8-K 1 FORM 8-K CURRENT REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 3, 1996 KTI, INC. (Exact name of Registrant as specified in Chapter) New Jersey 33-85234 22-2665282 -------------------------------------------------------------------------------- (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification Number) 7000 Boulevard East, Guttenberg, New Jersey 07093 -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number including area code (201) 854-7777 ------------------------------- Not Applicable -------------------------------------------------------------------------------- (Former name and former address, as changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On May 3, 1996, the Company's 50.38% owned subsidiary, Maine Energy Recovery Company LP ("Maine Energy") completed a restructuring of its Power Purchase Agreement (the "PPA") with Central Maine Power Company ("CMP") and the sale of its electrical generating capacity to CL Power Sales One, L.L.C. ("CL One"). At closing Maine Energy received a payment from CL One of $85,000,000 and the PPA was amended, retroactive to November 6, 1995, to reflect a reduction in CMP's purchase price per kWh from $0.16 to $0.0718. In addition, the PPA was extended from the year 2007 to 2012. The Company also received reimbursement of certain transaction costs, an amount representing interest on its bonds payable from November 6, 1995 to closing and certain other payments. Under the terms of the agreements, Maine Energy will be liable to CMP for liquidated damages of $3,750,000 for any calendar year through the year 2006 and on a prorata basis for the period from January 1 to May 31, 2007 in which it does not deliver at least 100,000,000 kWh. Also, if during the same period, Maine Energy fails to deliver at least 15,000,000 kWh in any calendar year through the year 2006 and on a prorata basis for the period from January 1 to May 31, 2007 it will be liable to CMP for liquidated damages of $45,000,000 less the product of $3,750,000 times the number of completed calendar years from and including 1996 to the year of default. Both of the provisions for liquidated damages are subject to force majeure events. In order to secure CMP's right to liquidated damages, Maine Energy has provided an irrevocable letter of credit in the initial amount of $45,000,000 which will be reduced by $3,750,000 for each completed year in which no event requiring the payment of liquidated damages occurs. Under the terms of the letter of credit agreement, Maine Energy is required to maintain certain restricted funds. Based on these contingencies, Maine Energy will defer $45,000,000 of the proceeds of the sale of its capacity and will recognize it as revenue ratably in the future as the contingencies are eliminated. Maine Energy has used the proceeds from the sale of its capacity to repay the $64,500,000 Resource Recovery Bonds and to retire the bank letter of credit issued to enhance the credit of the bonds. The remaining proceeds were used together with unrestricted cash balances to repay $29,500,000 of the total of Subordinated Notes Payable to Limited Partners. Subordinated Notes payable after the repayment aggregate $13,459,367. Subsequent to the transaction, the Company acquired additional partnership interests in Maine Energy aggregating 23.77% from existing limited partners for $792,340 in cash and a note payable of $164,000. The note bears interest at prime plus 1% and is payable at the earlier of December 31, 1996 or the time that the remaining subordinated debt is repaid. In addition one of the selling limited partners forgave a note payable of $283,000 and accrued interest of and $63,000. Subsequent to these transactions, the Company's ownership in Maine Energy is 74.15%. 2 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following pro forma condensed combined financial statements are based on the historical financial statements of the Company (audited for the year ended December 31, 1995 and unaudited for the three months ended March 31, 1996.) The pro forma condensed combined balance sheet assumes that (i) the restructuring of Maine Energy's PPA and the sale of its capacity, (ii) the acquisition of additional partnership interest in Maine Energy and (iii) the acquisition of the partnership interest in AART occurred as of March 31, 1996. The condensed combined statements of operations give effect to the same transactions assuming they were completed at the beginning of the respective periods. The pro forma condensed combined statements of operations are not necessarily indicative of operating results which would have been achieved had these transactions been completed at the beginning of the respective periods and should not be construed as representative of future operations. 3 4 KTI, INC. PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED) MARCH 31, 1996 (IN THOUSANDS)
