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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/A
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File No. 0-25490
KTI, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
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)
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(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 9,499,848 Shares as of April 24, 1998
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TABLE OF CONTENTS
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Item Number and Caption Page Number
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PART I
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8K 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KTI, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------- ---------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 11,412 $ 11,181
Restricted funds 14,567 13,103
Accounts receivable, net of allowances of
$348 and $294 24,885 22,126
Consumables and spare parts 4,370 4,041
Inventory 1,966 1,219
Notes receivable - officers/shareholders and affiliates 29 29
Other receivables 409 461
Deferred taxes 1,555 2,751
Other current assets 1,508 793
------------------- ---------------------
Total current assets 60,701 55,704
Restricted funds 5,923 6,527
Notes receivable - officers/shareholders and affiliates 50 81
Other receivables 286 271
Deferred costs, net of accumulated amortization
of $ 848 and $676 3,307 2,911
Goodwill and other intangibles, net of accumulated amortization
of $ 1,140 and $778 20,235 17,483
Other assets 522 1,768
Deferred project development costs 937 937
Property, equipment and leasehold improvements, net of
accumulated depreciation of $ 19,857 and $17,837 158,515 156,801
------------------- ---------------------
Total assets $ 250,476 $ 242,483
=================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,236 $ 8,779
Accrued expenses 3,024 3,825
Debt, current portion 14,637 19,794
Income taxes payable 315 165
Other current liabilities 1,187 1,184
------------------- ---------------------
Total current liabilities 30,399 33,747
Other liabilities 2,515 1,918
Debt, less current portion 83,308 74,473
Minority interest 23,174 22,105
Deferred revenue 35,924 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 1998 and 1997 21,400 21,400
Common stock, no par value (stated value $.01 per share);
authorized 20,000,000 issued and outstanding;
9,477,953 in 1998 8,912,630 in 1997 94 89
Additional paid-in capital 57,381 52,762
Accumulated deficit (3,719) (5,243)
-------------------------------------------
Total stockholders' equity 75,156 72,740
-------------------------------------------
Total liabilities and stockholders' equity $ 250,476 $ 242,483
===========================================
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See accompanying notes.
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KTI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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Three months ended March 31,
1998 1997
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Revenues:
Waste to Energy:
Electric power revenues $ 10,413 $ 9,507
Waste processing revenues 8,081 7,084
Recycling 19,138 1,840
------------------ -------------------
37,632 18,431
Costs and expenses:
Electric power and waste processing costs 10,754 9,900
Recycling 17,422 1,656
Selling, general and administrative 1,082 1,045
Depreciation and amortization 2,457 2,213
Interest - net 1,510 1,000
------------------- -------------------
33,225 15,814
------------------- -------------------
Income before minority interest and income
tax provision 4,407 2,617
Minority interest 1,069 355
Preacquisition earnings of PERC -- 903
------------------- -------------------
Income before income tax provision 3,338 1,359
Income tax provision 1,346 --
------------------- -------------------
Net income 1,992 1,359
Accretion and paid and accrued dividends on
preferred stock 509 --
------------------- -------------------
Net income available to common shareholders $ 1,483 $ 1,359
=================== ===================
Earnings per common share
Basic $ .16 $ .20
=================== ===================
Weighted average number of shares
used in computation 9,236,588 6,844,350
=================== ===================
Diluted $ .15 $ .19
=================== ===================
Weighted average number of shares
used in computation 9,618,564 7,796,000
=================== ===================
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See accompanying notes.
