SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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:
2,829,190 shares of common stock, $.50 par value, outstanding as of
March 31, 1999. 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 27 pages
Exhibit index on page 26
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED March 31, 1999
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31,
1999 and December 31, 1998 3 - 4
Consolidated Statements of Operations for the 5
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 6 - 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
EXHIBITS 27
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
March 31, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 861 $ 605
Marketable securities 1,305 1,806
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 236 225
Notes receivable 110 108
Prepaid expenses and other 440 319
Total current assets 2,952 3,063
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,890 2,891
Less accumulated depreciation (2,810) (2,794)
Net property, plant and equipment 80 97
OTHER ASSETS
Notes receivable 130 137
Assets held for sale 1,312 1,312
Escrowed funds from sale of
subsidiary 870 859
Other 132 132
Total other assets 2,444 2,440
TOTAL ASSETS $ 5,476 $ 5,600
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 24 $ 24
Accounts payable 288 289
Accrued income taxes and related
interest 3,839 3,747
Deferred income taxes 1 3
Accrued miscellaneous expenses 318 163
Total current liabilities 4,470 4,226
OTHER LIABILITIES
Long-term debt 9 15
Accrued remediation and closure
costs 2,108 2,110
Total other liabilities 2,117 2,125
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,940 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 6,004 6,358
Net unrealized gains on marketable
securities 26 32
Subtotal 9,903 10,263
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (1,111) (751)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 5,476 $ 5,600
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
REVENUES $ 84 $ 205
COST OF OPERATIONS
Direct operating costs 74 185
Selling, general and
administrative expenses 359 412
Total cost of operations 433 597
INCOME (LOSS) FROM OPERATIONS (349) (392)
OTHER INCOME (EXPENSE)
Investment income (loss) 39 53
Interest expense (1) (2)
Interest related to income taxes
payable (93) (88)
Gain (loss) from sale of property 3 -
Miscellaneous income (expense) 47 19
Total other income (expense) (5) (18)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (354) (410)
Income taxes (credit) - (140)
NET INCOME (LOSS) $ (354) $ (270)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.12) $(.10)
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 72 $ 186
Cash paid to suppliers and employees (352) (614)
Interest and dividends received 30 43
Interest paid (1) (2)
Other income received 14 18
Income taxes paid (1) -
Net cash provided by (used in)
operating activities (238) (369)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 492 247
Purchase of marketable securities - -
Purchase of property, plant and
equipment - (6)
Proceeds from sale of property,
plant and equipment 3 267
Collections of notes receivable 7 3
Net cash provided by (used in)
investing activities 502 511
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (6) (5)
Payment of remediation and closure
costs (2) (3)
Net cash provided by (used in)
financing activities (8) (8)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 256 134
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 605 311
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 861 $ 445
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,
1999 1998
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (352) $ (270)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 17 15
(Gain) loss on sale of property,
plant and equipment (3) -
Increase (decrease) in deferred
income taxes - (1)
(Increase) decrease in assets:
Accounts and notes receivable,
-net (10) (19)
Prepaid expenses and other (124) (25)
Escrowed funds from sale of subsidiary (10) (10)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 152 (8)
Accrued income taxes and related
interest 92 (51)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (238) $ (369)
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1 - FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
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. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of
this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1998 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1998 financial statements in order to
conform to the presentation followed in preparing the 1999
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.
NOTE 3 - MARKETABLE SECURITIES
The Company classifies all equity securities and debt
securities as available-for-sale securities. Available-for-sale
debt securities are carried at amortized cost, which approximates
fair value because of their short term to maturity. At March 31,
1999, available-for-sale debt securities consisted of $1,244,000 of
U.S. Government Securities with maturities through June 1999.
