UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO 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 registrant 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)
(Zip Code)
(732) 564-3122
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ___ No X
As of November 12, 2008, 2,979,190 shares of common stock, $.50 par value,
were outstanding. In addition, at such date, the issuer held 1,885,750
shares of common stock, $.50 par value, in treasury.
Page 1 of 50 pages
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Financial Statements for the
periods ending September 30, 2008 and 2007 are
unaudited):
Consolidated Balance Sheets as of September
30, 2008 and December 31, 2007 3 - 4
Consolidated Statements of Operations and
Comprehensive Loss for the Nine Months
Ended September 30, 2008 and 2007 5
Consolidated Statements of Operations and
Comprehensive Loss for the Three Months
Ended September 30, 2008 and 2007 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2008 and 2007 7 - 8
Notes to Consolidated Financial Statements 9 - 21
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 22 - 38
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 39
Item 4. Controls and Procedures 39
Item 4T. Controls and Procedures 39
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 40 - 42
Item 1A. Risk Factors 43
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 43
Item 3. Defaults Upon Senior Securities 43
Item 4. Submission of Matters to a Vote of
Security Holders 43
Item 5. Other Information 43
Item 6. Exhibits 43
SIGNATURES 44
EXHIBITS 45 - 50
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September 30, December 31,
2008 2007
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,067 $ 961
Marketable securities 2,697 3,267
Accounts receivable - trade 66 44
Refundable income taxes 717 484
Prepaid expenses and other 99 237
Restricted escrow account for
post-closure costs 1,037 1,018
Total current assets 5,683 6,011
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 596 595
Machinery and equipment 3,377 3,336
Total gross assets 5,040 4,998
Less accumulated depreciation 3,055 2,999
Net property, plant and
equipment 1,985 1,999
OTHER ASSETS
Restricted escrow account for
post-closure costs 5,566 6,355
Other 38 150
Total other assets 5,604 6,505
TOTAL ASSETS $13,272 $14,515
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
September 30, December 31,
2008 2007
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 10 $ 10
Accounts payable 284 179
Current portion of income taxes
payable 161 195
Accrued income taxes 25 4
Accrued professional fees 357 358
Accrued miscellaneous liabilities 68 46
Current portion of accrued post-
closure costs 1,040 1,035
Total current liabilities 1,945 1,827
LONG TERM LIABILITIES
Long-term debt 10 17
Income taxes payable 617 738
Accrued post-closure costs 7,334 7,762
Total long term liabilities 7,961 8,517
TOTAL LIABILITIES 9,906 10,344
STOCKHOLDERS' EQUITY
Common stock, $.50 par value,
10,000,000 shares authorized,
4,864,940 shares issued 2,432 2,432
Additional paid-in capital 1,450 1,450
Retained earnings 10,258 11,005
Accumulated other comprehensive
income 240 298
Subtotal 14,380 15,185
Treasury stock, at cost - 1,885,750
shares (11,014) (11,014)
Total stockholders' equity 3,366 4,171
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $13,272 $14,515
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(In $000's, except per share data)
(Unaudited)
For the Nine Months Ended
September 30,
2008 2007
NET OPERATING REVENUE $ 573 $ 400
COST OF OPERATIONS
Direct operating costs (355) (224)
Selling, general and administrative
expenses (1,461) (1,317)
Accretion expense (252) (274)
Total cost of operations (2,068) (1,815)
GAIN ON SALE OF EQUIPMENT 8 -
LOSS FROM OPERATIONS (1,487) (1,415)
OTHER INCOME (EXPENSE)
Investment income 67 136
Investment income on restricted
escrow account 330 224
Interest expense (2) (2)
Rental income 8 6
Proceeds from insurance claims 58 56
Miscellaneous income, net of
miscellaneous expenses 18 40
Total other income 479 460
LOSS BEFORE INCOME TAX BENEFIT (1,008) (955)
Income tax benefit (261) (298)
NET LOSS $ (747) $ (657)
NET LOSS PER COMMON SHARE $ (.25) $ (.22)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
____________________________________________________________________
COMPREHENSIVE LOSS:
NET LOSS $ (747) $ (657)
Change in unrealized gain (loss),
net of tax (58) 174
NET COMPREHENSIVE LOSS $ (805) $ (483)
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
September 30,
2008 2007
NET OPERATING REVENUE $ 201 $ 189
COST OF OPERATIONS
Direct operating costs (134) (71)
Selling, general and administrative
expenses (433) (450)
Accretion expense (84) (91)
Total cost of operations (651) (612)
GAIN ON SALE OF EQUIPMENT 7 -
LOSS FROM OPERATIONS (443) (423)
OTHER INCOME (EXPENSE)
Investment income 12 34
Investment income on restricted
escrow account 158 80
Interest expense (1) -
Rental income (5) -
Proceeds from insurance claims 56 56
Miscellaneous income, net of
miscellaneous expenses - 40
Total other income 220 210
LOSS BEFORE INCOME TAX BENEFIT (223) (213)
Income tax benefit (86) (42)
NET LOSS $ (137) $ (171)
NET LOSS PER COMMON SHARE $ (.05) $ (.06)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE GAIN (LOSS):
NET LOSS $ (137) $ (171)
Change in unrealized gain (loss),
net of tax (49) 207
NET COMPREHENSIVE GAIN (LOSS) $ (186) $ 36
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,
2008 2007
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 552 $ 369
Cash paid to suppliers and employees (1,332) (1,474)
Interest and dividends received 67 136
Other income received 84 102
Interest paid (2) (2)
Income taxes paid, net of refunds (106) (165)
Post-closure costs (711) (759)
Proceeds from the restricted escrow
account 1,036 84
Net cash used in operating activities (412) (1,709)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of
marketable securities 5,273 7,004
Purchase of marketable securities (4,698) (5,945)
Proceeds from sale of equipment 8 16
Purchase of plant and equipment (58) (232)
Net cash from investing activities 525 843
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on vehicle financing (7) (11)
Net cash used in financing
activities (7) (11)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 106 (877)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 961 1,601
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 1,067 $ 724
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,
2008 2007
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $ (747) $ (657)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation 73 62
Gain on sale of equipment (8) -
Accretion expense 252 274
Earnings on restricted escrow account (330) (224)
(Increase) decrease in assets:
Accounts receivable, net 22 (31)
Refundable income taxes (233) (298)
Prepaid expenses and other 138 (67)
Deposits 112 (49)
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous liabilities 119 85
Income taxes payable (155) (165)
Accrued income taxes 21 -
Accrued professional fees (1) 36
Accrued post-closure costs, net of
proceeds from the restricted escrow
of $1,036 and $84, respectively 325 (675)
NET CASH USED IN OPERATING ACTIVITIES $ (412) $(1,709)
See Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and consequently
do not include all of the disclosures normally required by accounting
principles generally accepted in the United States of America or those
normally made in the Company's annual Form 10-KSB filing. Accordingly, the
reader of this Form 10-Q may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 2007 for further information.
