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, 2004
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 November 12, 2004. 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 42 pages
Exhibit index on page 36
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED September 30, 2004
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September
30, 2004 and December 31, 2003 3 - 4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 2004 and 2003 5
Consolidated Statements of Operations for the
Three Months Ended September 30, 2004 and 2003 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2004 and 2003 7 - 8
Notes to Consolidated Financial Statements 9 - 15
Item 2. Management's Discussion and Analysis
or Plan of Operation 16 - 29
Item 3. Controls and Procedures 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31 - 33
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of
Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits 34
SIGNATURES AND CERTIFICATIONS 35
EXHIBIT INDEX 36
EXHIBITS 37 - 42
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September December 31,
30,
2004 2003
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $ 1,810 $ 4,322
Marketable securities 2,691 971
Accounts receivable - trade (net of 336 330
allowance for doubtful accounts of
$58)
Refundable income taxes 993 80
Deferred tax asset 48 48
Recoverable closure costs from escrow 165 176
fund
Escrowed proceeds from sale of 123 123
subsidiary
Prepaid expenses and other 128 210
Total current assets 6,294 6,260
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 3,104 3,085
Less accumulated depreciation (2,845) (2,830)
Net property, plant and equipment 259 255
OTHER ASSETS
Assets held for sale 1,312 1,312
Other 232 224
Total other assets 1,544 1,536
TOTAL ASSETS $ 8,097 $ 8,051
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,
2004 2003
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 20 $ 15
Accounts payable 191 240
Accrued salaries and wages 28 41
Income taxes payable 1,029 -
Accrued income taxes and related
interest 48 4,063
Deferred income taxes 1 3
Accrued miscellaneous expenses 785 818
Total current liabilities 2,102 5,180
OTHER LIABILITIES
Long-term debt 65 54
Income taxes payable 1,425 -
Accrued remediation and closure costs
2,054 2,056
Total other liabilities 3,544 2,110
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 9,581 7,886
Accumulated other comprehensive income
(loss) 2 7
Subtotal 13,465 11,775
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity 2,451 761
TOTAL LIABILITIES AND STOCKHOLDERS' $ 8,097 $ 8,051
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,
2004 2003
NET OPERATING REVENUES $ 262 $ 248
COST OF OPERATIONS
Direct operating costs 119 110
Selling, general and administrative
expenses 1,094 1,184
Total cost of operations 1,213 1,294
INCOME (LOSS) FROM OPERATIONS (951) (1,046)
OTHER INCOME (EXPENSE)
Investment income (loss) 38 100
Interest expense (3) (4)
Interest (expense) credit related to
income taxes payable (129) (235)
Gain (loss) from sale of securities (2) (5)
Gain (loss) from sale of property,
plant or equipment 3 24
Miscellaneous income (expense) 84 55
Total other income (expense) (9) (65)
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT)AND EXTRAORDINARY ITEM (960) (1,111)
Income tax expense (benefit) (323) (378)
NET INCOME (LOSS)BEFORE EXTRAORDINARY ITEM (637) (733)
EXTRAORDINARY ITEM: Gain from reduction of
tax liability 2,332 -
NET INCOME (LOSS) $1,695 $ (733)
INCOME (LOSS) PER COMMON SHARE:
Loss before extraordinary item $ (.21) $ (.25)
Extraordinary gain .78 -
NET INCOME (LOSS) $ .57 $ (.25)
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,
2004 2003
NET OPERATING REVENUES $ 100 $ 51
COST OF OPERATIONS
Direct operating costs 25 15
Selling, general and administrative
expenses 376 361
Total cost of operations 401 376
INCOME (LOSS) FROM OPERATIONS (301) (325)
OTHER INCOME (EXPENSE)
Investment income (loss) 11 22
Interest expense (1) (2)
Interest (expense) credit related to
income taxes payable (13) (81)
Gain (loss) from sale of securities - (4)
Gain (loss) from sale of property,
plant or equipment 3 24
Miscellaneous income (expense) 17 13
Total other income (expense) 17 (28)
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT)AND EXTRAORDINARY ITEM (284) (353)
Income tax expense (benefit) (133) (378)
NET INCOME (LOSS)BEFORE EXTRAORDINARY ITEM (151) 25
EXTRAORDINARY ITEM: Gain from reduction of
tax liability 2,332 -
NET INCOME (LOSS) $2,181 $ 25
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item $ (.05) $ .01
Extraordinary gain .78 -
NET INCOME (LOSS) $ .73 $ .01
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,
2004 2003
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 256 $ 358
Cash paid to suppliers and employees (1,186) (1,323)
Interest and dividends received 38 100
Interest paid (3) (4)
Other income received 96 54
Income taxes (paid) refunded 52 (1,689)
Net cash provided by (used in)
operating activities (747) (2,504)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of
marketable securities 2,364 4,351
Purchase of marketable securities (4,093) (583)
Net collection (issuance) of note
receivable (8) -
Purchase of property, plant and equipment
(36) (87)
Proceeds from sale of property,
plant and equipment 3 24
Net cash provided by (used in)