Available-for-sale equity securities are carried at fair value as
determined by quoted market prices. The portfolio of available-
for-sale equity securities had a cost of $38,000 and a market value
of $61,000 as of March 31, 1999. The aggregate excess of market
value over cost of such securities as of March 31, 1999 of $26,000
is presented as a separate component of stockholders' equity less
deferred income taxes of $3,000. The excess of fair value over
cost consisted of gross unrealized gains of $50,000 and gross
unrealized losses of $24,000 as of March 31, 1999. The cost of
marketable securities sold is determined on the specific
identification method and realized gains and losses are reflected
in income. Proceeds from sale and maturity of available-for-sale
securities during the quarter ended March 31, 1999 amounted to
$492,000. Dividend and interest income is accrued as earned.
NOTE 4 - ASSETS HELD FOR SALE
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of March 31, 1999. The real
estate included in this category as of March 31, 1999 consists of
approximately 430 acres in Deptford, N.J., including approximately
100 acres upon which a landfill owned and previously operated by
the Company's subsidiary, Kinsley's Landfill, Inc., is situated.
The Company is pursuing the disposition of these properties.
However, based upon market conditions for real estate of this type,
the Company is unable to determine when such sales will be
consummated.
During March 1998, the Company sold approximately two acres of
property in Readington Township, N.J., classified as assets held
for sale, for net proceeds after expenses of $267,000. No gain or
loss related to the sale has been reported since the proceeds
approximated the carrying value of the property.
NOTE 5 - INCOME TAXES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The Company filed a petition with the Tax Court contesting
many of the proposed adjustments asserted in the deficiency notice.
For a discussion of this matter, see "Taxes" contained in
Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-QSB.
NOTE 6 - LONG-TERM DEBT
At March 31, 1999, long-term debt consisted of the following (in
$000's):
10.5% mortgage payable in $ 13
installments through April 2000;
secured by land and buildings
Other 20
Total long-term debt 33
Less: current portion (9)
$ 24
NOTE 7 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries previously participated
in the resource recovery and waste management industries. These
activities included the hauling of waste, waste treatment and the
operation of three landfills. Although the sites are now closed,
the Company continues to own the sites and to remediate two of
them, and has both incurred, and accrued for, substantial costs
associated therewith.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of March 31, 1999, the Company has accruals totalling $11.3
million for its estimated share of remediation and closure costs in
regard to the Company's former landfill operations, $9.2 million of
which is held in trusts and maintained by trustees for financing of
the estimated $11.0 million required to fund the closure plan
related to the landfill owned by the Company's subsidiary,
Kinsley's Landfill, Inc.
On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of
remediation of the landfill in Edison, New Jersey owned and
operated by Kin-Buc, Inc., a wholly-owned subsidiary of the
Company, and which substantially relieved the Company from future
obligation with respect to the site. The Kin-Buc Landfill ceased
operations in 1977. Remediation and closure activities continue at
the Kin-Buc Landfill pursuant to the provisions of an Amended
Administrative Order issued by the United States Environmental
Protection Agency (the "EPA") to the Company and other respondents,
including SCA Services, Inc. ("SCA"), an unaffiliated company, in
September 1990 (the "1990 Order"). In November 1992, EPA issued an
Administrative Order to the Company, SCA and other respondents for
the remediation of certain areas neighboring the Kin-Buc Landfill
(the "1992 Order"). Each respondent to these orders is jointly and
severally liable thereunder.
In May 1997, EPA began an investigation of an area in the
vicinity of the Kin-Buc Landfill known as Mound B. In May 1998,
the final plan of this investigation was completed. In February
1999, the Company received a copy of a letter sent from EPA to SCA
informing SCA that EPA has concluded that hazardous materials were
disposed of in Mound B. The letter also instructed SCA to provide
EPA with work plans to address conditions at the mound.
