SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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 May 13, 2005. 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 43 pages
Exhibit index on page 37
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB/A
FOR THE QUARTERLY PERIOD ENDED March 31, 2005
Reason for filing Amendment to Form 10QSB
The Company has amended Items 1 and 2 of Part I - Financial Information to
reflect certain reclassifications of assets and expenses suggested by the United
States Securities and Exchange Commission. Specifically, the Company has
reclassified restricted escrow accounts from an off-set to the related liability
for landfill post-closure obligations to separate line items within the assets
section of the consolidated balance sheets, eliminated the amounts previously
reported as receivable from the restricted escrow accounts and reclassified
accretion expense from non-operating expense to operating expense. The
reclassifications do not affect reported net income for the periods addressed in
this report. Generally, no attempt has been made in this Form 10-QSB/A to
modify or update other disclosures presented in the original report on Form 10-
QSB except as required to incorporate the suggestions of the United States
Securities and Exchange Commission. This Form 10-QSB/A does not reflect events
occurring after the filing of the original Form 10-QSB or modify or update those
disclosures. Information not affected by the amendment is unchanged and
reflects the disclosure made at the time of the original filing of the Form 10-
QSB with the United States Securities Exchange Commission on May 16, 2005.
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31,
2005 and December 31, 2004 4 - 5
Consolidated Statements of Operations
and Comprehensive Income for the Three
Months Ended March 31, 2005 and 2004 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2005 and 2004 7 - 8
Notes to Consolidated Financial Statements 9 - 20
Item 2. Management's Discussion and Analysis
or Plan of Operation 21 - 33
Item 3. Controls and Procedures 34
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB/A
FOR THE QUARTERLY PERIOD ENDED March 31, 2005
PART II - OTHER INFORMATION
Item 6. Exhibits 35
SIGNATURES AND CERTIFICATIONS 36
EXHIBIT INDEX 37
EXHIBITS 38 - 43
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
March 31, December 31,
2005 2004
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $ 2,283 $ 1,038
Marketable securities 499 1,993
Accounts receivable - trade (net of 339 344
allowance for doubtful accounts of
$56)
Refundable income taxes 1,111 1,111
Restricted escrow accounts for post-
closure 1,002 1,017
Prepaid expenses and other 53 60
Total current assets 5,287 5,563
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 125 125
Machinery and equipment 3,099 3,085
Total gross assets 4,291 4,277
Less accumulated depreciation 2,926 2,916
Net property, plant and equipment 1,365 1,361
OTHER ASSETS
Escrowed proceeds from sale of
subsidiary 123 123
Restricted escrow accounts for post-
closure costs 7,098 7,244
Assets held for sale 190 190
Other 245 246
Total other assets 7,656 7,803
TOTAL ASSETS $14,308 $14,727
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
March 31, December 31,
2005 2004
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 20 $ 20
Accounts payable 211 181
Current portion of income taxes
payable 219 219
Accrued income taxes 48 48
Accrued professional fees 319 372
Accrued miscellaneous liabilities 186 175
Current portion of accrued post-
closure costs 1,002 1,017
Total current liabilities 2,005 2,032
OTHER LIABILITIES
Long-term debt 50 55
Income taxes payable 1,315 1,370
Accrued post-closure costs 9,094 9,178
Total other liabilities 10,459 10,603
STOCKHOLDERS' EQUITY
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 8,974 9,219
Accumulated other comprehensive income
2 5
Subtotal 12,858 13,106
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity 1,844 2,092
TOTAL LIABILITIES AND STOCKHOLDERS' $14,308 $14,727
EQUITY
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
NET OPERATING REVENUES $ 96 $ 63
COST OF OPERATIONS
Direct operating costs 72 58
Selling, general and administrative
expenses 294 340
Accretion expense 107 111
Total cost of operations 473 509
INCOME (LOSS) FROM OPERATIONS (377) (446)
OTHER INCOME (EXPENSE)
Investment income (loss) 16 16
Interest expense (1) (1)
Interest expense related to income
taxes payable - (58)
Investment income on landfill
escrow account 97 111
Rental income 21 19
Miscellaneous income (expense) (1) (1)
Total other income (expense) 132 86
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) (245) (360)
Income tax expense (benefit) - (122)
NET INCOME (LOSS) $ (245) $ (238)
NET INCOME (LOSS)PER COMMON SHARE $ (.08) $ (.08)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
NET INCOME (LOSS) $ (245) $( 238)
Change in unrealized gain (loss),
net of tax (3) -
NET COMPREHENSIVE INCOME (LOSS) $ (248) $ (238)
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 Three Months Ended
March 31,
2005 2004
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 102 $ 65
Cash paid to suppliers and employees (308) (443)
Interest and dividends received 16 16
Other income received 20 18
Interest paid (1) (1)