investing activities (1,770) 3,705
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (12) (6)
Proceeds from vehicle financing 28 46
Payment of remediation and closure costs (11) (9)
Net cash provided by (used in) financing
activities 5 31
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,512) 1,232
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 4,322 3,779
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 1,810 $ 5,011
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,
2004 2003
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ 1,695 $ (733)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 31 31
Provision for losses on accounts
receivable - 50
(Gain) loss from sale of securities 2 5
(Gain) loss from sale of property,
plant and equipment (3) (24)
Increase (decrease) in deferred taxes - -
(Increase) decrease in assets:
Accounts and notes receivable -net (6) 111
Refundable state income taxes (913) -
Prepaid expenses and other 82 (41)
Escrowed proceeds from sale of subsidiary
- (1)
Increase (decrease) in liabilities:
Accounts payable and accrued (74) (69)
expenses
Accrued income taxes and related
interest (4,015) (1,833)
Income taxes payable - current 1,029 -
Income taxes payable - long term 1,425 -
NET CASH PROVIDED BY (USED IN) OPERATING $ (747) $(2,504)
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, 2004
(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, 2003 for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices except for certain reclassifications to the 2003
financial statements in order to conform to the presentation followed in
preparing the 2004 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
or Plan of Operation 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 owes $2.4
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 (See Note 8). The
Company has been aggressively pursuing numerous alternatives to raise funds,
including: (i) continuing legal claims against non-settling excess 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
settlements 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, 2004, the Company's marketable securities consisted of U.
S. Treasury bills classified as available-for-sale and are carried at their fair
value of $2,691,000, with a cost of $2,688,000, and unrealized gain of $3,000.
The decrease in net unrealized gains included in stockholder's equity was
$5,000. Proceeds from the sale or maturity of marketable securities were
$2,364,000 and $4,351,000 for the nine months ended September 30, 2004 and 2003,
respectively. In addition, the Company realized gross losses of $2,000 from the
sale of marketable securities during the nine months of 2004. During the same
period for 2003, the Company realized gross gains of $3,000 and gross losses of
$8,000 from the sale of marketable securities.
NOTE 4 - TRADE RECEIVABLE
Accounts receivable-trade as of September 30, 2004 and December 31,
2003 includes $304,000, net of reserves, 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"). Tipping fees generated from the
deposit of the recycled materials used in the implementation of the plan were
paid into an escrow fund from which the Capping Plan costs are paid. The
Capping Plan was modified to, among other provisions, provide funding of certain
closure activities by the county and state. Escrow accounts from which project
expenses are paid held $474,000 as of September 30, 2004. The Capping Plan work
has been completed and final specifications of the work performed have been
submitted to the NJDEP for its review. Amounts due the Company are expected to
be collected upon completion of the NJDEP review of invoices to be paid and
documentation of the work performed.
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, not to exceed $3.5 million, to a portion
of the proceeds 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 received in 2002 are held in 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. 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 or
Plan of Operation - 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., sold all of the issued and outstanding stock of Hunt Valve Company, Inc.
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 United States Internal Revenue
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 as of September 30, 2004 and December 31, 2003,
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, 2004 and December 31, 2003. 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 entered into an agreement during 2001 for the sale of approximately
60 acres of real property located in Deptford, NJ. During October 2004 the
buyer elected to extend the closing date to April 2005 in accordance with the
terms of the agreement; no further extensions are permitted. The buyer is
paying non-refundable installments toward the purchase price. Such installments
totaled $101,000 through September 30, 2004 and have been treated as un-earned
income for financial presentation purposes and will be recognized as income upon
completion or termination of the contract. The Company is actively pursuing the
disposition of the remaining properties. However, given the proximity of the
properties to the landfill and the location of wetlands on certain properties,
the Company is unable to determine when such sale(s) will ultimately be
consummated.