The financial information has been prepared in accordance with the
Company's customary accounting practices except for certain
reclassifications to the 2007 consolidated financial statements in order to
conform to the presentation followed in preparing the 2008 consolidated
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 the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and revenues
and expenses during the reporting period. Actual results could differ from
those estimates. See Part I, Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional information
regarding the estimates and assumptions the Company makes that affect its
consolidated financial statements.
The Company sells the electricity it generates to a local utility.
Such sales account for 100% of the Company's Net Operating Revenues for the
nine month periods ended September 30, 2008 and 2007, and represented 100%
of the Company's Accounts Receivable - Trade as of September 30, 2008 and
December 31, 2007.
Effective January 1, 2008, the Company adopted Statement of Financial
Accounting Standard No. 157, "Fair Value Measurements" (SFAS 157), as it
applies to its financial instruments, and Statement of Financial Accounting
Standard No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115" (SFAS 159).
SFAS 157 defines fair value, outlines a framework for measuring fair
value, and details the required disclosures about fair value measurements.
Under SFAS 157, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the principal or most
advantageous market. In February 2008, the FASB decided to allow a one-year
deferral of adoption of SFAS 157 for non-financial assets and non-financial
liabilities that are recognized or disclosed at fair value. The Company has
elected this one-year deferral. SFAS 157 enables the reader of the
financial statements to assess the inputs used to determine the fair value
of an asset or liability by establishing a hierarchy for ranking the quality
and reliability of such inputs. Level 1 inputs include quoted market
prices in an active market for identical assets or liabilities. Level 2
inputs are market data, other than Level 1, that are observable either
directly or indirectly. Level 2 inputs include quoted market prices for
similar assets or liabilities, quoted market prices in an inactive market,
and other observable information that can be corroborated by market data.
Level 3 inputs are unobservable and corroborated by little or no market
data. SFAS 157 requires the utilization of the lowest possible level of
input to determine fair value. The adoption of this statement did not have
any material impact on the Company's consolidated results of operations and
financial condition.
The following table provides information on the assets measured at fair
value on a recurring basis (table in $000):
Carrying Amount
in Consolidated Fair Value Measurements Using
Balance Sheets
September 30, 2008 Level 1 Level 2 Level 3
Marketable securities $ 2,697 $ 2,697 - -
Restricted escrow account
for post-closure costs $ 6,603 $ 6,603 - -
SFAS 159 permits companies to irrevocably choose to measure certain
financial instruments and other items at fair value. If the fair value
option is elected, unrealized gains and unrealized losses will be recognized
in earnings at each subsequent reporting date. The Company did not elect
the fair value option to measure certain financial instruments.
NOTE 2 - MARKETABLE SECURITIES
At September 30, 2008, 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 $2,697,000, with a cost of $2,691,000 and
gross unrealized gains of $6,000. At December 31, 2007, 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 $3,267,000 with
a cost of $3,266,000 and gross unrealized gains of $1,000. The unrealized
gains and losses related to the Company's marketable securities are included
in stockholders' equity, net of income tax (stockholders' equity also
includes net unrealized gains related to the restricted escrow accounts
discussed in Note 3). Proceeds from the maturity of marketable securities
for the nine months ended September 30, 2008 and 2007 were $5,273,000 and
$7,004,000, respectively. No marketable securities were sold prior to their
maturity during the period in either 2008 or 2007.
NOTE 3 - RESTRICTED ESCROW ACCOUNTS FOR POST-CLOSURE COSTS
At September 30, 2008 and December 31, 2007 the Company held
$6,603,000 and $7,373,000, respectively, in a restricted escrow account
which is to be used to fund post-closure costs at Kinsley's Landfill (the
"Kinsley's Landfill"). The escrow account is legally restricted for
purposes of settling closure and post-closure costs, and was established to
provide financial assurance through the deposit of a portion of the tipping
fee charged when the landfill was operating. All disbursements from the
restricted escrow account must be approved by the New Jersey Department of
Environmental Protection. The balance of funds, if any, remaining after the
end of the post-closure activities will revert to the State of New Jersey.
The investments held by the restricted escrow account primarily consists of
U.S. Treasury Notes and government backed debt securities. At September 30,
2008 the investments are carried at their fair value of $6,603,000, with a
cost of $6,370,000 and gross unrealized gains of $243,000 and gross
unrealized losses of $10,000. At December 31, 2007 the investments had a
fair market value of $7,373,000, with a cost of $7,076,000, gross unrealized
gains of $302,000 and gross unrealized losses of $5,000. The net unrealized
gains and losses are included in stockholder's equity for the respective
periods (stockholders' equity also includes net unrealized gains related to
the Company's marketable securities discussed in Note 2). The portion of
the restricted escrow account reported as current equals the current portion
of accrued post-closure costs related to the Kinsley's Landfill (see Note
5).
NOTE 4 - INCOME TAXES
The Company recognized a federal income tax benefit for the nine
months ended September 30, 2008 and 2007 due to its ability to carry-back
net operating losses to 2006 and 2005, respectively, for credit against
federal income taxes paid with respect to such years. Federal tax laws
limit the carry-back of losses to two preceding years.
The provision for income tax expense (benefit) for the nine months
ended September 30, 2008 and 2007 consists of the following (table in
000's):
2008 2007
Provision for operations
Currently payable (refundable):
Federal $(285) $(315)
State 24 17
(261) (298)
Deferred:
Federal - -
State - -
- -
Total income tax provision (benefit) $(261) $(298)
The Company's federal income tax benefit for 2008 is limited to the
amount of federal income paid for 2006, approximately $381,000. The Company
has recognized approximately 75% of the maximum benefit for the nine months
ended September 30, 2008, which is less than the amount of benefit that
would be recognized applying the Company's anticipated annual effective tax
rate.
Income taxes payable, equal to $778,000 as of September 30, 2008,
represents the amount due the United States Internal Revenue Service (the
"Service") in settlement of the Company's tax liability for taxable years
1980-88 and certain issues from taxable years 1989-91. During July 2004,
the Service accepted the Company's Offer in Compromise (the "Offer") which
requested a reduction in the amount payable with respect to such settlements
and permission to pay the reduced obligation in installments. The Offer
committed the Company to pay a total of $2,490,000 in satisfaction of the
assessed federal income taxes and interest of approximately $4,800,000. 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 sixty months beginning August 2008. The
total of the installments paid from inception through September 30, 2008
equals approximately $902,000. Approximately $161,000 is due in each of the
five years subsequent to September 30, 2008. The sum of the payments due
during the twelve months subsequent to September 30, 2008 has been
classified as a current liability and the balance of the payments due have
been classified as a long-term liability. The Service does not impose
interest on amounts payable pursuant to the Offer. The Company is permitted
to receive refunds of prior tax overpayments and from the carry-back 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.
