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 September 30, 2003
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, 2003. 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 44 pages
Exhibit index on page 37
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED September 30, 2003
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September
30, 2003 and December 31, 2002 3 - 4
Consolidated Statements of Operations for the 5
Nine Months Ended September 30, 2003 and 2002
Consolidated Statements of Operations for the
Three Months Ended September 30, 2003 and 2002 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2003 and 2002 7 - 8
Notes to Consolidated Financial Statements 9 - 15
Item 2. Management's Discussion and Analysis
or Plan of Operation 16 - 32
Item 3. Controls and Procedures 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Changes in Securities 34
Item 3. Defaults Upon Senior Securities 34
Item 4. Submission of Matters to a Vote of
Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES AND CERTIFICATIONS 36
EXHIBIT INDEX 37
EXHIBITS 38 - 44
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September December 31,
30,
2003 2002
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $ 5,011 $ 3,779
Marketable securities 964 4,761
Accounts receivable - trade (net of 327 487
allowance for doubtful accounts of
$52 and $2, respectively
Deferred tax asset 44 44
Recoverable closure costs from escrow 230 208
fund
Escrowed proceeds from sale of 123 122
subsidiary
Prepaid expenses and other 103 63
Total current assets 6,802 9,464
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 3,143 3,064
Less accumulated depreciation (2,873) (2,850)
Net property, plant and equipment 270 214
OTHER ASSETS
Assets held for sale 1,312 1,312
Other 260 260
Total other assets 1,572 1,572
TOTAL ASSETS $ 8,644 $11,250
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,
2003 2002
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 15 $ 6
Accounts payable 299 366
Accrued income taxes and related
interest 4,040 5,874
Accrued salaries and wages 21 189
Deferred income taxes 5 13
Accrued miscellaneous expenses 1,102 910
Total current liabilities 5,482 7,358
OTHER LIABILITIES
Long-term debt 57 26
Accrued remediation and closure costs 2,079 2,091
Total other liabilities 2,136 2,117
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value, 2,432 2,432
10,000,000 shares authorized:
4,864,940 shares issued
Additional paid-in capital 1,450 1,450
Retained earnings 8,148 8,881
Accumulated other comprehensive income
(loss) 10 26
Subtotal 12,040 12,789
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity
(deficit) 1,026 1,775
TOTAL LIABILITIES AND STOCKHOLDERS' $ 8,644 $11,250
EQUITY (DEFICIT)
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,
2003 2002
NET OPERATING REVENUES $ 248 $ 607
COST OF OPERATIONS
Direct operating costs 110 186
Selling, general and administrative
expenses 1,184 2,061
Total cost of operations 1,294 2,247
INCOME (LOSS) FROM OPERATIONS (1,046) (1,640)
OTHER INCOME (EXPENSE)
Investment income (loss) 100 128
Interest expense (4) (1)
Interest (expense) credit related to income
taxes payable (235) (249)
Net proceeds from insurance claims - 8,626
Gain (loss) from sale of securities (5) -
Gain (loss) from sale of property,
plant or equipment 24 -
Miscellaneous income (expense) 55 64
Total other income (expense) (65) 8,568
INCOME (LOSS) BEFORE INCOME TAXES (CREDIT) (1,111) 6,928
Income taxes (credit) (378) 3,151
NET INCOME (LOSS) $ (733) $3,777
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.25) $1.27
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 OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
September 30,
2003 2002
NET OPERATING REVENUES $ 51 $ 237
COST OF OPERATIONS
Direct operating costs 15 90
Selling, general and administrative
expenses 361 455
Total cost of operations 376 545
INCOME (LOSS) FROM OPERATIONS (325) (308)
OTHER INCOME (EXPENSE)
Investment income (loss) 22 61
Interest expense (2) (1)
Interest (expense) credit related to income
taxes payable (81) (85)
Net proceeds from insurance claims - 18
Gain (loss) from sale of securities (4) -
Gain (loss) from sale of property,
plant or equipment 24 -
Miscellaneous income (expense) 13 19
Total other income (expense) (28) 12
INCOME (LOSS) BEFORE INCOME TAXES (CREDIT) (353) (296)
Income taxes (credit) (378) (111)
NET INCOME (LOSS) $ 25 $ (185)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $ .01 $ (.06)
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,
2003 2002
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 358 $ 548
Cash paid to suppliers and employees (1,323) (1,478)
Interest and dividends received 100 129
Interest paid (4) (1)
Other income received 54 64
Income taxes paid (1,689) (310)
Proceeds from insurance claims - 9,563
Proceeds from escrow deposit - 100
Net cash provided by (used in)
operating activities (2,504) 8,615
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of marketable
securities 4,351 9,596