NOTE 8 - INCOME TAXES
The provision for income tax expense (benefit) for the nine months ended
September 30 consists of the following (in 000's):
2004
2003
Provision for operations
Currently payable (refundable):
Federal $(323) $
(378)
State -
-
(323)
(378)
Deferred:
Federal - -
State -
-
-
-
Total income tax provision (credit) $(323) $
(378)
During October 2000 the Company concluded litigation it began in 1994
against the United States Internal Revenue Service (the "Service") in Tax Court
regarding 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 as to its tax liability for
all taxable years through 1996. After taking into account available net
operating losses and tax credits, the Company was assessed $905,000 of federal
income tax plus interest. The Company paid the portion of the federal
assessment related to 1995; $9,000 for taxes and $5,000 for interest. The taxes
and interest accrued on the assessed taxes, as estimated by the Company, equaled
approximately $896,000 and $3,926,000, respectively, as of July 21, 2004.
During March 2001, the Company filed an Offer in Compromise with the
Service with respect to federal income taxes and interest due as a result of the
Tax Court settlement. The March 2001 offer requested a reduction in the amount
due and permission to pay the reduced obligation in installments. The Service
rejected the March 2001 offer, and during March 2002 the Company appealed the
Service's rejection of its offer. In April 2004 the Company submitted a revised
offer and in June 2004 it submitted an amendment to the revised offer (the
"Offer"). The Service accepted the Offer by letter dated July 21, 2004.
The Offer obligates the Company to pay a total of $2,490,000 in
satisfaction of the assessed federal income taxes and interest. A payment of
$810,000 was made during October 2004. The balance due is to be paid in monthly
installments over nine years as follows: (a) $18,230.00 per month for each of
the forty-eight months beginning August 2004, and (b) $13,416.00 per month for
each of the following sixty months beginning August 2008. The Company will be
permitted to receive refunds of prior tax overpayments and from the carryback of
losses. The Service does not impose interest on amounts payable pursuant to the
Offer. Should the Company default in any of the terms of the Offer, the Service
may initiate suit to impose one or more remedies available to it, including the
reinstatement of the total amount previously assessed and/or impose interest.
The Company has reported the transaction in accordance with SFAS No. 15
"Accounting by Debtors and Creditors for Troubled Debt Restructurings", and
recognized income from this transaction of approximately $2.3 million in its
financial statements for the period ended September 30, 2004. Such amount is
equal to the difference between the Company's previously accrued estimate of its
federal tax obligation and the amount of the total payments to the Service
required pursuant to the Offer. This income is not subject to income tax.
The portion of accrued federal income taxes and related interest classified
as a current liability includes an amount equal to the payments due during the
twelve months subsequent to September 30, 2004. The balance of the accrued
federal income tax and related interest has been classified as a long term
liability.
The Company paid state income taxes and interest of $80,000 in 2003 with
the filing of amended state tax returns reflecting adjustments to previously
reported income resulting from the settlements with the Service. State tax
authorities may assert that additional interest and penalties are owed in
connection with the state tax liability arising from these settlements. The
portion of accrued income taxes classified as current as of September 30, 2004
also includes $48,000 for accrued state interest. The Company will decide
whether to challenge any such state tax penalties if and when they are asserted.
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 perform post-
closure remediation activities on 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 post-closure remediation activities equal the
present value of its allocable share of the estimated future costs related to a
site less funds held in escrow 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, 2004, the Company has accruals totaling $10.4 million
for its estimated share of remediation and closure costs in regard to the
Company's former landfill operations, approximately $8.4 million of which is
held in trusts and maintained by trustees for financing of the estimated $10.3
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 or Plan of Operation - Liquidity and Capital Resources
and Part II, Item I. Legal Proceedings of this Form 10-QSB for a discussion of
certain matters related to the sites of past operations.
NOTE 10 - LEGAL PROCEEDINGS
See Part II, Item 1. Legal Proceedings 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, 2003.
Results of Operations
The nine months ended September 30, 2004 compared to the nine months ended
September 30, 2003
Consolidated revenues by business segment for the nine months ended
September 30, 2004 and 2003 were as follows (in $000):
2004 2003
Environmental Services $721 $743
Electricity Generation 262 178
Subtotal 983 921
Intercompany (721) (673)
Net $262 $248
Consolidated net revenues for the nine months ended September 30, 2004 were
$262,000 compared to $248,000 reported for the same period of 2003.
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
gross operating revenues (prior to elimination of intercompany sales) of
$721,000 for the nine months ended September 30, 2004 compared to $743,000 for
the period in 2003; a decrease of $22,000 or 3%. All of the environmental
services segment's revenues for the period in 2004, compared to $673,000 or 91%
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. Substantially all the third party sales during 2003
were to three customers.
