SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past
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
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,829,190 shares of common stock, $.50 par value, outstanding as of
March 31, 2000. In addition, at such date, the issuer held
1,885,750 shares of common stock, $.50 par value, in treasury.
Transitional Small Business Disclosure Format
(Check One): Yes No X
Page 1 of 32 pages
Exhibit index on page 31
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30,
2000 and December 31, 1999 3 - 4
Consolidated Statements of Operations for the 5
Six Months Ended June 30, 2000 and 1999
Consolidated Statements of Operations for the 6
Three Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 7 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
EXHIBIT INDEX 31
EXHIBITS 32
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
June 30, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 212 $ 474
Marketable securities 817 1,228
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 478 214
Notes receivable 119 115
Closure cost receivable 192 158
Prepaid expenses and other 166 128
Total current assets 1,984 2,317
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,903 2,894
Less accumulated depreciation (2,831) (2,816)
Net property, plant and equipment 72 78
OTHER ASSETS
Assets held for sale 1,312 1,312
Escrowed funds from sale of
subsidiary 926 900
Other 134 133
Total other assets 2,372 2,345
TOTAL ASSETS $ 4,428 $ 4,740
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2000 1999
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 3 $ 7
Accounts payable 216 144
Accrued income taxes and related
interest 3,607 3,430
Accrued miscellaneous expenses 194 167
Total current liabilities 4,020 3,748
OTHER LIABILITIES
Long-term debt 4 6
Accrued remediation and closure
costs 2,088 2,091
Total other liabilities 2,092 2,097
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,940 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 5,442 6,015
Net unrealized gains on marketable
securities 15 21
Subtotal 9,330 9,909
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (1,684) (1,105)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 4,428 $ 4,740
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Six Months Ended
June 30,
2000 1999
NET REVENUES $ 268 $ 108
COST OF OPERATIONS
Direct operating costs 66 94
Selling, general and
administrative expenses 699 730
Total cost of operations 765 824
INCOME (LOSS) FROM OPERATIONS (497) (716)
OTHER INCOME (EXPENSE)
Investment income (loss) 62 81
Interest expense (1) (2)
Interest (expense) credit related
to income taxes payable (177) 258
Gain (loss) from sale of property - 6
Miscellaneous income (expense) 40 356
Total other income (expense) (76) 699
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (573) (17)
Income taxes (credit) - (220)
NET INCOME (LOSS) $ (573) $ 203
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.20) $ .07
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
June 30,
2000 1999
NET REVENUES $ 268 $ 24
COST OF OPERATIONS
Direct operating costs 66 20
Selling, general and
administrative expenses 334 371
Total cost of operations 400 391
INCOME (LOSS) FROM OPERATIONS (132) (367)
OTHER INCOME (EXPENSE)
Investment income (loss) 33 42
Interest expense - (1)
Interest (expense) credit related
to income taxes payable (94) 351
Gain (loss) from sale of property - 3
Miscellaneous income (expense) 17 309
Total other income (expense) (44) 704
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (176) 337
Income taxes (credit) - (220)
NET INCOME (LOSS) $ (176) $ 557
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.06) $ .20
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
For the Six Months Ended
June 30,
2000 1999
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 4 $ 91
Cash paid to suppliers and employees (724) (962)
Interest and dividends received 33 73
Interest paid (1) (2)
Other income received 39 283
Income taxes paid - -
Net cash provided by (used in)
operating activities (649) (517)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 1,181 1,736
Purchase of marketable securities (777) -
Purchase of property, plant and
equipment (8) (1)
Proceeds from sale of property,
plant and equipment - 3
Collections of notes receivable - 9
Net cash provided by (used in)
investing activities 396 1,747
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (6) (12)
Payment of remediation and closure
costs (3) (5)
Net cash provided by (used in)
financing activities (9) (17)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (262) 1,213
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 474 605
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 212 $1,818
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Six Months Ended
June 30,
2000 1999
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (573) $ 203
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 14 22
(Gain) loss on sale of property,
plant and equipment - (6)
Increase (decrease) in deferred
income taxes - 1
(Increase) decrease in assets:
Accounts and notes receivable,
-net (268) (102)
Prepaid expenses and other (72) (13)
Escrowed funds from sale of subsidiary (26) (20)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 99 (124)
Accrued income taxes and related
interest 177 (478)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (649) $ (517)
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 - FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings; and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of
this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1999 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1999 financial statements in order to
conform to the presentation followed in preparing the 2000
financial statements. Quarterly financial information has not been
audited. In the opinion of management, the information presented
reflects all adjustments necessary for a fair statement of interim
results. All such adjustments are of a normal and recurring nature
except as disclosed herein.