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KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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Three months ended March 31,
1998 1997
----------------- -----------------
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OPERATING ACTIVITIES
Net income $ 1,992 $ 1,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,457 1,202
Minority interest 1,069 355
Deferred revenue (1,576) (938)
Deferred taxes 1,196 -
Provision for losses on accounts receivable 54 4
Interest accrued and capitalized on debt 417 429
Non-cash contribution to 401K plan 41 -
Gain on sale of assets (20) (1)
Changes in operating assets and liabilities:
Accounts receivable (1,759) (599)
Management fees receivable - (94)
Other receivables 189 299
Consumables, spare parts and inventories (1,000) (710)
Other assets 546 (813)
Accounts payable 1,624 601
Accrued expenses (901) 31
Income taxes 150 -
Other liabilities 350 (49)
----------------- -----------------
Net cash provided by operating activities 4,829 1,076
INVESTING ACTIVITIES
Additions to property, equipment and leasehold improvements (3,592) (1,049)
Proceeds from sale of assets 18 8
Net change in restricted funds (860) (996)
Deferred project costs - (129)
Purchase of business net of cash acquired (3,475) -
Notes receivable--officers/shareholders and affiliates 32 7
----------------- -----------------
Net cash used in investing activities (7,877) (2,159)
FINANCING ACTIVITIES
Net borrowings on lines of credit 5,075 424
Deferred financing costs (398) -
Proceeds from sale of common stock 850 246
Dividends paid (468) -
Principal payments on debt (1,780) (1,900)
----------------- -----------------
Net cash provided by (used in) financing activities 3,279 (1,230)
----------------- -----------------
Increase (decrease) in cash and cash equivalents 231 (2,313)
Cash and cash equivalents at beginning of period 11,181 5,227
----------------- -----------------
Cash and cash equivalents at end of period $11,412 $ 2,914
================= =================
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-Continued-
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KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 902 $ 318
=================== =================
NON CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock for employee savings plan contribution $ 41 -
Conversion of preferred stock 3,769 -
See accompanying notes.
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KTI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 - $ - - $ -
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 - - - -
Exercise of warrants - - - -
Conversion of debt - - - -
Conversion of preferred stock (40,000) (344) - -
Employee savings plan contribution - - - -
Business combinations - - - -
Dividends paid on Series B Preferred
Stock - - - -
-------------------------------------
Balance at December 31, 1997 447,500 3,732 856,000 21,400
Net income - - - -
Accretion of Series A Preferred Stock - 41 - -
Issuance of common stock and
common stock purchase warrants for:
Exercise of options - - - -
Exercise of warrants - - - -
Conversion of preferred stock (447,500)(3,773) - -
Employee savings plan contribution - - - -
Dividends paid on Series B Preferred
Stock - - - -
-------------------------------------
Balance at March 31, 1998 (Unaudited) - $ - 856,000 $ 21,400
=====================================
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ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL
------ ------ -------
<S> <C> <C> <C>
Balance at January 1, 1997 6,836,766 $ 68 $ 38,576
Net income - - -
Issuance of Series A Preferred Stock
and common stock purchase warrants - - 422
Accretion of Series A Preferred Stock - - (700)
Issuance of Series B Preferred Stock
and common stock purchase warrants - - (1,416)
Issuance of common stock and
common stock purchase warrants for:
Exercise of options 85,353 1 502
Exercise of warrants 692,771 7 3,611
Conversion of debt 618,609 6 4,901
Conversion of preferred stock 40,000 - 344
Employee savings plan contribution 4,117 - 35
Business combinations 635,014 7 6,487
Dividends paid on Series B Preferred
Stock - - -
-----------------------------------------------
Balance at December 31, 1997 8,912,630 89 52,762
Net income - - -
Accretion of Series A Preferred Stock - - (41)
Issuance of common stock and
common stock purchase warrants for:
Exercise of options 420 - 3
Exercise of warrants 113,188 1 846
Conversion of preferred stock 447,500 4 3,769
Employee savings plan contribution 4,215 - 42
Dividends paid on Series B Preferred
Stock - - -
-----------------------------------------------
Balance at March 31, 1998 (Unaudited) 9,477,953 $ 94 $ 57,381
===============================================
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ACCUMULATED
DEFICIT TOTAL
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Balance at January 1, 1997 $ (12,940) $ 25,704
Net income 8,092 8,092
Issuance of Series A Preferred Stock
and common stock purchase warrants - 3,798
Accretion of Series A Preferred Stock - -
Issuance of Series B Preferred Stock
and common stock purchase warrants - 19,984
Issuance of common stock and
common stock purchase warrants for:
Exercise of options - 503
Exercise of warrants - 3,618
Conversion of debt - 4,907
Conversion of preferred stock - -
Employee savings plan contribution - 35
Business combinations - 6,494
Dividends paid on Series B Preferred
Stock (395) (395)
-------------------------------
Balance at December 31, 1997 (5,243) 72,740
Net income 1,992 1,992
Accretion of Series A Preferred Stock - -
Issuance of common stock and
common stock purchase warrants for:
Exercise of options - 3
Exercise of warrants - 847
Conversion of preferred stock - -
Employee savings plan contribution - 42
Dividends paid on Series B Preferred
Stock (468) (468)
-------------------------------
Balance at March 31, 1998 (Unaudited) $ (3,719) $ 75,156
===============================
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KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, 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 three months ended March 31, 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. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No.