NOTE 5 - POST-CLOSURE COSTS AND CONTINGENT ENVIRONMENTAL 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 during February 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 that
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 statement of operations 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 in Note 3.
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 tables summarize the actual activity in the Company's
asset retirement obligation liabilities for post-closure costs for the nine
months ended September 30, 2008 and 2007 (table in $000):
2008 2007
Asset retirement obligation liability:
Accrued post-closure costs,
beginning of period $ 8,797 $ 9,412
Accretion expense 252 274
Obligations settled during
the period (638) (752)
Other adjustments (discussed below) (37) (40)
Accrued post-closure costs,
end of period 8,374 8,894
Less: Current portion (1,040) (1,030)
Long-term portion $ 7,334 $ 7,864
The amount reported as current portion represents the estimate of the
post-closure costs to be incurred during the subsequent twelve months.
The Company's total and current portion of accrued post-closure costs
by site as of September 30, 2008 and December 31, 2007 are as follows (table
in $000's):
September 30, December 31,
2008 2007
Kinsley's landfill $ 8,371 $ 8,780
Mac landfill 3 17
Total $ 8,374 $ 8,797
Kinsley's landfill $ 1,037 $ 1,018
Mac landfill 3 17
Current portion $ 1,040 $ 1,035
The post-closure costs of the Kinsley's Landfill are funded from a
restricted escrow account (see Note 3).
The Company annually reviews 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.
The Company began re-grading a section of the Kinsley's Landfill in
2006 in accordance with a plan approved by the New Jersey Department of
Environmental Protection ("NJDEP"). The re-grading plan calls for the use
of both recycled and non-recycled materials to fill and re-contour the
areas of the mound containing depressions. The Company receives a fee to
accept certain of the recycled materials. The costs incurred for re-
grading activities shall be paid from such fees. However, costs incurred
for re-grading activities in excess of such fees, if any, will be submitted
to NJDEP for reimbursement from the Kinsley's Escrow. The amounts reported
as Other adjustments in the above tables equal the proceeds generated from
the materials received in the re-grading project at the Kinsley's Landfill,
less related re-grading expenses.
During July, 2007 the Company received notice from the NJDEP that it
had modified its approval of the Company's re-grading plan. The Company
filed an adjuratory hearing request to challenge the NJDEP's modification
to the re-grading plan approval and was scheduled to present its objections
at an administrative hearing in June 2008. During June 2008, the NJDEP
approved certain modifications made by the Company to its re-grading plan
intended to expedite NJDEP approval of materials from new sources and
address certain modifications proposed by NJDEP in July 2007. Having
resolved the issues and received NJDEP approval, the Company withdrew its
administrative hearing request.
The thirty-year post-closure care period for the MAC Landfill was to
expire on June 7, 2008. On June 3, 2008 the NJDEP notified the Company of
its decision to temporarily extend the post-closure care period until such
time the NJDEP performs a re-evaluation and re-assessment of conditions at
the landfill. The NJDEP has requested certain environmental data
concerning the landfill for such purpose. The NJDEP intends to then
determine what further actions, if any, will be required of the Company.
Because of the nature, scope and timing of NJDEP's decision and information
request, the Company has requested an administrative hearing to contest
certain aspects of NJDEP's decision including the extension of the post-
closure care period. As of September 30, 2008, the Company has an accrual
of $3,000 remaining for post-closure care at this site. Annual post-
closure costs related to the MAC Landfill approximated $10,000 and $13,000
for the years ended December 31, 2007 and 2006.
Contingent Environmental Liabilities
During November 2004, the Company along with fourteen other potentially
responsible parties were named as respondents to an Unilateral
Administrative Order issued by the United States Environmental Protection
Agency ("EPA") regarding the Scientific Chemical Processing Superfund Site
(the "SCP Site")located in Carlstadt, New Jersey which has been undergoing
remediation pursuant to an Administrative Order issued by the EPA in 1990.
The November 2004 Unilateral Administrative Order seeks contribution toward
the remediation of an area designated Operable Unit 2, estimated to cost
$7.5 million, and reimbursement to the EPA of $2.0 million of alleged past
oversight and administrative costs, from the fifteen respondents, and a
group of sixty nine other potentially responsible parties (see Part II, Item
1. Legal Proceedings). Each respondent is designated as a potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), and may be held liable for the
cleanup of the SCP Site and costs the EPA has incurred with regard to the
site. The Company ceased operations of a solvents recovery facility at the
site in 1970 and had been named as a respondent to the Administrative Order
issued regarding the SCP Site in 1990. The Company, together with the
property owner, have contributed cash and proceeds from insurance
settlements toward the remediation of the SCP Site. Such contributions
total $16.4 million through September 30, 2008, plus interest earned
thereon, which the Company believes should satisfy the share of remediation
costs which could be found attributable to the Company for the SCP Site.
The Company was one of 158 recipients of a Notice of Potential
Liability and Request to Perform Remedial Investigation/Feasibility Study
(the "Notice"), issued by the EPA on March 9, 2006, regarding the
contamination of the Berry's Creek Study Area (the "Creek Area") located in
Bergen County, N.J. A tributary adjacent to the SCP Site flows into
Berry's Creek. The Creek Area includes the approximately seven mile long
water body known as Berry's Creek, a canal, all tributaries to Berry's
Creek and related wetlands. Tidal areas of the river into which Berry's
Creek empties are also subject of the Notice. Each recipient of the Notice
is designated as a potentially responsible party under CERCLA, and may be
held liable for the cleanup of the Creek Area and costs the EPA has
incurred with regard to the Creek Area. The investigation and feasibility
study regarding the scope of the remediation of the Creek Area is ongoing.
The selection of the ultimate remediation methodology from alternative
approaches is expected to be made by the EPA in 2010. Since no discovery
has taken place concerning allegations against the Company, it is not
possible to estimate the Company's ultimate liability, if any, with respect
to the Creek Area and consequently no liability has been recorded on the
Company's financial statements.
The Kin-Buc Landfill, located in Edison, New Jersey, was operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc.
("Kin-Buc"). Operations at the Kin-Buc Landfill ceased 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 EPA to the Company and other respondents, including SCA Services,
Inc. ("SCA"), an affiliate of Waste Management, Inc. ("WMI"). As part of
the December 1997 settlement of lawsuits related to the allocation of costs
of remediation of the Kin-Buc Landfill, 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 also agreed to
defend and indemnify the Company from certain liabilities in connection with
the remediation of the Kin-Buc Landfill substantially relieving the Company
from those future obligations with respect to the site. However, the
Company remains a responsible party under the Administrative Orders issued
by the EPA discussed above, and continues to incur administrative and legal
costs for issues and activities related to the site.
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 6 - LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2008 and
December 31, 2007 (table in $000's, except for monthly installment amounts):
September 30, December 31,
2008 2007
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 net book value of $10 $ 5 $ 9
Note payable to a bank, due in monthly
installments of $505, including
interest at 7.75% per annum, to June
2011; secured by a vehicle carried
at a net book value of $17 15 18
Total long-term debt 20 27
Less: Current portion (10) (10)
Long-term portion $ 10 $ 17
NOTE 7 - 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, closure, post-closure 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 nine months ended September 30, 2008 and 2007 follows.
