SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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:
2,979,190 shares of common stock, $.50 par value, outstanding as of
September 30, 2002. 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 45 pages
Exhibit index on page 42
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB/A
FOR THE QUARTERLY PERIOD ENDED September 30, 2002
During October 2001, the Company settled its claims against
certain excess insurance carriers for recovery of past remediation
costs. The settlement was consummated in 2002 and resulted in
gross proceeds to the Company of $13.0 million. As previously
disclosed, the Company agreed that a party to the 1997 settlement
of litigation regarding the allocation of remediation expenses may
claim against such proceeds in accordance with the terms of the
1997 settlement agreement. The amount that may be due is in
dispute, and the amount in dispute, $3.5 million, has been placed
in escrow.
The Company's initial reported results for the quarter ended
March 31, 2002 and year-to-date results for the quarters ended June
30 and September 30, 2002 included the funds held in escrow in
"other" income based upon calculations prepared on behalf of the
Company which indicated that no amounts were due to the party under
the terms of the 1997 settlement agreement. Management is still of
the opinion that no amounts are due to this party, however, the
outcome of the dispute is less certain given the arbitrator's
initial interpretations of the agreement. Therefore, management is
now of the opinion that the funds held in escrow should not be
reported as income until the dispute has been settled and the funds
are released from escrow. This amendment to the Form 10-QSB
previously submitted for the period stated above reflects the
exclusion of the escrowed funds and corresponding income tax
provision from income.
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30,
2002 and December 31, 2001 4 - 5
Consolidated Statements of Operations for the 6
Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Operations for the 7
Three Months Ended September 30, 2002 and 2001
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001 8 - 9
Notes to Consolidated Financial Statements 10 - 18
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19 - 35
Item 3. Controls and Procedures 35
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES AND CERTIFICATIONS 37 - 41
EXHIBIT INDEX 42
EXHIBITS 43 - 45
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September 30, December 31,
2002 2001
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 4,270 $ 442
Marketable securities 4,760 -
Accounts receivable - trade (net
of allowance for doubtful accounts
of $702 and $2, respectively) 618 1,260
Deferred tax assets 44 1,356
Closure cost receivable 176 170
Escrowed proceeds from sale of
subsidiary 122 121
Prepaid expenses and other 112 101
Total current assets 10,102 3,450
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,991 2,910
Less accumulated depreciation (2,841) (2,874)
Net property, plant
and equipment 150 36
OTHER ASSETS
Assets held for sale 1,312 1,312
Other 61 149
Total other assets 1,373 1,461
TOTAL ASSETS $11,625 $ 4,947
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)
September 30, December 31,
2002 2001
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 7 $ 3
Accounts payable 156 330
Accrued income taxes and related
interest 5,944 4,166
Deferred income taxes 34 -
Accrued miscellaneous expenses 1,319 137
Total current liabilities 7,460 4,636
OTHER LIABILITIES
Long-term debt 28 -
Accrued remediation and closure
costs 2,048 2,065
Total other liabilities 2,076 2,065
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,864,940 shares issued 2,432 2,432
Additional paid-in capital 1,450 1,450
Retained earnings 9,155 5,378
Accumulated other comprehensive
income (loss) 66 -
Subtotal 13,103 9,260
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) 2,089 (1,754)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $11,625 $ 4,947
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 Nine Months Ended
September 30,
2002 2001
NET REVENUES $ 607 $ 682
COST OF OPERATIONS
Direct operating costs 186 219
Selling, general and
administrative expenses 2,061 983
Total cost of operations 2,247 1,202
INCOME (LOSS) FROM OPERATIONS (1,640) (520)
OTHER INCOME (EXPENSE)
Investment income (loss) 128 36
Interest expense (1) -
Interest (expense) credit related
to income taxes payable (249) (284)
Net proceeds from insurance claims 8,626 -
Gain (loss) from sale of securities - 34
Miscellaneous income (expense) 64 69
Total other income (expense) 8,568 (145)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) 6,928 (665)
Income taxes (credit) 3,151 -
NET INCOME (LOSS) $ 3,777 $ (665)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $1.27 $(.23)
NUMBER OF SHARES USED IN
CALCULATION 2,979,190 2,931,937
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
September 30,
2002 2001
NET REVENUES $ 237 $ 243
COST OF OPERATIONS
Direct operating costs 90 98
Selling, general and
administrative expenses 455 270
Total cost of operations 545 368
INCOME (LOSS) FROM OPERATIONS (308) (125)
OTHER INCOME (EXPENSE)
Investment income (loss) 61 7
Interest expense (1) -
Interest (expense) credit related
to income taxes payable (85) (89)
Net proceeds from insurance claims 18 -
Gain (loss) from sale of securities - 34
Miscellaneous income (expense) 19 22
Total other income (expense) 12 (26)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (296) (151)
Income taxes (credit) (111) -
NET INCOME (LOSS) $ (185) $ (151)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.06) $(.05)
NUMBER OF SHARES USED IN
CALCULATION 2,979,190 2,979,190
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 Nine Months Ended
September 30,
2002 2001
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 548 $ 92
Cash paid to suppliers and employees (1,478) (1,006)
Interest and dividends received 129 29
Interest paid (1) -
Other income received 64 69
Income taxes paid (310) -
Proceeds from insurance claims 9,563 -
Proceeds from escrow deposit 100 -
Net cash provided by (used in)
operating activities 8,615 (816)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 9,596 1,547
Purchase of marketable securities (14,255) (308)
Purchase of property, plant and
equipment (129) (1)
Long term deposit (13) -
Net cash provided by (used in)
investing activities (4,801) 1,238
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (3) (2)
Proceeds from equipment financing 34 -
Payment of remediation and closure
costs (17) (9)
Net cash provided by (used in)
financing activities 14 (11)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,828 411
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 442 75
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 4,270 $ 486
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Nine Months Ended
September 30,
2002 2001
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 3,777 $ (665)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 15 20
Proceeds from escrow deposit 100 -
Issuance of 150,000 shares of common
stock at par - 75
Additional paid in capital - (66)
Gain (loss) from sale of securities - (34)
Deferred tax assets 1,312 -
Increase (decrease) in allowance
for doubtful accounts 700 -
(Increase) decrease in assets:
Accounts and notes receivable,
-net (58) (590)
Escrowed proceeds from sale
of subsidiary (1) (7)
Prepaid expenses and other (13) 64
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 1,005 103
Accrued income taxes and related
interest 1,778 284
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 8,615 $ (816)
SUPPLEMENTAL CASH FLOW INFORMATION:
During March 2001 the Company granted 150,000 shares of the
Company's Common Stock, par value $.50, having a market value of
$9,000, to the Company's employees and directors.
