SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,979,190 shares of common stock, $.50 par value, outstanding as of
September 30, 2001. 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 64 pages
Exhibit index on page 40
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30,
2001 and December 31, 2000 3 - 4
Consolidated Statements of Operations for the 5
Nine Months Ended September 30, 2001 and 2000
Consolidated Statements of Operations for the 6
Three Months Ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000 7 - 8
Notes to Consolidated Financial Statements 9 - 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17 - 32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 33 - 37
Item 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
EXHIBIT INDEX 40
EXHIBITS 41 - 64
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September 30, December 31,
2001 2000
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 486 $ 75
Marketable securities - 1,241
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 1,436 846
Closure cost receivable 132 207
Escrowed proceeds from sale of
subsidiary 121 114
Prepaid expenses and other 112 100
Total current assets 2,287 2,583
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,909 2,908
Less accumulated depreciation (2,863) (2,843)
Net property, plant
and equipment 46 65
OTHER ASSETS
Assets held for sale 1,312 1,312
Other 149 149
Total other assets 1,461 1,461
TOTAL ASSETS $ 3,794 $ 4,109
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
2001 2000
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 3 $ 3
Accounts payable 338 263
Accrued income taxes and related
interest 4,076 3,792
Accrued miscellaneous expenses 143 115
Total current liabilities 4,560 4,173
OTHER LIABILITIES
Long-term debt 1 3
Accrued remediation and closure
costs 2,067 2,076
Total other liabilities 2,068 2,079
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,864,940 and 4,714,940 shares
issued as of September 30, 2001
and December 31, 2000,
respectively 2,432 2,357
Additional paid-in capital 1,450 1,516
Retained earnings 4,298 4,963
Net unrealized gains on marketable
securities - 35
Subtotal 8,180 8,871
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (2,834) (2,143)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 3,794 $ 4,109
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Nine Months Ended
September 30,
2001 2000
NET REVENUES $ 682 $ 504
COST OF OPERATIONS
Direct operating costs 219 125
Selling, general and
administrative expenses 983 1,046
Total cost of operations 1,202 1,171
INCOME (LOSS) FROM OPERATIONS (520) (667)
OTHER INCOME (EXPENSE)
Investment income (loss) 36 90
Interest expense - (1)
Interest (expense) credit related
to income taxes payable (284) (275)
Gain (loss) from sale of securities 34 -
Miscellaneous income (expense) 69 60
Total other income (expense) (145) (126)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (665) (793)
Income taxes (credit) - -
NET INCOME (LOSS) $ (665) $ (793)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.23) $(.28)
NUMBER OF SHARES USED IN
CALCULATION 2,931,937 2,829,190
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
September 30,
2001 2000
NET REVENUES $ 243 $ 236
COST OF OPERATIONS
Direct operating costs 98 59
Selling, general and
administrative expenses 270 347
Total cost of operations 368 406
INCOME (LOSS) FROM OPERATIONS (125) (170)
OTHER INCOME (EXPENSE)
Investment income (loss) 7 28
Interest expense - -
Interest (expense) credit related
to income taxes payable (89) (98)
Gain (loss) from sale of securities 34 -
Miscellaneous income (expense) 20 20
Total other income (expense) (26) (50)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (151) (220)
Income taxes (credit) - -
NET INCOME (LOSS) $ (151) $ (220)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.05) $(.08)
NUMBER OF SHARES USED IN
CALCULATION 2,979,190 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 Nine Months Ended
September 30,
2001 2000
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 92 $ 4
Cash paid to suppliers and employees (1,006) (1,064)
Interest and dividends received 29 45
Interest paid - (1)
Other income received 69 60
Income taxes paid - -
Net cash provided by (used in)
operating activities (816) (956)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 1,547 1,636
Purchase of marketable securities (308) (974)
Purchase of property, plant and
equipment (1) (16)
Proceeds from sale of property,
plant and equipment - -
Net cash provided by (used in)
investing activities 1,238 646
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (2) (7)
Payment of remediation and closure
costs (9) (9)
Net cash provided by (used in)
financing activities (11) (16)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 411 (326)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 75 474
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 486 $ 148
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,
2001 2000
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (665) $ (793)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 20 21
Issuance of 150,000 shares of common
stock at par 75 -
Additional paid in capital (66) -
(Gain) loss on sale of securities (34) -
Increase (decrease) in deferred
income taxes - -
(Increase) decrease in assets:
Accounts and notes receivable,
-net (590) (511)
Prepaid expenses and other 64 (13)
Escrowed proceeds from sale
of subsidiary (7) (40)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 103 105
Accrued income taxes and related
interest 284 275
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (816) $ (956)
SUPPLEMENTAL CASH FLOW INFORMATION:
During March 2001 the Company granted 150,000 shares of the
Company's Common Stock, par value $.50, having a market value of
$9,000, to the Company's employees and directors.
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(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, 2000 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 2000 financial statements in order to
conform to the presentation followed in preparing the 2001
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. Available-
for-sale equity securities are carried at fair value as determined
by quoted market prices. At September 30, 2001, the Company held
a portfolio of available-for-sale equity securities that had a cost
of $280 and a market value of $174. The excess of cost over market
value of such securities as of September 30, 2001 of $106 is
presented as a separate component of stockholders' equity. 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 nine months ended September 30, 2001 amounted
to $1,547,000, and consisted of $1,475,000 from the maturity of
debt securities and $72,000 from the sale of equity securities.
Dividend and interest income is accrued as earned.