Kin-Buc, Inc. had accrued approximately $10.7 million for its
share of the costs of such remediation and closure. The Company
has reversed the accrual as a result of the December 1997
settlements and recognized income of $10.6 million in the year
ended December 31, 1997 due to the elimination of such accrual.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste related activities, possibly in
excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
NOTE 8 - LEGAL PROCEEDINGS
See Item 1 of Part II of this Form 10-QSB for a discussion of
recent developments with respect to the Company's legal matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
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. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
Results of Operations
The three months ended March 31, 1999 compared to the three
months ended March 31, 1998
Consolidated revenues by business segment for the three months
ended March 31, 1999 and 1998 were as follows (in $000):
1999 1998
Electricity Generation $ 31 $ 65
Environmental Services 189 259
Subtotal 220 324
Intercompany (136) (119)
Total $ 84 $205
Consolidated net revenues for the three months ended March 31,
1999 were $84,000, a decrease of $121,000 or 59% compared to the
same period of 1998.
Revenues from the operation which generates electricity using
methane gas as fuel were $31,000 for the three months ended March
31, 1999, a decrease of $34,000 or 52% compared to the same period
of the prior year. The electricity generating facility consists of
four diesel/generating units each capable of generating
approximately 48,000 kwh/day at full capacity. Methane gas is a
component of the landfill gas generated by a landfill site owned by
the Company. Engineering studies indicate sufficient quantities of
gas at the landfill to continue the operation of the facility for
approximately 13 years. Electricity generated is sold pursuant to
a long term contract with a local utility. Revenues are a function
of the number of kilowatt hours sold, the rate received per
kilowatt and capacity payments. The Company sold 1.3 million kwh
during the three months ended March 31, 1999 compared to 2.6
million kwh sold in the same period of the prior year. The
combined rate received (per Kilowatt and capacity payment)
decreased 2.3% in the current period when compared to the
comparable period last year. The decline in quantity sold is
primarily due to two of the four diesel/generating units being out
of service for repair. See the discussion of "Liquidity and
Capital Resources" below for information regarding the lease of the
landfill gas generated at this site and an offer to purchase the
electricity generating operations.
The environmental services segment reported $189,000 of gross
operating revenues for the three months ended March 31, 1999 (prior
to elimination of intercompany sales) compared to $259,000 for the
period in 1998, a decrease of 27%. Approximately $136,000 or 72%
of the environmental services segment's revenues for the period,
compared to $119,000 or 46% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. Third party sales during the period
in 1999 and 1998 were $54,000 and $140,000, respectively.
Consolidated direct operating costs for the three months ended
March 31, 1999 were $74,000, a decrease of $111,000 or 60% from
$185,000 reported for the same period in 1998. The costs of the
electricity generating operation decreased 34% for the three months
ended March 31, 1999 when compared to the same period in 1998 due
to a decrease in repair and maintenance costs incurred for the
electric generating equipment. Costs of the environmental services
segment decreased approximately 82% overall due to the decrease in
sales volume.
Consolidated selling, general and administrative expenses for
the three months ended March 31, 1999 were $359,000, a decrease of
$53,000 or 13% from $412,000 for the same period in 1998. The
decrease was primarily due to a decrease in personnel costs and
expenses incurred with respect to the Company's environmental
litigation. Significant professional fees and administrative costs
continue to be incurred in support of the Company's ongoing
litigation, marketing and asset divestiture efforts (see Liquidity
and Capital Resources - Liquidity).
The Company's consolidated operating loss for the three months
ended March 31, 1999 decreased to $349,000 from a loss of $392,000
for the same period in 1998.
Consolidated investment income decreased by $14,000 to $39,000
for the three months ended March 31, 1999 from $53,000 for the
comparable period last year.
Consolidated interest expense of $1,000 for the three months
ended March 31, 1999 was substantially unchanged from that reported
for the same period last year.
Interest expense reported as "Interest related to income taxes
payable" represents the increase in the amount of interest accrued
on estimated income taxes payable as a result of the Company's tax
litigation discussed below. Such interest expense for the three
months ended March 31, 1999 was $93,000 versus $88,000 reported for
the comparable period in 1998.