Income taxes paid (net of refunds) (55) 89
Payment of landfill post-closure costs, net of
proceeds from escrow of $257,000 and
$252,000, respectively (3) (2)
Net cash provided by (used in)
operating activities (229) (258)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of marketable
securities 1,491 -
Purchase of marketable securities - (8)
Payments on notes receivable 2 -
Purchase of property, plant and equipment
(14) -
Net cash provided by (used in)
investing activities 1,479 (8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on vehicle financing (5) (4)
Net cash provided by (used in) financing
activities (5) (4)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,245 (270)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 1,038 4,322
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 2,283 $ 4,052
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ (245) $ (238)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation 10 9
Accretion expense 107 111
Earnings on landfill escrow accounts (97) (111)
Deferred income tax provision - 1
(Increase) decrease in assets:
Accounts receivable -net 5 1
Refundable income taxes - 80
Post-closure costs due from escrow 54 9
Prepaid expenses and other 7 (97)
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 41 (17)
Accrued income taxes - (55)
Accrued professional fees (53) 51
Income taxes payable (55) -
Landfill post-closure costs, net of proceeds
from escrow of $257,000 and $252,000,
respectively (3) (2)
NET CASH PROVIDED BY (USED IN) OPERATING $ (229) $ (258)
ACTIVITIES
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(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, 2004 for further information.
The financial information has been prepared in accordance with the
Company's customary accounting practices except for certain reclassifications to
the 2004 financial statements in order to conform to the presentation followed
in preparing the 2005 financial statements. In particular, the Company has
reclassified certain assets, liabilities and expenses as required to comply with
accounting treatments suggested by the United States Securities and Exchange
Commission. The Company has reclassified restricted escrow accounts from an off
set to the related liability for landfill post-closure obligations to separate
line items within the assets section of the consolidated balance sheet,
eliminated the amounts previously reported as receivable from the restricted
escrow accounts and reclassified accretion expense from non-operating expense to
operating expense. The reclassifications do not affect reported net income for
the periods addressed in this report.
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 accounting principles
generally accepted in the United States, 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 $1.5
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 6). 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 5). 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
At March 31, 2005, the Company's marketable securities consisted primarily
of U. S. Treasury bills classified as available-for-sale and are carried at
their fair value of $499,000, with a cost of $496,000, and unrealized gain of
$3,000. Net unrealized gains included in stockholder's equity, as of March 31,
2005 decreased from December 31, 2004 by $3,000. Proceeds from the maturity of
marketable securities were $1,491,000 for the three months ended March 31, 2005.
No marketable securities were sold during the three months of 2005. No
marketable securities either matured or were sold during the same period for
2004.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable-trade as of March 31, 2005 and December 31, 2004
includes $304,000, net of an allowance for doubtful accounts of $50,000, related
to a project at the Southern Ocean Landfill ("SOLF") in New Jersey. Payment of
the amount due the Company is subject to New Jersey Department of Environmental
Protection ("NJDEP") review and approval of the Company's invoices and the work
performed. During January 2005, NJDEP accepted the work performed by the
Company at SOLF and is currently verifying the remaining amounts to be paid
vendors from escrow accounts dedicated to SOLF closure costs. The Company
expects full payment of its receivable during the second quarter of 2005.
NOTE 5 - ASSETS HELD FOR SALE
Assets held for sale consist of approximately 60 acres of real property and
structures located in Deptford, N.J. under contract for sale and are carried at
a cost, net of depreciation, of $190,000 as of March 31, 2005 and December 31,
2004. The Company entered into a contract to sell the property during May 2001.
The contract, as amended, contemplates the sale of the 60 acres (45 acres usable
land and 15 acres of wetlands), which adjoins the Kinsley's Landfill, for $2.1
million. During March 2005, the Company agreed to the Purchaser's request for
an additional extension of the closing date from April 2005 to December 22, 2005
subject to definitive documentation. 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 installments
that totaled $126,000 through March 31, 2005. The installments have been
treated as un-earned income for financial presentation purposes, and reported as
an accrued miscellaneous liability.