NOTE 4 - TRADE RECEIVABLE:
Accounts receivable-trade as of September 30, 2001 and
December 31, 2000 includes $1,214,000 and $634,000, respectively,
related to a project at the Southern Ocean Landfill ("SOLF") in New
Jersey. On May 15, 2000 the Company's capping plan for SOLF was
approved by the New Jersey Department of Environmental Protection
(the "Capping Plan"). The initial estimate of the aggregate cost
of the project was approximately $1.9 million, of which an
estimated $1.4 - 1.5 million and $0.6 - 0.5 million would be paid
to the Company and third parties, respectively, for work on the
project. The Capping Plan calls for the use of recycled materials
where possible in the implementation of the plan. Tipping fees
generated from the deposit of the recycled materials are paid into
a new escrow fund from which the Capping Plan costs are paid. The
Company had initially agreed to seek payment for its services and
reimbursement for its costs solely from the escrowed funds
generated from the delivery of recycled materials. One recycled
material accounted for 65% of the total volume of all recycled
materials initially projected to be deposited at the site. The
availability of this recycled material has declined dramatically
since the project was first proposed, and the Company has a limited
ability to substitute materials under the Capping Plan. As a
result, the project is behind schedule and has incurred a
disproportionate level of operating expenses relative to tipping
fees generated. The original permit granted to complete the
Capping Plan expired March 15, 2001. The permit has been extended
tentatively to June 30, 2002, however, such extension is contingent
upon the state authorities' review and approval of modifications to
the Capping Plan proposed by the Company. The proposed
modifications to the Capping Plan would, among other things, allow
additional time in which to deposit materials, allow additional
materials to be incorporated into the plan in order to provide
funding of the additional estimated project costs and provide
funding of certain closure activities with funds from sources other
than the tipping fees generated. There can be no assurance that
the regulatory approvals necessary for the continuation of the
project will be granted, and that sufficient funds will be
available to pay amounts owed to the Company.
NOTE 5 - ESCROWED PROCEEDS FROM SALE OF SUBSIDIARY:
On March 1, 1996, the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), sold all of the issued and outstanding
stock of Hunt Valve Company, Inc. ("Hunt") to ValveCo, Inc. A
portion of the net cash proceeds of the sale ($750,000) was placed
in an interest bearing escrow account to secure the Company's
indemnification obligations to the purchaser under the purchase
agreement. The escrow will terminate upon the earlier to occur of
(i) the release of all funds from escrow in accordance with the
terms thereof or (ii) the later to occur of (x) the expiration of
the applicable statute of limitations for the assessment of federal
income taxes for all taxable years with respect to which Hunt was
a member of the Company's consolidated tax group and (y) the
satisfaction by the Company of all assessments or other claims by
the Internal Revenue Service for taxes of the consolidated tax
group during such years. No indemnification claims have been
asserted. During December 2000, $841,000 was released to the
Company from the escrowed funds at the request of the Company when
it became evident that the income tax liability for the years
covered by the escrow was less than $100,000. The escrowed funds
with accrued interest income equal $121,000 and $114,000 as of
September 30, 2001 and December 31, 2000, respectively, and are
classified as current in the accompanying balance sheet since it is
anticipated that the funds will be released within twelve months.
NOTE 6 - ASSETS HELD FOR SALE
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of September 30, 2001 and
December 31, 2000. The real estate included in this category
consists of approximately 430 acres in Deptford, N.J., including
approximately 100 acres upon which the landfill owned and
previously operated by the Company's subsidiary, Kinsley's
Landfill, Inc., is situated. The Company is actively 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 sale(s) will be consummated. During May 2001,
the Company entered into an agreement to sell approximately 55
acres of property adjoining the Kinsley's landfill for $2.5
million. The sale is contingent upon the buyer obtaining approval
of its plans for the property from applicable local and state
agencies; a process that may require two or more years to
accomplish.
NOTE 7 - INCOME TAXES
During October 2000, the Company concluded litigation in U.S.
Tax Court , which it had commenced in 1994, regarding the Company's
tax liability for taxable years 1980-88 and certain issues from
taxable years 1989-91. The Company settled all of the issues
before the Tax Court and has reached agreement with the Service on
related issues for all taxable years through 1996. The settlement
of this litigation has resulted in tax assessments against the
Company of $905,000 of federal income tax after taking into account
available net operating losses and tax credits. In addition, the
Company estimates that, as of September 30, 2001, approximately
$127,000 of state income tax and $3,053,000 of federal interest are
owed. State tax authorities may assert that penalties are owed in
connection with the state tax liability arising from these
settlements. The Company will decide whether to challenge any such
state tax penalties if and when they are asserted. The Company has
paid the portion of the assessment related to 1995, consisting of
$9,000 for federal taxes and $5,000 for interest. The Company's
aggregate remaining tax obligation owed as a result of the
Company's settlement with the Service of the Tax Court litigation
and the related issues for subsequent taxable years is
approximately $4,076,000.
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 totaling $27.4 million
of taxable income and $2.5 million of penalties. These settlements
were accepted by the Congressional Joint Committee on Taxation
during April 2000.
During March, 2001, the Company has filed an Offer in
Compromise with the Service which requests a reduction in the
amount due and permission to pay the reduced obligation in
installments. The Offer is currently under review by the Service.
Payment of the state tax liability and interest will be due when
amended state tax returns are filed to reflect adjustments to
previously reported income resulting from the settlements with the
Service. The approximately $4.1 million of taxes and estimated
interest calculated through September 30, 2001 that is owed by the
Company (plus additional interest accruing from September 30, 2001
until the obligations are settled) exceeds the Company's current
liquid assets (i.e. cash and marketable securities).
NOTE 8 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries previously participated
in the resource recovery and waste management industries. These
activities included the hauling of waste, waste treatment and the
operation of three landfills. Although the landfills are now
closed, the Company continues to own two landfills, and to
remediate one of the owned landfills and one landfill formerly
leased, and has both incurred, and accrued for, substantial costs
associated therewith.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste related activities, possibly in
excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of September 30, 2001, the Company has accruals totaling
$11.0 million for its estimated share of remediation and closure
costs in regard to the Company's former landfill operations,
approximately $9.0 million of which is held in trusts and
maintained by trustees for financing of the estimated $11.0 million
required to fund the closure plan related to the landfill in
Deptford, New Jersey owned by the Company's subsidiary, Kinsley's
Landfill, Inc.
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
the Kin-Buc Landfill, located in Edison, New Jersey, under an
Amended Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. The
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. The Company and each respondent
to these orders is jointly and severally liable there under. 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. On December
23, 1997, the Company entered into four agreements which settled
lawsuits related to the allocation of costs of remediation. One of
the December 23, 1997 agreements provided SCA's commitment to
defend and indemnify the Company from all future liability for and
in connection with the remediation of the site, including an area
in the vicinity of the Kin-Buc Landfill known as Mound B. However,
the Company remains a responsible party under the aforementioned
Administrative Orders issued by EPA.
The contractors have completed the construction required by
EPA pursuant to the Administrative Orders except for Mound B.
Operation of the treatment plant and maintenance of the facilities
is being conducted by an affiliate of SCA.