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(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 Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934, and the Private Securities
Litigation Reform Act of 1995. These statements relate to future
events or the Company's future financial performance. In some
cases, forward-looking statements can be identified by terminology
such as may, will, should, expect, plan, anticipate, believe,
estimate, intend, potential or continue, and similar expressions or
variations. These statements are only predictions. 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. All forward-looking statements included in this
document are based on information available to the Company and its
employees on the date of filing, and the Company and its employees
assume no obligation to update any such forward-looking statements.
In evaluating these statements, the reader should specifically
consider various factors.
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, 2001 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 2001 financial statements in order to
conform to the presentation followed in preparing the 2002
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.
In preparing financial statements in accordance with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and revenues
and expenses during the reporting period. Actual results could
differ from those estimates. See "Part I, Item 2. Managements's
Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding the estimates and
assumptions the Company makes that affect its financial statements.
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 September
30, 2002, the Company did not hold available-for-sale debt
securities. Available-for-sale equity securities are carried at
fair value as determined by quoted market prices. At September 30,
2002, the Company held a portfolio of available-for-sale equity
securities with a cost of $4,660,000 and a market value of
$4,760,000. The aggregate excess of fair value over cost of such
securities as of September 30, 2002 of $100,000 is presented as a
separate component of stockholders' equity less $34,000 of deferred
income taxes. The excess of fair value over cost consisted
entirely of gross unrealized gains. The cost of marketable
securities sold is determined on the specific identification method
and realized gains and losses are reflected in income. Proceeds
from the sale and maturity of available-for-sale securities during
the nine months ended September 30, 2002 equaled $14,255,000.
Dividend and interest income is accrued as earned.
NOTE 4 - TRADE RECEIVABLE
Accounts receivable-trade as of September 30, 2002 and
December 31, 2001 includes $1,100,000 and $1,042,000, respectively,
related to a project at the Southern Ocean Landfill ("SOLF") in New
Jersey. On May 15, 2000 the Company's capping plan for SOLF was
approved by the New Jersey Department of Environmental Protection
("NJDEP") (the "Capping Plan"). The Capping Plan calls for the
use of recycled materials where possible in the implementation of
the plan. Tipping fees generated from the deposit of the recycled
materials are paid into an escrow fund from which the Capping Plan
costs are paid. Such escrow account held $434,000 and $374,000 as
of September 30, 2002 and December 31, 2001, respectively. The
Company initially agreed to seek payment for its services and
reimbursement for its costs solely from the escrowed funds
generated from the delivery of recycled materials. One recycled
material accounted for 65% of the total volume of all recycled
materials to be deposited at the site. The availability of this
recycled material declined dramatically since the project was first
proposed, and the Company had a limited ability to substitute
materials under the Capping Plan. As a result, the project fell
behind schedule and incurred a disproportionate level of operating
expenses relative to tipping fees generated. Modifications were
made to the Capping Plan to (a) eliminate the capping of the
adjoining area and access road, (b) allow additional time in which
to complete the project, (c) allow additional materials to be
incorporated into the Capping Plan in order to provide funding of
the additional estimated project costs, and (d) have the county and
state fund certain aspects of the closure. During June 2002, the
Company requested an additional extension of the permit due to
construction delays arising from the repairs to prior work
necessitated by storm damage. The Company must now complete its
work by December 30, 2002. The Company may seek an amendment to
the Capping Plan that would permit the acceptance of recycled
materials into an adjacent area beyond December 30, 2002 in order
to provide additional funds to the project. Such an amendment
would require the approval of NJDEP and regional authorities.
However, there can be no assurance that such an amendment will
prove to be feasible and approved, or that the Company will be able
to solicit sufficient quantities of recycled material to generate
sufficient funds for reimbursement of the above receivables, or
payment for the continuing services of the Company. Therefore, due
to these uncertainties and the proximity to the expiration of the
project, during the nine months ended September 30, 2002 the
Company recognized an allowance of $700,000 against the amounts due
it for the SOLF project.
NOTE 5 - ESCROWED PROCEEDS FROM INSURANCE CLAIM SETTLEMENT
In conjunction with the 1997 settlement of the litigation
related to the Kin-Buc Landfill discussed in Note 9, the Company
committed a yet to be determined portion of the proceeds, net of
certain adjustments, arising from its litigation against its excess
carriers be paid to SCA Services, Inc., an affiliate of Waste
Management, Inc. In accordance with the terms of the 1997
settlement, $3.5 million of the Company's settlement proceeds are
held in escrow until the amount of such obligation is determined.