The reduction in environmental services third party sales for the period in
2004 is attributable, in part, to the completion of work at the Southern Ocean
Landfill ("SOLF"), located in Ocean County, New Jersey. The Company's capping
plan for SOLF was approved by the New Jersey Department of Environmental
Protection ("NJDEP") on May 15, 2000 and subsequently amended (the "Capping
Plan"). The Capping Plan was limited to the grading and capping of the 12 acre
lined portion of SOLF and called for the use of recycled materials where
possible in the implementation of the plan. The Company performed certain of
the 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. Final specifications of the work
performed have been submitted to the NJDEP for its review. The Company
recognized revenue of $19,000 related to this site during the nine months ended
September 30, 2003 and the accounts receivable - trade related to SOLF as of
September 30, 2004 and December 31, 2003, was $304,000.
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 portion of the Company's gross revenue
derived from such escrow account was approximately $710,000 and $665,000 for
services performed during the nine months ended September 30, 2004 and 2003,
respectively. Such amounts are included in the amount of intercompany sales
reported above, and eliminated in the calculation of net operating revenue. The
Company and the NJDEP are discussing options regarding improvements to the top,
or "cap", for this site. The Company has proposed the use of recycled materials
to fill depressions and re-contour the cap of the mound. The work would be
funded, in part, by tipping fees charged for the deposit of the recycled
materials onto the site. The Company is currently responding to questions
proposed by NJDEP. The work may be performed in phases in an attempt to
minimize impacts, if any, from future changes in the markets for recycled
material.
Revenues from the segment that generates electricity using methane gas as
fuel were approximately $262,000 and $178,000 for the nine months ended
September 30, 2004 and 2003, 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. The electricity generating facility consists of four
diesel/generating units each capable of generating approximately 11,000 kWh/day
when operating at 85% capacity. Only two of the four diesel/generating units
are operating; the two non-operating units require major repairs. The Company
is considering alternatives to the current operation, including offers to
purchase the electricity generating operations, prior to investing in the
repairs of the units. 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 4.9 million kWh and
4.0 million kWh during the nine months ended September 30, 2004 and 2003,
respectively. 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,
2004 were $119,000, an increase of $9,000 or 8% when compared to $110,000
reported for 2003. Costs of the environmental services segment decreased due
primarily to the decrease in work for third parties. The costs of the
electricity generating segment increased for the nine months ended September 30,
2004 compared to the period in 2003, due primarily to increased equipment
operating costs.
Consolidated selling, general and administrative expenses for the nine
months ended September 30, 2004 were $1,094,000, a net decrease of $90,000 or 8%
from $1,184,000 reported for the same period in 2003. The net decrease in
expenses was primarily due to decreases in professional fees, general operating
and bad debt expenses in excess of increases in insurance expense, employee
compensation and related expenses. The operating costs of the non-operating
subsidiaries, consisting primarily of insurance premiums, franchise, corporate
and real estate taxes, aggregated to approximately $45,000 and $36,000 for the
period in 2004 and 2003, respectively. Significant professional fees and
administrative costs continued 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 loss from operations for the nine months ended
September 30, 2004 was $951,000 versus $1,046,000 for the period in 2003, a
decrease of $95,000.
Consolidated investment income was $38,000 for the nine months ended
September 30, 2004, a decrease of $62,000 from $100,000 reported for the
comparable period in 2003. The decrease is primarily due to the reduction in
funds available for investment and a decrease in yield on investments.
Consolidated interest expense was $3,000 and $4,000 for the nine months
ended September 30, 2004 and 2003, respectively.
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 Court
litigation concluded during 2000. Interest expense of $129,000 and $235,000 was
reported for the nine months ended September 30, 2004 and 2003, respectively.
Loss from the sale of marketable securities was $2,000 and $5,000 for the
nine months ended September 30, 2004 and 2003, respectively.
Consolidated miscellaneous income for the nine months ended September 30,
2004 and 2003 was $84,000 and $55,000, respectively. Miscellaneous income for
the period in 2004 and 2003 consists primarily of net rental/royalty income
received from the rental and lease of certain of the Company's real property.
Provision for income tax expense (benefit) recognized for the nine months
ended September 30, 2004 and 2003 was $323,000 and $378,000, respectively.