In conjunction with the settlement of the litigation related
to the Kin-Buc Landfill discussed above, the Company committed a
portion of the proceeds, if any, net of certain adjustments,
arising from its litigation against its excess carriers be paid to
WMI. For a discussion of this matter, see "Insurance Claims for
Past Remediation Costs" 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-QSB.
In May 1997, EPA began an investigation of the area known as
Mound B. In May 1998, the final phase 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. A work plan submitted by SCA, and
negotiated throughout much of 2000, was approved subject to certain
contingencies, by EPA during January 2001. SCA has proposed that
the work commence during April 2001 subject to the satisfaction of
certain outstanding issues between SCA and EPA.
During February 2000, EPA sent the Company a request for
information to which the Company provided its response during May
2000. Beginning around the same time as the February 2000 inquiry,
the Company and EPA entered into the first of a series of
agreements pursuant to which EPA agreed to defer the filing of
claims or commencement of litigation with respect to Mound B
against the respondents of the Administrative Orders, and the
Company agreed to extend the statute of limitations which may
otherwise have prevented the filing of such claims or commencement
of litigation. The most recent of such extensions expires December
14, 2001.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director and officer, and former principal shareholder of
the Company. EPA is performing remediation at the site and had
requested information from approximately 100 potentially
responsible parties concerning their involvement with the Tang
site. The Company had no direct involvement with EPA since October
1990 and had not been the recipient of an EPA request for
information. The July 1999 inquiry set forth EPA's concern that
the statute of limitations on any claim EPA may have against the
Company with respect to the site would expire during August 1999.
In consideration for EPA's agreement to defer the filing of a claim
against the Company prior to the expiration of such statute of
limitations, the Company agreed to enter into an agreement to
extend the statute of limitations. Subsequent to August 1999, EPA
and the Company have entered into a series of agreements to extend
the statute of limitations. The most recent of such extensions
expires November 21, 2001. During this period, EPA and the Company
are to continue discussion of any potential claims EPA may be
contemplating against the Company with respect to the site, and
the amount of contribution EPA believes such claims may warrant
toward EPA's estimated $2.9 million of unallocated remediation
costs associated with the site. Pursuant to a 1988 agreement with
Tang, the Company spent approximately $4.3 million for the
remediation of the site during 1988, 1989 and 1990.
NOTE 9 - 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.
NOTE 10 - EMPLOYEE BENEFIT PLANS
On March 23, 2001, the Company registered 150,000 shares of
its Common Stock, par value $.50 per share, to be issued to its
employees and directors pursuant to the Transtech Industries, Inc.
2001 Employee Stock Plan (the "Plan"). The Plan was approved by
the Company's Board of Directors on February 7, 2001. All 150,000
shares to be granted under the Plan were issued on March 28, 2001,
and had an aggregate market value of $9,000.
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 nine months ended September 30, 2001 compared to the nine
months ended September 30, 2000
Consolidated revenues by business segment for the nine months
ended September 30, 2001 and 2000 were as follows (in $000):
2001 2000
Environmental Services $1,170 $909
Electricity Generation 1 1
Subtotal 1,171 910
Intercompany (489) (406)
Net $682 $504
Consolidated net revenues for the nine months ended September
30, 2001 were $682,000 compared to $504,000 reported for the same
period of 2000.
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 $1,170,000 of gross
operating revenues for the nine months ended September 30, 2001
(prior to elimination of intercompany sales) compared to $909,000
for the period in 2000, an increase of 29%. Approximately $489,000
or 42% of the environmental services segment's revenues for the
period, compared to $406,000 or 45% for last year, were for
services provided to other members of the consolidated group and
therefore eliminated in consolidation. Third party sales were
$681,000 for the period in 2001, compared to $503,000 for the
period in 2000. Substantially all the third party sales during
2001 and 2000 were to one customer, as discussed below.
The Company is continuing its efforts to expand the customer
base of the environmental services segment to additional entities
outside the consolidated group. In particular, the Company devoted
significant time and incurred significant professional fees during
1998, 1999 and 2000 in pursuit of a contract and state government
approval to perform the closure of the Southern Ocean Landfill
("SOLF") in New Jersey. On May 15, 2000 the Company's capping plan
for SOLF was approved by the New Jersey Department of Environmental
Protection (the "Capping Plan"). The Capping Plan has been limited
to the grading and capping of the 12 acre lined portion of SOLF and
grading and capping of a portion of the adjoining 44 acre unlined
landfill area, and grading and capping of a previously used access
road straddling the lined and unlined landfill areas at SOLF.
Approved activities also include leachate collection and pump
repair, slope stability analysis, stormwater management, gas vent
installation, groundwater monitoring and associated activities.
The initial estimate of the aggregate cost of the project was
approximately $1.9 million, of which an estimated $1.4 - 1.5
million and $0.6 - 0.5 million would be paid to the Company and
third parties, respectively, for work on the project. The Capping
Plan calls for the use of recycled materials where possible in the
implementation of the plan. Tipping fees generated from the
deposit of the recycled materials are paid into an escrow fund from
which the Capping Plan costs are paid. The Company is performing
all of the above construction and managerial functions required
under the Capping Plan as well as acting as SOLF's agent to solicit
the recycled materials. The Company had initially agreed to seek
payment for its services and reimbursement for its costs solely
from the escrowed funds generated from the delivery of recycled
materials. One recycled material accounted for 65% of the total
volume of all recycled materials initially projected to be
deposited at the site. The availability of this recyclable
material has declined dramatically since the project was first
proposed, and the Company has a limited ability to substitute
materials under the Capping Plan. As a result, the project is
behind schedule and has incurred a disproportionate level of
operating expenses relative to tipping fees generated. The
original permit granted to complete the Capping Plan expired March
15, 2001. The permit has been tentatively extended to June 30,
2002, however, such extension is contingent upon the state
authorities' review and approval of modifications to the Capping
Plan proposed by the Company. The proposed modifications to the
Capping Plan, among other things, allow additional time in which to
deposit materials, allow additional materials to be incorporated
into the plan in order to provide funding of the additional
estimated project costs and funding of certain closure activities
with funds from sources other than the tipping fees generated. The
Company recognized revenue of $680,000 and $503,000 related to this
site during the nine months ended September 30, 2001 and 2000,
respectively. Approximately $1,214,000 and $634,000 related to this
project is included in Accounts receivable - trade at September 30,
2001 and December 31, 2000, respectively. The revenue reported for
2000 includes billings of $104,000 for a portion of the costs
incurred and expensed in years prior to the award of the
contract.