Purchase of marketable securities (583) (14,255)
Purchase of property, plant and equipment
(87) (129)
Proceeds from sale of property,
plant and equipment 24 -
Long term deposit - (13)
Net cash provided by (used in)
investing activities 3,705 (4,801)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (6) (3)
Proceeds from equipment financing 46 34
Payment of remediation and closure costs (9) (17)
Net cash provided by (used in) financing
activities 31 14
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,232 3,828
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 3,779 442
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 5,011 $ 4,270
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,
2003 2002
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ (733) $ 3,777
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 31 15
Provision for losses on accounts
receivable 50 700
Proceeds from escrow deposit - 100
(Gain) loss from sale of securities 5 -
(Gain) loss from sale of property,
plant and equipment (24) -
Increase (decrease) in deferred taxes - 1,312
(Increase) decrease in assets:
Accounts and notes receivable, -net 111 (58)
Prepaid expenses and other (41) (13)
Escrowed proceeds from sale of subsidiary (1) (1)
Increase (decrease) in liabilities:
Accounts payable and accrued (69) 1,005
expenses
Accrued income taxes and related
interest (1,833) 1,778
NET CASH PROVIDED BY (USED IN) OPERATING $(2,504) $ 8,615
ACTIVITIES
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1 - 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, 2002 for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices except for certain reclassifications to the 2002
financial statements in order to conform to the presentation followed in
preparing the 2003 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. Management'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 2 - GOING CONCERN UNCERTAINTY
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The Company has
incurred significant operating losses in each of the prior five years and it is
anticipated that such operating losses will continue as general and
administrative expenses are expected to exceed the Company's
available earnings from its remaining operating businesses in the near-term.
The Company has accrued $4.7 million for taxes and interest relating to the
settlement of issues raised by the Internal Revenue Service resulting from
audits of the Company's consolidated Federal income tax returns for the years
1980 through 1991. This tax liability is now due (See Note 8). The Company has
been aggressively pursuing numerous alternatives to raise funds, including: (i)
continuing legal claims against non-settling insurance carriers for recovery of
past remediation costs, (ii) the collection of amounts due the Company, and
(iii) the disposition of all of its non-operating assets held for sale (See Note
7). Toward this end the Company successfully completed a settlement of its
claims against certain excess insurance carriers in 1999, 2000 and 2001, and the
sale of certain operations and certain property held for sale during the period
of 1995 through 1998. However, the Company is currently unable to determine
whether the timing and the amount of cash generated from these continuing
efforts will be sufficient to discharge the Company's tax liability, contingent
obligations and its continuing operating liabilities as they come due. The
consolidated financial statements do not include any adjustments that might
result if the Company is unable to continue as a going concern.
NOTE 3 - MARKETABLE SECURITIES
The Company's marketable securities are classified as available-for-sale
and are carried at fair value as determined by quoted market prices. Unrealized
gains and losses are reported in a separate component of stockholders' equity
until realized. The amortized cost of investments is adjusted for amortization
of premiums and the accretion of discounts to maturity or in the case of
mortgage-backed securities, over the estimated life of the security. Such
amortization is included in interest income. Realized gains or losses from the
sale of marketable securities are based on the specific identification method
and are included in other income. Interest and dividend income is recorded as
earned.
At September 30, 2003, the Company's marketable securities consisted of
bond mutual funds classified as available-for-sale and are carried at their fair
value of $964,000, with a cost of $949,000, and gross unrealized gains of
$15,000. For the nine months ended September 30, 2003, the decrease in net
unrealized gains included in stockholders' equity was $16,000. In addition, for
the nine months ended September 30, 2003, proceeds from the maturity and sale of
available-for-sale securities were $4,351,000. During the nine months ended
September 30, 2003, the Company realized gross gains of $3,000 and gross losses
of $8,000 from the sale of marketable securities. No gains or losses were
realized for the nine months ended September 30, 2002.