NOTE 6 - INCOME TAXES
The Company recognized a federal income tax benefit for the three months
ended March 31, 2004 due to its ability to carry-back net operating losses to
2002 for credit against federal income taxes paid with respect to such year.
Federal tax laws limit the carry-back of losses to two preceding years,
therefore no federal tax benefit was recognized for the period in 2005 since the
value of such benefit may not be realized.
The State of New Jersey enacted state income tax legislation, that, among
other changes, limited the carry-forward of losses to offset taxable income to
50% of taxable income for 2004 and 2005.
The provision for income tax expense (benefit) for the three months ended
March 31, 2004 is based upon the Company's anticipated annual effective tax rate
and consists of the following (in 000's):
2004
Provision for operations
Currently payable (refundable):
Federal $ (122)
State -
(122)
Deferred:
Federal -
State -
-
Total income tax provision (credit) $ (122)
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.
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, the Company appealed the Service's rejection of
its offer, and in June 2004 the Company submitted an amendment to a revised
offer (the "Offer"). The Offer was accepted by the Service by letter dated July
21, 2004. As of the date the Offer was accepted, the Company had accrued taxes
and interest on the accrued taxes of approximately $896,000 and $3,926,000,
respectively.
The Offer commits 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 and the balance due is being paid in monthly
installments over nine years as follows: (a) $18,230 per month for each of the
forty-eight months beginning August 2004, and (b) $13,416 per month for each of
the following sixty months beginning August 2008. The amount due for the five
years subsequent to December 31, 2004 are as follows: $218,760 for 2005, 2006
and 2007; $195,000 for 2008; and $161,000 for 2009. 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
$2,332,000, or $.78 per share, in its financial statements for the year ended
December 31, 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 was
not subject to income tax. The amount of the payments due during the twelve
months subsequent to March 31, 2005 has been classified as a current liability
and the balance of the payments due has been classified as a long-term
liability.
The Company paid state income taxes and interest of approximately $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.
Such amounts were previously accrued as the Company adjusted its accruals for
the estimated state income taxes and interest throughout the course of the
negotiations and settlements reached 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 accrued income
taxes classified as current as of March 31, 2005 includes $48,000 for accrued
state interest.
NOTE 7 - POST-CLOSURE COSTS, RESTRICTED ESCROW ACCOUNTS AND CONTINGENT
ENVIRONMENT LIABILITIES
Post-Closure Costs
The Company has future obligations for post-closure costs with respect to a
landfill it owns and operated, the Kinsley's Landfill, and a landfill it
operated on real property leased from others, the MAC Landfill. Kinsley's
Landfill ceased accepting solid waste at its landfill in Deptford Township, New
Jersey on February 6, 1987 and commenced closure of that facility. Mac Sanitary
Land Fill, Inc. ("Mac"), a wholly-owned subsidiary of the Company, operated a
landfill in Deptford Township, New Jersey which ceased operations in 1977. Post
closure costs include estimated costs to be incurred for providing required post
closure monitoring and maintenance of the landfill. Post-closure activities
occur after the entire landfill ceases to accept waste and closes. These
activities involve methane gas control, leachate management and groundwater
monitoring, surface water monitoring and control, and other operational and
maintenance activities that occur after the site ceases to accept waste. The
post-closure period generally runs for up to 30 years after final site closure
for municipal solid waste landfills. Obligations associated with monitoring and
controlling methane gas migration and emissions are set forth in applicable
landfill permits and these requirements are based upon the provisions of the
Clean Air Act of 1970, as amended.
The Company has accrued for such post-closure costs in accordance with
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). Pursuant to SFAS 143, a liability for an
asset retirement obligation should be initially measured at fair value. In
situations where quoted market prices are unavailable, the estimate of fair
value should be based on the best available information, including the results
of present value techniques in accordance with Statement of Financial Accounting
Concepts No. 7, "Using Cash Flow and Present Value in Accounting Measurements"
("SFAC 7"). Changes in the liability due to the passage of time are recognized
as operating items in the income statement and are referred to as accretion
expense. Changes in the liability due to revisions to estimated future cash
flows are recognized by increasing or decreasing the liability, with, in the
case of closed landfills, an offset to the statement of operations.