NOTE 3 - MARKETABLE SECURITIES
The Company classifies all equity securities and debt
securities as available-for-sale securities. Available-for-sale
debt securities are carried at amortized cost, which approximates
fair value because of their short term to maturity. At June 30,
2000, available-for-sale debt securities consisted of $765,000 of
U.S. Government Securities with maturities through December, 2000.
Available-for-sale equity securities are carried at fair value as
determined by quoted market prices. The portfolio of available-
for-sale equity securities had a cost of $37,000 and a market value
of $52,000 as of June 30, 2000. The aggregate excess of market
value over cost of such securities as of June 30, 2000 of $15,000
is presented as a separate component of stockholders' equity. The
excess of market value over cost consisted of gross unrealized
gains of $31,000 and gross unrealized losses of $16,000 as of June
30, 2000. The cost of marketable securities sold is determined on
the specific identification method and realized gains and losses
are reflected in income. Proceeds from sale and maturity of
available-for-sale securities during the six months ended June 30,
2000 amounted to $1,181,000. Dividend and interest income is
accrued as earned.
NOTE 4 - ASSETS HELD FOR SALE
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of June 30, 2000. The real
estate included in this category as of June 30, 2000 consists of
approximately 430 acres in Deptford, N.J., including approximately
100 acres upon which the landfill owned and previously operated by
the Company's subsidiary, Kinsley's Landfill, Inc., is situated.
The Company is pursuing the disposition of these properties.
However, based upon market conditions for real estate of this type,
the Company is unable to determine when such sale(s) will be
consummated.
NOTE 5 - INCOME TAXES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The Company filed a petition with the Tax Court contesting
many of the proposed adjustments asserted in the deficiency notice.
The Company has reached settlement with the Service as to all
issues in the Tax Court litigation. For a discussion of this
matter, see "Taxes" contained in Part I, Item 2 Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources of this Form 10-QSB.
NOTE 6 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries previously participated
in the resource recovery and waste management industries. These
activities included the hauling of waste, waste treatment and the
operation of three landfills. Although the landfills are now
closed, the Company continues to own two landfills, and to
remediate one of the owned landfills and one landfill formerly
leased, and has both incurred, and accrued for, substantial costs
associated therewith.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste related activities, possibly in
excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of June 30, 2000, the Company has accruals totalling $11.1
million for its estimated share of remediation and closure costs in
regard to the Company's former landfill operations, approximately
$9.0 million of which is held in trusts and maintained by trustees
for financing of the estimated $11.0 million required to fund the
closure plan related to the landfill in Deptford, New Jersey owned
by the Company's subsidiary, Kinsley's Landfill, Inc.
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
the Kin-Buc Landfill, located in Edison, New Jersey, under an
Amended Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. The
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. The Company initiated a suit in
1990 against generators and transporters of waste deposited at a
site with the intent of obtaining contribution toward the cost of
remediation. On December 23, 1997, the Company entered into four
agreements which settled lawsuits related to the allocation of
costs of remediation. One of the December 23, 1997 agreements
provided SCA's commitment to defend and indemnify the Company from
all future liability for and in connection with the remediation of
the site, including an area in the vicinity of the Kin-Buc Landfill
known as Mound B. However, the Company remains a responsible party
under the aforementioned Administrative Orders issued by EPA.
