operations of Maine
Energy, PERC, Timber Energy, KTI Specialty Waste, SEMCO, AAR Tennessee, KTI
Biofuels, Total Waste Management (acquired January 1998) and Multitrade
(acquired June 1998). Total revenues for this business unit were $23,995 for
the three months and $66,802 for the nine months ended September 30, 1998
compared to $20,527 and $56,829, respectively, for the same periods in 1997.
This represents an increase in sales of $3,468 or 16.9% for the three months
and $9,973 or 17.5% for the nine months ended September 30, 1998 as compared to
the same period in 1997.
Waste processing revenues at Maine Energy, PERC, and Timber decreased by
$41 or 0.6% for the quarter. This result is the net of a decrease of 32.6% due
to volume offset by an increase in 32.0% due to price. The change in volume and
average price were both due to decreased tons at Timber Energy caused by a
maintenance shutdown of Timber's major customer during the quarter. For the
nine months, waste processing revenues increased $306 or 1.7%, which was the
net of a 7.8% decrease due to volume offset by a 9.5% increase in price.
Electric power revenues from the same three business units decreased $681, or
6.7% during the quarter, which was the net of a 4.9% decrease due to volume of
power generated and a 1.8% decrease due to price. The price change was due
mainly to a decrease in the average power rate at Timber. For the nine months,
overall power revenues from Maine Energy, PERC, and Timber Energy decreased
$384, or 1.3%, which is entirely due to a decrease in price.
For the quarter, the overall decrease in waste processing and power sales
revenues for Main Energy, PERC, and Timber was $723, or 4.3%. The increase in
revenues of the Waste-to-Energy business unit during the same period of $3,468
is the combination of this decrease offset by revenues from the acquisitions of
Total Waste Management and Multitrade. The overall decrease in waste processing
and power sales revenues of Maine Energy, PERC, and Timber for the nine months
was $78, or 0.2%. The overall increase in revenues of the Waste-to-Energy
business of $9,973 is the combination of this decrease, offset by revenues from
the acquisitions, plus a net $5,171 payment from Bangor Hydro under the terms
of the restructured Power Purchase Agreement for PERC completed on June 26,
1998.
11
<PAGE> 13
RESIDENTIAL RECYCLING
This business unit includes the residential recycling plants of FCR, Inc.,
(acquired August 1998), and the residential recycling plant of KTI Recycling of
New England acquired from Prins (acquired November 1997). The residential
recycling division posted revenues of $4,383 for the three months and $7,116 for
the nine months ended September 30, 1998. There were no revenues from this
business unit for the same period in 1997 because all the acquisitions were
completed in the fourth quarter of 1997 or in 1998.
COMMERCIAL RECYCLING
The commercial recycling business unit consists of the operations of I.
Zaitlin and Sons (acquired August 1997), K-C International (acquired September
1997), the commercial recycling plants acquired from Prins (acquired November
1997), Manner Resins (acquired November 1996) and KTI New Jersey Fibers which
consists of the operations of Gaccione Bros., Inc. and Atlantic Coast Fibers
(acquired August 1998). Total revenue for this business unit was $22,701 for the
three months and $65,089 for the nine months ended September 30, 1998 compared
to $6,921 and $10,065, respectively for the same period in 1997. This represents
an increase in sales of $15,780 or 228.0% for the three months and $55,024 or
546.7% for the nine months ended September 30, 1998 as compared to the same
period in 1997. The increase in revenues is primarily the result of acquisitions
discussed above.
FINISHED PRODUCTS
The finished products business unit consists of the operations of Power
Ship Transport, the cellulose insulation plants and the plastic reprocessing
plants of FCR, Inc. (acquired August 1998), plastic reprocessing operations of
First State Recycling, Inc. (acquired August 1998) and the glass pellet
processor Seaglass, Inc. (formed by KTI in February 1998). This business unit
posted revenues of $4,500 for the quarter and $5,915 for the nine months ended
September 30, 1998. Revenues in the prior year were immaterial and the revenues
for the quarter and the nine months ended September 30, 1998 are primarily the
results of acquisitions discussed above.