For further discussion of the SCA Services, Inc. matter, see Item
I of Part II of this Form 10-QSB. For further discussion of the
litigation of claims against excess carriers, see "Insurance Claims
for Past Remediation Costs" 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 - ESCROWED PROCEEDS FROM SALE OF SUBSIDIARY
On March 1, 1996, the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), sold all of the issued and outstanding
stock of Hunt Valve Company, Inc. ("Hunt") to ValveCo, Inc. A
portion of the net cash proceeds of the sale ($750,000) was placed
in an interest bearing escrow account to secure the Company's
indemnification obligations to the purchaser under the purchase
agreement. The escrow will terminate upon the earlier to occur of
(i) the release of all funds from escrow in accordance with the
terms thereof or (ii) the later to occur of (x) the expiration of
the applicable statute of limitations for the assessment of federal
income taxes for all taxable years with respect to which Hunt was
a member of the Company's consolidated tax group and (y) the
satisfaction by the Company of all assessments or other claims by
the Internal Revenue Service (the "Service") for taxes of the
consolidated tax group during such years. No indemnification
claims have been asserted. During December 2000, $841,000 was
released to the Company from the escrowed funds when it became
evident that the income tax liability for the years covered by the
escrow was less than $100,000. The escrowed funds with accrued
interest income equal $122,000 and $121,000 as of September 30,
2002 and December 31, 2001, respectively, and are classified as
current in the accompanying balance sheet since it is anticipated
that the funds will be released within twelve months.
NOTE 7 - 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 September 30, 2002 and
December 31, 2001. The real estate included in this category
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. ("Kinsley's"), is situated. The Company is actively
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. During
May 2001, the Company entered into an agreement to sell
approximately 55 acres of property adjoining the Kinsley's landfill
for $2.5 million. The sale is contingent, among other conditions,
upon the buyer completing its due diligence and obtaining approval
of its plans for the property from applicable local and state
agencies; a process that may require two or more years from the
date of this report to accomplish. During March 2002, the buyer
notified the Company that it will seek adjustments to the purchase
contract since its due diligence indicates that only between 45 and
48 acres may be developed and certain work on the property may be
required. These issues are the subject of continuing negotiations
between the Company and buyer.
NOTE 8 - INCOME TAXES
Accrued income taxes and related interest consists of (a)
$1,614,000 for federal and state income taxes with respect to the
nine months ended September 30, 2002, and (b) $4,330,000 for
federal and state income taxes, plus interest, with respect to the
Company's tax liability for the years 1980 through 1991.
The provision (credit) for income taxes consists of the
following (in 000's):
2002 2001
Provision for operations
Currently payable (refundable):
Federal $ 1,320 -
State 519 -
1,839 -
Deferred:
Federal 903 -
State 409 -
1,312 -
Total income tax
provision (credit) $ 3,151 -
During October 2000, the Company concluded litigation, which
it commenced in 1994, with the Service in Tax Court regarding the
Company's tax liability for taxable years 1980-91. The Company
settled all of the issues before the Tax Court and reached
agreement with the Service as to its tax liability for all of the
subsequent taxable years through 1996. After taking into account
available net operating losses and tax credits, the Company has
been assessed $905,000 of federal income tax as a result of the
settlements. The Company estimates that, as of September 30, 2002,
it also owes approximately $127,000 of state income tax and
$3,307,000 of federal interest as a result of the settlements. The
Company has paid the portion of the assessment related to 1995;
which consisted of $9,000 of federal taxes and $5,000 of interest.
State tax authorities may assert that interest and penalties are
owed in connection with the state tax liability arising from the
settlements. The Company will decide whether to challenge any such
state tax interest and penalties if and when they are asserted.
The aggregate tax obligation owed as a result of the Company's
settlements with the Service is approximately $4,330,000 (plus
additional interest accruing from September 30, 2002 until the
obligations are paid).
During March 2001, the Company filed an Offer in Compromise
with the Service requesting a reduction of its tax obligation and
permission to pay the reduced obligation in installments. The
offer was rejected by the Service, and in March 2002, the Company
filed an appeal of the Service's decision. The Company awaits the
Service's response. Payment of the state tax liability and
interest will accompany amended state tax returns that are being
prepared to reflect the adjustments to previously reported income
that result from the settlements with the Service.
NOTE 9 - 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 previously
leased from a third party, 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 September 30, 2002, the Company has accruals totaling
$11.3 million for its estimated share of remediation and closure
costs in regard to the Company's former landfill operations,
approximately $9.3 million of which is held in trusts and
maintained by trustees for financing of the estimated $11.2 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, pursuant to 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 and each respondent
to these orders is jointly and severally liable thereunder. 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 certain future liabilities
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.
Beginning in February 2000, the Company and EPA entered into
a series of tolling agreements pursuant to which EPA agreed to
defer the filing of claims or commencement of litigation with
respect to the Kin-Buc Landfill against the respondents to the
Administrative Orders, and the Company agreed to extend the statute
of limitations which may otherwise have prevented the filing of
such claims or commencement of litigation. The most recent of the
extensions expired April 30, 2002. During May 2002, the Company
and other respondents to the Administrative Orders were named as
defendants to a suit filed by the Office of the US Attorney in
which EPA seeks reimbursement of costs it has incurred and
penalties for past construction delays. During September 2002, the
New Jersey Department of Environmental Protection and New Jersey
Spill Compensation Fund filed a similar suit against the same
respondents, seeking reimbursement of past costs it has incurred
with respect to the site and for alleged natural resource damages.
For a discussion of these matters, see Item 1 of Part II of this
Form 10-QSB.
In conjunction with the 1997 settlement of the litigation
related to the Kin-Buc Landfill discussed above, the Company
committed a yet to be determined portion of the proceeds, net of
certain adjustments, arising from its litigation against its excess
insurance carriers be paid to SCA. SCA contends it is owed $3.5
million. For a discussion of this matter, see Item I of Part II of
this Form 10-QSB. For a discussion of the excess insurance
carriers matter, see "Insurance Claims for Past Remediation Costs"
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.
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 and officer, and former principal shareholder of
the Company. EPA is performing remediation at the site. During
November, 2001 EPA filed suit against the Company alleging that the
Company is the corporate successor to the former operator at the
site, and had continued its operations at the site. EPA is seeking
$2.9 million of previously unallocated remediation costs associated
with the site. See Item I of Part II of this Form 10-QSB for
further discussion of this matter. Pursuant to a 1988 agreement
with Tang, the Company spent approximately $4.3 million for the
remediation of the site during 1988, 1989 and 1990.