NOTE 4 - TRADE RECEIVABLE
Accounts receivable-trade as of September 30, 2003 and December 31, 2002
includes $306,000 and $462,000, 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 called for the use
of recycled materials where possible in the implementation of the plan. Tipping
fees generated from the deposit of the recycled materials were paid into an
escrow fund from which the Capping Plan costs are paid. The Company initially
agreed to seek payment for its services and reimbursement for its costs solely
from such escrowed funds. One recycled material accounted for 65% of the
initial projected 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. The Capping Plan was subsequently modified 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. The combined bank balance of the accounts containing the escrowed
tipping fees and state funds approximated $819,000 and $1,582,000 as of
September 30, 2003 and December 31, 2002, respectively. The Company sought 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. The Company was unsuccessful in obtaining
approval of NJDEP and regional authorities of such an amendment. Therefore,
given the escrowed and state funds remaining, projected costs, and the inability
to generate funds from the acceptance of additional material, during the year
ended December 31, 2002 the Company recorded a bad debt expense of $700,000 in
recognition of the write-off of amounts previously billed in excess of that
expected to be collected for work on the SOLF project. During the quarter ended
September 30, 2003, the Company recorded bad debt expense of $50,000 for
additional reserves established against receivables due from the project.
NOTE 5 - ESCROWED PROCEEDS FROM INSURANCE CLAIM SETTLEMENT
In conjunction with the 1997 settlement of the litigation related to the
Kin-Buc Landfill, the Company agreed that SCA Services, Inc., an affiliate of
Waste Management, Inc., may make claim to a yet to be determined portion of the
settlement proceeds, net of certain adjustments, from the Company's litigation
against its excess insurance carriers. In accordance with the terms of the 1997
settlement, $3.5 million of the Company's settlement proceeds paid in 2002 were
placed into escrow until the amount of such claim is determined. The Company
will recognize income equal to the amount of the escrow remaining after payment
of the amount due SCA Services, Inc., if any, in the period such funds are
released from escrow. For further discussion of the SCA Services, Inc. matter,
and the litigation of claims against excess insurance carriers, see 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 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. The
escrowed funds with accrued interest income equal $123,000 and $122,000 as of
September 30, 2003 and December 31, 2002, 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, 2003 and December 31, 2002. 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. 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. See "Assets Held
for Sale" contained in Part 1, Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
of this Form 10-QSB regarding property under contract for sale.
NOTE 8 - INCOME TAXES
The provision (credit) for income taxes for the nine months ended September
30 consists of the following (in 000's):
2003
2002
Provision for operations
Currently payable (refundable):
Federal $(378)
$1,320
State -
519
(378)
1,839
Deferred:
Federal - 903
State -
409
-
1,312
Total income tax provision (credit) $(378)
$3,151
Accrued income taxes includes $4,659,000 for federal income taxes, plus
federal and state interest, with respect to the Company's tax liability for the
years 1980 through 1991.
During October 2000, the Company concluded litigation, which it commenced
in 1994, with the Service in Tax Court over the Company's tax liability for
taxable years 1980-88 and certain issues from taxable years 1989-91. The
Company settled all of the issues before the Tax Court and reached agreement
with the Service on its income tax liability for all of the subsequent taxable
years through 1996. As of September 30, 2003, the Company owes $895,000 of
federal income tax after taking into account available net operating losses and
tax credits. In addition, the Company estimates that, as of September 30, 2003,
approximately $48,000 of state interest and $3,716,000 of federal interest are
owed. State tax authorities may assert that penalties are owed in connection
with the state tax liability arising from these settlements. The Company will
decide whether to challenge any such state tax penalties if and when they are
asserted. The Company previously paid $14,000 toward the portion of the federal
obligation related to 1995 ($9,000 for taxes and $5,000 for interest)and
$110,000 toward the obligations for state taxes. During 2003 the Company paid
$79,000 of state tax with the filing of amended returns reflecting adjustments
to previously reported income resulting from these settlements with the Service.
During March 2001, the Company filed an Offer in Compromise with the
Service which requested a reduction in the amount due and permission to pay the
reduced obligation in installments. This offer was rejected by the Service, and
in March 2002 the Company appealed the Service's rejection of its offer. The
Company awaits the Service's response to its appeal.
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 remediate one of
the two owned landfills and one landfill on property 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, 2003, the Company has accruals totaling $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.