12
<PAGE> 14
COSTS AND EXPENSES
WASTE-TO-ENERGY
Cost of operations in this business unit was $12,305 for the three months
and $39,735 for the nine months ended September 30, 1998. Electric power and
waste handling operating costs increased by $210 or 1.7% for the three months
and $5,182 or 15.0% for the nine months ended September 30, 1998 as compared to
the same periods in 1997. This increase was primarily a result of the Total
Waste Management and Multitrade Group acquisitions discussed above.
RESIDENTIAL RECYCLING
Cost of operations in this business unit was $3,486 for the three months
and $5,728 for the nine months ended September 30, 1998. There were no
operations in this business unit in the same period in 1997 as the acquisition
of the Boston residential plant did not occur until the fourth quarter of 1997.
COMMERCIAL RECYCLING
Cost of operations in this business unit was $22,117 for the three months
and $64,279 for the nine months ended September 30, 1998. This was an increase
of $15,458 or 232.1% for the three months and $54,668 or 568.8 % for the nine
months ended September 30, 1998 as compared to the same period in 1997. This
increase is due primarily to the acquisition of Gaccione Bros., Inc. and
Atlantic Coast Fibers in August 1998. In addition, the Commercial facilities
were purchased from Prins in the fourth quarter of 1997.
FINISHED PRODUCTS
Cost of operations in this business unit was $3,852 for the three months
and $5,218 for the nine months ended September 30, 1998. Revenues in the prior
year were immaterial and the revenues for the three months and the nine months
ended September 30, 1998 are primarily the results of acquisitions discussed
above.
Selling, general and administrative expenses increased by $1,948 or 374.6%
for the three months and $3,206 or 134.9% for the nine months ended September
30, 1998 as compared to 1997. Notwithstanding selling, general and
administrative costs added through recent acquisitions, the Company has added
administrative staff to develop and install Company information systems; develop
and support a formal strategic planning and budgeting process; to support
Company wide credit and collection efforts; to identify and pursue potential
mergers and acquisitions; and to develop internal analytical systems to identify
revenue enhancement and cost savings programs in newly acquired entities.
Depreciation and amortization expenses were $3,470 for the quarter and
$8,534 for the nine months ended September 30, 1998.
13
<PAGE> 15
INTEREST
Interest expense increased $1,802 or 184.4% for the three months and
$2,139 or 57.8% for the nine months ended September 30, 1998 as compared to the
same periods in 1997. These increases are related principally to increased
borrowings on the Company's line of credit to fund several acquisitions and the
conversion of the Series B Preferred Stock to 8.75% convertible debt.
INCOME TAXES
The Company recorded a provision for income taxes of $1,662 for the three
months and $2,179 for the nine months ended September 30, 1998. The primary
difference in the provision for income taxes at the federal statutory rate and
the recorded amounts for the periods indicated is due to the utilization of net
operating loss carryforwards and the associated change in valuation allowances
and the impact of nondeductible goodwill.
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT
The Company recorded an extraordinary loss on early retirement of the PERC
bonds for the quarter and nine months of $0 and $495, respectively, net of
minority interest and income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company and receives cash flow from its
subsidiaries. Receipt of cash flow from PERC is currently restricted by
covenants under loan agreements, distribution restrictions under partnership
agreements with its equity investors, and put-or-pay agreements with
municipalities. Maine Energy's cash flow is required to retire the remaining
outstanding balance of $14,389 of subordinated notes payable as of September 30,
1998 (approximately $2.3 million of these notes are owned by the Company) before
cash distributions to partners can begin. Timber Energy's cash flow is
restricted by covenants under its bond agreements. As a result, the following
discussion is organized to present liquidity and capital resources of the
Company separate from Maine Energy, PERC and Timber and liquidity and capital
resources of each of Maine Energy, PERC and Timber independently.