The Company's environmental services segment continues to
perform closure activities on sites previously operated by the
Company's subsidiaries. Work performed on a landfill owned by the
Company and located in Deptford, New Jersey is submitted for
reimbursement to a trust account established to finance the closure
activities at the site.
The segment that generates electricity using methane gas as
fuel reported $1,000 of revenue for the nine months ended September
30, 2001 and 2000. The electricity generating facility consists of
four diesel/generating units each capable of generating
approximately 48,000 kwh/day at full capacity. The minimal amount
of kilowatt hours sold is primarily due to the Company electing to
limit repairs to the diesel/generating units pending the outcome of
negotiations of offers to purchase the electricity generating
operations. Electricity generated is sold pursuant to a long term
contract with a local utility. The contract has four years
remaining. Revenues are a function of the number of kilowatt hours
sold, the rate received per kilowatt hour and capacity payments.
The contract with the local utility allows for a continuous
interruption in electricity supply for a period of up to twelve
months. The Company temporarily curtailed the facility's
operations during June 1999 and has operated one unit sporadically
since June 2000. Methane gas is a component of the landfill gas
generated by a landfill site owned by the Company and located in
Deptford, New Jersey. Engineering studies indicate sufficient
quantities of gas at the landfill to continue the operation of the
facility for approximately 11 years. Elements of the landfill gas
are more corrosive to the equipment than traditional fuels,
resulting in more hours dedicated to repair and maintenance than
with equipment utilizing traditional fuels. The Company is
evaluating several options with respect to the future operation of
the facility.
Consolidated direct operating costs were $219,000 for the nine
months ended September 30, 2001 compared to $125,000 reported for
the same period in 2000. The increase in direct operating costs is
primarily due to the increase in activities of the environmental
services segment. Direct costs for the electricity generating
segment for the nine months ended September 30, 2001 declined when
compared to the comparable period of 2000 due to the Company's
decision to limit expenditures on the operation, repair and
maintenance of the electric generating equipment.
Consolidated selling, general and administrative expenses for
the nine months ended September 30, 2001 were $983,000, a decrease
of $63,000 or 6% from $1,046,000 reported for the same period in
2000. The decrease in selling, general and administrative expenses
is primarily due to a decrease in insurance costs and expenditures
related to the Company's business development and asset divestiture
efforts in excess of a an increase in professional fees and
personnel costs. Significant professional fees and administrative
costs continue to be incurred in support of the Company's ongoing
litigation, business development and asset divestiture efforts (see
"Liquidity and Capital Resources - Liquidity").
The Company's consolidated operating loss for the nine months
ended September 30, 2001 decreased to $520,000 from a loss of
$667,000 for the same period in 2000.
Consolidated investment income was $36,000 for the nine months
ended September 30, 2001, a decrease of $54,000 from $90,000
reported for the comparable period in 2000.
Consolidated interest expense for the nine months ended
September 30, 2001 was less than $1,000 versus $1,000 reported for
the same period in 2000.
Interest reported as "Interest (expense) credit related to
income taxes payable" represents the increase or decrease in the
amount of interest accrued on estimated income taxes payable as a
result of the Company's tax litigation referred to below. Interest
expense of $284,000 and $275,000 was reported for the nine months
ended September 30, 2001 and 2000, respectively.
Gain from the sale of marketable securities for the nine
months ended September 30, 2001 was $34,000.
Consolidated miscellaneous income for the nine months ended
September 30, 2001 was $69,000, an increase of $9,000 when compared
to the $60,000 reported for the same period of 2000. Miscellaneous
income for the period in 2001 and 2000 includes income of $7,500 in
recognition of royalty payments received from the lessee of certain
of the Company's real property situated beneath the lessee's
landfill. The payments are reported net of a fee payable pursuant
to a consulting agreement executed in 1982.
No provisions for income taxes had been recognized for the
nine months ended September 30, 2001 and 2000.
Consolidated net loss for the nine months ended September 30,
2001 was $665,000 or $(.23) per share, compared to a net loss of
$793,000 or $(.28) per share, for the nine months ended September
30, 2000.
The three months ended September 30, 2001 compared to the
three months ended June 30, 2000
Consolidated revenues by business segment for the three months
ended September 30, 2001 and 2000 were as follows (in $000):
2001 2000
Environmental Services $377 $355
Electricity Generation - 1
Subtotal 377 356
Intercompany (134) (120)
Net $243 $236
Consolidated net revenues for the three months ended September
30, 2001 were $243,000 compared to $236,000 for the same period of
2000.
The environmental services segment reported $377,000 of gross
operating revenues for the three months ended September 30, 2001
(prior to elimination of intercompany sales) compared to $354,000
for the period in 2000, an increase of 7%. Approximately $134,000
or 36% of the environmental services segment's revenues for the
period, compared to $120,000 or 34% for last year, were for
services provided to other members of the consolidated group and
therefore eliminated in consolidation. Third party sales were
$243,000 for the period in 2001, compared to $235,000 for the
period in 2000. Substantially all the third party sales during
2001 and 2000 were to one customer, SOLF.
The segment that generates electricity using methane gas as
fuel reported revenue of $1,000 for the three months ended
September 30, 2000. No revenues were reported for the period in
2001. The Company temporarily curtailed the facility's operations
during June 1999 and has operated only one of the four electricity
generating units sporadically since June 2000.
Consolidated direct operating costs were $98,000 for the three
months ended September 30, 2001 compared to $59,000 reported for
the same period in 2000. This increase in direct operating costs
is primarily due to the increase in activities of the environmental
services segment. Nominal costs were reported for the electricity
generating operation for the three months ended September 30, 2001
and 2000 due to the Company's decision to forego expenditures on
the operation, repair and maintenance of the electric generating
equipment.
Consolidated selling, general and administrative expenses for
the three months ended September 30, 2001 were $270,000, a decrease
of $77,000 or 22% from $347,000 reported for the same period in
2000. The decrease in selling, general and administrative expenses
is primarily due to a decrease in insurance costs and expenditures
related to the Company's business development and asset divestiture
efforts in excess of an increase in professional fees.
The Company's consolidated operating loss for the three months
ended September 30, 2001 decreased to $125,000 from a loss of
$170,000 for the same period in 2000.