In May 1997, EPA began an investigation of the area known as
Mound B. In May 1998, the final plan of this investigation was
completed, and in February 1999, the Company received a copy of a
letter sent from EPA to SCA informing SCA that EPA has concluded
that hazardous materials were disposed of in Mound B. The letter
also instructed SCA to provide EPA with work plans to address
conditions at the mound. During February 2000, EPA sent the
Company a request for information to which the Company provided its
response during May, 2000.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
EPA is performing remediation at the site and had requested
information from approximately 100 potentially responsible parties
concerning their involvement with the Tang site. The Company had
no direct involvement with EPA since October 1990 and had not been
the recipient of an EPA request for information. The July 1999
inquiry set forth EPA's concern that the statute of limitations on
any claim EPA may have against the Company with respect to the site
would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. In November 1999,
February 2000 and May 2000, EPA and the Company agreed to extend
the statute an additional three months. During this period, EPA
and the Company are to continue discussion of any potential claims
EPA may be contemplating against the Company with respect to the
site, and the amount of contribution EPA believes such claims may
warrant toward EPA's estimated $2.4 million of unallocated
remediation costs associated with the site. Pursuant to a 1988
agreement with Tang, in 1988, 1989 and 1990 Transtech spent
approximately $4.3 million for the remediation of the site.
NOTE 7 - LEGAL PROCEEDINGS
See Item 1 of Part II of this Form 10-QSB for a discussion of
recent developments with respect to the Company's legal matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements
and related notes, which provide additional information concerning
the Company's financial activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings; and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
Results of Operations
The six months ended June 30, 2000 compared to the six months
ended June 30, 1999
Consolidated revenues by business segment for the six months
ended June 30, 2000 and 1999 were as follows (in $000):
2000 1999
Electricity Generation $ - $ 56
Environmental Services 554 401
Subtotal 554 457
Intercompany (286) (349)
Net $ 268 $ 108
Consolidated net revenues for the six months ended June 30,
2000 were $268,000 compared to $108,000 for the same period of
1999.
No revenues were reported from the operation which generates
electricity using methane gas as fuel for the six months ended June
30, 2000. Revenues of $56,000 were reported from the operation for
the same period of 1999. The electricity generating facility
consists of four diesel/generating units. Electricity generated is
sold pursuant to a long term contract with a local utility. The
decline in revenue is due to the Company's decision to postpone
repairing the diesel/generating units pending negotiations of an
offer to purchase the electricity generating operations. The
Company repaired one unit during the month of June, 2000 in order
to comply with a requirement of the Company's power supply
contract. Methane gas is a component of the landfill gas generated
by the landfill site owned by the Company where the electricity
generating facility is situated. Engineering studies indicate
sufficient quantities of gas at the landfill to continue the
operation of the facility for approximately 12 years. Revenues are
a function of the number of kilowatt hours sold, the rate received
per kilowatt and capacity payments. The Company sold 2.2 million
kwh during the six months ended June 30, 1999. See the discussion
of "Liquidity and Capital Resources" below for information
regarding the lease of the landfill gas generated at this site and
the offer to purchase the electricity generating operations.
The environmental services segment provides construction,
remedial and maintenance services at landfills, commercial and
industrial sites, and manages methane gas recovery operations. The
environmental services segment reported $554,000 of gross operating
revenues for the six months ended June 30, 2000 (prior to
elimination of intercompany sales) compared to $401,000 for the
period in 1999, an increase of 38%. Approximately $286,000 or 52%
of the environmental services segment's revenues for the period,
compared to $349,000 or 87% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. Third party sales were $268,000 for
the period in 2000, compared to $52,000 for the period in 1999.
The Company is continuing its efforts to expand the customer base
of this segment to entities outside the consolidated group.