THE COMPANY
The Company operates in industries that require a high level of capital
investment. The Company's capital requirements basically stem from (i) its
working capital for ongoing operations, (ii) capital expenditures for new plants
and equipment and (iii) business acquisitions. The Company's strategy is to meet
these capital needs from internally generated funds which are not contractually
restricted, drawings under its lines of credit, collateralized equipment
financing, unsecured subordinated debt and proceeds from the sale of the
Company's common stock.
As of September 30, 1998, the Company had working capital of $48,154 (a
ratio of current assets to current liabilities of 2.48:1) and a cash balance of
$8,178 which compares to a working capital of $22,038 (a ratio of current assets
to current liabilities of 1.65:1) at December 31, 1997. As of September 30,
1998, the Company had cash on hand without regard to restricted funds associates
with Maine Energy, PERC and Timber Energy of approximately $1,996 and $27,575
available in lines of credit from KeyBank. For the nine months ended September
30, 1998, consolidated net cash from operating activities was approximately
$13,609 and net cash from financing activities was approximately $53,527, as
compared to $4,584 and $19,787 respectively, for the corresponding prior year
periods. Net cash from operating and financing activities was primarily used to
fund the purchase of businesses of $62,154 and $9,125 and for capital
expenditures of $4,675 and $2,336 for the nine months ended September 30, 1998
and 1997, respectively.
In general, the Company's capital expenditures and working capital
requirements have increased as a result of the Company's business strategy of
growth through acquisitions. Management of the Company believes that cash flow
from operations and unused lines of credit will meet its current needs for
liquidity.
14
<PAGE> 16
SIGNIFICANT FINANCING EVENTS
On June 4, 1997, the Company consummated the private placement of 487,500
shares of its Series A Convertible Preferred Stock for gross proceeds of $3.9
million. The Series A Convertible Preferred Stock was convertible into shares of
the Company's Common Stock, at a price of $8.00 per share, subject to
adjustment. Purchasers of the shares of Series A Convertible Preferred Stock
also received, in the aggregate, warrants to purchase 243,750 shares of Common
Stock at $9.00 per share and warrants to purchase 32,500 shares of Common Stock
at $10.00 per share. During 1997, 40,000 of the shares of Series A Convertible
Preferred Stock were converted to 40,000 shares of Common Stock. The remaining
shares of Series A Convertible Preferred Stock were converted into 447,500
shares of Common Stock in February 1998. The related warrants were exercised in
July 1998.
During August 1997, the Company consummated the offering of 856,000 shares
of its 8.75% Series B Preferred Stock. The gross proceeds of the offering were
$21.4 million and the net proceeds to the Company were $19,984.
On June 5, 1998 the Company exercised its operation to exchange all of the
outstanding shares of the Series B Preferred Stock for KTI's 8.75% Convertible
Subordinated Notes. The exchange was effective August 3, 1998. On or about
August 3, 1998, 40 shares of the Series B Preferred were exchanged for $1;
12,000 shares were converted into 25,531 shares of KTI Common Stock and 843,960
shares were converted into KTI's 8.75% convertible subordinated note totaling
$21,099.
The Company and its subsidiaries, other than Maine Energy, PERC and Timber
Energy at September 30, 1998 had indebtedness maturing in the next year of
$5,437. During the first nine months of 1998, the Company, other than Maine
Energy, PERC and Timber Energy incurred additional debt of approximately
$106,882, primarily as a result of drawings under its lines of credit for
business acquisitions; and retired approximately $15,457 of debt.
On May 28, 1998 KeyBank increased its credit line from $22 million to $30
million. On July 13, 1998 KeyBank and KTI closed on the $150 million acquisition
credit line. This line of credit can be utilized to fund acquisitions, capital
expenditures and for working capital. There can be no assurance such
acquisitions or capital expenditures will take place, or that working capital
will be increased. Management of the Company believes that cash flow from its
subsidiaries and affiliates and unused lines of credit will meet its current
needs for liquidity.
MAINE ENERGY
Maine Energy has financed its operations and capital expenditures from
cash flows from operations. Cash provided by operations was $4,295 in 1998, as
compared to $3,521 in 1997. As of September 30, 1998 Maine Energy had total
indebtedness of $14,389. Maine Energy capital expenditures were $1,864 and $727
for additions to property, plant and equipment during 1998 and 1997,
respectively.