Consolidated miscellaneous income for the three months ended
March 31, 1999 increased $28,000 to $47,000 when compared to the
same period of 1998. Miscellaneous income for the period in 1999
includes income of $35,000 in recognition of a payment due from the
lessee of the landfill gas generated at a landfill owned by the
Company.
The consolidated loss before income tax credits was $354,000
for the three months ended March 31, 1999, compared to a loss of
$410,000 for the same period last year.
No provision for taxes has been recognized for the three
months ended March 31, 1999. The Income tax credit for same period
of 1998 equalled $140,000.
Consolidated net loss for the three months ended March 31,
1999 was $354,000 or $.12 per share, compared to net loss of
$270,000, or $.10 per share, for the three months ended March 31,
1998.
Liquidity and Capital Resources
General
Net cash used in operating activities for the three months
ended March 31, 1999 decreased to a net use of $238,000 from a use
of $369,000 when compared to the same period of last year. Net
cash provided by investing activities decreased this year to
$502,000 from $511,000. The use of cash in financing activities of
$8,000 for the period is unchanged from last year. Funds held by
the Company in the form of cash and cash equivalents increased as
of March 31, 1999 to $861,000 from $445,000. The sum of cash, cash
equivalents and marketable securities as of March 31, 1999
decreased to $2,166,000 from $2,921,000 when compared to last year.
Working capital deficit was $1.5 million and $1.2 million, and
the ratio of current assets to current liabilities was 0.7 to 1 as
of March 31, 1999 and December 31, 1998.
THE COMPANY FACES SIGNIFICANT SHORT-TERM AND LONG-TERM CASH
REQUIREMENTS FOR (I) FEDERAL AND STATE INCOME TAX OBLIGATIONS
DISCUSSED BELOW AND IN THE NOTES TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, MOST OF
WHICH WILL BECOME DUE FOLLOWING THE CONCLUSION OF THE TAX COURT
CASE WITH THE INTERNAL REVENUE SERVICE (THE "SERVICE") OF THE
COMPANY'S TAX LIABILITY FOR THE YEARS 1980 THROUGH 1991, (II)
FUNDING ITS PROFESSIONAL AND ADMINISTRATIVE COSTS, AND (III)
FUNDING REMEDIATION COSTS ASSOCIATED WITH SITES OF PAST OPERATIONS.
The Company has accrued $3.8 million through March 31, 1999
with respect to the federal and state income tax obligations. This
estimated amount exceeds the Company's currently liquid assets. In
addition, the Company's past participation in the waste handling
and disposal industries subjects the Company to future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, which could result in material increases in
remediation and closure costs, and other potential liabilities that
may ultimately result in costs and liabilities in excess of its
available financial resources.
Although the Company continues to pursue the sale of assets
held for sale and claims against insurance carriers for recoveries
of past remediation costs, no assurance can be given that the
timing and amount of the proceeds from such sources 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, including its anticipated tax
liabilities. In the event of an unfavorable resolution of the
insurance litigation, or should the proceeds of asset sales be
insufficient to meet the Company's future cash requirements,
including its tax liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider a
plan of liquidation of its remaining assets, whether through
bankruptcy proceedings or otherwise.
Taxes
As discussed in greater detail below, the Company has been
litigating with the Service in Tax Court over its tax liability for
taxable years 1980-88. Certain issues from taxable years 1989-91
are also part of the Tax Court litigation because losses from those
years were carried back to 1988. The Company has reached agreement
with the Service as to all issues in the Tax Court litigation. The
Company estimates that, taking into account available net operating
losses and tax credits as of March 31, 1999, approximately
$1,125,000 of federal income tax and $127,000 of state income tax,
$2,587,000 of federal interest (plus additional interest from March
31, 1999999 forward), will be owed when a judgment is entered at the
conclusion of Tax Court litigation. (The tax liability estimates
presented herein exclude penalties. The Service has conceded all
of the penalties that it had asserted in the Tax Court litigation,
but state tax authorities may assert that penalties are due.)