In particular, the Company has devoted significant time and
has incurred professional fees during 1998, 1999 and 2000 in
pursuit of a contract and state government approval to perform the
closure of a site in New Jersey. On May 15, 2000 the Company's
capping plan for the Southern Ocean Landfill (the "Site") was
approved by the New Jersey Department of Environmental Protection
(the "Capping Plan"). The Capping Plan has been limited to the
grading and capping of the 12 acre lined portion of the Site and
grading and capping of a portion of the adjoining 44 acre unlined
landfill area, and grading and capping of a previously used access
road straddling the lined and unlined landfill areas at the Site.
Approved activities also include leachate collection and pump
repair, slope stability analysis, stormwater management design, gas
vent installation, groundwater monitoring and associated
activities. The Capping Plan calls for the use of recyclable
materials where possible in the implementation of the plan.
Tipping fees generated from the deposit of the recyclable materials
will be paid into a new escrow from which the costs incurred
pursuant to the Capping Plan will be paid. The Company shall
perform all of the above construction and managerial functions
required under the Capping Plan as well as act as the Site's
owner's agent to solicit the recyclable materials. The Company has
agreed to seek payment for its services and reimbursement for its
costs solely from the escrowed funds generated from the delivery of
recyclable materials. In addition, the Company will seek
reimbursement of the significant professional fees and certain
other contract development expenses incurred during 1998, 1999 and
2000 in pursuit of the Capping Plan from the escrowed funds.
However, there can be no assurance that the Company will be able to
solicit sufficient quantities of recyclable material to generate
sufficient funds for reimbursement of the above expenditures, or
payment for the services of the Company. The estimated time
required to complete the Capping Plan is approximately 10 months
after site mobilization, which was substantially completed by June
30, 2000. The Company's estimate of the gross revenue associated
with the Capping Plan is approximately $1.9 million, of which an
estimated $1.4 - 1.5 million would be paid to the Company for its
work on the project. The Company recognized revenue of $268,000
related to this site during the three months ended June 30, 2000.
Such amount includes costs incurred and expensed in periods prior
to the current fiscal year.
Consolidated direct operating costs were $66,000 for the six
months ended June 30, 2000 compared to $94,000 reported for the
same period in 1999, a decrease of $28,000 or 30%. This decrease
in direct operating costs is primarily due to the Company's
decision to postpone expenditures on the operation, repair and
maintenance of the electric generating equipment until June 2000.
Consolidated selling, general and administrative expenses for
the six months ended June 30, 2000 were $699,000, a decrease of
$31,000 or 4% from $730,000 for the same period in 1999. The
decrease in selling, general and administrative expenses is
primarily due to a decrease in professional fees. Significant
professional fees and administrative costs continue to be incurred
in support of the Company's ongoing litigation, business
development and asset divestiture efforts (see "Liquidity and
Capital Resources - Liquidity").
The Company's consolidated operating loss for the six months
ended June 30, 2000 decreased to $497,000 from a loss of $716,000
for the same period in 1999.
Consolidated investment income decreased by $19,000 to $62,000
for the six months ended June 30, 2000 from $81,000 for the
comparable period in 1999.
Consolidated interest expense for the six months ended June
30, 2000 was $1,000 versus $2,000 reported for the same period in
1999.
Interest reported as "Interest (expense) credit related to
income taxes payable" represents the increase or decrease in the
amount of interest accrued on estimated income taxes payable as a
result of the Company's tax litigation referred to below. Interest
expense for the six months ended June 30, 2000 equaled $177,000
versus an interest credit of $258,000 reported for the comparable
period in 1999.
Consolidated miscellaneous income for the six months ended
June 30, 2000 decreased $316,000 to $40,000 when compared to the
$356,000 reported for the same period of 1999. Miscellaneous
income for the period in 2000 includes income of $10,000 in
recognition of royalty payments received from the lessee of certain
of the Company's real property situated beneath the lessee's
landfill. The payments are reported net of a fee payable pursuant
to a consulting agreement executed in 1982.
Miscellaneous income for the period in 1999 includes income of
$250,000 related to the settlement of claims brought against one of
the Company's excess insurance carriers. Miscellaneous income for
the period in 1999 also includes income of $74,000 in recognition
of a payment due from the former lessee of the landfill gas
generated at a landfill owned by the Company.