The extraordinary gain of $2,332,000 reported for the period in 2004 is the
amount of the reduction in the Company's accrued income tax obligation as a
result of the United States Internal Revenue Service acceptance of an Offer in
Compromise presented by the Company on July 21, 2004. The Service agreed to
accept payments totaling $2,490,000 in satisfaction of the Company's federal tax
obligations. See "Liquidity and Capital Resources - Taxes" below for further
discussion of this transaction.
Consolidated net income for the nine months ended September 30, 2004 was
$1,695,000 or $.57 per share, compared to a net loss of $(733,000) or $(.25) per
share, for the nine months ended September 30, 2003.
The three months ended September 30, 2004 compared to the three months
ended September 30, 2003
Consolidated revenues by business segment for the three months ended
September 30, 2004 and 2003 were as follows (in $000):
2004 2003
Environmental Services $247 $213
Electricity Generation 100 49
Subtotal 347 262
Intercompany (247) (211)
Net $100 $ 51
Consolidated net revenues for the three months ended September 30, 2004
were $100,000 compared to $51,000 reported for the same period of 2003.
The environmental services segment reported gross operating revenues (prior
to elimination of intercompany sales) of $247,000 for the three months ended
September 30, 2004 compared to $213,000 for the period in 2003; an increase of
$34,000 or 16%. All of the environmental services segment's revenues for the
period in 2004, compared to $211,000 or 99% 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.
Substantially all the third party sales during 2003 were to three customers.
The Company's billing for services performed on a landfill owned by the
Company, the Kinsley's Landfill, and submitted for reimbursement to an escrow
account were approximately $238,000 and $205,000 for the three months ended
September 30, 2004 and 2003, respectively. Such amounts are included in the
amount of intercompany sales reported above, and eliminated in the calculation
of net operating revenue.
Revenues from the segment that generates electricity using methane gas as
fuel were approximately $100,000 and $49,000 for the three months ended
September 30, 2004 and 2003, respectively. The Company sold 1.8 million kWh and
1.1 million kWh during the three months ended September 30, 2004 and 2003,
respectively.
Consolidated direct operating costs for the three months ended September
30, 2004 were $25,000, an increase of $10,000 or 67% when compared to $15,000
reported for 2003. The increase for the period in 2004 was primarily due to
increased equipment operating and repair costs of the electricity generating
segment.
Consolidated selling, general and administrative expenses for the three
months ended September 30, 2004 were $376,000, a net increase of $15,000 or 44%
from $361,000 reported for the same period in 2003. The net increase in
expenses was primarily due to increases in employee compensation and
professional fees partially offset by decreases in insurance, general operating
and bad debt expenses. The operating costs of the non-operating subsidiaries,
consisting primarily of insurance premiums, franchise, corporate and real estate
taxes, aggregated approximately $15,000 and $9,000 for the period in 2004 and
2003, respectively.
The Company's consolidated loss from operations for the three months ended
September 30, 2004 was $301,000 versus $325,000 for the period in 2003, a
decrease of $24,000.
Consolidated investment income was $11,000 for the three months ended
September 30, 2004, a decrease of $11,000 from $22,000 reported for the
comparable period in 2003. The decrease is primarily due to the reduction in
funds available for investment.
Consolidated interest expense was $1,000 and $2,000 for both the three
months ended September 30, 2004 and 2003, respectively.
Interest reported as "Interest (expense) credit related to income taxes
payable" for the three months ended September 30, 2004 and 2003 was $13,000 and
$81,000, respectively.
Loss from the sale of marketable securities was $4,000 for the three months
ended September 30, 2003. No gains or losses were incurred during the period in
2004.
Consolidated miscellaneous income for the three months ended September 30,
2004 and 2003 was $17,000 and $13,000, respectively. Miscellaneous income for
the period in 2004 and 2003 consists primarily of net rental/royalty income
received from the rental and lease of certain of the Company's real property.
Provision for income tax expense (benefit) recognized for the three months
ended September 30, 2004 and 2003 was a benefit of $133,000 and $378,000,
respectively.
The extraordinary gain of $2,332,000 reported for the period in 2004 is the
amount of the reduction in the Company's accrued income tax obligation as a
result of the United States Internal Revenue Service acceptance of an Offer in
Compromise presented by the Company on July 21, 2004. See "Liquidity and
Capital Resources - Taxes" below for further discussion of this transaction.
Consolidated net income for the three months ended September 30, 2004 was
$2,181,000 or $.73 per share, compared to a net income of $25,000 or $.01 per
share, for the three months ended September 30, 2003.
Liquidity and Capital Resources
General
The Company faces significant short-term and long-term cash requirements
for (i) federal income taxes and interest as discussed below and in the notes to
the Company's consolidated financial statements for the period ended September
30, 2004, (ii) funding remediation costs and other expenses associated with
sites of past operations, and (iii) funding its professional and administrative
costs.