See "Remediation and Closure Costs" of Part I, Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources and Item I of Part II of this Form 10-QSB for a
discussion of certain matters related to the sites of past operations.
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.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
Discussion of Critical Accounting Policies
For a discussion of the Company's critical accounting policies, see the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.
Results of Operations
The nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002
Consolidated revenues by business segment for the nine months ended
September 30, 2003 and 2002 were as follows (in $000):
2003 2002
Environmental Services $743 $1,014
Electricity Generation 178 25
Subtotal 921 1,039
Intercompany (673) (432)
Net $248 $ 607
Consolidated net revenues for the nine months ended September 30, 2003 were
$248,000 compared to $607,000 reported for the same period of 2002.
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
$743,000 of gross operating revenues (prior to elimination of intercompany
sales) for the nine months ended September 30, 2003 compared to $1,014,000 for
the period in 2002; a decrease of $271,000 or 27%. Approximately $673,000 or 91%
of the environmental services segment's revenues for the period, compared to
$432,000 or 44% for last year, were for services provided to other members of
the consolidated group and therefore eliminated in consolidation. Third party
sales were $70,000 for the period in 2003, compared to $582,000 for the period
in 2002. Substantially all the third party sales during 2003 and 2002 were to
three and one customer(s), respectively.
The reduction in environmental services third party sales for the period in
2003 is attributable to the substantial completion of work at the Southern Ocean
Landfill ("SOLF"), located in Ocean County, 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 was
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.
The Capping Plan called for the use of recycled materials where possible in the
implementation of the plan. Tipping fees generated from the deposit of the
recycled materials were paid into an escrow fund from which the Capping Plan
costs are paid. The Company performed certain of the above construction
activities, sub-contracted other activities and performed all managerial
functions required under the Capping Plan, as well as acted 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 initial projected 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 during 1998,
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.
The Capping Plan was subsequently modified 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. Deposits of revenue producing recycled materials at the site ended
during September 2002. The Company sought 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 through
the tipping fees charged for the deposit of such materials. The Company was
unsuccessful in obtaining the approval of NJDEP and regional authorities of such
an amendment. Therefore, given the projected escrowed funds remaining, projected
costs, and the inability to generate funds from the acceptance of additional
material, the Company recognized a bad debt expense totaling $700,000 during the
year ended December 31, 2002 in recognition of the write-off amounts previously
billed in excess of that expected to be collected for work on the SOLF project.
Work was substantially completed during September 2003. During the quarter ended
September 30, 2003, the Company recorded bad debt expense of $50,000 for
additional reserves established against receivables due from the project. The
Company recognized revenue of $19,000 and $582,000 related to this site during
the nine months ended September 30, 2003 and 2002, respectively, and the
accounts receivable - trade related to SOLF as of September 30, 2003 and
December 31, 2002, was $306,000 and $462,000, respectively.
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, the Kinsley's Landfill, is
submitted for reimbursement to an escrow account established to finance the
closure activities at the site. The Company billed such escrow account
approximately $665,000 and $414,000 for services performed during the nine
months ended September 30, 2003 and 2002, respectively.
Revenues from the segment which generates electricity using methane gas as
fuel were approximately $178,000 and $25,000 for the nine months ended September
30, 2003 and 2002, respectively. Overhauls and repairs to two diesel/generating
units and certain ancillary equipment began in May 2002 in preparation for the
Company's operation of the facility or its ultimate sale. Such repairs were
previously postponed pending the outcome of negotiations of offers to purchase
the electricity generating operations. The Company temporarily curtailed the
facility's operations during June 1999 and operated one unit sporadically since
June 2000. 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 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 sold 4.0 million kWh and 739,000 kWh
during the nine months ended September 30, 2003 and 2002, respectively. 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 nine 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,
2003 were $110,000, a decrease of $76,000 or 41% when compared to $186,000
reported for 2002. This net decrease in direct operating costs is primarily due
to the decrease in the environmental services segment activity versus an
increase in personnel costs and the cost of the maintenance and operation of the
electricity generating units and related equipment.