An income tax credit of $220,000 had been recognized for the
six months ended June 30, 1999.
Consolidated net loss for the six months ended June 30, 2000
was $573,000 or $(.20) per share, compared to net income of
$203,000 or $.07 per share, for the six months ended June 30, 1999.
The three months ended June 30, 2000 compared to the three
months ended June 30, 1999
Consolidated revenues by business segment for the three months
ended June 30, 2000 and 1999 were as follows (in $000):
2000 1999
Electricity Generation $ - $ 25
Environmental Services 385 212
Subtotal 385 237
Intercompany (117) (213)
Net $ 268 $ 24
Consolidated net revenues for the three months ended June 30,
2000 were $268,000 compared to $24,000 for the same period of 1999.
No revenues were reported from the operation which generates
electricity using methane gas as fuel for the three months ended
June 30, 2000. Revenues of $25,000 were reported from the
operation for the same period of 1999. The decline in revenue is
due to the Company's decision to postpone repairing the
diesel/generating units until June 2000. The Company sold 0.9
million kwh of electricity with two of the four units in partial
operation during the three months ended June 30, 1999.
The environmental services segment reported $385,000 of gross
operating revenues for the three months ended June 30, 2000 (prior
to elimination of intercompany sales) compared to $212,000 for the
period in 1999, an increase of 82%. Approximately $117,000 or 30%
of the environmental services segment's revenues for the period,
compared to $213,000 or 100% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. The Company recognized revenue of
$268,000 related to the Southern Ocean Landfill project during the
three months ended June 30, 2000. Such amount includes costs
incurred and expensed in periods prior to the current fiscal
quarter.
Consolidated direct operating costs were $66,000 for the three
months ended June 30, 2000 compared to $20,000 reported for the
same period in 1999, an increase of $46,000 or 230%. This increase
in direct operating costs is primarily due to the Company's
decision to commence with the repair and operation of one of the
four electricity generating units during June 2000.
Consolidated selling, general and administrative expenses for
the three months ended June 30, 2000 were $334,000, a decrease of
$37,000 or 10% from $371,000 for the same period in 1999 due
primarily to a decrease in professional fees incurred in the
period.
The Company's consolidated operating loss for the three months
ended June 30, 2000 decreased to $132,000 from a loss of $367,000
for the same period in 1999.
Consolidated investment income decreased by $9,000 to $33,000
for the three months ended June 30, 2000 from $42,000 for the
comparable period in 1999.
Interest reported as "Interest (expense) credit related to
income taxes payable" represents the increase or decrease in the
amount of interest accrued on estimated income taxes payable as a
result of the Company's tax litigation referred to below. Interest
expense for the three months ended June 30, 2000 equaled $94,000
versus an interest credit of $351,000 reported for the comparable
period in 1999.
Consolidated miscellaneous income for the three months ended
June 30, 2000 decreased $292,000 to $17,000 when compared to the
$309,000 reported for the same period of 1999. Miscellaneous
income for the period in 2000 includes income of $5,000 in
recognition of royalty payments received from the lessee of certain
of the Company's real property situated beneath the lessee's
landfill. The payments are reported net of a fee payable pursuant
to a consulting agreement executed in 1982.
Miscellaneous income for the period in 1999 includes income of
$39,000 in recognition of a payment due from the former lessee of
the landfill gas generated at a landfill owned by the Company.
Miscellaneous income for the period in 1999 also includes income of
$250,000 related to the settlement of claims brought against one of
the Company's excess insurance carriers.
An income tax credit of $220,000 had been recognized for the
three months ended June 30, 1999.
Consolidated net loss for the three months ended June 30, 2000
was $176,000 or $(.06) per share, compared to net income of
$557,000 or $.20 per share, for the three months ended June 30,
1999.