Consolidated investment income was $7,000 for the three months
ended September 30, 2001, a decrease of $21,000 from $28,000 for
the comparable period in 2000.
Consolidated interest expense for the three months ended
September 30, 2001 and 2000 was less than $1,000.
Interest expense related to income taxes payable of $89,000
and $98,000 was reported for the three months ended September 30,
2001 and 2000, respectively.
Gain from the sale of marketable securities for the three
months ended September 30, 2001 was $34,000.
Consolidated miscellaneous income for the three months ended
September 30, 2001 and 2000 was $20,000. Miscellaneous income for
the period in 2001 and 2000 includes income of $2,500 in
recognition of royalty payments received from the lessee of certain
of the Company's real property situated beneath the lessee's
landfill. The payments are reported net of a fee payable pursuant
to a consulting agreement executed in 1982.
No provision for income taxes has been recognized for the
three months ended September 30, 2001 and 2000.
Consolidated net loss for the three months ended September 30,
2001 was $151,000 or $(.05) per share, compared to a net loss of
$220,000 or $(.08) per share, for the three months ended September
30, 2000.
Liquidity and Capital Resources
THE COMPANY FACES SIGNIFICANT SHORT-TERM AND LONG-TERM CASH
REQUIREMENTS FOR (I) FEDERAL AND STATE INCOME TAXES AND INTEREST
WHICH HAVE BEEN ASSESSED AND ARE NOW DUE AS DISCUSSED BELOW AND IN
THE NOTES TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTER ENDED SEPTEMBER 30, 2001, (II) FUNDING OBLIGATIONS AND
REMEDIATION COSTS ASSOCIATED WITH SITES OF PAST OPERATIONS, AND
(III) FUNDING ITS PROFESSIONAL AND ADMINISTRATIVE COSTS.
As discussed in detail below, the Company and the Internal
Revenue Service (the "Service") have settled all of its issues
before the US Tax Court regarding the Company's tax liability for
the years 1980 through 1991, and the federal and state income tax
obligations stemming from the settlements have been assessed and
are now due. The assessed tax obligation, estimated at
approximately $4.1 million through September 30, 2001, exceeds the
Company's currently liquid assets. Although the Company
anticipates that a favorable resolution of its claims against its
insurance carriers for recoveries of past remediation costs,
discussed below, will result in after-tax proceeds greater than the
amount of the assessed tax obligations, the proceeds remaining
after an immediate payment of the full amount of the tax obligation
may be insufficient to satisfy the Company's other obligations and
meet its operating expenses as they come due. The Company intends
to pursue all opportunities of potential relief with respect to the
payment of the tax obligation afforded it under the tax code. 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.
The Company continues to pursue the sale of assets held for
sale and the sale of underperforming operations, however, no
assurance can be given that the timing and amount of the proceeds
from such sales will be sufficient to meet the cash requirements of
the Company as they come due. In addition, the Company cannot
ascertain whether its remaining operations and funding sources will
be adequate to satisfy its future cash requirements.
In the event the insurance settlement discussed below is not
consummated, or of an unfavorable resolution of payment
negotiations with the Service, or if EPA should pursue
contributions from the Company toward the remediation of the
Chemsol site, or should the proceeds of asset sales be insufficient
to meet the Company's future cash requirements, including its tax
liabilities, then, if other alternatives are unavailable at that
time, the Company may be forced to consider a plan of liquidation
of its remaining assets, whether through bankruptcy proceedings or
otherwise.
Net cash used in operating activities for the nine months
ended September 30, 2001 decreased to a net use of $816,000
compared to a use of $956,000 in the same period of 2000, due
primarily to the increase in cash received from customers and a
decrease in cash paid to suppliers. Net cash provided by investing
activities increased for the nine months ended September 30, 2001
to $1,238,000 from $646,000 due to the maturity of investments in
debt securities. The use of cash in financing activities decreased
to $11,000 from $16,000 for the period last year. Funds held by
the Company in the form of cash and cash equivalents increased as
of September 30, 2001 to $486,000 from $148,000 as of September 30,
2000.
Working capital deficit was $2.3 million as of September 30,
2001 and $1.6 million as of December 31, 2000, and the ratio of
current assets to current liabilities was 0.5 to 1 as of September
30, 2001 and 0.6 to 1 as of December 31, 2000.
Taxes
During October 2000, the Company concluded litigation in U.S.
Tax Court, which it commenced in 1994, regarding the Company's tax
liability for taxable years 1980-88 and certain issues from taxable
years 1989-91. The Company settled all of the issues before the
Tax Court and has reached agreement with the Service on its tax
liability for all taxable years through 1996. The settlement of
this litigation has resulted in tax assessments against the Company
of $905,000 of federal income tax after taking into account
available net operating losses and tax credits. In addition, the
Company estimates that, as of September 30, 2001, approximately
$127,000 of state income tax and $3,053,000 of federal interest are
owed. State tax authorities may assert that penalties are owed in
connection with the state tax liability arising from these
settlements. The Company will decide whether to challenge any such
state tax penalties if and when they are asserted. The Company has
paid the portion of the assessment related to 1995 during 2000,
$9,000 for federal taxes and $5,000 for interest. The Company's
aggregate remaining tax obligation owed as a result of the
Company's settlement with the Service of the Tax Court litigation
and subsequent taxable years is approximately $4,076,000.
During March, 2001, the Company filed an Offer in Compromise
with the Service which requests a reduction in the amount due and
permission to pay the reduced obligation in installments. The
Offer is currently under review by the Service. Payment of the
state tax liability and interest will be due when amended state tax
returns are filed to reflect adjustments to previously reported
income resulting from the settlements with the Service. The
approximately $4.1 million of taxes and estimated interest
calculated through September 30, 2001 that is owed by the Company
(plus additional interest accruing from September 30, 2001 until
the obligations are settled) exceeds the Company's current liquid
assets (i.e. cash and marketable securities).
Remediation and Closure Costs
As of September 30, 2001, the Company has accrued $11.0
million for its estimated share of remediation and closure costs
related to the Company's former landfill and waste handling
operations. Approximately $9.0 million is held in trust and
maintained by trustees for the post-closure activities of one site
located in Deptford, New Jersey (see Note 8 to the Company's
Consolidated Financial Statements).