Maine Energy ------------------------------- Additional Combined KTI Restructuring Partnership Pro Actual of PPA Interest Subtotal AART Forma ---------- --------------- -------------- ----------- ----------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 6,414 $ 83,329 (a) $ (792)(k) $ 2,301 $ (494) $ 1,807 (86,650) (j)(i) Restricted funds - current portion 3,144 4,189 (i) 7,333 7,333 Accounts receivable, net 8,586 (3,477) (d) 5,109 15 5,124 Other current assets 1,591 1,591 173 1,764 -------- -------- ------- --------- ------- -------- Total current assets 19,735 (2,609) (792) 16,334 (306) 16,028 Restricted funds 11,143 (11,143) (i) (0) (0) Management fees receivable--affiliates 3,050 3,050 3,050 Other receivables 610 610 610 Investment in PERC 3,620 3,620 3,620 Deferred costs, net 4,146 (4,023) (b) 123 123 Goodwill and other intangibles, net 3,433 (2,433) (f) 1,000 1,000 Other assets 2,099 2,099 2,099 Property, plant and equipment 87,661 (7,751) (l) 79,910 3,834 83,744 -------- -------- ------- --------- ------- -------- Total assets $135,497 $(20,208) $(8,543) $ 106,746 $ 3,528 $110,274 ======== ======== ======= ========= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 3,573 $ 3,573 $ 184 $ 3,757 Accrued expenses 5,018 $ (2,247) (j) $ (63) (k) 3,708 11 3,719 1,000 (c) Current portion of long-term debt 8,297 (2,600) (j) (283) (k) 5,414 1,596 7,010 Income taxes payable 290 290 290 Other current liabilities 696 696 696 -------- -------- ------- --------- ------- -------- Total current liabilities 17,874 (3,847) (346) 13,681 1,791 15,472 Other liabilities 76 76 76 Long-term debt, less current portion 107,465 (88,757) (j) 164 (k) 18,872 727 19,599 Minority interest 2,672 14,801 (g) (8,361) (l) 9,112 1,010 10,122 Deferred gain on sale of capacity 45,000 (e) 45,000 45,000 Stockholders' equity: Common stock 57 57 57 Additional paid-in capital 33,937 33,937 33,937 Accumulated (deficit) (26,584) 12,595 (h) (13,989) (13,989) -------- -------- ------- --------- ------- -------- Total stockholders' equity 7,410 12,595 - 20,005 - 20,005 -------- -------- ------- --------- ------- -------- Total liabilities and stockholders' equity $135,497 $(20,208) $(8,543) $ 106,746 $ 3,528 $110,274 ======== ======== ======= ========= ======= ========
4 5 KTI, INC. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Maine Energy ------------------------------- Additional Combined KTI Restructuring Partnership Pro Actual of PPA Interest AART (g) Forma ---------- ------------- ----------- ----------- ---------- Revenues: Electric power revenues $ 26,470 $ (14,256) (b) $ 12,214 Gain on sale of capacity 36,628 (a) 36,628 Waste processing revenues 8,050 8,050 Other waste handling revenues 3,563 $2,551 6,114 Computer services revenues 10,199 10,199 -------- --------- ------ -------- Total revenues 48,282 22,372 2,551 73,205 -------- --------- ------ -------- Costs and expenses: Electric power and waste processing 26,139 $ (410) (f) 2,118 27,847 operating costs Costs of software sales and contracts 4,678 4,678 Selling, general and administrative: Waste handling 2,941 2,941 Computer services 5,606 5,606 Interest - net 9,379 (6,571) (c) 115 2,923 -------- --------- ------ ------ -------- Total costs and expenses 48,743 (6,571) (410) 2,233 43,995 Equity in net income of PERC 335 335 -------- --------- ------ ------ -------- Income (loss) before minority interest and income taxes (126) 28,943 410 318 29,545 Minority interest: (1,287) (13,573) (d) 616 (79) (14,323) -------- --------- ------ ------ -------- Income (loss) before income taxes (1,413) 15,370 1,026 239 15,222 Income taxes 65 120 185 -------- --------- ------ ------ -------- Income (loss) before extraordinary item (1,478) 15,370 1,026 119 15,037 Extraordinary item: Gain (loss) on extinguishment of debt 148 (4,023) (e) (3,875) -------- --------- ------ ------ -------- Net income (loss) $ (1,330) $ 11,347 $1,026 $ 119 $ 11,162 ======== ========= ====== ====== ======== Pro forma (loss) earnings per share: (Loss) income before extraordinary item $ (0.30) $ 2.87 ======== ======== Net (loss) income $ (0.27) $ 2.13 ======== ======== Proforma shares outstanding 5,013 5,238 ======== ========
5 6 KTI, INC. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Maine Energy ------------------------------- Additional Combined KTI Restructuring Partnership Pro Actual of PPA Interest AART (g) Forma ----------- ------------- ----------- ---------------- ------------ Revenues: Electric power revenues $ 7,401 $ (6,776) (b) $ 625 Gain on sale of capacity 36,628 (a) 36,628 Waste processing revenues 2,090 2,090 Other waste handling revenues 716 $ 292 1,007 Computer services revenues 2,856 2,856 ------- -------- ----- -------- Total revenues 13,063 29,852 292 43,207 ------- -------- ----- -------- Costs and expenses: Electric power and waste processing 6,487 $(135) (f) 302 6,654 operating costs Costs of software sales and contracts 1,303 1,303 Selling, general and administrative: Waste handling 859 859 Computer services 1,554 1,554 Interest - net 2,032 (1,030) (c) 31 1,033 ------- -------- ----- ----- -------- Total costs and expenses 12,235 (1,030) (135) 333 11,403 Equity in net income of PERC 26 26 Income (loss) before minority interest and income taxes 854 30,882 135 (41) 31,830 Minority interest: Minority interest Maine Energy (797) (14,535) (d) 381 (14,951) Minority interest in AAR Partnerships (34) 16 (18) ------- -------- ----- ----- -------- Income before income taxes 23 16,347 516 (25) 16,861 Income taxes ------- -------- ----- ----- -------- Income (loss) before extraordinary item 23 16,347 516 (25) 16,861 Extraordinary item: Loss on extinguishment of debt (4,023) (e) (4,023) ------- -------- ----- ----- -------- Net income $ 23 $ 12,324 $ 516 $ (25) $ 12,838 ======= ======== ===== ===== ======== Pro forma (loss) earnings per share: (Loss) income before extraordinary item - $ 2.84 Net (loss) income $ 0.00 $ 2.16 ======= ======== Proforma shares outstanding 5,939 5,939 ======= ========