As discussed in detail below, the Company owes the Internal Revenue Service
(the "Service") approximately $2.5 million as a result of the settlement of
issues before the U.S. Tax Court regarding the Company's tax liability for the
years 1980 through 1991. 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, that 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. In
addition, the Company cannot ascertain whether its remaining operations and
funding sources will be adequate to satisfy its future cash requirements.
The Company continues to pursue the sale of assets held for sale and claims
against certain excess insurers, as discussed below. 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 the event of an unfavorable resolution of the issues discussed below,
which include claims against the Company by the United States Environmental
Protection Agency and New Jersey Department of Environmental Protection, the
Company's challenge of an arbitrator's award to SCA Services, Inc., 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 may 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, 2004 and 2003 was $747,000 and $2,504,000, respectively. 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. Cash
flows used in investing activities for the nine months ended September 30, 2004
was $1,770,000 versus a source of $3,705,000 for the period in 2003. The amount
reported for 2003 reflects proceeds from the sale or maturity of marketable
securities used to finance operating activities or retained as cash equivalents.
Cash flows provided by financing activities was $5,000 for the period in 2004.
Cash flows provided from financing activities for the period last year were
$31,000. Funds held by the Company in the form of cash and cash equivalents
decreased as of September 30, 2004 to $1,810,000 from $5,011,000 reported for
the period in 2003.
Working capital surplus was $4.3 million as of September 30, 2004 versus a
surplus of $1.1 million as of December 31, 2003, and the ratio of current assets
to current liabilities was 3.2 to 1 and 1.2 to 1 as of September 30, 2004 and
December 31, 2003, respectively.
Taxes
During October 2000 the Company concluded litigation it began in 1994
against the Internal Revenue Service (the "Service") in Tax Court regarding 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 as to its tax liability for all
taxable years through 1996. After taking into account available net operating
losses and tax credits, the Company was assessed $905,000 of federal income tax
plus interest. The Company paid the portion of the federal assessment related
to 1995; $9,000 for taxes and $5,000 for interest. The taxes and interest
accrued on the assessed taxes, as estimated by the Company, equaled
approximately $896,000 and $3,926,000, respectively, as of July 21, 2004.
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 initial offer was rejected by the
Service, and during March 2002 the Company appealed the Service's rejection of
its offer. In April 2004 the Company submitted a revised offer and in June 2004
it submitted an amendment to the revised offer (the "Offer"). The Service
accepted the Offer by letter dated July 21, 2004.
The Offer obligates the Company to pay a total of $2,490,000 in
satisfaction of the assessed federal income taxes and interest discussed above.
A payment of $810,000 was made during October 2004. The balance due is to be
paid in monthly installments over nine years as follows: (a) $18,230.00 per
month for each of the forty-eight months beginning August 2004, and (b)
$13,416.00 per month for each of the following sixty months beginning August
2008. The Service does not impose interest on amounts payable pursuant to the
Offer. The Company will be permitted to receive refunds of prior tax
overpayments and from the carryback of losses. Should the Company default in
any of the terms of the Offer, the Service may initiate suit to impose one or
more remedies available to it, including the reinstatement of the total amount
previously assessed and/or impose interest.
The Company recognized income from this transaction of approximately $2.3
million in its financial statements for the period ended September 30, 2004.
Such amount is equal to the difference between the Company's previously accrued
estimate of its federal tax obligation and the amount of the total payments to
the Service required pursuant to the Offer. This income is not subject to
income tax.
Remediation and Closure Costs
As of September 30, 2004, the Company has accrued $10.4 million for its
estimated share of remediation and closure costs related to the Company's former
landfill and waste handling operations. Approximately $8.4 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, was operated on
parcels of property owned and leased 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 such costs of remediation. One of the
December 23, 1997 agreements provided SCA's commitment to defend and indemnify
the Company from future liability for the remediation of the site. 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 allegedly incurred with respect to
the Kin-Buc Landfill and penalties for alleged past construction delays at such
site. 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 allegedly
incurred with respect to the site and for alleged natural resource damages.
These proceedings have been stayed pending the outcome of mediation of the
issues.