Consolidated selling, general and administrative expenses for the nine
months ended September 30, 2003 were $1,184,000, a decrease of $877,000 or 43%
from $2,061,000 reported for the same period in 2002. The selling, general and
administrative expenses reported for 2003 and 2002 include a charge of $50,000
and $700,000, respectively, for the increase in the allowance for doubtful
accounts and write-off of receivables discussed above. The expenses reported
for 2002 also include 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 for the period in 2002 equaled $1,111,000. 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, 2003 was $1,046,000 versus $1,640,000 for the same period in 2002,
a decrease of $594,000.
Consolidated investment income was $100,000 for the nine months ended
September 30, 2003, a decrease of $28,000 from $128,000 reported for the
comparable period in 2002. The decrease is primarily due to the reduction in
funds available for investment.
Consolidated interest expense was $4,000 for the nine months ended
September 30, 2003. Interest expense was $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 $235,000 and $249,000 was reported for
the nine months ended September 30, 2003 and 2002, respectively.
Net proceeds from insurance claims of $8,626,000 reported for the nine
months ended September 30, 2002 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 for a $100,000 payment
due pursuant to a 1998 settlement agreement. See "Liquidity and Capital
Resources - Insurance Claims for Past Remediation Costs" for further discussion
of these issues.
Loss from the sale of marketable securities was $5,000 for the nine months
ended September 30, 2003. No gain or loss was realized from the sale of
marketable securities for the period in the prior year.
Gain from the sale of property, plant and equipment reported for the period
in 2003 of $24,000 includes $21,000 of non-refundable installments on the real
property under contract for sale discussed below.
Consolidated miscellaneous income for the nine months ended September 30,
2003 and 2002 was $55,000 and $64,000, respectively. Miscellaneous income for
the period in 2003 and 2002 consists primarily of net rental/royalty income
received from the rental and lease of certain of the Company's real property.
Provision for income taxes recognized for the nine months ended September
30, 2003 was a credit of $378,000. Provision for income taxes recognized for
the nine months ended September 30, 2002 equaled $3,151,000.
Consolidated net loss for the nine months ended September 30, 2003 was
$733,000 or $(.25) per share, compared to a net income of $3,777,000 or $1.27
per share, for the nine months ended September 30, 2002.
The three months ended September 30, 2003 compared to the three months ended
September 30, 2002
Consolidated revenues by business segment for the three months ended
September 30, 2003 and 2002 were as follows (in $000):
2003 2002
Environmental Services $213 $359
Electricity Generation 49 25
Subtotal 262 384
Intercompany (211) (147)
Net $ 51 $237
Consolidated net revenues for the three months ended September 30, 2003
were $51,000 compared to $237,000 reported for the same period of 2002.
The environmental services segment reported gross operating revenues (prior
to elimination of intercompany sales) of $213,000 for the three months ended
September 30, 2003 compared to $359,000 for the period in 2002; a decrease of
$49,000 or 14%. Approximately $211,000 or 99% of the environmental services
segment's revenues for the period, compared to $147,000 or 41% for last year,
were for services provided to other members of the consolidated group and
therefore eliminated in consolidation. Third party sales were $2,000 for the
period in 2003, compared to $212,000 for the period in 2002. Substantially all
the third party sales during 2003 and 2002 were to three and one customer(s),
respectively. The third party revenue for the quarter during 2002 primarily
relates to the Company's activities at the Southern Ocean Landfill.
The Company's billings for services performed on a landfill owned by the
Company, the Kinsley's Landfill, and submitted for reimbursement to an escrow
account were approximately $205,000 and $146,000 for the three months ended
September 30, 2003 and 2002, respectively.
Revenues from the segment which generates electricity using methane gas as
fuel were approximately $49,000 and $25,000 for the three months ended September
30, 2003 and 2002, respectively. The Company sold 1.1 million kWh and 739,000
kWh during the three months ended September 30, 2003 and 2002, respectively.
Consolidated direct operating costs for the three months ended September
30, 2003 were $15,000, a decrease of $75,000 or 83% when compared to $90,000
reported for 2002. This net decrease in direct operating costs is primarily due
to the reduced activity of the environmental services segment.
Consolidated selling, general and administrative expenses for the three
months ended September 30, 2003 were $361,000, a decrease of $94,000 from
$455,000 reported for the same period in 2002. The expenses reported for the
period in 2003 includes a $50,000 charge for the increase in the allowance for
doubtful accounts discussed above. The decrease in expenses for the period in
2003 reflect a decrease in professional fees and administrative costs for the
research and defense of litigation and environmental claims.