In 1991, the Service asserted numerous adjustments to the tax
liability of the Company and its subsidiaries for tax years 1980
through 1988, along with interest and penalties thereon. In 1993,
after the conclusion of administrative proceedings, the Service
issued a deficiency notice to the Company asserting adjustments to
income of $33.3 million and a corresponding deficiency in federal
income taxes of approximately $13.5 million, as well as penalties
of $2.5 million and interest on the asserted deficiency and
penalties. In addition, the Service challenged the carryback of
losses incurred by the Company in taxable years 1989 through 1991,
thereby bringing those years, which had been the subject of an
ongoing audit, into the deficiency notice. In 1994, the Company
filed a petition with the Tax Court contesting many of the
adjustments asserted in the deficiency notice. On June 5, 1995,
August 14, 1995, March 7, 1996, July 31, 1996, January 22, 1998 and
December 21, 1998, respectively, the Company and the Service
executed a stipulation of partial settlement, first, second and
third revised stipulations of partial settlement and a supplement
and second supplement to the third revised stipulation of
settlement. These settlements resolved all of the adjustments
asserted in the deficiency notice.
As a result of the settlements, the Company has accepted
approximately $5.9 million of the $33.3 million of total
adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to
issues on which the Service would likely have prevailed in Tax
Court. The Service has conceded adjustments totalling $27.4 million
of taxable income and $2.5 million of penalties.
Prior to 1998, all of the adjustments from the 1980-88 period
and the 1989-91 period were settled in the revised stipulations of
partial settlement, except for the adjustment relating to computer
equipment acquired in 1989 (see Note 6 to the Company's
Consolidated Financial Statements) and a remediation deduction
issue relating to prior periods. The computer leasing issue was
settled in the first supplement to the third stipulation of
settlement that was executed on January 22, 1998. The computer
equipment issue was resolved by the Company agreeing to the
disallowance of approximately $3.8 million of deductions for 1989
and no other adjustments to deductions or income for 1989 or
subsequent years. On December 21, 1998, the Company entered into
a second supplement to the third revised stipulation of settled
issues with the Service in which the Service agreed to concede the
remediation deduction issue, which was the last remaining issue in
the case.
The Company has current operating losses and net operating
loss and tax credit carryforwards that will partly offset the tax
liability resulting from the settled adjustments to taxable income.
Taking into account such carryforwards, the estimated federal
income tax and interest that is owed on account of the settlements
is approximately $3,712,000, with interest through March 31, 1999
($1,125,000 of taxes and $2,587,000 of interest). The settlements
also will result in approximately $237,000 of state income tax (not
including penalties and penalty interest that may be assessed)
$110,000 of which was paid to one state during the second quarter
of 1996. Payment of the federal tax liability and the remaining
state tax liability will be due after the conclusion of the Tax
Court case. The $3.8 million of taxes and interest through March
31, 1999 that is estimated to be owed by the Company (plus
additional interest accruing from March 31, 1999 until the
obligations are settled) exceeds the Company's current liquid
assets (i.e., cash and marketable securities). The Company and the
Service are currently discussing the computation of the amount of
tax and interest owed as a result of the settlements.
Remediation and Closure Costs
As of March 31, 1999, the Company has accrued $11.3 million
for its estimated share of remediation and closure costs related to
the Company's former landfill and waste handling operations.
Approximately $9.2 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 7 to the Company's Consolidated
Financial Statements).
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 future obligation with respect to the site (see Note
7 to the Company's Consolidated Financial Statements). The Company
initiated a suit in 1990 against generators and transporters of
waste deposited at a site with the intent of obtaining contribution
toward the cost of remediation. The substantial expense of the
Company's prosecution and defense of claims in the litigation
relating to the Kin-Buc Landfill as well as the substantial expense
of the Company's efforts in respect to the settlements described
above, which the Company has incurred through 1997, will no longer
be borne by the Company. There may be some continuing expenses in
respect of the Kin-Buc Landfill, but not of the magnitude
experienced in the past.