In conjunction with the 1997 settlement of the litigation related to the
Kin-Buc Landfill discussed above, the Company agreed to allow SCA to claim, not
to exceed $3.5 million, against a portion of the proceeds arising from the
Company's October 2001 settlement of litigation against its excess insurance
carriers. A dispute regarding the calculation of the amount of such claim was
submitted to arbitration for resolution. The arbitrator's award of $3.5 million
to SCA is the subject of litigation initiated by the Company in February 2004
(see Part II, Item 1. - Legal Proceedings). In accordance with the terms of the
1997 settlement, $3.5 million of the proceeds from the Company's 2001 settlement
with certain carriers are held in escrow until the amount of such obligation is
determined.
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 alleged 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.
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 sought
reimbursement of $2.9 million of unallocated remediation costs associated with
the site. The Company contested the allegations regarding successorship and the
extent of operations it may have conducted at the site. During April 2004, a
Consent Decree was executed by the Court that resolved EPA claims against the
Company (see Part II, Item 1. - Legal Proceedings).
Insurance Claims for Past Remediation Costs
In February 2002, the Company consummated a settlement of litigation it had
commenced in 1995 against its excess insurers who provided coverage during the
period of 1965 through 1986 (the "Lloyds Suit"). The Company sought to recover
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 Lloyd's, 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. The Company's share of the settlement
agreement proceeds and interest earned during the collection of the proceeds was
approximately $13 million. The Company is pursuing 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 (see Part II, Item 1. - Legal Proceedings).
Certain members of the AT&T 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.
In addition to the portion of the proceeds from the Lloyds Suit set aside
for claims by SCA, as discussed above, the Company also agreed that a portion of
the proceeds be paid to legal counsel representing the Company in the Lloyds
Suit. The Company and legal 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 paid
approximately $182,000 toward such fees during 2003 and has accruals of
approximately $530,000 as of September 30, 2004 for such fees which are due at
the conclusion of all matters addressed in the engagement agreement.
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, 2004. 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 is pursuing the disposition of the
property through the sale of individual parcels and/or groups of parcels.
During May 2001, the Company entered into a contract to sell approximately 55
acres adjoining Kinsley's landfill. The May 2001 contract, as amended during
December 2002, contemplates the sale of 60 acres (45 acres usable land and 15
acres of wetlands) for $2.1 million. During October 2004 the buyer elected to
extend the closing date to April 2005 in accordance with the terms of the
agreement; no further extensions are permitted. The sale is contingent upon,
among other conditions, the buyer obtaining approval of its plans for the
property from applicable local and state agencies. The Buyer has begun paying
non-refundable installments toward the purchase price. Such installments
totaled $101,000 through September 30, 2004. The Company is unable to determine
when sale(s) of the remaining parcels will ultimately be consummated and
proceeds received given the proximity of the properties to the landfill and the
location of wetlands on certain properties.
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 reported, during November, 2001 the United States Department
of Justice ("DOJ") on behalf of the United States Environmental Protection
Agency ("EPA"), filed suit against Transtech Industries, Inc. (the "Company"),
entitled United States of America v. Transtech Industries, Inc., in the United
States District Court, District of New Jersey (Case No. 01-5398 (WGB)),
regarding a site owned by Tang Realty, Inc. ("Tang") located in Piscataway, New
Jersey (the "Site"). EPA asserted claims under Section 107 of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") for
the recovery of certain response costs associated with the site of $2.9 million
(the "Response Costs"). EPA alleged that the Company is the corporate successor
to the former operator at the Site, Chemsol, Inc., and had continued Chemsol's
operations at the Site. The Company contested the allegations regarding
successorship, and the extent of operations it may have conducted at the Site.
Tang is a corporation controlled by Marvin H. Mahan, a former director and
officer, and former principal shareholder of the Company. Mr. Mahan also
controlled Chemsol, Inc. Tang and Mr. Mahan were named as defendants in a suit
brought by EPA in 2000 seeking contribution toward such unallocated remediation
costs. Both suits were consolidated and then stayed pending the outcome of
settlement discussions.
On March 2, 2004, a Consent Decree between the plaintiff United States and
defendants Mr. Mahan, Tang and the Company (collectively referred to as "the
Defendants") was lodged with the Court for 30 days, pending solicitation of
public notice and comment. On March 11, 2004, notice of the settlement was
published in the Federal Register at Volume 69, Number 48, p. 11650. The 30 day
public comment period expired, and no comments were received. Accordingly, on
April 21, 2004, the Court entered the Consent Decree as a final order. The
Consent Decree resolves the United States' claims against the Defendants for the
Response Costs alleged in the captioned suit. The Defendants did not admit any
liability with respect to the transactions or occurrences alleged in the
complaints filed against them. In addition, the Company specifically did not
admit the allegations that it is a former operator at the Site and/or the
corporate successor to Chemsol, Inc.