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
SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
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1998 1997
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Numerator:
Net income $ 1,992 $ 1,359
Preferred stock dividends (468) -
Accretion of preferred stock (41) -
--------------------------------------
Numerator for basic earnings per share-net income
available to common stockholders 1,483 1,359
Effective of dilutive securities:
Convertible subordinated notes payable - 100
--------------------------------------
Numerator for diluted earnings per share-net income
available to common stockholders
after assumed conversions $1,483 $ 1,459
======================================
Denominator:
Denominator for basic earnings per share-weighted
average shares 9,236,588 6,844,350
Effect of dilutive securities:
Employee stock options 67,151 90,102
Warrants 314,825 243,883
Convertible subordinated notes payable - 617,665
--------------------------------------
381,976 951,650
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1998 1997
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Dilutive potential common shares
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions 9,618,564 7,796,000
--------------------------------------
Income from continuing operations per share-Basic $.16 $.20
======================================
Income from continuing operations per share-Diluted $.15 $.19
======================================
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3. 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.
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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
REVENUES
Consolidated revenue for the three months ended March 31, 1998,
compared with the same period in 1997, increased $19,201 or 104.2%.
Approximately $17,298 of this increase is attributable to the recycling division
and $1,903 is attributable to the waste to energy division.
KTI's waste to energy division showed increases in electric power
revenues of $906 or 9.5% for the quarter ended March 31, 1998 as compared to the
same period in 1997. Approximately $248 of this increase is from PERC,
principally as a result of a 5% increase in electric generation coupled with an
inflationary increase in price per kilowatt received. The balance of the
increase in electric power revenues was at Maine Energy, which primarily was due
to a 2% rate increase and an additional capacity payment under its amended power
purchase agreement. Timber Energy experienced a reduction in electrical
generation due to problems with steam flow to the turbine generator which were
repaired during its annual outage in April, 1998. This revenue decrease was
offset by an increase in capacity payments.
Revenues from waste processing increased $997 or 14.1% compared to the
same period in 1997. PERC's and Maine Energy's waste processing revenues
increased by $288 and $254; or 10.9% and 13.0%, respectively, principally from
increases in tipping fees per ton. Revenues at AAR Tennessee, KTI Specialty
Waste and SEMCO were $163 or 15.5% lower for the quarter ended March 31, 1998
than the same period in 1997, principally because of lower tonnage processed
during the current quarter. These decreases were offset by increases in revenues
at KTI Bio Fuels of $407 or 59.1%; which resulted from increase waste brokerage
activity; from revenues at Total Waste Management of $529; and from revenues at
Power Ship Transport of $184. Total Waste Management, whose principal business
is processing and disposing of oily waste and contaminated water, was acquired
January 27, 1998. Power Ship Transport is a trucking brokerage division started
by KTI during the second quarter of 1997.
Sales of recyclables increased $17,298 in the first quarter of 1998 as
compared to the same period in 1997. This increase is principally a result of
the acquisitions of Zaitlin, K-C International and the assets of the Prins
facilities during the third and fourth quarter of 1997. Recycling revenues are
generated from the sales of waste paper, ferrous and non-ferrous materials, and
plastic materials.
COSTS AND EXPENSES
Electric power and waste handling operating costs increased by $854 for
the quarter ended March 31, 1998 compared to the 1997 quarter. Operating costs
of Total Waste Management and Power Ship were of $582 and $418, respectively.
Maine Energy's operating expenses increased $268 or 8.5% while PERC's and
Timber's operating expenses decreased $308 and $527 or 22.2% and 31.5%,
respectively. Bio Fuel's operating expenses increased $292 or 48.5%. The
increase in 1998 principally results from marginally higher operating costs at
the power plants, and from the new entities of Total Waste Management and Power
Ship Transport. Increases were offset by net reductions in operating costs of
other divisions during the quarter.
Selling, general and administrative expenses increased by $37 or 3.5%
for the quarter ended March 31, 1998 compared to the 1997 quarter.