(table in $000's) Electricity Environmental Corporate
Generation Services and Other Total
2008
Gross operating revenues $ 573 $ 623 $ - $ 1,196
Eliminations (a) - (623) - (623)
Net operating revenues 573 - - 573
Depreciation expense 37 30 6 73
Income (loss)
from operations (b) 226 (363) (1,350) (1,487)
Capital expenditures 41 16 1 58
2007
Gross operating revenues $ 400 $ 745 $ - $ 1,145
Eliminations (a) - (745) - (745)
Net operating revenues 400 - - 400
Depreciation expense 37 19 6 62
Income (loss)
from operations (b) 153 (297) (1,271) (1,415)
Capital expenditures 2 225 5 232
(a) Eliminations include intercompany sales, billings to the Kinsley's Escrow
and fees received in conjunction with the Kinsley's Landfill re-grading project.
(b) Income (loss) from operations of the Environmental Services segment
includes accretion expense of $252,000 and $274,000 for the period in 2008 and
2007, respectively.
NOTE 8 - LEGAL PROCEEDINGS
See Part II, Item 1. Legal Proceedings of this Form 10-Q for a
discussion of recent developments with respect to the Company's legal
matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and related notes,
which provide additional information concerning the Company's financial
activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of 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, 2007.
Results of Operations
Results for the nine months ended September 30, 2008 and 2007
Consolidated net operating revenues were $573,000 for the nine months
ended September 30, 2008, an increase of $173,000 or 30%, compared to
$400,000 reported for the period ended in 2007. Consolidated operating
revenues by business segment for the nine months ended September 30, 2008
and 2007 were as follows (table in $000):
2008 2007
Environmental Svcs. $ 623 $ 745
Electricity Generation 573 400
Subtotal 1,196 1,145
Eliminations (623) (745)
Net Operating Revenues $ 573 $ 400
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 $623,000 of gross operating revenues for the period in
2008 (prior to eliminations) compared to $745,000 for the period in 2007.
The Company's environmental services segment performs post-closure
activities on landfills previously operated by the Company's subsidiaries.
Post-closure work performed on a landfill owned by the Company, the
Kinsley's Landfill, is submitted for reimbursement to a restricted escrow
account established to finance the post-closure activities at the site (the
"Kinsley's Escrow") (see Notes 3 and 5 to the Company's Consolidated
Financial Statements). The Company billed the Kinsley's Escrow
approximately $609,000 and $725,000 for post-closure maintenance performed
during the nine months ended September 30, 2008 and 2007, respectively.
The Company is also re-grading a section of the Kinsley's Landfill in
accordance with a plan approved by the New Jersey Department of
Environmental Protection ("NJDEP"). The re-grading plan calls for the use
of both recycled and non-recycled materials to fill and re-contour the
areas of the mound containing depressions. The Company receives a fee to
accept certain of the recycled materials. The costs incurred for re-
grading activities shall be paid from such fees. However, costs incurred
for re-grading activities in excess of such fees, if any, will be submitted
to NJDEP for reimbursement from the Kinsley's Escrow. The Company intends
to utilize recycled materials to the fullest extent possible in order to
minimize the amount of re-grading costs paid from the Kinsley's Escrow, if
any. The Company competes with certain landfills and development projects
for the revenue producing materials on the basis of the fee imposed for
accepting the materials and transportation cost, and must obtain NJDEP
approval prior to utilizing material from a new source. The gross revenue
reported for the environmental services segment for the period in 2007
includes $12,000 from such fees (see Note 5). The decline in the revenue
associated with the recycled material during 2008 and the latter part of
2007 is due to competition for such materials from nearby re-development
projects and delays in the receipt of approvals of materials from the
NJDEP. The competition from such projects may continue to limit the
quantity of the fee producing materials obtained by the Company as well as
impact the associated fee. The NJDEP recently approved modifications to
the Company's re-grading plan intended to expedite NJDEP approval of
materials from new sources and address certain modifications to the plan
proposed by NJDEP during July 2007.
Billings to the Kinsley's Escrow and for services provided to members
of the consolidated group, and the fees received in conjunction with the
re-grading project, are eliminated in the calculation of net operating
revenue. The Company is continuing its efforts to expand the customer base
of the environmental services segment to additional entities beyond the
consolidated group.
Revenues from the segment that generates electricity using methane gas
as fuel were approximately $573,000 and $400,000 for the nine months ended
September 30, 2008 and 2007, respectively. Methane gas is a component of
the gas generated by landfills. The electricity generating facility is
located at the Kinsley's Landfill and consists of four trailer mounted
diesel engine/electricity generator units ("Gen-set(s)") each capable of
generating approximately 11,000 kilowatt hours ("kWh") per day when
operating at 85% capacity. Three of the four Gen-sets were available for
operations during the period in 2008 and 2007, subject to routine repairs
and maintenance. The fourth Gen-set requires major repairs which have been
deferred. Electricity generated is sold pursuant to a contract with a
local utility. Revenues are a function of the number of kWh sold, the rate
received per kWh and capacity payments. The Company sold 6.24 million kWh
during the nine months ended September 30, 2008 compared to 5.78 million
kWh sold in the period of the prior year. The average combined rate (kWh
and capacity payments) received per kWh for the nine months ended September
30, 2008 and 2007 equaled $.0912 and $.0692, respectively. The kilowatt
hours produced during the period in 2007 was adversely impacted by a
failure in the operation's switch gear. The facility did not generate
power for approximately 41 days as temporary equipment was located and
installed. Engineering studies indicate that the quantity of gas generated
by the landfill is declining but project sufficient landfill gas to
continue the operation of three of the existing Gen-sets through 2011 and
two of the existing Gen-sets for the period of 2012 through 2017. Elements
of the landfill gas are more corrosive to the equipment than traditional
fuels, resulting in more off-line hours dedicated to repair and maintenance
than with equipment utilizing traditional fuels.
Cost of Operations
Consolidated direct operating costs for the nine months ended
September 30, 2008 were $355,000, an increase of $131,000 or 58% when
compared to $224,000 reported for the period in 2007. The direct operating
costs related to the environmental services segment for the period in 2008
and 2007 incurred for the intercompany transactions described above were
eliminated in consolidation. Approximately $23,000 of the reported direct
operating costs for the period in 2008 are attributable to unabsorbed
overhead costs of the environmental services segment. The direct operating
costs attributable to the electricity generating segment for the period in
2008 and 2007 were $332,000 and $224,000, respectively. The increase in
operating costs in 2008 is primarily due to repairs made to one Gen-set
beyond routine repairs and maintenance.