The Company relies on third parties to provide certain materials, supplies
and professional services for post-closure activities. Accordingly, the fair
market value of these future obligations is based upon quoted and actual prices
paid for similar work. The Company's personnel perform the majority of the
services required for its post-closure obligations. The Company has added a
profit margin onto the cost of such services to better reflect their fair market
value as required by SFAS 143.
The Company's estimates of costs to discharge asset retirement obligations
for landfills are developed in today's dollars. The estimated costs are
inflated to the expected time of payment and then discounted back to present
value. The estimated costs in current dollars were inflated to the expected
time of payment using an inflation rate of 2.5%, and the inflated costs were
discounted to present value using a credit-adjusted, risk-free discount rate of
4.5%. The credit-adjusted, risk-free rate is based on the risk-free interest
rate on obligations of similar maturity and adjusted for the risk associated
with investments permitted and typically held in the Company's post-closure
escrow accounts discussed below. Changes in the credit-adjusted, risk-free rate
do not change recorded liabilities, but subsequently recognized obligations are
measured using the revised credit-adjusted, risk-free rate.
The following table summarizes the actual activity in the Company's asset
retirement obligation liabilities for post-closure costs for the three months
ended March 31, 2005 (in $000):
2005
Asset retirement obligation
liability, beginning of period $10,195
Accretion expense 107
Obligations settled during
the period (206)
Asset retirement obligation
liability, end of period 10,096
Less: Current portion (1,002)
Long-term portion $ 9,094
The Company's total and current portion of accrued post-closure costs by site as
of March 31, 2005 and December 31, 2004 are as follows (in $000's):
March 31, December 31,
2005 2004
Kinsley's landfill $10,043 $10,139
Mac landfill 53 56
Total $10,096 $10,195
Kinsley's landfill $ 984 $ 999
Mac landfill 18 18
Current portion $ 1,002 $ 1,017
The Company intends to annually review its calculations with respect to
landfill asset retirement obligations unless there is a significant change in
the facts and circumstances related to a landfill during the year, in which case
the Company will review its calculations after the significant change has
occurred.
Restricted Escrow Accounts
At March 31, 2005 and December 31, 2004 the Company held $8,100,000 and
$8,261,000, respectively, in escrow accounts which are to be used to fund post-
closure costs at Kinsley's landfill. The escrow funds cannot be utilized for
any other purpose, and the balance of funds, if any, remaining after the end of
the post-closure period will revert to the State of New Jersey. The escrow for
post-closure costs at March 31, 2005 consisted of government backed debt
securities and the cost of these securities approximated the fair market value.
Funds required for the payment of the current portion of Kinsley's Landfill post
closure costs are withdrawn from the restricted escrow account, therefore the
amount of restricted escrow account reported as current is equal to the current
portion of accrued post-closure costs related to the Kinsley's Landfill.
Contingent Environmental Liabilities
The Kin-Buc Landfill, located in Edison, New Jersey, and operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc. ("Kin-
Buc"), ceased operations in 1977. The operation and maintenance of remedial
measures implemented at the Kin-Buc Landfill continue pursuant to the provisions
of Administrative Orders issued by the United States Environmental Protection
Agency ("EPA") to the Company and other respondents, including SCA Services,
Inc. ("SCA"), an affiliate of Waste Management, Inc. ("WMI"). On December 23,
1997, the Company entered into four agreements which settled lawsuits related to
the allocation of costs of remediation of the Kin-Buc Landfill and substantially
relieved the Company from certain future obligation with respect to the site.
As part of the settlement, SCA agreed to defend and indemnify Transtech, Kin-Buc
and another subsidiary, Filcrest Realty, Inc. ("Filcrest") from claims by non-
settling non-municipal waste and municipal waste potentially responsible parties
in the litigation. SCA will also defend and indemnify the Company from certain
liabilities in connection with the remediation of the Kin-Buc Landfill.
However, the Company remains a responsible party under the Administrative Orders
issued by EPA discussed above, and may continue to incur administrative and
legal costs for issues and activities related to the site.
The construction required by EPA pursuant to the Administrative Orders has
been substantially completed. Operation of the treatment plant and maintenance
of the facilities is being conducted by an affiliate of SCA. The total cost of
the construction, operation and maintenance of remedial systems for a 30-year
period, plus the cost of past remedial activities, was estimated at the time of
the December 1997 settlement to be in the range of approximately $80 million to
$100 million. In conjunction with the remediation, 26 acres of undeveloped land
neighboring the site and owned by Filcrest were utilized for the construction of
the containment system, treatment plant and related facilities. The property
had been reflected at nominal value on the Company's financial statements.