The Company's consolidated operating loss for the three months ended
September 30, 2003 was $325,000 versus $308,000 for the same period in 2002, an
increase of $17,000.
Consolidated investment income was $22,000 for the three months ended
September 30, 2003, a decrease of $39,000 from $61,000 reported for the
comparable period in 2002.
Consolidated interest expense was $2,000 and $1,000 for the three months
ended September 30, 2003 and 2002, respectively.
Interest reported as "Interest (expense) credit related to income taxes
payable" of $81,000 and $85,000 was reported for the three months ended
September 30, 2003 and 2002, respectively.
Gain from the sale of property, plant and equipment reported for the period
in 2003 of $24,000 includes $21,000 of non-refundable installments on the real
property under contract for sale discussed below.
Consolidated miscellaneous income for the three months ended September 30,
2003 and 2002 was $13,000 and $19,000, respectively. Miscellaneous income for
the period in 2003 and 2002 consists primarily of net rental/royalty income
received from the rental and lease of certain of the Company's property.
Provision for income taxes recognized for the three months ended September
30, 2003 and 2002 were credits of $378,000 and $111,000, respectively.
Consolidated net income for the three months ended September 30, 2003 was
$25,000 or $.01 per share, compared to a net loss of $185,000 or $(.06) per
share, for the three months ended June 30, 2002.
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, 2003, (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") has settled all 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 are now due. The
total unpaid tax obligations have been estimated at $4.7 million as of September
30, 2003. 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 leave the Company with insufficient funds 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 and claims
against non-settling excess insurers, however, no assurance can be given that
the timing and amount of the proceeds from such sales and claims 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 unsuccessful appeal of the rejection of the Offer in
Compromise 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
Net cash flow used in operating activities for the nine months ended
September 30, 2003 was $2,504,000 versus a source of $8,615,000 when compared to
the prior year. The primary use of cash during the period in 2003 was the
payment of approximately $1,610,000 toward estimated federal and state income
tax due for 2002. The amount reported for 2002 includes $9,563,000 of proceeds
from the October 2001 settlement of claims against certain of the Company's
excess insurance carriers. Excluding the settlement proceeds, the cash flow used
in operations for the period in 2002 was $948,000. Cash flows provided by
investing activities increased this year to $3,705,000 from a use of $4,801,000
for the period in 2002. The amount reported for 2003 reflects proceeds from the
sale or maturity of marketable securities used for operations or retained as
cash equivalents. The use reported for 2002 reflects the investment of the
aforementioned proceeds from insurance claims. Cash flows provided from
financing activities was $31,000 compared to $14,000 for the period last year,
due primarily to an increase in equipment financing and a decrease 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, 2003 to $5,011,000 from $4,270,000 reported for the period in
2002.
Working capital surplus was $942,000 as of September 30, 2003 versus a
surplus of $2.1 million as of December 31, 2002, and the ratio of current assets
to current liabilities was 1.2 to 1 as of September 30, 2003 and 1.3 to 1 as of
December 31, 2002.
Taxes
During October 2000, the Company concluded litigation, which it commenced
in 1994, with the Service in Tax Court over the Company's tax liability for
taxable years 1980-88 and certain issues from taxable years 1989-91. The
Company settled all of the issues before the Tax Court and reached agreement
with the Service on its income tax liability for all of the subsequent taxable
years through 1996. As of September 30, 2003, the Company owes $895,000 of
federal income tax after taking into account available net operating losses and
tax credits. In addition, the Company estimates that, as of September 30, 2003,
approximately $48,000 of state interest and $3,716,000 of federal interest are
owed. State tax authorities may assert that penalties are owed in connection
with the state tax liability arising from these settlements. The Company will
decide whether to challenge any such state tax penalties if and when they are
asserted. The Company previously paid $14,000 toward the portion of the federal
obligation related to 1995 ($9,000 for taxes and $5,000 for interest)and
$110,000 toward the obligations for state taxes. During 2003 the Company paid
$79,000 of state tax with the filing of amended returns reflecting adjustments
to previously reported income resulting from these settlements with the Service.
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 appealed the Service's rejection of its offer. The
Company awaits the Service's response to its appeal.
Remediation and Closure Costs
As of September 30, 2003, 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 9 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, 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, and continues to
incur administrative and legal costs complying with such Administrative Orders.