Consolidated selling, general and administrative expenses for the nine
months ended September 30, 2008 and 2007 were $1,461,000 and $1,317,000,
respectively. Components of selling, general and administrative expenses
for the nine months ended September 30, 2008 and 2007 were as follows
(table in $000):
2008 2007
Legal expenses $ 433 $ 302
Other professional fees 103 157
Non-operating subsidiary expenses 41 40
All other administrative expenses 884 818
Total $1,461 $1,317
Legal expenses reported for the period in 2008 and 2007 include
approximately $147,000 and $169,000, respectively, of fees for matters
related to the Company's landfills or the remediation of sites to which the
Company has been named a potentially responsible party ("PRP") or possible
PRP. Such fees in the period in 2008 were primarily attributable to
matters related to the Kin-Buc Landfill and the SCP Site which are
discussed below. The increase in legal expenses for other matters is
primarily attributable to the Company's challenge of attempts by two
municipalities to encumber certain real property owned by the Company (see
Part II, Item 1. Legal Proceedings). Other professional fees include fees
due to accountants, engineers, consultants and a director. Other
professional fees for the period in both years include fees for services
associated with documentation and evaluation of the Company's financial
reporting controls as required pursuant to the Sarbanes-Oxley Act of 2002.
The costs incurred by the non-operating subsidiaries, consisting primarily
of insurance premiums, franchise, corporate and real estate taxes,
aggregated approximately $41,000 and $40,000 for the period in 2008 and
2007, respectively. All other administrative expenses increased $66,000 to
$884,000 for the period in 2008 from $818,000 for the period in 2007. This
increase was primarily attributable to the cost of employee compensation
and benefits, and general operating expenses. The Company also incurred
legal and other professional fees, and administrative expenses, during the
course of evaluating businesses for possible acquisition.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure costs was $252,000 and
$274,000 for the nine months ended September 30, 2008 and 2007,
respectively.
Loss from Operations
The Company's consolidated loss from operations for the nine months
ended September 30, 2008 increased to $1,487,000 from a loss of $1,415,000
reported for the period in 2007.
Other Income (Expense)
Consolidated investment income was $67,000 for the nine months ended
September 30, 2008 versus $136,000 reported for the period in 2007.
Consolidated investment income earned on the restricted escrow account
dedicated to the funding of the Company's landfill post-closure costs was
$330,000 and $224,000 for the nine months ended September 30, 2008 and 2007,
respectively.
Consolidated interest expense was $2,000 for both the nine months
ended September 30, 2008 and 2007.
Consolidated rental income is reported net of related expenses and was
$8,000 and $6,000 for the nine months ended September 30, 2008 and 2007,
respectively. Income included in this category consists of royalty
payments, reported net of commission, received from the lessee of certain
of the Company's real property situated beneath the lessee's landfill and
income earned from the rental of certain of the Company's property.
Proceeds from insurance claims of $58,000 and $56,000 reported for the
nine months ended September 30, 2008 and 2007, respectively, represents
proceeds received from claims filed against certain of the Company's
insolvent excess insurance carriers. See "Liquidity and Capital Resources
- - Insurance Claims for Past Remediation Costs" for further discussion of
this issue.
Consolidated net miscellaneous income for the nine months ended
September 30, 2008 and 2007 was $18,000 and $40,000, respectively. The
amount reported for the period in 2008 includes a partial refund, $17,000,
of expenses paid toward the 2004 settlement of litigation regarding the
Chemsol (a/k/a Tang) Superfund Site. The income reported for the period in
2007 includes $40,000 received in settlement of litigation initiated by the
Company to recover a portion of the costs incurred during the Company's
evaluation of a business for possible acquisition.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $1,008,000 for the
nine months ended September 30, 2008, compared to a loss of $995,000 for
the period in 2007.
Income Tax Benefit
The provision for federal and state income tax benefit for the nine
months ended September 30, 2008 and 2007 equaled $261,000 and $298,000,
respectively. The Company recognized federal income tax benefit for the
periods due to its ability to carry-back net operating losses to 2006 and
2005, respectively, for credit against federal income taxes paid with
respect to such years.
Net Income (Loss)
Net loss for the nine months ended September 30, 2008 was $747,000 or
$.25 per share, compared to a net loss of $657,000 or $.22 per share, for
the nine months ended September 30, 2007.
Results for the three months ended September 30, 2008 and 2007
Consolidated net operating revenues were $201,000 for the three months
ended September 30, 2008, an increase of $12,000 or 6%, compared to $189,000
reported for the period ended in 2007. Consolidated operating revenues by
business segment for the three months ended September 30, 2008 and 2007 were
as follows (table in $000):
2008 2007
Environmental Svcs. $ 186 $ 209
Electricity Generation 201 189
Subtotal 387 398
Eliminations (186) (209)
Net Operating Revenues $ 201 $ 189
The environmental services segment reported $186,000 of gross
operating revenues for the period in 2008 (prior to eliminations) compared
to $209,000 for the period in 2007. Billing to the Kinsley's Escrow for
post-closure work performed on the Kinsley's Landfill was approximately
$177,000 and $205,000 during the three months ended September 30, 2008 and
2007, respectively. Billings to the Kinsley's Escrow and for services
provided to members of the consolidated group, are eliminated in the
calculation of net operating revenue.
Revenues from the segment that generates electricity were
approximately $201,000 and $189,000 for the three months ended September
30, 2008 and 2007, respectively. The Company sold 2.16 million kWh during
the three months ended September 30, 2008 compared to 2.43 million kWh sold
in the period of the prior year. The average combined rate (kWh and
capacity payments) received per kWh for the three months ended September
30, 2008 and 2007 equaled $.093 and $.078, respectively. The kilowatt
hours produced during the period in 2008 was adversely impacted by repairs
required on one Gen-set beyond routine repairs and maintenance.
Cost of Operations
Consolidated direct operating costs for the three months ended
September 30, 2008 were $134,000, an increase of $63,000 or 89% when
compared to $71,000 reported for the period in 2007. The direct operating
costs related to the environmental services segment for the period in 2008
and 2007 incurred for the intercompany transactions described above were
eliminated in consolidation. Approximately $6,000 of the reported direct
operating costs for the period in 2008 are attributable to unabsorbed
overhead costs of the environmental services segment. The direct operating
costs attributable to the electricity generating segment for the period in
2008 and 2007 were $128,000 and $71,000, respectively. The increase in
operating costs reported for the period in 2008 is primarily attributable
to repairs made to one Gen-set as mentioned above.
Consolidated selling, general and administrative expenses for the
three months ended September 30, 2008 and 2007 were $433,000 and $450,000,
respectively. Components of selling, general and administrative expenses
for the three months ended September 30, 2008 and 2007 were as follows
(table in $000):
2008 2007
Legal expenses $ 111 $ 79
Other professional fees 24 74
Non-operating subsidiary expenses 12 11
All other administrative expenses 286 286
Total $ 433 $ 450
Legal expenses reported for the period in 2008 and 2007 include
approximately $31,000 and $15,000, respectively, of fees for matters
related to the Company's landfills or the remediation of sites to which the
Company has been named a potentially responsible party ("PRP") or possible
PRP. Such fees in the period for 2008 were primarily attributable to
matters related to the Kin-Buc Landfill and the SCP Site. The increase in
legal expenses for other matters is primarily attributable to the Company's
challenge of attempts by two municipalities to encumber certain real
property owned by the Company (see Part II, Item 1. Legal Proceedings).