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 United
States Attorney in which EPA sought reimbursement of costs it allegedly incurred
and penalties for past construction delays. During September 2002, the New
Jersey Department of Environmental Protection and New Jersey Spill Compensation
Fund filed a similar suit against the same respondents, seeking reimbursement of
past costs it allegedly incurred with respect to the site and for alleged
natural resource damages. During December 2004, the Company entered into a
consent decree which, when entered by the Court, will resolve this suit (see
Part II, Item 1. Legal Proceedings).
During September 2002, EPA issued a notice of potential liability and of
consent decree violations to potentially responsible parties regarding a site
located in Carlstadt, New Jersey that has been undergoing remediation. During
November 2004, the Company along with certain other potentially responsible
parties were named as respondents to an Unilateral Administrative Order issued
by EPA. EPA seeks contribution toward the remediation of an area designated
Operable Unit 2 estimated to cost $7.5 million and $2.0 million of past
oversight and administrative costs (see Part II, Item 1. Legal Proceedings).
The Company ceased operations of a solvents recovery facility at the site in
1970.
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 these sites, 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 costs of litigation
associated with a site are expensed as incurred.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 2005 and
December 31, 2004 (in $000's):
March 31, December 31,
2005 2004
Note payable to bank due in monthly
installments of $691, including
interest at 7.0% per annum, to August
2007; secured by a vehicle carried
at a cost of $35,000. $ 18 $ 20
Note payable to a finance company,
non-interest bearing, due in monthly
installments of $884, including
effective interest at 5.5% per
annum, to July 2008 (less unamortized
discount of $6,000); secured by a
vehicle carried at a cost of $46,000. 32 34
Note payable to a finance company, due
in monthly installments of $459,
including interest at 7.99% per annum,
to August 2009; secured by a vehicle
carried at a cost of $23,000. 20 21
Total long-term debt 70 75
Less: Current portion (20) (20)
Long-term portion $ 50 $ 55
NOTE 9 - SEGMENT INFORMATION
The Company's continuing operations are grouped into three segments: (a)
operations which generate electricity from recovered methane gas, (b) operations
which perform maintenance, remediation and related services on landfill sites,
and (c) corporate and other. Corporate and other includes selling, general and
administrative expenses not specifically allocable to the other segments.
Corporate assets are represented primarily by cash and cash equivalents,
marketable securities and real estate held for investment and sale. Financial
information by segment for the three months ended March 31, 2005 and 2004
follows.
(In $000's) Electricity Environmental Corporate
Generation Services and Other
2005
Gross operating revenues $ 96 $ 207 $ -
Intercompany revenues(a) $ - $ (207) $ -
Net operating revenues $ 96 - -
Depreciation expense $ 2 $ 6 $ 2
Income (loss)
from operations $ 24 $ (113) $ (288)
Capital expenditures $ 13 $ - $ 1
2004
Gross operating revenues $ 63 $ 245 $ -
Intercompany revenues(a) $ - $ (245) $ -
Net operating revenues $ 63 $ - $ -
Depreciation expense $ 2 $ 6 $ 1
Income (loss)
from operations $ 5 $ (116) $ (335)
Capital expenditures $ - $ - $ -
(a) Intercompany revenues reflect intercompany sales within the
environmental services segment.
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, 2004.
Results of Operations
Consolidated net operating revenues were $96,000 for the three months ended
March 31, 2005, an increase of $33,000 or 50%, compared to $63,000 for the
period ended March 31, 2004. Consolidated operating revenues by business
segment for each of the quarters ended March 31, 2005 and 2004 were as follows
(in $000):
2005 2004
Environmental Svcs. $207 $245
Electricity Generation 96 63
Subtotal 303 308
Intercompany (207) (245)
Net Operating Revenues $ 96 $ 63
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
$207,000 of gross operating revenues for the period in 2005(prior to elimination
of intercompany sales) compared to $245,000 for the period in 2004. All of the
environmental services segment's revenues for the period in 2005 and 2004, were
for services provided within the consolidated group, discussed below, and
therefore eliminated in consolidation.