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
the Kin-Buc Landfill, located in Edison, New Jersey, under an
Amended Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. The
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. The Company and each respondent
to these orders is jointly and severally liable thereunder. 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. On December
23, 1997, the Company entered into four agreements which settled
lawsuits related to the allocation of costs of remediation. One of
the December 23, 1997 agreements provided SCA's commitment to
defend and indemnify the Company from all future liability for and
in connection with the remediation of the site, including an area
in the vicinity of the Kin-Buc Landfill known as Mound B. However,
the Company remains a responsible party under the aforementioned
Administrative Orders issued by EPA, and may incur administrative
and legal costs complying with such Administrative Orders. In
February 1999, EPA notified SCA that EPA has concluded that
hazardous materials were disposed of in Mound B. SCA's work plan
was approved by EPA during January 2001 subject to certain
contingencies. Beginning in February 2000, the Company and EPA
entered into a series of agreements pursuant to which EPA agreed to
defer the filing of claims or commencement of litigation with
respect to Mound B against the respondents of the Administrative
Orders, and the Company agreed to extend the statute of limitations
which may otherwise have prevented the filing of such claims or
commencement of litigation. The most recent of such extensions
expires December 14, 2001.
In conjunction with the 1997 settlement of the litigation
related to the Kin-Buc Landfill discussed above, the Company
committed a portion of the proceeds, if any, net of certain
adjustments, arising from its litigation against its excess
carriers be paid to SCA. Such payment is not to exceed $3.5
million. For a discussion of this matter, see "Insurance Claims
for Past Remedial Costs" below.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director and officer, and former principal shareholder of
the Company. EPA is performing remediation at the site and had
requested information from approximately 100 potentially
responsible parties concerning their involvement with the Tang
site. The Company had no direct involvement with EPA since October
1990 and had not been the recipient of an EPA request for
information. The July 1999 inquiry set forth EPA's concern that
the statute of limitations on any claim EPA may have against the
Company with respect to the site would expire during August 1999.
In consideration for EPA's agreement to defer the filing of a claim
against the Company prior to the expiration of such statute of
limitations, the Company agreed to enter into an agreement to
extend the statute of limitations. Subsequent to August 1999, EPA
and the Company have entered into a series of agreements to extend
the statute of limitations. The most recent of such extensions
expires November 21, 2001. During this period, EPA and the Company
are to continue discussions of any potential claims EPA may be
contemplating against the Company with respect to the site, and the
amount of contribution EPA believes such claims may warrant toward
EPA's estimated $2.9 million of unallocated remediation costs
associated with the site. Pursuant to a 1988 agreement with Tang,
the Company spent approximately $4.3 million toward the remediation
of the site in 1988, 1989 and 1990.
Insurance Claims for Past Remediation Costs
In 1995, the Company commenced suit (the "Lloyds Suit")
against its excess insurers who provided coverage during the period
of 1965 through 1986 to obtain a recovery of past remediation costs
and indemnification for future costs incurred in connection with
the remediation of various sites located in New Jersey, and for the
defense of litigation related thereto. The defendant insurers
include various London and London Market insurance companies, First
State Insurance Company and International Insurance Company. The
Company had assigned its claims for remediation costs incurred at
a site of past operations located in Carlstadt, New Jersey to
certain third-parties (the "AT&T Group") in conjunction with the
settlement of certain litigation related to such site. Certain of
the AT&T Group members in turn assigned their rights to the claims
to other AT&T Group members (the "Co-Operating PRPs"). During
October, 2001 the Company, the Cooperating PRP Group and certain
Underwriters at Lloyd's, London, and certain London Market
Insurance Companies (the "London Market Insurers") entered into an
agreement to settle the claims against the London Market Insurers
(the "Settlement Agreement").
The Settlement Agreement is intended to be, a full and final
settlement that releases and terminates all rights, obligations and
liabilities of London Market Insurers, the Company and the
Cooperating PRP Group with respect to the subject insurance
policies. Each of the London Market Insurers shall pay into an
escrow account its respective, allocated share of the total
settlement amount for the subject insurance policies (the
"Settlement Amount"). The Company and the Cooperating PRP Group,
jointly and not severally, shall have the right, but not the
obligation, to rescind the Settlement Agreement if the London
Market Insurers fail to comply with any of the following
conditions: (1) within 60 days after the date of the Settlement
Agreement, London Market Insurers shall have paid at least 29.4% of
the Settlement Amount into an escrow account; and (2) within 120
days after the date of the Settlement Agreement the London Market
Insurers shall have paid at least 84.7% of the Settlement Amount
into such escrow account. The funds held in the escrow account
will be released to the Company and the Cooperating PRP Group five
days after the latter of the preceding conditions has been met.
The Company and the Cooperating PRP Group have agreed upon an
allocation of the proceeds from the LLoyds Suit that, if the
Settlement Agreement is consummated, shall provide the Company 52%
of the proceeds, which the Company anticipates will approximate
$13.0 million, plus all of the interest earned on both the
Company's and Cooperating PRP Group's portion of the settlement
proceeds while such proceeds are collected and held in escrow
pending consummation of the settlement. In addition, the Company
agreed to pursue non-settling excess insurers. The Cooperating PRP
Group shall receive the first $250,000 that is collected from the
non-settling excess insurers, net of attorney fees and expenses,
and the Company shall retain the balance of amounts recovered, if
any. The Company believes its proceeds from the Settlement
Agreement will be subject to federal and state income taxes. See
Part II, Item 1. Legal Proceedings of this Form 10QSB for further
discussion of the settlement.
During June 1999, the Company and First State entered into an
agreement pursuant to which the Company agreed to accept $250,000
in satisfaction of its current and potential future claims with
respect to environmental contamination as defined in such
agreement. During July 2000, the Company and International
Insurance Company entered into an agreement pursuant to which the
Company agreed to accept $17,500 in satisfaction of its current and
future environmental contamination claims. Some of the London and
London Market insurance companies that participated in the policies
held by the Company are insolvent. The estates of some of these
insolvent companies have sufficient assets to make a partial
contribution toward claims filed by the Company. During August
1999 the Company received approximately $35,000 in satisfaction of
its claims against the estate of an insolvent excess insurance
carrier.