The increase in other professional fees for the period in 2007 is due in
part to services associated with documentation and evaluation of the
Company's financial reporting controls as required pursuant to the
Sarbanes-Oxley Act of 2002. The costs incurred by the non-operating
subsidiaries, consisting primarily of insurance premiums, franchise,
corporate and real estate taxes, aggregated approximately $12,000 and
$11,000 for the period in 2008 and 2007, respectively. All other
administrative expenses totaled $286,000 for the period in both 2008 and
2007. Increases in cost of employee compensation and benefits incurred for
the period in 2008 were offset by decreases in general operating expenses.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure costs was $84,000 and
$91,000 for the three months ended September 30, 2008 and 2007,
respectively.
Loss from Operations
The Company's consolidated loss from operations for the three months
ended September 30, 2008 increased to $443,000 from a loss of $423,000
reported for the period in 2007.
Other Income (Expense)
Consolidated investment income was $12,000 for the three months ended
September 30, 2008 versus $34,000 reported for the period in 2007.
Consolidated investment income earned on the restricted escrow account
dedicated to the funding of the Company's landfill post-closure costs was
$158,000 and $80,000 for the three months ended September 30, 2008 and 2007,
respectively.
Consolidated interest expense was $1,000 for the three months ended
September 30, 2008 and less than $1,000 for the period in 2007.
Consolidated rental income is reported net of expenses. Rental
related expenses exceeded rental income for the period in 2008, resulting
in a net expense of $5,000. No rental income was reported for the three
months ended September 30, 2007.
Proceeds from insurance claims of $56,000 reported for both the three
months ended September 30, 2008 and 2007 represents proceeds received from
claims filed against certain of the Company's insolvent excess insurance
carriers. See "Liquidity and Capital Resources - Insurance Claims for Past
Remediation Costs" for further discussion of this issue.
Consolidated net miscellaneous income for the three months ended
September 30, 2008 was nil versus $40,000 for the period in 2007. The
income reported for the period in 2007 was the amount received in
settlement of litigation initiated by the Company to recover a portion of
the costs incurred during the Company's evaluation of a business for
possible acquisition.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $223,000 for the
three months ended September 30, 2008, compared to a loss of $213,000 for
the period in 2007.
Income Tax Benefit
The provision for federal and state income tax benefit for the three
months ended September 30, 2008 and 2007 equaled $86,000 and $42,000,
respectively.
Net Income (Loss)
Net loss for the three months ended September 30, 2008 was $137,000 or
$.05 per share, compared to a net loss of $171,000 or $.06 per share, for
the three months ended September 30, 2007.
Liquidity and Capital Resources
General
As discussed herein, the Company faces significant short-term and
long-term cash requirements for (i) funding its professional and
administrative costs, (ii) federal income taxes payable, and (iii) funding
post-closure costs and other expenses associated with sites of past
operations. The Company's past participation in the waste handling,
treatment and disposal industries subjects the Company to additional claims
that may be made against the Company for the remediation of sites in which
the Company is deemed a potentially responsible party. In addition, future
events or changes in environmental laws or regulations, which cannot be
predicted at this time, could result in material increases in post-closure
costs, and other potential liabilities, that may ultimately result in costs
and liabilities in excess of the Company's available financial resources.
In addition, the Company cannot ascertain if its operations and funding
sources will be adequate to satisfy its future cash requirements.
Statement of Cash Flow
Net cash used in operating activities for the nine months ended
September 30, 2008 was $412,000 versus $1,709,000 reported for the period
in 2007. The primary sources of cash from operating activities for the
period in both 2008 and 2007 was cash received from customers which totaled
$552,000 and $369,000, respectively. The primary use of cash from
operating activities for the period in both 2008 and 2007 were payments to
suppliers and employees which totaled $1,332,000 and $1,474,000,
respectively. A significant use of cash in operating activities for the
period in both 2008 and 2007 were federal income tax payments totaling
$154,000 and $165,000, respectively, paid pursuant to the Company's Offer in
Compromise discussed below. The amount of income taxes paid in 2008 is
reported net of income tax refunds received in the period of $49,000.
Certain post-closure maintenance costs of the Kinsley's Landfill are
initially paid by the Company, such as personnel costs and other necessary
materials or services for which credit terms are limited. The Company
seeks reimbursement for such payments from the restricted escrow accounts
dedicated to fund the post-closure costs of the Kinsley's Landfill.
Payments of landfill post-closure costs related to the Kinsley's Landfill
were $697,000 and $755,000 for the period in 2008 and 2007, respectively.
The amount of reimbursements received from the Kinsley's Escrow during the
period in 2008 and 2007 were $1,036,000 and $84,000, respectively. Post-
closure costs of the Mac Landfill are funded from the Company's general
funds, and equaled $14,000 and $4,000 for the period in 2008 and 2007,
respectively. See "Post-Closure Costs" below for further discussion of the
Company's landfill post-closure cost obligations.
Net cash provided by investing activities of $525,000 and $843,000 was
reported for the period for 2008 and 2007, respectively. Funds provided by
investing activities were utilized primarily to fund operating activities.
Capital expenditures of $232,000 for the period in 2007 include $215,000
expended toward the construction of a maintenance facility at Kinsley's
Landfill, and the balance for miscellaneous equipment. Financing
activities used $7,000 and $11,000 of cash for the period in 2008 and 2007,
respectively, for payment of vehicle financing.
As a result of these activities, funds held by the Company in the form
of cash and cash equivalents increased $106,000 for the nine months ended
September 30, 2008 from December 31, 2007, versus a decrease of $877,000 in
cash and cash equivalents reported for the period in the prior year. The
sum of cash, cash equivalents and marketable securities as of September 30,
2008 decreased to $3,764,000 from $4,228,000 reported as of December 31,
2007.
Working capital equaled $3,738,000 and $4,184,000 as of September 30,
2008 and December 31, 2007, respectively, and the ratio of current assets
to current liabilities was 2.9 to 1 as of September 30, 2008 versus 3.3 to
1 as of December 31, 2007.
Taxes
As of September 30, 2008, the Company owes the United States Internal
Revenue Service (the "Service") $778,000 for income taxes pertaining to
taxable years 1980-88 and certain issues from taxable years 1989-91. This
amount is payable in installments pursuant to the Offer in Compromise (the
"Offer") proposed by the Company and accepted by the Service during July
2004. The Offer committed the Company to pay a total of $2,490,000 in
satisfaction of the assessed federal income taxes and interest of
approximately $4,800,000. 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 sixty
months beginning August 2008. The total of the installments paid from
inception through September 30, 2008 equals approximately $902,000.