The Company's environmental services segment performs post-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 one of two escrow accounts established to finance
the closure activities at the site (the "Kinsley's Escrows") (see Note 6 to the
Company's Consolidated Financial Statements). The Company billed the Kinsley's
Escrows approximately $204,000 and $242,000 for services performed during the
three months ended March 31, 2005 and 2004, respectively. Such amounts are
included in the amount of intercompany sales reported above, and eliminated in
the calculation of net operating revenue. The Company has submitted a revised
plan for re-grading the Kinsley's Landfill to the New Jersey Department of
Environmental Protection ("NJDEP") for its approval. The re-grading plan calls
for the use of recycled materials to fill and re-contour the areas of the mound
having depressions. The cost will be funded by the Kinsley's Escrows, however,
the Company intends to utilize recycled materials to the fullest extent possible
in order to minimize the impact of the associated costs on the Kinsley's
Escrows.
The Company is continuing its efforts to expand the customer base of the
environmental services segment to additional entities beyond the consolidated
group. The definition of the scope, commencement and duration of other
opportunities are in various stages of development. There are no assurances
such efforts will result in work for the Company.
Revenues from the segment which generates electricity using methane gas as
fuel were approximately $96,000 and $63,000 for the three months ended March 31,
2005 and 2004, 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 trailer mounted
diesel/electricity generator units ("Gen-set(s)") each capable of generating
approximately 11,000 kWh/day when operating at 85% capacity. Only two of the
Gen-sets are operating; the two non-operating Gen-sets require major repairs.
The Company continues to evaluate alternatives to the current operation,
including offers to purchase the electricity generating operations, prior to
investing in the repairs of the Gen-sets. Electricity generated is sold
pursuant to a contract with a local utility that has two years remaining. The
contract with the local utility allows for a continuous interruption in
electricity supply for a period of up to twelve months. Revenues are a function
of the number of kilowatt hours sold, the rate received per kilowatt hour and
capacity payments. The Company sold 1.7 million kWh during the three months
ended March 31, 2005 compared to 1.3 million kWh sold in the period of the prior
year. The average combined rate received (per Kilowatt and capacity payment) in
the current period when compared to the comparable period last year increased
11%. Engineering studies indicate sufficient quantities of gas at the landfill
to continue the operation of the facility for approximately seven 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.
Cost of Operations
Consolidated direct operating costs for the three months ended March 31,
2005 were $72,000, an increase of $14,000 or 24% when compared to $58,000
reported for the period in 2004. Substantially all the costs of operations
related to the environmental services segment for the period in 2005 and 2004
were incurred for intercompany transactions and, therefore, eliminated in
consolidation. All of the reported costs, therefore, pertain to the electricity
generating segment. The increase in costs of the electricity generating segment
was due primarily to increased equipment repair costs. An additional $13,000 of
repair costs to ancillary equipment was capitalized during the three months
ended March 31, 2005.
Consolidated selling, general and administrative expenses for the three
months ended March 31, 2005 were $294,000, a decrease of $46,000 or 14% from
$340,000 reported for the period in the prior year. Components of selling,
general and administrative expenses for the three months ended March 31, 2005
and 2004 were as follows:
2005 2004
Legal expenses $ 37,000 $ 60,000
Other professional fees 27,000 31,000
Non-operating subsidiary expenses 10,000 11,000
All other administrative expenses 220,000 238,000
$ 294,000 $ 340,000
Legal expenses reported for the period in 2005 and 2004 include
approximately $10,000 and $13,000, respectively, of fees for matters related to
the Kin-Buc Landfill. The operating costs of the non-operating subsidiaries,
consisting primarily of insurance premiums, franchise, corporate and real estate
taxes, aggregated approximately $10,000 and $11,000 for the period in 2005 and
2004, respectively. The net $18,000 decrease in all other administrative
expenses, from $238,000 for the period in 2004 to $220,000 for 2005, was
primarily due to a decrease in employee compensation and related expenses.
Professional fees and administrative costs continue to be incurred in support of
the Company's ongoing environmental and insurance litigation, business
development and asset divestiture efforts (see Liquidity and Capital Resources
below).
Consolidated accretion expense recognized on the Company's asset retirement
obligation for landfill post-closure costs was $107,000 and $111,000 for the
three months ended March 31, 2005 and 2004, respectively.
Operating Loss
The Company's consolidated operating loss for the three months ended March
31, 2005 decreased to $377,000 from a loss of $446,000 reported for the period
in 2004.