During September 2002, EPA issued a notice of potential
liability and of consent decree negotiations to potentially
responsible parties regarding a site located in Carlstadt, New
Jersey. The site has been undergoing remediation and EPA now seeks
contribution toward the remediation of an area designated Operable
Unit 2. EPA has estimated the cost of this phase of the
remediation at $7.5 million. The Company had operated a solvents
recovery facility at the site that was last operated by the Company
in 1970. This matter is currently under review by the Company and
its advisors. See Item I of Part II of this Form 10-QSB for
further discussion of this matter. See "Insurance Claims for Past
Remediation Costs" 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
for a discussion of certain matters related to the site.
NOTE 10 - 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.
NOTE 11 - EMPLOYEE BENEFIT PLANS
On March 23, 2001, the Company registered 150,000 shares of
its Common Stock, par value $.50 per share, to be issued to its
employees and directors pursuant to the Transtech Industries, Inc.
2001 Employee Stock Plan (the "Plan"). The Plan was approved by
the Company's Board of Directors on February 7, 2001. All 150,000
shares to be granted under the Plan were issued on March 28, 2001,
and had an aggregate market value of $9,000.
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 Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934, and the Private Securities
Litigation Reform Act of 1995. These statements relate to future
events or the Company's future financial performance. In some
cases, forward-looking statements can be identified by terminology
such as may, will, should, expect, plan, anticipate, believe,
estimate, intend, potential or continue, and similar expressions or
variations. These statements are only predictions. 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. All forward-looking statements included in this
document are based on information available to the Company and its
employees on the date of filing, and the Company and its employees
assume no obligation to update any such forward-looking statements.
In evaluating these statements, the reader should specifically
consider various factors.
Results of Operations
The nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001
Consolidated revenues by business segment for the nine months
ended September 30, 2002 and 2001 were as follows (in $000):
2002 2001
Environmental Services $1,014 $1,170
Electricity Generation 25 1
Subtotal 1,039 1,171
Intercompany (432) (489)
Net $607 $682
Consolidated net revenues for the nine months ended September
30, 2002 were $607,000 compared to $682,000 reported for the same
period of 2001.
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 $1,014,000 of gross
operating revenues (prior to elimination of intercompany sales) for
the nine months ended September 30, 2002 compared to $1,170,000 for
the period in 2001; a decrease of 13%. Approximately $432,000 or
44% of the environmental services segment's revenues for the
period, compared to $489,000 or 42% for last year, were for
services provided to other members of the consolidated group and
therefore eliminated in consolidation. Third party sales were
$582,000 for the period in 2002, compared to $681,000 for the
period in 2001. Substantially all the third party sales during
2002 and 2001 were to one customer, as discussed in the following
paragraph.
On May 15, 2000 the Company's capping plan for the closure of
the Southern Ocean Landfill ("SOLF") in New Jersey was approved by
the New Jersey Department of Environmental Protection ("NJDEP")
(the "Capping Plan"). The Capping Plan has been limited to the
grading and capping of the 12 acre lined portion of SOLF 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 SOLF.
Approved activities also include leachate collection and pump
repair, slope stability analysis, stormwater management, gas vent
installation, groundwater monitoring and associated activities.
The Capping Plan calls for the use of recycled materials where
possible in the implementation of the plan. Tipping fees generated
from the deposit of the recycled materials are paid into an escrow
fund from which the Capping Plan costs are paid. The Company
performs certain of the above construction activities, sub-
contracts other activities and performs all managerial functions
required under the Capping Plan as well as act as SOLF's agent to
solicit the recycled materials. The Company had initially agreed
to seek payment for its services and reimbursement for its costs
solely from the escrowed funds generated from the delivery of
recycled materials. One recycled material accounted for 65% of the
total initial volume of all recycled materials to be deposited at
the site. The availability of this recycled material declined
dramatically since the project was first proposed, and the Company
has a limited ability to substitute materials under the Capping
Plan. As a result, the project fell behind schedule and incurred
a disproportionate level of operating expenses relative to tipping
fees generated. Modifications were made to the Capping Plan to (a)
eliminate the capping of the adjoining area and access road, (b)
allow additional time in which to complete the project, (c) allow
additional materials to be incorporated into the plan in order to
provide funding of a portion of the additional estimated project
costs, and (d) provide funding of certain aspects of the closure by
the county and state. During June 2002, the Company requested an
additional extension of the permit due to construction delays
arising from the repairs to prior work necessitated by storm
damage. The Company must now complete its work by December 30,
2002. The Company recognized revenue of $582,000 and $680,000
related to this project during the nine months ended September 30,
2002 and 2001, respectively. Accounts receivable - trade at
September 30, 2002 and December 31, 2001, includes $1,100,000 and
$1,042,000, respectively, due from the project. The Company may
seek an amendment to the Capping Plan that would permit the
acceptance of recycled materials into an adjacent area beyond
December 30, 2002 in order to provide additional funds to the
project. Such an amendment would require the approval of NJDEP and
regional authorities. However, there can be no assurance that such
an amendment will prove to be feasible and approved, or that the
Company will be able to solicit sufficient quantities of recycled
material to generate sufficient funds for reimbursement of the
above receivable, or payment for the continuing services of the
Company. Therefore, due to these uncertainties and the proximity
to the expiration of the project, during the nine months ended
September 30, 2002 the Company recognized an allowance of $700,000
against amounts due it for the SOLF project.
The Company's environmental services segment continues to
perform closure activities on sites previously operated by the
Company's subsidiaries. Work performed on a landfill owned by the
Company and located in Deptford, New Jersey is submitted for
reimbursement to an escrow account established to finance the
closure activities at the site. The Company billed such escrow
account approximately $414,000 and $480,000 for services performed
during the nine months ended September 30, 2002 and 2001,
respectively.