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 at the Kin-Buc Landfill. 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. These proceedings have been stayed while the parties continue
mediation of the issues.
In conjunction with the 1997 settlement of the litigation related to the
Kin-Buc Landfill discussed above, the Company agreed that SCA may make claim to
a yet to be determined portion of the proceeds, net of certain adjustments,
arising from the Company's October 2001 settlement of litigation against its
excess insurance carriers. The amount of such claim, not to exceed $3.5
million, is in dispute and has been submitted to arbitration for resolution.
The arbitrator issued a ruling dated October 10, 2002 and an amendment to that
ruling dated June 18, 2003. The Company's representatives have objected to the
June 18, 2003 amended ruling, which is considered by the Company as an
impermissible reversal, of certain aspects, of the arbitrator's first ruling.
The Company has submitted additional information requested by the arbitrator.
The arbitrator has not issued the final award which may result in a payment to
SCA between zero and $3.5 million. 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 to SCA, if any, is determined
(see Insurance Claims for Past Remediation Costs).
During November, 2001 EPA filed suit against the Company alleging that the
Company is the corporate successor to Chemsol, Inc., the former operator at a
Piscataway, New Jersey site owned by Tang Realty, Inc. ("Tang"), and had
continued its operations at the site. Tang is a corporation controlled by
Marvin H. Mahan, a former director and officer, and former principal shareholder
of the Company. Chemsol, Inc. was also affiliated with Mr. Mahan. 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.
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 seeks contribution toward estimated remediation costs of this phase
of $7.5 million and $2.0 million of past oversight and administrative costs.
The Company ceased operation of a solvents recovery facility at the site in
1970. This matter is currently under review by the Company and its advisors.
See the section entitled "Insurance Claims for Past Remediation Costs" below for
a discussion of certain claims 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 "Cooperating 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 was 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 that is held in escrow pending the
outcome of arbitration with SCA Services, Inc. discussed above. 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.
In addition to the yet to be determined portion of its proceeds from the
Lloyds Suit, net of certain adjustments, that may be due to SCA Services, Inc.
in conjunction with the 1997 settlement of the litigation related to the Kin-Buc
Landfill discussed above, a portion of the Lloyds proceeds are due to legal
counsel representing the Company in the Lloyds Suit. 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. As of September 30, 2003, the Company's accrual for such fees
equaled $712,000 which is due at the conclusion of the litigation specified in
the engagement agreement.
All of the policies of excess insurance issued by the defendant insurers
covered 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, 2003 and December 31, 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. During March 2002, the buyer
notified the Company that its due diligence indicated that only between 45 and
48 acres may be developed and certain work on the property may be required, and,
as a result, sought adjustments to the purchase contract. An amendment to the
contract was executed during December 2002 which provided the sale of 60 acres
(45 acres usable land and 15 acres of wetlands) for $2.1 million. The Company
will not be required to make requested improvements to the property. The sale
is contingent upon, among other conditions, the buyer obtaining approval of its
plans for the property from applicable local and state agencies; a process that
may require one or more years to accomplish.
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
$123,000 as of September 30, 2003.
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 REMAINING 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.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 3. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of its principal
executive officer and principal financial officer, the effectiveness of its
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of the end of the period covered
by this report. Based on such evaluation, the principal executive officer and
the principal financial officer of the Company concluded that its disclosure
controls and procedures are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and regulations of the Securities
and Exchange Commission and are operating in an effective manner.
No change in the Company's internal control over financial reporting (as defined
in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934)
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, its internal control over financial
reporting.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously disclosed, the Company has been named as a defendant in
litigation related to three sites undergoing remediation, specifically the Kin-
Buc Landfill, a Piscataway, New Jersey site owned by Tang Realty, Inc., and a
site located in Carlstadt, New Jersey.
No material developments have occurred with respect to such litigation, or
the other pending legal proceedings involving the Company, subsequent to that
reported in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 and the Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31 and June 30, 2003. 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.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 31(a) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer
Exhibit 31(b) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial Officer
Exhibit 32(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 32(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
The Company filed a current report on Form 8-K dated August 18, 2003 to
report the Company's earnings and results for the six and three month periods
ended June 30, 2003.
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: November 14, 2003 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: November 14, 2003 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 38
31(a) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer 39
31(b) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial Officer 41
32(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 43
32(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 44