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended
June 30, 2000 increased to a net use of $649,000 from a use of
$517,000 when compared to the same period of 1999 due primarily to
the decrease in cash received from customers and other income
items, including insurance claim proceeds. Net cash provided by
investing activities decreased for the six months ended June 30,
2000 to $396,000 from $1,747,000 due in part to the timing of the
maturity and re-investment of securities. The use of cash in
financing activities decreased to $9,000 from $17,000 for the
period last year. Funds held by the Company in the form of cash
and cash equivalents decreased as of June 30, 2000 to $212,000 from
$1,818,000 as of June 30, 1999. The sum of cash, cash equivalents
and marketable securities as of June 30, 2000 decreased to
$1,029,000 from $1,886,000 when compared to June 30,1999.
Working capital deficit was $(2.0) million as of June 30, 2000
and $(1.4) million as of December 31, 1999, and the ratio of
current assets to current liabilities was .5 to 1 as of June 30,
2000 and 0.6 to 1 as of December 31, 1999.
THE COMPANY FACES SIGNIFICANT SHORT-TERM AND LONG-TERM CASH
REQUIREMENTS FOR (I) FEDERAL AND STATE INCOME TAX OBLIGATIONS
DISCUSSED BELOW AND IN THE NOTES TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999, MOST OF
WHICH WILL BECOME DUE FOLLOWING THE CONCLUSION OF THE TAX COURT
CASE WITH THE INTERNAL REVENUE SERVICE (THE "SERVICE") OF THE
COMPANY'S TAX LIABILITY FOR THE YEARS 1980 THROUGH 1991, (II)
FUNDING ITS PROFESSIONAL AND ADMINISTRATIVE COSTS, AND (III)
FUNDING REMEDIATION COSTS ASSOCIATED WITH SITES OF PAST OPERATIONS.
The Company has accrued $3.6 million through June 30, 2000
with respect to the federal and state income tax obligations. This
estimated amount exceeds the Company's currently liquid assets. In
addition, the Company's past participation in the waste handling
and disposal industries subjects the Company to future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, which could result in material increases in
remediation and closure costs, and other potential liabilities that
may ultimately result in costs and liabilities in excess of its
available financial resources.
Although the Company continues to pursue the sale of assets
held for sale and claims against insurance carriers for recoveries
of past remediation costs, no assurance can be given that the
timing and amount of the proceeds from such sources will be
sufficient to meet the cash requirements of the Company as they
come due. In addition, the Company cannot ascertain whether its
remaining operations and funding sources will be adequate to
satisfy its future cash requirements, including its anticipated tax
liabilities. In the event of an unfavorable resolution of the
insurance litigation, or should the proceeds of asset sales be
insufficient to meet the Company's future cash requirements,
including its tax liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider a
plan of liquidation of its remaining assets, whether through
bankruptcy proceedings or otherwise.
Taxes
As discussed in greater detail below, the Company has been
litigating with the Service in Tax Court over its tax liability for
taxable years 1980-88 and certain issues from taxable years 1989-
91. The Company has reached settlement agreements with the Service
as to all issues in the Tax Court litigation. The Company
estimates that, taking into account available net operating losses
and tax credits, as of June 30, 2000 approximately $904,000 of
federal income tax, $127,000 of state income tax and $2,576,000 of
federal interest (plus additional interest from June 30, 2000
forward), will be owed when a judgment is entered at the conclusion
of Tax Court litigation. (The tax liability estimates presented
herein exclude penalties. The Service has conceded all of the
penalties that it had asserted in the Tax Court litigation, but
state tax authorities may assert that penalties are due.)
In 1991, the Service asserted numerous adjustments to the tax
liability of the Company and its subsidiaries for tax years 1980
through 1988, along with interest and penalties thereon. In 1993,
after the conclusion of administrative proceedings, the Service
issued a deficiency notice to the Company. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. In 1994, the Company filed a petition with the Tax Court
contesting many of the adjustments asserted in the deficiency
notice. On June 5, 1995, August 14, 1995, March 7, 1996, July 31,
1996, January 22, 1998 and December 21, 1998, the Company and the
Service executed partial settlement agreements which have resolved
all of the adjustments asserted in the deficiency notice. These
settlements were subject to review by the Congressional Joint
Committee on Taxation, which approved the settlements in April
2000.