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INTEREST
Interest expense increased $510 or 51.0% for the quarter ended March
31, 1998 as compared to the same quarter in 1997. Interest expense at Timber
Energy increased $134 or 133.4% due to the restructuring of the variable rate
bonds to fixed coupon rates during the second quarter of 1997. The balance of
the increase of $376 is attributable to increased borrowings on the Company's
line of credit and term notes to fund a portion of the acquisitions of the Prins
assets, Total Waste Management, Vel-A-Tran and Zaitlin.
INCOME TAX PROVISION
The income tax provision was $1,346 in the quarter. The primary
difference in the income tax provision at the federal statutory rate and the
recorded amounts for the quarter is due to state income taxes and the impact of
nondeductible goodwill from stock acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company and receives cash flow from its
subsidiaries. Receipt of cash flow from its affiliate 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 $14,105 of subordinated notes payable as of March 31,
1998 (approximately $2,426 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 has financed its operations and capital expenditures
primarily from cash flow from its subsidiaries which are not contractually
restricted from making distributions, management fees from contractually
restricted subsidiaries, collateralized equipment financing, and drawings under
its lines of credit.
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
$3,900 and net proceeds of $3,798. 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 Company and its subsidiaries, other than Maine Energy, PERC and
Timber Energy at March 31, 1998 had indebtedness maturing in the next year of
$7,822. During the first quarter of 1998, the Company, other than Maine Energy,
PERC and Timber Energy incurred additional debt of approximately $5,548,
primarily as a result of drawings under its lines of credit; and retired
approximately $703 of debt.
As of March 31, 1998, the Company had cash on hand without regard to
Maine Energy, PERC and Timber Energy of approximately $1,324 and $11,925
available in lines of credit from a bank. On March 23, 1998 the Company received
a commitment from KeyBank to increase its credit line from $11,000 to $22,000.
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.
Moreover,
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management believes that the Company has the ability to access additional
borrowing facilities if needed, although no assurance can be given in this
regard.
MAINE ENERGY
Maine Energy has financed its operations and capital expenditures from
cash flows from operations. Cash provided by operations was $1,526 and $466 for
the three months ended March 31, 1998 and 1997, respectively. Capital
expenditures for property, plant, and equipment were $504 and $333 for the three
months ended March 31, 1998 and 1997, respectively. As of March 31, 1998 Maine
Energy had total indebtedness of $14,105.
As of March 31, 1998, in addition to Maine Energy's operating cash of
$2,066, Maine Energy, as required under the terms of the credit agreement with
its letter of credit, has on account an additional $7,353 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 operations and capital expenditures primarily
from cash flows from operations. Cash provided by operations was $2,003 and
$2,297 for the three months ended March 31, 1998 and 1997, respectively. Capital
expenditures for property, plant, and equipment were $109 and $45 for the three
months ended March 31, 1998 and 1997, respectively.
At March 31, 1998, PERC had outstanding tax-exempt, variable rate
revenue bonds backed by bank letters of credit in the aggregate amounts of
$46,350. The variable interest rate on the Orrington Bonds at March 31, 1998 was
3.37%. The bonds are payable pursuant to a schedule through May 2003. During the
first quarter of 1998 PERC made principal payments to bondholders of $1,550.
As of March 31, 1998, in addition to PERC's operating cash of $7,365,
PERC, as required under the terms of the credit agreement with its letter of
credit banks and the trust indenture governing the Orrington Bonds, had on
account an additional $9,952 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. PERC intends to finance this amount through cash
flow from operations.
Timber Energy
Timber Energy has financed its operations and capital expenditures
primarily from cash flow from operations. Cash provided by operations was $791
for the three months ended March 31, 1998. Capital expenditures for property,
plant, and equipment were $67 for the three months ended March 31, 1998.
As of March 31, 1998, Timber Energy had outstanding tax exempt bonds in
the amount of $13,400. The bonds are payable pursuant to a mandatory redemption
schedule through December 1, 2002.
As of March 31, 1998, in addition to Timber Energy's operating cash of
$657, Timber Energy, as required by the terms of the refinancing, had an
additional $3,045 of cash reserves to be used for debt service, capital
improvements, and working capital requirements.
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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.
SUBSEQUENT EVENTS
On May 6, 1998, the Company announced that it had signed a letter of
intent to acquire all of the outstanding stock of FCR, Inc, a Delaware
corporation ("FCR"), having its headquarters in Charlotte, North Carolina. The
purchase price consists of: (a) 1,714,285 shares of the Company's common stock;
(b) $30.0 million in cash; and (c) an earnout of up to $30.0 million to be paid
in a combination of cash and stock.