Other Income (Expense)
Consolidated investment income of $16,000 reported for the three months
ended March 31, 2005 was unchanged from that reported for the period in 2004.
Consolidated interest expense of $1,000 reported for the three months ended
March 31, 2005 was unchanged from that reported for the period in 2004.
Interest reported as "Interest expense related to accrued income taxes"
represents the amount of interest accrued during the period on estimated income
taxes accrued as a result of the Company's Tax Court litigation concluded during
2000. Interest expense reported for the three months ended March 31, 2004 was
$58,000. Interest no longer accrues on this tax obligation as a result of the
acceptance of the Company's Offer in Compromise during July 2004 discussed
below.
Consolidated investment income earned on escrow accounts dedicated to the
funding of the Company's landfill post-closure costs was $97,000 and $111,000
for the three months ended March 31, 2005 and 2004, respectively.
Consolidated rental income for the three months ended March 31, 2005, net
of related expenses, was $21,000 compared to $19,000 reported for 2004. Income
included in this category consists of income earned from the rental of certain
of the Company's property held for sale (see Liquidity and Capital Resources -
Assets Held for Sale below).
Consolidated miscellaneous expense of $1,000 reported for three months
ended March 31, 2005 was unchanged from that reported for the period in 2004.
Income (Loss) before Income Tax Expense (Benefit)
The consolidated loss before income tax expense (benefit) was $245,000 for
the three months ended March 31, 2005, compared to a loss of $360,000 for the
period in 2004.
Income Tax Expense (Benefit)
The provision for federal and state income tax expense (benefit) for the
three months ended March 31, 2004 equaled $(122,000). The gain for reduction in
tax liability reported for 2004 is not subject to income tax. The Company
recognized federal income tax benefit for the three months ended March 31, 2004
due to its ability to carry-back net operating losses to 2002 for credit against
federal income taxes paid with respect to such year. No tax benefits were
recognized for the period in 2005 since the value of such benefits may not be
realized.
Net Income
Net loss for the three months ended March 31, 2005 was $245,000 or $.08 per
share, compared to a net loss of $238,000 or $.08 per share, for the three
months ended March 31, 2004.
Liquidity and Capital Resources
General
The Company faces significant short-term and long-term cash requirements
for (i) funding its professional and administrative costs, (ii) federal income
taxes and interest as discussed below, and (iii) funding post-closure costs and
other expenses associated with sites of past operations. As discussed in detail
below, the Company owes the Internal Revenue Service (the "Service")
approximately $1.5 million as a result of the settlement of issues before the
U.S. Tax Court regarding the Company's income 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 post-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 certain assets 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 Company's challenge to the
arbitrator's award to SCA Services, Inc. and claims made against the Company by
the United States Environmental Protection Agency, discussed below, or should
the proceeds of asset sales and claims against the estates of certain excess
insurance carriers 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 used in operating activities for the three months ended March 31,
2005 decreased to $229,000 from a use of $258,000 reported for the period in the
prior year. The primary use of cash in both periods was the amount paid to
suppliers and employees. A significant use of cash during 2005 was the payment
of $55,000 toward federal income taxes due pursuant to the Company's Offer in
Compromise, as discussed below. Payments of landfill post-closure costs related
to the Kinsley's Landfill and the Mac Landfill were $260,000 and $254,000 for
the period in 2005 and 2004, respectively. The proceeds from post-closure
escrow funds reported for 2005 and 2004, $257,000 and $252,000 respectively,
were received from the escrow accounts dedicated to fund the post-closure costs
of the Kinsley's Landfill. Post-closure costs of the Mac Landfill are funded
from the Company's general funds. See Note 7 to the Company's Consolidated
Financial Reports for further discussion of the Company's landfill post-closure
cost obligations. Net cash flow provided by investing activities of $1,479,000
reported for 2005 reflects proceeds from the maturity of marketable securities
being utilized for operations or retained as cash equivalents. The cash flow
used in financing activities of $5,000 and $4,000 for the period in 2005 and
2004, respectively, represents payments toward long term debt. As a result of
these activities, funds held by the Company in the form of cash and cash
equivalents increased as of March 31, 2005 to $2,283,000 from December 31, 2004,
and equaled $4,052,000 for the period last year. The sum of cash, cash
equivalents and marketable securities as of March 31, 2005 decreased to
$2,782,000 from $3,031,000 when compared to December 31, 2004.