Revenues for the segment that generates electricity using
methane gas as fuel were $25,000 for the nine months ended
September 30, 2002 versus $1,000 reported for the period in 2001.
The Company has elected to begin repairs to the diesel/generating
units previously postponed pending the outcome of negotiations of
offers to purchase the electricity generating operations.
Overhauls of certain equipment began in May 2002 in preparation for
the Company's operation of the facility or its ultimate sale. The
electricity generating facility consists of four diesel/generating
units each capable of generating approximately 11,000 kwh/day at
85% capacity. Electricity generated is sold pursuant to a long
term contract with a local utility. The contract has approximately
three years remaining. Revenues are a function of the number of
kilowatt hours sold, the rate received per kilowatt hour and
capacity payments. The Company had operated one unit sporadically
since June 2000. The contract with the local utility allows for a
continuous interruption in electricity supply for a period of up to
twelve months. Methane gas is a component of the landfill gas
generated by a landfill site owned by the Company and located in
Deptford, New Jersey. Engineering studies indicate sufficient
quantities of gas at the landfill to continue the operation of the
facility for approximately 10 years. Elements of the landfill gas
are more corrosive to the equipment than traditional fuels,
resulting in more hours dedicated to repair and maintenance than
with equipment utilizing traditional fuels.
Consolidated direct operating costs for the nine months ended
September 30, 2002 were $186,000, a decrease of $33,000 or 15% when
compared to $219,000 reported for 2001. This decrease in direct
operating costs is primarily due to the activities of the
environmental services segment. The cost of the repairs and
operation of the electricity generating units and related equipment
during the period ended September 30, 2002 equaled $48,000 and an
additional $47,000 of repair costs have been capitalized. The
costs of repairs and operation of the electricity generating
segment were $8,000 for the nine months ended September 30, 2001.
Consolidated selling, general and administrative expenses for
the nine months ended September 30, 2002 were $2,061,000, an
increase of $1,078,000 or 110% from $983,000 reported for the same
period in 2001. The increase in selling, general and administrative
expenses in the period for 2002 is primarily due to a charge of
$700,000 for an increase in the allowance for doubtful accounts
discussed above, and an approximate $250,000 increase in accrued
professional fees and administrative costs for the research and
defense of environmental claims regarding various sites. Excluding
the two charges, selling, general and administrative expenses
equaled $1,111,000 for the period in 2002. 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 nine months
ended September 30, 2002 was $1,640,000 versus $520,000 for the
same period in 2001, an increase of $1,120,000.
Consolidated investment income was $128,000 for the nine
months ended September 30, 2002, an increase of $92,000 from
$36,000 reported for the comparable period in 2001. The increase
is primarily due to an increase in funds available for investment.
Consolidated interest expense was $1,000 for the nine months
ended September 30, 2002. Interest expense was less than $1,000
for the period in the prior year.
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 of $249,000 and $284,000 was reported for the nine months
ended September 30, 2002 and 2001, respectively.
Net proceeds from insurance claims of $8,626,000 were reported
for the nine months ended September 30, 2002 of which $8,608,000
represents the proceeds received from the Company's October 2001
settlement of litigation against certain of its excess insurance
carriers, less related legal fees and a charge of $100,000 related
to the release of funds previously held in escrow to a former
majority shareholder and former officer and director. Such payment
stems from a 1998 settlement agreement and was contingent upon the
Company's settlement of the excess insurance claims. See
"Liquidity and Capital Resources - Insurance Claims for Past
Remediation Costs" for further discussion of these issues.
Gain from the sale of marketable securities was $34,000 for
the three months ended September 30, 2001.
Consolidated miscellaneous income for the nine months ended
September 30, 2002 and 2001 was $64,000 and $69,000, respectively.
Miscellaneous income for the period in 2002 and 2001 consists
primarily of net rental/royalty income received from the rental and
lease of certain of the Company's property.
Provisions for income taxes of $3,151,000 was reported for the
nine months ended September 30, 2002. No provisions for income
taxes had been recognized for the nine months ended September 30,
2001.
Consolidated net income for the nine months ended September
30, 2002 was $3,777,000 or $1.27 per share, compared to a net loss
of $665,000 or $(.23) per share, for the nine months ended
September 30, 2001.
The three months ended September 30, 2002 compared to the
three months ended September 30, 2001
Consolidated revenues by business segment for the three months
ended September 30, 2002 and 2001 were as follows (in $000):
2002 2001
Environmental Services $359 $377
Electricity Generation 25 -
Subtotal 384 377
Intercompany (147) (134)
Net $237 $243
Consolidated net revenues for the three months ended September
30, 2002 were $237,000 compared to $243,000 reported for the same
period of 2001.
The environmental services segment reported $359,000 of gross
operating revenues (prior to elimination of intercompany sales) for
the three months ended September 30, 2002 compared to $377,000 for
the period in 2001; a decrease of 5%. Approximately $147,000 or
41% of the environmental services segment's revenues for the
period, compared to $134,000 or 36% for last year, were for
services provided to other members of the consolidated group and
therefore eliminated in consolidation. Third party sales were
$212,000 for the period in 2002, compared to $243,000 for the
period in 2001. Substantially all the third party sales during
2002 and 2001 relate to the capping plan for the closure of SOLF.
Revenues for the segment that generates electricity using
methane gas as fuel were $25,000 for the three months ended
September 30, 2002. No revenue from this segment was reported for
the period in 2001.
Consolidated direct operating costs for the three months ended
September 30, 2002 were $90,000, a decrease of $8,000 or 8% when
compared to $98,000 reported for 2001. This decrease in direct
operating costs is primarily due to the activities of the
environmental services segment. The cost for the repair and
operation of the electricity generating segment for the periods
ended September 30, 2002 and 2001 were $43,000 and $1,000,
respectively.