Approximately $161,000 is due in each of the five years subsequent to
September 30, 2008. The Service does not impose interest on amounts payable
pursuant to the Offer. The Company is permitted to receive refunds of prior
tax overpayments and from the carry-back 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.
Post-Closure Costs
As of September 30, 2008, the Company has accrued approximately $8.4
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 $6.6 million is held in a restricted escrow
account to provide funding of the post-closure costs of the Kinsley's
Landfill (see Note 3 to the Company's Consolidated Financial Statements).
All disbursements from the restricted escrow account must be approved by
the NJDEP. The timing of NJDEP's approval of outstanding requests for
reimbursement from such escrow has been unpredictable. See Note 5 to the
Company's Consolidated Financial Statements for further discussion of the
Company's landfill post-closure cost obligations.
The thirty-year post-closure care period for the MAC Landfill was to
expire on June 7, 2008. On June 3, 2008 the NJDEP notified the Company of
its decision to temporarily extend the post-closure care period until such
time the NJDEP performs a re-evaluation and re-assessment of conditions at
the landfill. The NJDEP has requested certain environmental data
concerning the landfill for such purpose. The NJDEP intends to then
determine what further actions, if any, will be required of the Company.
Because of the nature, scope and timing of NJDEP's decision and information
request, the Company has requested an administrative hearing to contest
certain aspects of NJDEP's decision including the extension of the post-
closure care period. As of September 30, 2008, the Company has an accrual
of $3,000 remaining for post-closure care at this site. Annual post-
closure costs related to the MAC Landfill approximated $10,000 and $13,000
for the years ended December 31, 2007 and 2006.
Contingent Environment Liabilities
During November 2004, the Company along with fourteen other potentially
responsible parties were named as respondents to an Unilateral
Administrative Order issued by the United States Environmental Protection
Agency ("EPA")regarding the Scientific Chemical Processing Superfund Site
(the "SCP Site") located in Carlstadt, New Jersey, which has been undergoing
remediation pursuant to Unilateral Administrative Order issued in 1990. The
November 2004 Unilateral Administrative Order 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, from
the fifteen respondents and a group of sixty nine other potentially
responsible parties under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). The Company ceased operations of
a solvents recovery facility at the site in 1970. The Company, together
with the property owner, have contributed cash and proceeds from insurance
settlements toward the remediation of the SCP Site. Such contributions
total $16.4 million through September 30, 2008, plus interest earned
thereon, which the Company believes should satisfy the share of remediation
costs which could be found attributable to the Company for the SCP Site and
any contamination or damage caused offsite. During October 2007 the
Company filed a motion in a previously reported action requesting the
Superior Court to compel the group of potentially responsible parties
controlling the remediation of the SCP Site to provide the Company with an
accounting of the use of the $16.4 million contributed by the Company toward
the remediation of the SCP Site. The motion was denied by the Court during
January 2008, and in response the Company filed an appeal of the Superior
Court's decision.
The Company was one of 158 recipients of a Notice of Potential
Liability and Request to Perform Remedial Investigation/Feasibility Study
(the "Notice"), issued by the EPA on March 9, 2006, regarding the
contamination of the Berry's Creek Study Area (the "Creek Area") located in
Bergen County, N.J. A tributary adjacent to the SCP Site in Carlstadt,
N.J. flows into Berry's Creek. The Creek Area includes the approximately
seven mile long water body known as Berry's Creek, a canal, all tributaries
to Berry's Creek and related wetlands. Tidal areas of the river into which
Berry's Creek empties are also subject to the Notice. Each recipient of
the Notice is designated as a potentially responsible party under CERCLA,
and may be held liable for the cleanup of the Creek Area and costs the EPA
has incurred with regard to the Creek Area. The investigation and
feasibility study regarding the scope of the contamination of the Creek Area
is ongoing. The selection of the ultimate remediation methodology from
alternative approaches is projected to be made by the EPA in 2010. Since no
discovery has taken place concerning allegations against the Company, it is
not possible to estimate the Company's ultimate liability, if any, with
respect to the Creek Area.
The Kin-Buc Landfill, located in Edison, New Jersey, was operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc.
("Kin-Buc"). Operations at the Kin-Buc Landfill ceased 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 EPA to the Company and other respondents, including SCA Services,
Inc. ("SCA"), an affiliate of Waste Management, Inc. ("WMI"). As part of a
December 1997 settlement of lawsuits related to the allocation of costs of
remediation of the Kin-Buc Landfill, 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 also agreed to
defend and indemnify the Company from certain liabilities in connection with
the remediation of the Kin-Buc Landfill substantially relieving the Company
from those future obligations with respect to the site. However, the
Company remains a responsible party under the Administrative Orders issued
by the EPA discussed above, and continues to incur administrative and legal
costs for issues and activities related to the site.
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.
Real Property
On December 10, 2007 the Mayor and Town Council of the Township of
Deptford, N.J. (the "Township") approved a resolution designating an area,
including approximately 342 acres of the Company's property and 60 acres
the Company sold in 2006 pursuant to a contract with BWF Development, Inc.
("BWF"), as an area in need of redevelopment in accordance with New Jersey
Statute 40A:12A-5. This action follows the Township's Planning Board's
August 8, 2007 approval of the study prepared by the Township's planner
entitled "Five Points Study Area, Preliminary Investigation: Determination
of an Area in Need of Redevelopment" (the "Five Points Study"). The Five
Points Study concluded that the subject area (the "Five Points Study Area")
should be designated a redevelopment area pursuant to the New Jersey Local
Housing and Redevelopment Law. During September 2007, two subsidiaries of
Transtech commenced litigation entitled Kinsley's Landfill, Inc., and
Birchcrest, Inc. v. Planning Board of the Township of Deptford (No. L-
001536-07) in the Superior Court of New Jersey, Law Division, Gloucester
County. During December 2007, the complaint was amended to include The
Township of Deptford, Benderson Properties, Inc. and certain of its
affiliates as defendants. The suit seeks, among other remedies, to reverse
and set aside the Township's Planning Board approval of the 2007 study
prepared by the Township's planner. See Part II, Item 1. Legal
Proceedings, Five Points Redevelopment Zone, for a discussion of this
matter.
The Company's wholly owned subsidiary, Filcrest Realty, Inc. owns
approximately 53 acres of undeveloped property in Edison Township, N.J.
Edison Township has begun condemnation proceedings in order to obtain
easements to install a shoreline walkway on certain Filcrest Realty, Inc.
lots situated along the Raritan River. See Part II, Item 1. Legal
Proceedings, Edison Township Property, for a discussion of this matter.
The Company is pursuing the disposition of its remaining property
through the sale of individual parcels and/or groups of parcels. The
Company is unable to determine when sale(s) of the remaining parcels will
ultimately be consummated and proceeds received given the location of the
properties, access issues and the location of wetlands on certain portions
of the property.