As of September 30, 1998, in addition to Maine Energy's operating cash of
$2,832, Maine Energy, as required under the terms of the agreement underlying
its letter of credit, has on account an additional $1,468 of reserves to be used
for capital improvements, debt service, operating shortfalls and working capital
requirements.
Management of the Company believes Maine Energy has adequate cash
resources available to fund its future operations and anticipated capital
expenditures. Capital expenditures for Maine Energy for the year ending December
31, 1998 are expected to be approximately $3,043, of which $1,850 has been set
aside in the above mentioned reserve accounts.
PERC
PERC has financed its recent operations and capital expenditures primarily
from cash flows from operations. Cash provided by operations was $11,508 in 1998
as compared to $9,127 in 1997. PERC's
15
<PAGE> 17
capital expenditures were $174 and $175 for additions to property, plant and
equipment during 1998 and 1997, respectively.
On June 26, 1998 KTI completed a major restructuring of the various
contracts and obligations of PERC, which included refinancing PERC's tax exempt
bonds. The refinancing was made possible through the sale of $45,000 in Electric
Rate Stabilization Revenue Refunding Bonds issued by the Finance Authority of
Maine ("FAME"). The interest rate on the bonds ranges from 3.75% for one-year
bonds to 5.20% for 20-year term bonds. This transaction will reduce PERC's debt
service costs while extending its payment obligation over 20 years.
As of September 30, 1998, in addition to PERC's operating cash of $13,276,
PERC, as required under the terms of the trust indenture governing the FAME
Bonds, had on account an additional $1,821 of cash reserves to be used for
capital improvements, debt service, operating shortfalls and working capital
requirements.
Company management believes PERC has adequate cash resources available to
fund its current project operations and currently anticipated capital
expenditures. PERC plans capital expenditures for the year ending December 31,
1998 of approximately $765 which will be financed from cash flow from
operations.
TIMBER ENERGY
Timber Energy has financed its operations and capital expenditures
primarily from cash flow from operations since it was acquired on November 22,
1996. Cash provided by operations was $1,807 in 1998. Timber Energy's capital
expenditures were $1,329 during 1997, which were funded out of cash generated
from operations.
As of September 30, 1998, Timber Energy had outstanding tax exempt bonds,
together with accrued interest, in the aggregate amount of $13,713. The bonds
are payable pursuant to a mandatory redemption schedule through December 1,
2002.
As of September 30, 1998, in addition to Timber Energy's operating cash of
$2,916, Timber Energy, as required by the terms of the refinancing, had an
additional $1,340 of cash reserves to be used for debt service.
Company management believes Timber Energy has adequate cash resources
available and expects additional cash from operations to fund its current
operations and debt obligations. Timber Energy plans capital expenditures in
1998 of approximately $526, which will be funded from cash provided by
operations.
YEAR 2000 ISSUE
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs have
traditionally been written using two digits rather than four to define the
applicable year. As a consequence, unless modified, computer systems will not be
able to differentiate between the year 2000 and 1900. Failure to address this
problem could result in system failures and the generation of erroneous data.
The Company is in the process of contacting its customers and vendors and
has received letters from each of its applications vendors stating that the
majority of the Company's information technology systems, such as accounting,
data processing, plant operations systems and telephone/PBX systems, are Year
2000 compliant. Several insignificant software applications have been identified
which are not Year 2000 compliant. They are scheduled to be upgraded by Year
2000 compliant versions of the application from the vendor by the end of the
first quarter 1999. The Company has also begun an assessment of its
non-information technology systems, such as its security systems and telephones,
to determine if they are also Year 2000 compliant. To date, the Company has
determined, based on information published or otherwise provided by such
systems' vendors, that many of its non-information technology systems are or
will be Year 2000 compliant. The Company plans to initiate formal communications
with the vendors of
16
<PAGE> 18
its remaining non-information technology systems. Based on its assessment to
date, the Company is not aware that any of its non-information technology
systems will not be Year 2000 compliant prior to the Year 2000. The Company has
not incurred any material costs to modify or replace any of its information
technology or non-information technology systems.