Consolidated selling, general and administrative expenses for
the three months ended September 30, 2002 were $455,000, an
increase of $185,000 or 68% from $270,000 reported for the same
period in 2001. The increase in selling, general and administrative
expenses is primarily due to an increase in professional fees and
employee related expenses.
The Company's consolidated operating loss for the three months
ended September 30, 2002 increased $183,000 to $308,000 from a loss
of $125,000 for the same period in 2001.
Consolidated investment income was $61,000 for the three
months ended September 30, 2002, an increase of $54,000 from $7,000
reported for the comparable period in 2001. The increase is
primarily due to an increase in funds available for investment.
Consolidated interest expense was $1,000 for the three months
ended September 30, 2002. Interest expense was less than $1,000
for the period in the prior year.
Interest reported as "Interest (expense) credit related to
income taxes payable" of $85,000 and $89,000 was reported for the
three months ended September 30, 2002 and 2001, respectively.
Gain from the sale of marketable securities was $34,000 for
the three months ended September 30, 2001.
Consolidated miscellaneous income for the three months ended
September 30, 2002 and 2001 was $19,000 and $22,000, respectively.
An income tax credit of $111,000 was recognized for the three
months ended September 30, 2002. No provisions for income taxes
had been recognized for the three months ended September 30, 2001.
Consolidated net loss for the three months ended September 30,
2002 was $185,000 or $(.06) per share, compared to a net loss of
$151,000 or $(.05) per share, for the three months ended September
30, 2001.
Liquidity and Capital Resources
General
The Company faces significant short-term and long-term cash
requirements for (i) federal and state income taxes and interest
which have been assessed and are now due as discussed below and in
the notes to the Company's consolidated financial statements for
the period ended September 30, 2002, (ii) funding obligations and
remediation costs associated with sites of past operations, and
(iii) funding its professional and administrative costs.
As discussed in detail below, the Company and the Internal
Revenue Service (the "Service") have settled all of its issues
before the U.S. Tax Court regarding the Company's tax liability for
the years 1980 through 1991, and the federal and state income tax
obligations stemming from the settlements have been assessed and
are now due. The assessed tax obligation has been estimated at
$4.3 million as of September 30, 2002. Although the Company's
settlement of its claims against certain of its insurance carriers
for recoveries of past remediation costs, discussed below, resulted
in after-tax proceeds greater than the amount of the assessed tax
obligations, the proceeds remaining after an immediate payment of
the full amount of the tax obligation may be insufficient to
satisfy the Company's other obligations and meet its operating
expenses as they come due. In addition, the Company's past
participation in the waste handling, treatment 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.
The Company continues to pursue the sale of assets held for
sale, however, no assurance can be given that the timing and amount
of the proceeds from such sales 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.
In the event of an unfavorable resolution of the claims
against the Company by the United States Environmental Protection
Agency and SCA Services, Inc. discussed below, or unfavorable
payment negotiations with the Service, 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.
Statement of Cash Flow
Cash flow provided by operating activities for the nine months
ended September 30, 2002 increased to $8,615,000 from a use of
$816,000 when compared to the prior year due primarily to the
receipt of $9,563,000 of proceeds from a settlement of claims
against certain of the Company's excess insurance carriers.
Excluding the settlement proceeds, the cash flow from operations
for the period in 2002 increased to a use of $948,000 due primarily
to installments paid toward estimated federal income taxes. Cash
flows from investing activities decreased this year to a net use of
$4,801,000 from a source of $1,238,000, due primarily to the
investment of the aforementioned proceeds from insurance claims.
The amount reported for 2001 reflects cash utilized for operations
as marketable securities were sold or matured. Cash flows provided
by financing activities increased to $14,000 from a use of $11,000
for the period last year, due primarily to proceeds from equipment
financing in excess of an increase in landfill closing costs
incurred at a site financed from the Company's general funds.
Funds held by the Company in the form of cash and cash equivalents
increased as of September 30, 2002 to $4,270,000 from $486,000.
The sum of cash, cash equivalents and marketable securities as of
September 30, 2002 increased to $9,030,000 from $486,000 reported
for the prior year.
Working capital surplus was $2.6 million for the nine months
ended September 30, 2002 versus a deficit of $(1.2) million for the
year ended December 31, 2001, and the ratio of current assets to
current liabilities was 1.4 to 1 as of September 30, 2002 and 0.7
to 1 as of December 31, 2001.
Taxes
During October 2000, the Company concluded litigation, which
it commenced in 1994, with the Service in Tax Court regarding the
Company's tax liability for taxable years 1980-91. The Company
settled all of the issues before the Tax Court and reached an
agreement with the Service as to its tax liability for all taxable
years through 1996. After taking into account available net
operating losses and tax credits, the Company has been assessed
$905,000 of federal income tax as a result of these settlements.
The Company estimates that, as of September 30, 2002, it also owes
approximately $127,000 of state income tax and $3,307,000 of
federal interest as a result of the settlements. State tax
authorities may assert that interest and penalties are owed in
connection with the state tax liability arising from the
settlements. The Company will decide whether to challenge any such
state tax interest and penalties if and when they are asserted.
The Company has paid the portion of the assessment related to 1995;
which consists of $9,000 of federal taxes and $5,000 of interest.
The aggregate tax obligation owed as a result of the Company's
settlement with the Service is approximately $4,330,000 (plus
additional interest accruing from September 30, 2002 until the
obligations are paid).
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. These settlements
were accepted by the Congressional Joint Committee on Taxation
during April 2000.
In March 2001, the Company filed an Offer in Compromise with
the Service requesting a reduction of its tax obligation and
permission to pay the reduced obligation in installments. This
Offer was rejected by the Service, and in March 2002, the Company
filed an appeal of the Service's decision. The Company awaits the
Service's response. Payment of the state tax liability will
accompany amended state tax returns that are being prepared to
reflect the adjustments to previously reported income that result
from the settlements with the Service.