Insurance Claims for Past Remediation Costs
In February 2002, the Company consummated an October 2001 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"). Many of the non-settling 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.
During the nine months ended September 30, 2008, the Company received
$58,000 of proceeds related to claims filed against the estates of
insolvent insurers. As of September 30, 2008, the Company has resolved
claims against its excess insurers representing approximately 98% of the
value assigned to the coverage provided under the policies that were the
subject of the Lloyds Suit. The October 2001 Settlement Agreement released
and terminated all rights, obligations and liabilities of the settling
excess insurers and the Company with respect to the subject insurance
policies. The Company had previously reached settlement of claims made
against the majority of its primary insurers for the period of 1965 through
1986 as well, agreeing to forego future claims against the policies in
conjunction with the settlements.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not Applicable.
Item 4. CONTROLS AND PROCEDURES
Not Applicable.
Item 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management evaluated, with the participation of its
principal executive officer and principal financial officer, the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Act")) 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
as of September 30, 2008, the design and operation of the Company's
disclosure controls and procedures were effective, at a reasonable level of
assurance, in ensuring that the information required to be disclosed by the
Company in the reports it files or submits under the Act is (i) accumulated
and communicated to the Company's management (including the principal
executive officer and principal financial officer) in a timely manner, and
(ii) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Changes in Internal Control Over Financing Reporting
There were no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act)
during the Company's last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's internal control
over financial reporting.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
SCA & SC Holdings, Inc.
As previously reported, in conjunction with the 1997 settlement of the
litigation related to the Kin-Buc Landfill previously disclosed, 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 directly into escrow
until the amount of such obligation is determined in accordance with the
terms of the 1997 settlement. The amount payable to SCA pursuant to such
terms had been in dispute since March 2002, culminating in the filing of an
appeal of an October 2005 ruling in favor of SCA by the United States
District Court for the District of New Jersey.
The Company filed the appeal of the District Court's ruling with the
United States Court of Appeals for the Third Circuit (No. 05-5246) in
December, 2005, and oral arguments were made before the Court during January
2008. The Appeals Court rendered its decision on March 24, 2008 affirming
the District Court's decision. The Company petitioned for a rehearing of
this decision with the Appeals Court on April 9, 2008. On June 24, 2008,
the Appeals Court denied the Company's petition. The Company, on advice
from counsel, decided not to challenge the Appeals Court decision which
would have required a hearing before the U.S. Supreme Court.
The $3.5 million, plus accumulated interest, was placed in escrow and
not reflected on the Company's financial statements; therefore the Court's
decision will not adversely impact the Company's financial statements. The
Company will recognize income equal to the amount of the escrow remaining
after payment of the $3.5 million, plus interest earned from February 14,
2004, to SCA. Such income, estimated at approximately $65,000, and subject
to adjustment, will be recognized in the period the amount is determined and
released from escrow.
Five Points Redevelopment Zone
The Company owns approximately 364 contiguous acres in the Township of
Deptford, N.J. (the "Township"). Approximately 110 of the 364 acres are
occupied by the closed Kinsley's Landfill, which is owned by the Company's
wholly owned subsidiary, Kinsley's Landfill, Inc. On December 10, 2007 the
Township's Mayor and Town Council approved a resolution designating an area,
including approximately 342 acres of the Company's property, as an area in
need of redevelopment in accordance with New Jersey Statute 40A:12A-5.
This action follows the Township's Planning Board's August 8, 2007
approval of the study prepared by the Township's planner entitled "Five
Points Study Area, Preliminary Investigation: Determination of an Area in
Need of Redevelopment" (the "Five Points Study"). The Five Points Study
concluded that the subject area (the "Five Points Study Area") should be
designated a redevelopment area pursuant to the New Jersey Local Housing and
Redevelopment Law. The Company had notified both the Township's Planning
Board and the Township's Town Council of the Company's objections to certain
errors and mischaracterizations contained within the Five Points Study, as
well as the Planning Board's conclusion to approve the Five Points Study and
recommend that the Township declare the Five Points Study Area a
redevelopment area pursuant to the Local Housing and Redevelopment Law.
During September 2007, two subsidiaries of Transtech commenced
litigation entitled Kinsley's Landfill, Inc., and Birchcrest, Inc. v.
Planning Board of the Township of Deptford (No. L-001536-07) in the Superior
Court of New Jersey, Law Division, Gloucester County. During December 2007,
the complaint was amended to include The Township of Deptford, Benderson
Properties, Inc. and certain of its affiliates as defendants. The suit
seeks, among other remedies, to reverse and set aside the Township's
Planning Board approval of the 2007 study prepared by the Township's
planner. The suit is ongoing.
Edison Township Property
The Company's wholly owned subsidiary, Filcrest Realty, Inc. owns
approximately 53 acres of undeveloped property in Edison Township, N.J.
Edison Township requested that Filcrest Realty, Inc. grant it an easement on
a portion of this property to install a shoreline walkway on certain lots
situated along the Raritan River. This property was included in the area
remediated pursuant to Administrative Orders issued by the EPA (see
discussion of Contingent Environmental Liabilities in Part I, Item 2.
Management's Discussion and Analysis of Financial Condition and Operations,
Liquidity). The Company denied the Township's request believing the
structure and location proposed by the Township will adversely impact the
value of that entire tract which totals approximately 15 acres. The
Township's appraiser set the value of the easement at $15,000 which the
Company regards as too low. The Company has offered to sell the 15 acres to
the Township. During April 2008 the Township of Edison brought suit against
the Company in the Superior Court of New Jersey entitled Township of Edison
v. Filcrest Realty, Inc. (No. MID-L-02173-08) to commence condemnation
proceeding on the 0.48 acres for which the easement is sought. The Company
filed its objections with the Superior Court during May 2008. On June 23,
2008 the Superior Court ruled in favor of the Township, authorizing it to
acquire, by eminent domain, an easement over the shore-line property. On
August 5, 2008, the Company filed an appeal of the Superior Court's decision
with the Appellate Division entitled Township of Edison v. Filcrest Realty,
Inc. (No, A-005891-07T2). The Company also filed a motion with the Superior
Court to stay further action by the Township pending outcome of the appeal
on August 8, 2008. Such motion was denied during September 2008. The
appeal is ongoing.
Other
No material developments have occurred with respect to the other
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, 2007. Reference is made thereto for a
description of such litigation and to the discussion contained in Part I,
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources of this Form 10-Q.
In the ordinary course of conducting its business, the Company becomes
involved in certain lawsuits and administrative proceedings (other than
those referred herein), some of which may result in fines, penalties or
judgments being assessed against the Company. The management of the Company
is of the opinion that these proceedings, if determined adversely
individually or in the aggregate, are not material to its business or
consolidated financial position.
Item 1A. RISK FACTORS
Not applicable.
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 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
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: November 14, 2008 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: November 14, 2008 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)