As a result of the settlements, the Company has accepted
approximately $5.9 million of the $33.3 million of total
adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to
issues on which the Service would likely have prevailed in Tax
Court. The Service has conceded adjustments totalling $27.4 million
of taxable income and $2.5 million of penalties.
Payment of the federal tax liability and the remaining state
tax liability will be due after judgment is rendered at the
conclusion of the Tax Court case. The $3.6 million of taxes and
estimated interest through June 30, 2000 that is owed by the
Company (plus additional interest accruing from June 30, 2000 until
the obligations are settled) exceeds the Company's current liquid
assets (i.e., cash and marketable securities). The Company and the
Service are currently discussing the computation of the amount of
tax and interest owed as a result of the settlements.
Remediation and Closure Costs
As of June 30, 2000, the Company has accrued $11.1 million for
its estimated share of remediation and closure costs related to the
Company's former landfill and waste handling operations.
Approximately $9.0 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 6 to the Company's Consolidated
Financial Statements).
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
the Kin-Buc Landfill, located in Edison, New Jersey, under an
Amended Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. The
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. The Company initiated a suit in
1990 against generators and transporters of waste deposited at a
site with the intent of obtaining contribution toward the cost of
remediation. On December 23, 1997, the Company entered into four
agreements which settled lawsuits related to the allocation of
costs of remediation. One of the December 23, 1997 agreements
provided SCA's commitment to defend and indemnify the Company from
all future liability for and in connection with the remediation of
the site, including an area in the vicinity of the Kin-Buc Landfill
known as Mound B. However, the Company remains a responsible party
under the aforementioned Administrative Orders issued by EPA.
In May 1997, EPA began an investigation of the area known as
Mound B. In May 1998, the final plan of this investigation was
completed, and in February 1999, the Company received a copy of a
letter sent from EPA to SCA informing SCA that EPA has concluded
that hazardous materials were disposed of in Mound B. The letter
also instructed SCA to provide EPA with work plans to address
conditions at the mound. During February, 2000 EPA sent the
Company a request for information to which the Company provided its
response during May, 2000.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
EPA is performing remediation at the site and had requested
information from approximately 100 potentially responsible parties
concerning their involvement with the Tang site. Transtech had no
direct involvement with EPA since October 1990 and had not been the
recipient of an EPA request for information. The July 1999 inquiry
set forth EPA's concern that the statute of limitations on any
claim EPA may have against the Company with respect to the site
would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. In November 1999,
February 2000 and May 2000 EPA and the Company agreed to extend the
statute an additional three months. During this period, EPA and
the Company are to continue discussions of any potential claims
EPA may be contemplating against the Company with respect to the
site, and the amount of contribution EPA believes such claims may
warrant toward EPA's estimated $2.4 million of unallocated
remediation costs associated with the site. Pursuant to a 1988
agreement with Tang, in 1988, 1989 and 1990 Transtech spent
approximately $4.3 million toward the remediation of the site.
Assets Held for Sale/Claims for Past Remediation Costs
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of June 30, 2000. The real
estate included in this category consists of approximately 430
acres located in Deptford, N.J. (including approximately 100 acres
upon which the landfill owned and operated by the Company's
subsidiary Kinsley's Landfill, Inc. ("Kinsley's") is situated).
The Company is actively pursuing the disposition of such property.
However, based upon market conditions for real estate of this type
the Company is unable to determine when such sale(s) will
ultimately be consummated.