The Company has also begun an assessment of its significant vendors,
suppliers, and service providers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
compliance issues. To date, the Company has determined, based on information
published or otherwise provided by such third parties, that many of such
parties' systems are or will be Year 2000 compliant. The Company plans to
initiate formal communications with the remaining third parties with whom the
Company has a significant relationship. Based on its assessment to date, the
Company is not aware that any of its significant vendors, suppliers and service
providers will not be Year 2000 compliant prior to the Year 2000.
In addition to the assessments and investigations described above, the
Company has conducted tests of all of its internal information and
non-information technology systems and all of its system interfaces with
significant vendors, suppliers and service providers to ensure Year 2000
compliance. The majority of the Company's accounting and data processing
equipment is based on microcomputer hardware and related software which has been
certified as Year 2000 compliant by the applicable manufacturer or developer.
However, the Company has determined that the plant control systems may contain
embedded technology which is not Year 2000 compliant. The Company is in the
process of replacing the hardware containing the embedded logic with hardware
which is Year 2000 compliant. In addition, these systems will be tested during
scheduled outage periods at the plants during the second quarter of 1999.
However, despite the Company's efforts to ensure that its internal systems and
the systems of its significant vendors, suppliers and service providers are Year
2000 compliant, there can be no guarantee that the failure of certain systems
will not have a material adverse effect on the Company.
To date, the Company has handled its Year 2000 compliance program using
only internal resources. Accordingly, the only costs incurred by the Company
have been the salary costs of its internal staff. Although at the current time,
the Company expects that it will be able to complete its Year 2000 compliance
program using only internal resources, there can be no assurances that the
Company will not require external resources to complete its Year 2000 compliance
program.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure
about Segments of an Enterprise and Related Information," which will be
effective for the Company for the fiscal year ending December 31, 1998,
establishes standards for reporting information about operating segments in the
annual financial statements, selected information about operating segments in
interim financial reports and disclosures about products and services,
geographic areas and major customers. This new standard requires the Company to
report financial information on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
Company has elected to provide information required by this pronouncement for
the third quarter.
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at September 30, 1998, include the
following SFAS and Statements of Position ("SOP"):
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which will be effective for the fiscal years beginning after June
15, 1999, establishes standards for derivative instruments embedded in other
contracts and for hedging activities. The new standard requires the Company to
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. Management believes that the adoption of SFAS No. 133
will have no material impact on the Company's financial statements.
The American Institute of Certified Public Accountants (the "AICPA")
issued SOP 98-1, "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use" which is effective for fiscal years beginning after
December 15, 1998. The Company's current policy falls within the
17
<PAGE> 19
guidelines of SOP 98-1. Also the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities" which is effective for fiscal years beginning after
December 15, 1998. Beginning in the first quarter of fiscal year 1999, the
Company will elect to adopt the provisions of SOP 98-5. Management believes that
the adoption of SOP 98-5 will have no material impact on the Company's financial
statements.
SUBSEQUENT EVENTS
On October 28, 1998 the Company acquired Yarmouth Rubbish Removal, Inc.;
Capital City Transfer, Inc.; and TWTS, Inc., Maine corporations headquartered in
Scarborough, Maine for $0.6 million in cash and approximately 75,932 shares of
KTI common stock. The total annual revenue of these acquisitions is
approximately $3.0 million.
On November 2, 1998, $13,829 of Convertible Subordinated Notes were
converted into 1,238,618 shares of the Company's common stock.
18
<PAGE> 20
FORWARD LOOKING STATEMENTS
All statements contained herein which are not historical facts including
but not limited to statements regarding the Company's plans for future cash flow
and its uses are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to vary materially is the availability of sufficient capital to finance
the Company's business plan and other capital needs on terms satisfactory to the
Company. The Company wishes to caution readers not to place undue reliance on
any such forward looking statements, which statements are made pursuant to the
Private Litigation Reform Act of 1995 and as such speak only as of the date
made.