Working capital equaled $3,282,000 and $3,531,000 for as of March 31, 2005
and December 31, 2004, respectively, and the ratio of current assets to current
liabilities was 2.6 to 1 as of March 31, 2005 and 2.7 to 1 as of December 31,
2004.
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.
During July 2004, the Service accepted the Company's Offer in Compromise
(the "Offer"), which requested a reduction in the amount due and permission to
pay the reduced obligation in installments. As of the date the Offer was
accepted, the Company had accrued taxes and interest on the accrued taxes of
approximately $896,000 and $3,926,000, respectively.
The Offer commits 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, and the balance due of $1,680,000 is
being paid in monthly installments over nine years as follows: (a) $18,230 per
month for each of the forty-eight months beginning August 2004, and (b) $13,416
per month for each of the following sixty months beginning August 2008. As of
March 31, 2005, the total of the remaining installments payable pursuant to the
Offer equaled $1,534,000. The Service does not impose interest on the 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 year ended December 31, 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.
Post-Closure Costs
As of March 31, 2005, the Company has accrued $10.1 million for its
estimated share of post-closure costs related to two of the Company's former
landfill operations; the Kinsley's Landfill and Mac Landfill. Approximately
$8.1 million is held in escrow for the post-closure activities of the Kinsley's
Landfill (see Note 7 to the Company's Consolidated Financial Statements).
Contingent Environment Liabilities
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 (see Part II,
Item 1. Legal Proceedings). 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 United
States Attorney on behalf of EPA in which EPA sought reimbursement of costs it
allegedly incurred with respect to the Kin-Buc Landfill and penalties for
alleged past construction delays at the 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 allegedly incurred with respect to the site and for alleged
natural resource damages. During December 2004, the Company and the other
respondents executed a Consent Decree which, when entered by the Court, will
resolve these claims (see Part II, Item 1. Legal Proceedings).
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, not to exceed $3.5 million, arising from the
Company's 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 to SCA is the subject of litigation
initiated by the Company in February 2004. In accordance with the terms of the
1997 settlement, $3.5 million of the proceeds from the Company's 2001 settlement
with certain of the carriers was placed 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, that has been undergoing remediation. During
November 2004, the Company along with certain of the other potentially
responsible parties were named as respondents to an Unilateral Administrative
Order issued by EPA. EPA seeks contribution toward estimated remediation costs
of $7.5 million and $2.0 million of past oversight and administrative costs (see
Part II, Item 1. Legal Proceedings). The Company ceased operation of a solvents
recovery facility at the site in 1970. The Company had assigned its claim
against excess insurance carriers for the recovery of past remediation costs
related to this site to certain potentially responsible parties as discussed
below.
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 continues to
pursue its claims against the non-settling defendants. Many 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 (defined below) 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. The Company initiated the Lloyds Suit 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 included
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 named as
potentially responsible 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.
In addition to the $3.5 million 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 the law firm representing the Company in the
Lloyds Suit. The law firm represents the Company in the Lloyds Suit and certain
other matters pursuant to an engagement agreement that contains a fixed fee and
contingent fee component. The amount of total fees due is dependent, in part,
upon the outcome of the matters. The Company has paid approximately $278,000
toward such fees during 2004 and has accruals of approximately $252,000 as of
March 31, 2005 and December 31, 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 consists of approximately 60 acres of real property
and structures located in Deptford, N.J. under contract for sale and is carried
at a cost, net of depreciation, of $190,000 as of March 31, 2005 and December
31, 2004. The Company entered into the contract to sell the property during May
2001. The contract as amended, contemplates the sale of the 60 acres (45 acres
usable land and 15 acres of wetlands), which adjoins the Kinsley's Landfill, for
$2.1 million. During March 2005, the Company agreed to the Purchaser's request
for an additional extension of the closing date from April 2005 to no later than
December 22, 2005 subject to definitive documentation. 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
installments that total $126,000 through March 31, 2005.
The Company is pursuing the disposition of its remaining property through
the sale of individual parcels and/or groups of parcels (including approximately
120 acres upon which the landfill owned and operated by Kinsley's is situated).
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, access issues and the location of wetlands on
certain properties.
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, $841,000 was
released to the Company from the escrowed funds at the request of 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 March 31, 2005 and December 31, 2004.
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 quarter covered by this report 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 6. Exhibits
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: August 25, 2005 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: August 25, 2005 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/A
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
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 38 - 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 40 - 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 42
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 43