In 1995, the Company commenced suit against its excess
insurers during the period 1965 through 1986 to obtain a recovery
of past costs and indemnification for future costs incurred in
connection with the remediation of the Kin-Buc Landfill, a site
located in Piscataway, N.J., and for the defense of litigation
related thereto. The defendant insurers, which include various
London and London Market insurance companies, First State Insurance
Company and International Insurance Company. During June 1999, the
Company and First State entered into an agreement pursuant to which
the Company agreed to accept $250,000 in satisfaction of its
current and potential future claims with respect to environmental
contamination as defined in such agreement. During July 2000, the
Company and International Insurance Company entered into an
agreement pursuant to which the Company agreed to accept $17,500 in
satisfaction of its current and future environmental contamination
claims. The remaining defendants have answered the complaint
against them and discovery has substantially concluded. Further
proceedings have been stayed pending the outcome of settlement
negotiations. Some of the London and London Market insurance
companies that participated in the policies held by the Company are
insolvent. The estates of some of these insolvent companies have
sufficient assets to make a partial contribution toward claims
filed by the Company. During August 1999 the Company received
approximately $35,000 in satisfaction of its claims against the
estate of an insolvent excess insurance carrier. In September
1995, the Company assigned its claims related to a site located in
Carlstadt, New Jersey in conjunction with a settlement of the
litigation regarding such site as discussed below. The Company
also committed a portion of the proceeds, if any, net of certain
adjustments, arising from this excess carrier litigation be paid to
WMI in conjunction with the settlement of the litigation related to
the Kin-Buc Landfill as discussed above, and to legal counsel
representing the Company in the suit. All of the policies of
excess insurance issued by the defendant insurers cover Transtech,
its present subsidiaries and former subsidiaries, some of which
Transtech no longer controls. Certain companies presently or
formerly owned or controlled by a former principal shareholder,
director and officer of the Company are also covered, however such
parties assigned their rights as holders and claimants under these
policies to the Company in October 1998.
The Company can not assure that the timing and amount of the
net proceeds from the sale of such assets held for sale and the
successful litigation or settlement of the insurance claims will be
sufficient to meet the cash requirements of the Company discussed
above.
Gas Lease and Electricity Generating Equipment
On June 30, 1998 Kinsley's entered into two agreements with
respect to its electricity generation operations. Pursuant to a
Gas Lease and Easement Agreement (the "Gas Lease"), Kinsley granted
to Deptford Gas Company, LLC ("DGC") the exclusive right to extract
and utilize all gas produced at the landfill site for an initial
lease term of 12 years with provisions for two 5 year extensions.
Pursuant to a landfill gas sale agreement (the "Gas Sale
Agreement") Kinsley had agreed to purchase gas from DGC for $.10
per million BTU's of gas. This Gas Sale Agreement was to terminate
upon the expiration of the Gas Lease or Kinsley's sale of its
electric generators. In addition, in connection with the above
agreements, during December 1998, Kinsley entered into separate
agreements with DGC, or entities affiliated with DGC for (i) the
operation and maintenance by Kinsley's of the gas collection system
for the benefit of DGC, (ii) the sale by Kinsley's of its
electricity generating operation, (iii) the operation and
maintenance by Kinsley's of the electricity generating equipment,
(iv) processing of Kinsley's leachate and (v) the operation and
maintenance by Kinsley's of the leachate processing equipment. The
agreements relating to the sale and operation and maintenance of
the electricity generating equipment were contingent upon, among
other things, the buyer obtaining financing. The agreement
regarding the sale of the electricity generating equipment expired
May 28, 1999, in accordance with its terms. The Company and buyer
continued discussions beyond May 1999, but failed to reach
agreement on a transaction similar to that originally contemplated,
therefore during January, 2000 the Company voided all agreements
with DGC and its affiliates including the Gas Lease. The Company
is evaluating several options with respect to the future operation
of the facility.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings, all of
which have been reported in the Company's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1999. Reference is made
thereto for a description of such litigation, and to the discussion
contained in Part I, Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources of this Form 10QSB.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K dated May 15, 2000 to
provide information regarding the services to be performed by the
Company at the Southern Ocean Landfill.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
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.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: August 14, 2000 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: August 14, 2000 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 32
27 Financial Data Schedule N/A