Remediation and Closure Costs
As of September 30, 2002, the Company has accrued $11.3
million for its estimated share of remediation and closure costs
related to the Company's former landfill and waste handling
operations. Approximately $9.3 million is held in trust and
maintained by trustees for the post-closure activities of one site
located in Deptford, New Jersey (see Note 9 to the Company's
Consolidated Financial Statements).
The Kin-Buc Landfill, located in Edison, New Jersey, is owned
and was operated by the Company's subsidiary, Kin-Buc, Inc. ("Kin-
Buc"). The Kin-Buc Landfill and certain neighboring areas are
undergoing remediation under Administrative Orders issued by the
United States Environmental Protection Agency ("EPA") in September
1990 and November 1992 to the Company and other responsible parties
including SCA Services, Inc. ("SCA"), which is an affiliate of
Waste Management, Inc. ("WMI"). The Company initiated a suit in
1990 against generators and transporters of waste deposited at the
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
certain future liabilities 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, and may incur administrative and legal costs
complying with such Administrative Orders.
During February 1999, EPA informed SCA that EPA concluded that
hazardous materials were disposed of in Mound B. SCA's work plan
to address conditions at Mound B was approved by EPA during January
2001 subject to certain contingencies. Beginning in February 2000,
the Company and EPA entered into a series of tolling agreements
pursuant to which EPA agreed to defer the filing of claims or
commencement of litigation with respect to the Kin-Buc Landfill
against the respondents of the Administrative Orders, and the
Company agreed to extend the statute of limitations which may
otherwise have prevented the filing of such claims or commencement
of litigation. The most recent of such extensions expired April
30, 2002. During May, 2002 the Company and other respondents to
the Administrative Orders were named as defendants to a suit filed
by the Office of the US Attorney in which EPA seeks reimbursement
of costs it has incurred and penalties for past construction
delays. During September 2002, the New Jersey Department of
Environmental Protection and New Jersey Spill Compensation Fund
filed a similar suit against the same respondents, seeking
reimbursement of past costs it has incurred with respect to the
site and for alleged natural resource damages. For a discussion of
these matters, see Item 1 of Part II of this Form 10-QSB.
In conjunction with the 1997 settlement of the litigation
related to the Kin-Buc Landfill discussed above, the Company
committed a yet to be determined portion of the proceeds, net of
certain adjustments, arising from its litigation against its excess
insurance carriers be paid to SCA. Such payment is not to exceed
$3.5 million. For a discussion of this matter, see Item I of Part
II of this Form 10-QSB.
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 and officer, and former 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. During November, 2001 EPA filed suit against the Company
alleging that the Company is the corporate successor to the former
operator at the site, Chemsol, Inc., and had continued its
operations at the site. EPA is seeking reimbursement of $2.9
million of unallocated remediation costs associated with the site.
The Company is contesting the allegations regarding successorship
and the extent of operations it may have conducted at the site. No
further action has been taken regarding this matter pending the
outcome of settlement discussions. For a discussion of this matter
see Item I of Part II of this Form 10-QSB.
During September 2002, EPA issued a notice of potential
liability and of consent decree negotiations to potentially
responsible parties regarding a site located in Carlstadt, New
Jersey. The site has been undergoing remediation and EPA now seeks
contribution toward the remediation of an area designated Operable
Unit 2. EPA has estimated the cost of this phase of the
remediation at $7.5 million. The Company had operated a solvents
recovery facility at the site that was last operated by the Company
in 1970. This matter is currently under review by the Company and
its advisors. See Item I of Part II of this Form 10-QSB for
further discussion of this matter. See the section entitled
"Insurance Claims for Past Remediation Costs" below for a
discussion of certain matters related to the site.
Insurance Claims for Past Remediation Costs
In 1995, the Company commenced suit (the "Lloyds Suit")
against its excess insurers who provided coverage during the period
of 1965 through 1986 to obtain a recovery of past remediation costs
and indemnification for future costs incurred in connection with
the remediation of various sites located in New Jersey, and for the
defense of litigation related thereto. The defendant insurers,
include various Underwriters at Lloyds, London, and London Market
Insurance Companies, First State Insurance Company and
International Insurance Company. The Company had assigned its
claims for remediation costs incurred at a site of past operations
located in Carlstadt, New Jersey to certain third-parties (the
"AT&T Group") in conjunction with the 1995 settlement of certain
litigation regarding the remediation costs for such site. Certain
of the AT&T Group members in-turn assigned their rights to the
claims to other AT&T Group members (the "Co-Operating PRPs").
During October, 2001 the Company, the Cooperating PRP Group and
certain Underwriters at Lloyds, London, and certain London Market
Insurance Companies (the "London Market Insurers") entered into an
agreement to settle the claims against them (the "Settlement
Agreement"). The Settlement Agreement is intended to be, a full
and final settlement that releases and terminates all rights,
obligations and liabilities of London Market Insurers, the Company
and the Cooperating PRP Group with respect to the subject insurance
policies. The Settlement Agreement was consummated in February
2002 when the condition that payments by settling insurers into an
escrow account must represent at least 84.75% of the negotiated
value assigned to the claims was satisfied. The Company's share of
the Settlement Agreement proceeds and interest earned during the
collection of the proceeds was approximately $13,013,000 of which
$9,513,000 is reported in the other income section of the Company's
Consolidated Statement of Operation for the period ended March 31,
2002, net of related costs, and $3,500,000 is held in escrow
pending the outcome of arbitration with SCA Services, Inc.
discussed below. The Company intends to pursue its claims against
the non-settling defendants. Some of the non-settling London and
London Market insurance companies are insolvent, however the
estates of some of these insolvent companies have sufficient assets
to make a partial contribution toward claims filed by the Company.