19
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Maine Energy is the plaintiff in a suit in the State of Maine against United
Steel Structures, Inc. under a warranty to recover the costs, which were, or
will be incurred to replace the roof and walls of the Maine Energy tipping and
processing buildings. The judge in the case entered an order awarding Maine
Energy $3,334 plus interest from May 10, 1994, to the date of the filing of the
lawsuit and court costs. The defendant filed an appeal on December 19, 1997. A
hearing on the appeal was held in October 1998 and a ruling is expected shortly.
There can be no assurance that the Company will be able to collect any amount of
this judgement.
Lawsuits were filed on September 30, 1997 and March 6, 1998 by Capital
Recycling of Connecticut ("Capital") in a Connecticut State Court against K-C
International ("K-C"), certain officers of K-C and other parties. The suits
allege fraud, tortuous interference with business expectancy and violations of
the Connecticut Unfair Trade Practices Act. The actions are based on two
contracts between Capital and K-C. The lawsuit was dismissed with prejudice as
to the officers of K-C and all claims between the parties are to be resolved in
the arbitration proceedings. The Company believes that it has meritorious
defenses to the arbitration proceedings.
The Company is a defendant in certain other law suits alleging various
claims incurred in the ordinary course of business, none of which, either
individually or in the aggregate, the Company believes will have a material
adverse effect on the Company.
Management of the Company does not believe that the outcome of the foregoing
matters, individually or in the aggregate, will have a materially adverse effect
on the Company's financial condition, cash flows or results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
20
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Four reports on Form 8-K were filed in the third quarter of 1998.
The following is a list of the Forms 8-K filed and the dates thereof.
(i) A Form 8-K was filed on July 8, 1998 reporting that the Company
completed the refinancing of the existing tax exempt bonds issued by the Town of
Orrington, Maine to finance the construction of the facility owned by PERC.
(ii) A Form 8-K was filed on July 15, 1998 announcing the signing of
a $150 million revolving credit agreement with KeyBank.
(iii) A Form 8-K was filed on August 5, 1998 announcing that the
Company had executed definitive documentation in connection with the merger with
FCR, Inc. on July 22, 1998, contingent upon compliance with the Hart Scott
Rodino Antitrust Improvement Act.
(iv) A Form 8-K was filed on August 13, 1998 announcing the purchase
of substantially all of the assets of First State Recycling, Inc. for cash and
stock in the amount of $1.85 million. The Company is purchasing First State
Recycling subject to existing funded debt of $445.
(v) A Form 8-K was filed on August 13, 1998 announcing the purchase
of substantially all of the assets of Atlantic Coast Fibers, Inc., a New Jersey
corporation for cash and KTI common stock in the amount of $9.16 million. In
addition, the filing announced the acquisition of substantially all of the
assets of Gaccione Bros. & Co. and PGC Corporation, both New Jersey corporations
for $5.2 million in cash; a 7% $1.1 million promissory note due in February
2001; certain incidental payments totaling approximately $75; and certain
incentive payments.
(vi) A Form 8-K was filed on September 14, 1998 announcing that the
Company completed the merger with FCR, Inc. on August 28, 1998. The securities
of FCR held by the holders were converted into the right to receive $30.0
million in cash; 1,714,285 shares of KTI common stock; and an additional payment
of up to $30.0 million based upon the earnings of FCR from July 1, 1998 through
December 31, 1998.
(vii) A Form 8-K/A was filed on October 7, 1998 which modified the
Form 8-K filed on September 14, 1998.
(viii) A Form 8-K was filed on November 4, 1998 announcing the
acquisition of substantially all of the assets of the Russell Stull Companies.
21
<PAGE> 23
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 thereunto duly authorized.
KTI, Inc.
---------------------------------------------
(Registrant)
By: /s/ Martin J. Sergi
------------------------------------------
Name: Martin J. Sergi
Title: President
By: /s/ Brian J. Noonan
------------------------------------------
Name: Brian J. Noonan
Title: Chief Financial Officer
(Principal Accounting Officer)
Date: November 16, 1998
22
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<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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