The Company and FCR are currently preparing definitive documentation
for the transaction. The merger is contingent upon execution and delivery of
such documentation, compliance with the Hart Scott Rodino Antitrust Improvement
Act, the completion of due diligence by both sides and approval of the Boards of
Directors and Shareholders of both the Company and of FCR.
FCR is a national waste processing company, owning 26 plants in 12
states. The plants operate in three businesses; material recovery facilities,
cellulose insulation and plastic recycling.
Eighteen of the plants are material recovery facilities, based in 10
states. These plants currently process materials at the rate of 650,000 tons of
recyclables per year. The Company's existing material recovery facilities
currently process material at the rate of 500,000 tons of recyclables per year.
Five of the plants are cellulose insulation plants, based in four
states. A sixth cellulose insulation plant is under construction. The cellulose
insulation plants operate under the name of U.S. Fiber, Inc.
The plastic recycling business operates three plastic recycling plants.
These plants currently process plastic at the rate of 50 million pounds per
year. The Company has a subsidiary in the plastic trading and brokerage
business, which presently trades plastic at the rate of 40 million pounds per
year.
Based on information provided by FCR, FCR had revenue of approximately
$17.6 million, $3.2 million in EBITDA and $.9 million in net income in the
quarter ended March 31, 1998.
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.
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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.
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, Inc. ("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 contracts require all disputes to
be resolved by arbitration in Portland, Oregon. Pursuant to this requirement,
K-C has initiated the arbitration process in Portland, Oregon. Capital then
filed a motion in the same Court to restrain the arbitration and added claims
with respect to a company managed by the parent of an officer of K-C. This claim
alleges that the officer aided and abetted the other company in defrauding the
plaintiff. Company has retained counsel to defend the various legal actions and
to participate in the arbitration proceedings. After several depositions,
Capital and K-C agreed to dismiss the motion to restrain the arbitration and to
transfer the arbitration proceedings to Hartford, Connecticut. 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.
Total Waste Management ("TWM") was a defendant in a lawsuit in the United
State District Court for the District of New Hampshire filed by Kleen Laundry &
Dry Cleaning Services. The plaintiff alleged that TWM caused an underground
gasoline storage tank to leak during an attempted removal of the tank. The
former shareholders of TWM have settled the claim with no cost to the Company,
other than for legal fees.
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
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Six reports on Form 8-K were filed in the first quarter of
1998, three of which were amended by Form 8-K/A also filed during the quarter.
The following is a list of the Forms 8-K filed and the dates thereof.
(i) A Form 8-K was filed on January 26, 1998 reporting that
the Company purchased Vel-A-Tran Recycling, Inc. for cash in the amount of $1.1
million.
(ii) A Form 8-KA was filed on January 28, 1998 in connection
with a previously Form 8-K filed on December 8, 1997 reporting the acquisition
of three recycling facilities as part of an asset purchase from Prins Recycling
Corp. and its subsidiaries.
(iii) A Form 8-KA was filed on January 29, 1998 in connection
with a previously Form 8-K filed on December 12, 1997 reporting that the Company
exercised its option to purchase an additional $14.8% limited partnership
interest in PERC from the Prudential Insurance Company of America for $2.1
million.
(iv) A Form 8-K was filed on February 4, 1998 reporting that
the Company purchased Total Waste Management Corporation for cash in the amount
of $1.35 million.
(v) A Form 8-KA, Amendment No. 2 was filed on February 4, 1998
in connection with a previously Form 8-KA filed on January 28, 1998 reporting
the acquisition of three recycling facilities as part of an asset purchase from
Prins Recycling Corp. and its subsidiaries.
(vi) A Form 8-K was filed on February 23, 1998 reporting that
the Finance Authority of Maine executed and delivered a commitment to the
Company to refinance existing tax exempt bonds issued by the Town of Orrington,
Maine to finance the construction of the facility owned by PERC.
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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 thereunto duly authorized.
KTI, Inc.
(Registrant)
By: /s/ Ross Pirasteh
Name: Ross Pirasteh
Title: Chairman of the Board of Directors
By: /s/ Martin J. Sergi
Name: Martin J. Sergi
Title: President and Chief
Financial Officer
(Principal Accounting Officer)
Date: May 4, 1998
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