The Cooperating PRP Group shall receive the first $250,000 that is
collected from the non-settling excess insurers, net of attorney
fees and expenses, and the Company shall retain the balance of
amounts recovered, if any. Proceeds from the Settlement Agreement
will be subject to federal and state income taxes.
The Company also committed a yet to be determined portion of
its proceeds from the Lloyds Suit net of certain adjustments, be
paid to SCA Services, Inc. in conjunction with the 1997 settlement
of the litigation related to the Kin-Buc Landfill, as discussed
above, and to legal counsel representing the Company in the Lloyds
Suit. In accordance with the terms of the 1997 settlement, $3.5
million of the Company's share of the Lloyds Suit settlement is
held in escrow until the amount of such obligation, if any, is
determined (see Item I of Part II of this Form 10-QSB). The
Company and counsel representing the Company in the Lloyds Suit and
certain other matters entered into an engagement agreement that
contains as compensation both fixed and contingent fees. The
amount of fees due is dependent in-part upon the outcome of the
matters. The Company has accrued approximately $837,000 for such
fees which are payable at the conclusion of the litigation on which
counsel represents the Company.
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 pursuant
to an October 1998 agreement. The 1998 agreement provided, among
other terms, for the second of two payments in the amount of
$100,000 each be released from an escrow upon receipt of proceeds
from claims against the excess insurance carriers.
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 September 30, 2002. The real
estate included in this category consists of approximately 430
acres of predominately vacant property 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 had attempted to maximize
the consideration received for the property through the sale or
lease of portions of the Deptford Property as a recycling
center/construction and demolition waste depository. However,
discussions with local officials lead the Company to conclude that
such plans are unlikely to be accomplished in the foreseeable
future. The Company is now pursuing the disposition of the
property through the sale of individual parcels and/or groups of
parcels. However, based upon market conditions for real estate of
this type the Company is unable to determine when sale(s) of the
parcels will ultimately be consummated and proceeds received.
During May, 2001 the Company entered into a contract to sell
approximately 55 acres adjoining Kinsley's landfill for $2.5
million, assuming all 55 acres could be utilized for development.
The sale is contingent upon, among other conditions, the buyer
completing its due diligence and obtaining approval of its plans
for the property from applicable local and state agencies; a
process that may require two or more years from the date of this
report to accomplish. During March 2002, the buyer notified the
Company that it will seek adjustments to the purchase contract
since its due diligence indicates that only between 45 and 48 acres
may be developed and certain work on the property may be required.
These issues are the subject of continuing negotiations between the
Company and buyer.
Escrowed Proceeds from Sale of Subsidiary
A portion of the net cash proceeds from the 1996 sale of a
subsidiary was placed in an interest bearing escrow account to
secure the Company's indemnification obligations to the purchaser
under the purchase agreement. The escrow will terminate upon the
earlier to occur of (i) the release of all funds from escrow in
accordance with the terms thereof or (ii) the later to occur of (x)
the expiration of the applicable statute of limitations for the
assessment of federal income taxes for all taxable years with
respect to which the subsidiary was a member of the Company's
consolidated tax group and (y) the satisfaction by the Company of
all assessments or other claims by the Internal Revenue Service for
taxes of the consolidated tax group during such years. No
indemnification claims have been asserted. During December 2000,
the purchaser agreed to release $841,000 from the escrowed funds to
the Company when it became evident that the income tax liability
for the years covered by the escrow were less than $100,000. The
escrowed funds with accrued interest income equal $122,000 as of
September 30, 2002.
THE COMPANY CAN NOT ASSURE THAT THE TIMING AND AMOUNT OF THE
NET PROCEEDS FROM THE SALE OF SUCH ASSETS HELD FOR SALE, THE
PROCEEDS FROM THE SETTLEMENT OF THE INSURANCE CLAIMS AND THE
ESCROWED PROCEEDS FROM THE SALE OF A SUBSIDIARY WILL BE SUFFICIENT
TO MEET THE CASH REQUIREMENTS OF THE COMPANY DISCUSSED ABOVE.
Part I, Item 3. Controls and Procedures.
a) Evaluation of disclosure controls and procedures. Based upon
their evaluation as of a date within 90 days of the filing date of
this Amended Quarterly Report on Form 10-QSB/A, our principal
executive officer and principal financial officer have concluded
that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities and Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms.
b) Changes in internal controls. There were no significant
changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation referenced in the preceding paragraph, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common
Share
Exhibit 99(a)- Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Executive
Officer
Exhibit 99(b)- Certification Pursuant to 18 U.S.C. Section
1350,as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Financial
Officer
b) Reports on Form 8-K
NONE 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: April 17, 2003 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: April 17, 2003 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
CERTIFICATIONS
I, Robert V. Silva, certify that:
1. I have reviewed this amended quarterly report on Form lO-QSB/A
of Transtech Industries, Inc.;
2. Based on my knowledge, this amended quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this amended
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this amended quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this amended quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules l3a-14 and l5d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
amended quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this amended quarterly report (the "Evaluation
Date"); and
c) presented in this amended quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this amended quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 17, 2003
/s/ Robert V. Silva
Robert V. Silva
President and Chief Executive Officer
and Director
(Principal Executive Officer)
CERTIFICATIONS
I, Andrew J. Mayer, Jr., certify that:
1. I have reviewed this amended quarterly report on Form 1O-QSB/A
of Transtech Industries, Inc.;
2. Based on my knowledge, this amended quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this amended
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this amended quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this amended quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules l3a-14 and l5d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
amended quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this amended quarterly report (the "Evaluation
Date"); and
c) presented in this amended quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this amended quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 17, 2003
/s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
(Principal Financial and Accounting Officer)
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 43
99(a) Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Executive
Officer 44
99(b) Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Financial
Officer 45