The Defendants agreed to pay $150,000 toward reimbursement of the Response
Costs within 15 days of entry of the Consent Order by the Court. The Company
agreed to contribute $100,000 toward such reimbursement; Mr. Mahan and Tang will
contribute the remaining $50,000. Mr. Mahan and Tang also agreed to market and
sell the real property owned by them upon which the Site is situated, and
certain lots adjourning the Site, to an EPA approved entity, and to convey the
net sales proceeds from such sale(s) to EPA for application toward the Response
Costs. Net sales proceeds have been defined as gross proceeds from the sale
less applicable income and other taxes due from the sale, and any real estate
taxes owed on the property. Mr. Mahan and Tang also agreed to establish an
escrow account in the amount of $50,000 to fund the expenses incurred for the
marketing and transfer of all of the property. Any balance remaining in the
escrow upon completion of the sale of all of the property will be applied to the
Response Costs. In exchange, EPA agreed not to sue or take administrative
action against the Defendants pursuant to Sections 106 and 107(a) of CERCLA with
respect to the Site, once the obligations of the Defendants stipulated in the
Consent Decree are satisfied.
As previously reported, in conjunction with the 1997 settlement of the
litigation related to the Kin-Buc Landfill discussed above, the Company agreed
to allow SCA to claim against a portion of the proceeds, arising from its
lawsuit against its excess insurance carriers, discussed above. The maximum
amount which could be found to be payable to SCA from the Lloyds Suit settlement
proceeds, $3.5 million, was placed in escrow until the amount of such obligation
is determined in accordance with the terms of the 1997 settlement. A calculation
of the amount due pursuant to the 1997 Agreement was presented to SCA during
March 2002. SCA subsequently notified the Company of its objection to values
utilized in that calculation, contending it was owed $3.5 million. Unable to
resolve the disputed issues, during August 2002 the Company and SCA submitted
the dispute regarding the amount due to binding arbitration for resolution in
accordance with the terms of the 1997 Agreement. On February 6, 2004 the
arbitrator issued the final of three rulings, finding in favor of SCA awarding
it $3.5 million.
On February 24, 2004 the Company commenced two separate actions in an
attempt to either vacate or modify the arbitrator's award. The first action
entailed the filing of a civil complaint in the United States District Court for
the District of New Jersey, entitled Transtech Industries, Inc. v. SC Holdings,
Inc.. SC Holdings, Inc. is the alleged corporate successor to SCA. The second
action was the filing of a motion under an existing case in the United States
District Court for the District of New Jersey entitled Transtech Industries,
Inc., et al. vs. A&Z Septic Clean, et al. (Civil Action No. 2-90-2578(HAA))
under which claims related to the 1997 Agreement had been addressed. On
February 17, 2004 SC Holdings, Inc. filed a complaint against the Company in the
Supreme Court of New Jersey, Law Division, Middlesex County entitled SC
Holdings, Inc. f/k/a SCA Services, Inc. v. Transtech Industries, Inc. (Docket
No. L-1214-04). SCA sought the Court's confirmation of the arbitrator's award
and a judgment in favor of SCA of $3.5 million. During April 2004, the Company
and SC Holdings, Inc. agreed to be bound by the decisions and final unappealable
orders rendered in the existing United States District Court case (Civil Action
No. 2-90-2578(HAA)). Accordingly, SC Holdings, Inc. agreed to dismiss the suit
initiated in Middlesex County and the Company agreed to dismiss the suit
initiated with the United States District Court against SC Holdings, Inc. The
Company cannot predict the outcome of the action; i.e. if the action will
successfully affect the arbitrator's award. The Company will recognize income
equal to the amount of the escrow remaining after payment of amounts due SCA in
the period such funds are released from escrow.
As previously disclosed, the Company has also been named as a defendant in
litigation related to two sites undergoing remediation, specifically the Kin-Buc
Landfill 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, 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 or
Plan of Operation - Liquidity and Capital Resources of this Form 10-QSB.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
Exhibit 10(bk)- Letter dated July 21, 2004 from the Internal Revenue
Service regarding its acceptance of the Company's Offer in
Compromise.
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
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 15, 2004 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: November 15, 2004 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, 2004
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
10(bk) Letter dated July 21, 2004 from the Internal Revenue Service
regarding its acceptance of the Company's Offer in Compromise
(Incorporated herein by reference to the Company's Current
Report on Form 8-K dated July 23, 2004).
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 37
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 39
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 41
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 42