Assets Held for Sale/Claims for Past Remediation Costs
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of March 31, 1999. The real
estate included in this category consists of approximately 430
acres located in Deptford, N.J. (including approximately 100 acres
upon which the landfill owned and operated by the Company's
subsidiary Kinsley's Landfill, Inc. ("Kinsley's") is situated).
The Company is actively pursuing the disposition of such property.
However, based upon market conditions for real estate of this type
the Company is unable to determine when such sale(s) will
ultimately be consummated.
During the fourth quarter of 1997 the Company charged $33,000
to operations to reduce the carrying value of 2 acres located in
Readington Township, N.J. to $268,000, which represents proceeds
received by the Company from the March 1998 sale of such property.
In 1995, the Company commenced suit against its excess
insurers during the period 1965 through 1986 to obtain a recovery
of past costs and indemnification for future costs incurred in
connection with the remediation of the Kin-Buc Landfill, a site
located in Piscataway, N.J., and for the defense of litigation
related thereto. The defendant insurers, which include various
London and London Market insurance companies, First State Insurance
Company and International Insurance Company, have answered the
complaint against them and discovery is proceeding. All of the
policies of excess insurance issued by the defendant insurers cover
Transtech, its present subsidiaries and former subsidiaries, some
of which Transtech no longer controls. Certain companies presently
or formerly owned or controlled by a former principal shareholder,
director and officer of the Company are also covered, however such
parties assigned their rights as holders and claimants under these
policies to the Company in October 1998.
The Company can not assure that the timing and amount of the
net proceeds from the sale of such assets held for sale and the
successful litigation or settlement of the insurance claims will be
sufficient to meet the cash requirements of the Company discussed
above.
Gas Lease and Electricity Generating Equipment
To increase the Company's liquidity, on June 30, 1998
Kinsley's entered into two agreements with respect to its
electricity generation operations. Pursuant to a Gas Lease and
Easement Agreement (the "Gas Lease"), Kinsley granted to the lessee
the exclusive right to extract and utilize all gas produced at the
landfill site for an initial lease term of 12 years with provisions
for two 5 year extensions. The Gas Lease, as amended, requires the
lessee to make an initial payment of $10,000 and additional
quarterly payments of $100,000 for the period beginning January 1,
1999 through December 31, 2007. Such payment is subject to an
upward and downward adjustment for quantities of gas produced
pursuant to an operation and maintenance agreement discussed below.
Pursuant to a landfill gas sale agreement (the "Gas Sale
Agreement") Kinsley has agreed to purchase gas from the lessee for
$.10 per million BTU's of gas. This Gas Sale Agreement will
terminate upon the expiration of the Gas Lease or Kinsley's sale of
its electric generators.
In addition, in connection with the above agreements, during
December 1998, Kinsley entered into separate agreements with
entities affiliated with the lessee under the Gas Lease for (i) the
operation and maintenance by Kinsley's of the gas collection system
for the benefit of the lessee, (ii) the sale by Kinsley's of its
electricity generating operation (which has been marginally
profitable in recent years) for approximately $490,000, (iii) the
operation and maintenance by Kinsley's of the electricity
generating equipment, (iv) processing of Kinsley's leachate and (v)
the operation and maintenance by Kinsley's of the leachate
processing equipment. The agreements relating to the sale and
operation and maintenance of the electricity generating equipment
are contingent upon, among other things, the buyer obtaining
financing. This agreement will terminate May 28, 1999 if not
extended by the Company and buyer. The leachate processing
transactions are contingent upon, among other things, financing and
acquisition of the necessary equipment by the other party to the
agreement.
Year 2000 Data Conversion
The Company does not anticipate any significant disruption to
business operations due to Year 2000 software failures. The
Company does not know the extent to which its customers may be
affected by such failures.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings, all of
which have been reported in the Company's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1998. Reference is made
thereto for a description of such litigation.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
NONE
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: May 17, 1999 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: May 17, 1999 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 31
27 Financial Data Schedule N/A