As discussed above, in addition to the Company's assignment of
its Carlstadt Site related claims to the AT&T Group, the Company
also committed a portion of the proceeds, if any, net of certain
adjustments, arising from this excess carrier litigation be paid to
SCA Services Inc. ("SCA") in conjunction with the 1997 settlement
of litigation related to the Kin-Buc Landfill and to legal counsel
representing the Company in the excess carrier litigation. The
Company and counsel representing the Company in the LLoyd's Suit
and certain other matters entered into an engagement agreement that
contains as compensation both fixed and contingent fees. The
amount of fees due is dependent in-part upon the outcome of the
matters. The Company estimates that the amount of fees ultimately
due, in total will approximate 10% of the Company's anticipated
proceeds payable pursuant to the Settlement Agreement.
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 settlement of the insurance claims will be
sufficient to meet the cash requirements of the Company discussed
herein.
Assets Held for Sale
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of September 30, 2001 and
December 31, 2000. The real estate included in this category
consists of approximately 430 acres of predominately vacant
property located in Deptford, N.J. (including approximately 100
acres upon which the landfill owned and operated by the Company's
subsidiary Kinsley's Landfill, Inc. ("Kinsley's") is situated).
The Company had attempted to maximize the consideration received
for the property through the sale or lease of the Deptford Property
as a recycling center/construction and demolition waste depository.
However, discussions with local officials lead the Company to
conclude that such plans are unlikely to be accomplished in the
foreseeable future. The Company is now pursuing the disposition of
the property through the sale of individual parcels and/or groups
of parcels. However, based upon market conditions for real estate
of this type the Company is unable to determine when sale(s) of the
parcels will ultimately be consummated and proceeds received.
During May, 2001 the Company entered into a contract to sell
approximately 55 acres adjoining Kinsley's landfill for $2.5
million. The sale is contingent upon the buyer obtaining approval
of its plans for the property from applicable local and state
agencies; a process that may require two or more years to
accomplish.
Escrowed Proceeds from Sale of Subsidiary
A portion of the net cash proceeds from the 1996 sale of a
subsidiary was placed in an interest bearing escrow account to
secure the Company's indemnification obligations to the purchaser
under the purchase agreement. The escrow will terminate upon the
earlier to occur of (i) the release of all funds from escrow in
accordance with the terms thereof or (ii) the later to occur of (x)
the expiration of the applicable statute of limitations for the
assessment of federal income taxes for all taxable years with
respect to which the subsidiary was a member of the Company's
consolidated tax group and (y) the satisfaction by the Company of
all assessments or other claims by the Internal Revenue Service for
taxes of the consolidated tax group during such years. No
indemnification claims have been asserted. During December 2000,
$841,000 was released to the Company from the escrowed funds at the
request of the Company when it became evident that the income tax
liability for the years covered by the escrow were less than
$100,000. The escrowed funds plus accrued interest income equal
$121,000 as of September 30, 2001.
THE COMPANY CAN NOT ASSURE THAT THE TIMING AND AMOUNT OF THE
NET PROCEEDS FROM THE SALE OF SUCH ASSETS HELD FOR SALE, THE
PROCEEDS FROM THE SETTLEMENT OF THE INSURANCE CLAIMS AND THE
ESCROWED PROCEEDS FROM THE SALE OF A SUBSIDIARY WILL BE SUFFICIENT
TO MEET THE CASH REQUIREMENTS OF THE COMPANY DISCUSSED ABOVE.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company entered into a Settlement Agreement and Release
(the "Settlement Agreement"), dated October 8, 2001, which when
consummated, will settle the Company's claims against certain of
its excess insurance carriers.
In 1995, Transtech, and its wholly-owned subsidiaries Kin-Buc,
Inc. and Filcrest Realty, Inc. commenced suit in the Superior Court
of New Jersey, Middlesex County, entitled Transtech Industries,
Inc. et. al v. Certain Underwriters at Lloyds et al., Docket No.
MSX-L-10827-95, (the "Lloyds Suit") to obtain indemnification from
its excess insurers who provided coverage during the period 1965
through 1986 against costs incurred in connection with the
remediation of various sites in New Jersey. The defendant insurers
included various London and London Market insurance companies,
First State Insurance Company and International Insurance Company.
During June 1999, the Company and First State Insurance
Company entered into an agreement pursuant to which the Company
agreed to accept $250,000 in satisfaction of its current and
potential future claims with respect to environmental contamination
as defined in such agreement. During July 2000, the Company and
International Insurance Company entered into an agreement pursuant
to which the Company agreed to accept $17,500 in satisfaction of
its current and future environmental contamination claims.
Some of the London and London Market insurance companies that
participated in the policies held by the Company are insolvent.
The estates of some of these insolvent insurers have sufficient
assets to make a partial contribution toward claims filed by the
Company. During August 1999 the Company received approximately
$35,000 in satisfaction of its claims against the estate of an
insolvent excess insurer.
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.
They also cover certain companies presently or formerly owned,
controlled by or affiliated with Marvin H. Mahan, a former officer
and director, and former majority shareholder of the Company.
In October 1998, the Company entered into an agreement with
Mr. Mahan and certain entities affiliated with him, including Inmar
Associates, Inc. ("Inmar") and Tang Realty, Inc.("Tang"),
(collectively, the "Mahan Interests") which resolved certain
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
disputes and assigned to the Company all rights of the Mahan
Interests, and certain other insured entities affiliated with the
Mahan Interests, as insureds and claimants under excess insurance
policies, including those policies which are the subject of this
litigation.
In 1988, Transtech, Inmar and Mr. Mahan were sued in a civil
action in the United States District Court for the District of New
Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the
"AT&T Suit") by a group of generators of waste (the "AT&T Group")
alleging, among other things, that the primary responsibility for
the clean-up and remediation of a site located in Carlstadt, New
Jersey (the "Carlstadt Site") rests with Transtech, Inmar and Mr.
Mahan. Pursuant to a September 1995, settlement, Transtech, Inmar
and Mr. Mahan agreed to, among other things, assign their Carlstadt
Site related insurance claims against excess insurers in exchange
for a complete release from these parties of all liability arising
from or on account of environmental contamination at the Carlstadt
Site and the parties' remediation of the same, except for certain
claims which may be made by EPA for its costs of overseeing the
remediation of the site, and by parties who had not contributed to
the remediation at the time the settlement was approved but who may
later do so. Subsequent to executing the September 1995
settlement, certain members of the AT&T Group conveyed their rights
under such settlement to other members of the AT&T Group (the
"Cooperating PRP Group"). During 1998, the Company and the
Cooperating PRP Group agreed to cooperate in the pursuit of their
respective excess insurance claims, and therefore, members of the
Cooperating PRP Group are parties to this Settlement Agreement.