6 7 KTI, INC. MARCH 31, 1996 NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) (TABLES IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1. DESCRIPTION OF TRANSACTIONS On April 11, 1996, the Company completed the acquisition of a 60% limited partnership interest in American Ash Recycling Co. of Tennessee ("AART"), a limited partnership. The transaction will be accounted for as a purchase. The purchase price was $2,100,000, including a capital contribution of $500,000 to provide working capital to AART. The partnership agreement affords the Company preference in distributions until it has received a 15% return on its investment after which distributions are made on the basis of ownership. The assets of American Ash Recycling Corp. Of Tennessee were conveyed to AART on April 11, 1996. AART owns and operates a facility located in Nashville, TN, which converts ash obtained from a municipal waste incinerator, through a proprietary process, to aggregate material which can be used for road bed underlayment and for similar purposes. AART also recycles ferrous and other metals recovered from the unprocessed ash stream. The operations of AART will be included in the Company's consolidated financial statements beginning at the date of acquisition. See Item 2: Acquisition or Disposition of Assets for a description the restructuring of Maine Energy's PPA and the sale of its capacity and the acquisition of additional partnership interest in Maine Energy.transactions. 2. PRO FORMA ADJUSTMENTS BALANCE SHEET (a) Proceeds of the restructuring of Maine Energy's PPA and the sale of its capacity, net of expenses paid at closing:
Receipts: Payment for sale of capacity $85,000 Reimbursement for transaction costs 1,238 Per diem payments for interest 1,566 Other payments 1,713 ------- Subtotal 89,517 Disbursements: Adjustment to electricity payments retroactive to November 6, 1995 3,299 Transaction costs paid at closing 2,889 ------- Net proceeds $83,329 =======
(b) Write off of deferred costs including deferred financing costs related to the bonds and existing letter of credit. (c) Record certain accrued expenses (d) Adjustment of accounts receivable to reflect revised rates. (e) Deferral of a portion of the proceeds pending the elimination of contingencies. (f) Write off of certain intangibles. (g) Minority interest in the gain on the restructured PPA transaction. (h) Gain on restructured PPA transaction. (i) Utilization of and reclassification of restricted cash balances to reflect revised requirements. (j) Repayment of debt and accrued interest. (k) Purchase of additional 23.77% partnership interest in Maine Energy. (l) Adjustment to property plant and equipment to reflect bargain purchase of additional partnership interest. (m) See Note 1. Description of Transactions. 7 8 STATEMENTS OF OPERATIONS
YEAR ENDED THREE MONTHS ENDED DECEMBER 31,1995 MARCH 31, 1996 ---------------- -------------- Maine Energy PPA restructuring and capacity sale: (a) Payments received: Payment for sale of capacity $85,000 $85,000 Reimbursement of transaction costs 1,238 1,238 Other payments 1,713 1,713 ------- ------- $87,951 $87,951 ======= ======= Less: Transaction costs 3,889 3889 Deferred gain 45,000 45,000 Adjust carrying value of PPA 2,433 2,433 ------- ------- $36,628 $36,628 ======= ======= (b) Adjustment to power rates (retroactive to November 6, 1995 for the three months ended March 31, 1996.) $14,256 $ 6,776 ======= ======= (c) Adjustments to interest expense: Per diem adjustment retroactive to November 6, 1995 $ (345) Reduction in interest on debt assumed paid at the be- ginning of the period. $ 6,571 1,375 ------- ------- $ 6571 $ 1,030 ======= ======= (d) Minority interest in the restructuring of the PPA and other transactions. $13,573 $14,535 ======= ======= (e) Write off of deferred costs including deferred financing costs related to the bonds and existing letter of credit. $ 4,023 $ 4,023 ======= ======= (f) Reduction in depreciation of assets written down to reflect the bargain purchase of additional partnership interest. $ 410 $ 135 ======= ======= (g) Adjustments to reflect the purchase of the interest in AART.
8 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. KTI, Inc. --------------------------------- (Registrant) Dated: May 18, 1996 By: /s/ Leffert G. Carroll --------------------------------- Name: Leffert G. Carroll Title: Senior Vice President 9