The Company and the Cooperating PRP Group have agreed upon an
allocation of the proceeds from the LLoyds Suite that, if the
Settlement Agreement is consummated, shall provide the Company 52%
of the proceeds, which the Company anticipates will approximate
$13.0 million, plus all of the interest earned on both the
Company's and Cooperating PRP Group's portion of the settlement
proceeds while such proceeds are collected and held in escrow
pending consummation of the settlement. In addition, the Company
agreed to pursue non-settling excess insurers. The Cooperating PRP
Group shall receive the first $250,000 that is collected from the
non-settling excess insurers, net of attorney fees and expenses,
and the Company shall retain the balance of amounts recovered, if
any.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
The Settlement Agreement is among the Company, the Cooperating
PRP Group and certain Underwriters at Lloyd's, London, and certain
London Market Insurance Companies (the "London Market
Insurers")(the aforementioned parties being referred to hereinafter
collectively as the "Parties"). The Settlement Agreement is
intended to be, a full and final settlement that releases and
terminates all rights, obligations and liabilities of London Market
Insurers, the Company and the Cooperating PRP Group with respect to
the subject insurance policies.
Each of the London Market Insurers shall pay into an escrow
account its respective, allocated share of the total settlement
amount for the subject insurance policies (the "Settlement
Amount"). The Company and the Cooperating PRP Group, jointly and
not severally, shall have the right, but not the obligation, to
rescind the Settlement Agreement if the London Market Insurers fail
to comply with any of the following conditions: (1) within 60 days
after the date of the Settlement Agreement, London Market Insurers
shall have paid at least 29.4% of the Settlement Amount into an
escrow account; and (2) within 120 days after the date of the
Settlement Agreement the London Market Insurers shall have paid at
least 84.7% of the Settlement Amount into such escrow account. The
funds held in the escrow account will be released to the Company
and the Cooperating PRP Group five days after the latter of the
preceding conditions has been met. In the event that both the
Company and the Cooperating PRP Group later agree that any
individual London Market Insurer may make a payment lesser than its
allocated share or may make its payment on terms which differ from
the foregoing, then the Company and the Cooperating PRP Group
shall offer the same payment terms to all other London Market
Insurers.
The obligations of the London Market Insurers under this
Agreement are several, and not joint, and the Company and the
Cooperating PRP Group agreed that no London Market Insurer shall be
liable for any Settlement Amount allocable to any other London
Market Insurer unless it has a contractual obligation to do so
separate and apart from this Settlement Agreement.
Upon the Company's and the Cooperating PRP Group's receipt of
each London Market Insurer's allocated several share of the
Settlement Amount, (a) any and all rights, duties, responsibilities
and obligations of such settling London Market Insurer created by
or in connection with the subject insurance policies will be
terminated, and (b) the Company and the Cooperating PRP Group,
severally, shall remise, release, covenant not to sue and forever
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
discharge the following: (i) the Settling London Market Insurer ;
and (ii) each of that Settling London Market Insurers' present and
former officers, directors, employees, partners, limited partners,
shareholders, members, subsidiaries, affiliates, representatives,
attorneys and agents in such capacity.
The Settling London Market Insurers agreed to remise, release,
covenant not to sue and forever discharge the Company and the
Cooperating PRP Group, severally, with respect to any and all past,
present or future claims, of any type whatsoever, against the
Company and/or the Cooperating PRP Group relating in any way to or
arising in any way from (i) any of the subject insurance policies,
and (ii) any act, omission, representation, or conduct of any sort,
if any, constituting bad faith, fraud, breach of fiduciary duty,
breach of common law or statutory duty, or impairment of
subrogation, contribution or other insurance rights or benefits.
This release, however, shall not apply to any obligations of the
Company or the Cooperating PRP Group under the Settlement
Agreement.
The Settling London Market Insurers also agreed to waive,
release and discharge any and all claims, they may have for
contribution, subrogation, indemnity, equitable allocation,
apportionment or other insurance against any other insurers of the
Company or the Cooperating PRP Group who have waived, released and
discharged the same claims against the Settling London Market
Insurers.
The Company agreed to indemnify and hold harmless each
Settling London Market Insurer, for defense costs, settlements, and
judgments arising under or in any way related to the subject
insurance policies. The Company's obligations shall include all
claims, whether by way of direct action or otherwise, made by: (a)
other insurers of the Company, (b) any Person claiming to be an
insured or otherwise entitled to rights under the subject insurance
policies; (c) any Person that has acquired claims from or been
assigned the right to make a claim under the subject insurance
policies (except for the Cooperating PRP Group); (d) any federal,
state, or local government or any political subdivision, agency,
department, board or instrumentality thereof.
In the event any Cooperating PRP Group member fails to honor
its indemnification obligations contained in the Settlement
Agreement, the Company shall indemnify and hold harmless Settling
London Market Insurers to the extent of such Cooperating PRP Group
member's unfulfilled obligations. As a condition precedent to the
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Company's indemnification obligations, the Settling London Market
Insurers shall act with reasonable diligence and good faith in
taking action to enforce their indemnification rights against such
Cooperating PRP Group member. Providing the Settling London Market
Insurers have complied with the requirements of the foregoing
sentence, the Company shall indemnify Settling London Market
Insurers for their legal fees and costs incurred in pursuing
indemnification from such Cooperating PRP Group member. Settling
London Market Insurers shall assign to the Company all their rights
to any uncollected amounts from such Cooperating PRP Group member.
The Company is a party to other 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, 2000. Reference is
made thereto for a description of such litigation, and to the
discussion contained in Part I, Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources of this Form 10QSB.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 10(be) - Confidential Settlement Agreement and
Release, dated October 8, 2001, among certain members of the
216 Paterson Plank Road Cooperating PRP Group, Transtech
Industries, Inc., certain Underwriters at Lloyd's, London, and
certain London Market Insurance Companies.
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 8, 2001
to announce the agreement among the Company and certain of its
excess insurers which settles the Company's claims for
indemnification against such insurers. Such claims are the subject
of a suit commenced in 1995.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: November 14, 2001 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: November 14, 2001 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 September 30, 2001
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
10 (be) Confidential Settlement Agreement and Release 41 - 63
11 Computation of Earnings (Loss) Per Common Share 64
27 Financial Data Schedule N/A