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, 2005
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,979,190 shares of common stock, $.50 par value, outstanding as
of May 13, 2005. In addition, at such date, the issuer held
1,885,750 shares of common stock, $.50 par value, in treasury.
Transitional Small Business Disclosure Format
(Check One): Yes No X
Page 1 of 48 pages
Exhibit index on page 42
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED March 31, 2005
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31,
2005 and December 31, 2004 3 - 4
Consolidated Statements of Operations
and Comprehensive Income for the Three
Months Ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2005 and 2004 6 - 7
Notes to Consolidated Financial Statements 8 - 18
Item 2. Management's Discussion and Analysis
or Plan of Operation 19 - 31
Item 3. Controls and Procedures 32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 33 - 39
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 39
Item 3. Defaults Upon Senior Securities 39
Item 4. Submission of Matters to a Vote of
Security Holders 39
Item 5. Other Information 39
Item 6. Exhibits 40
SIGNATURES AND CERTIFICATIONS 41
EXHIBIT INDEX 42
EXHIBITS 43 - 48
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
March 31, December 31,
2005 2004
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $ 2,283 $ 1,038
Marketable securities 499 1,993
Accounts receivable - trade (net of 339 344
allowance for doubtful accounts of
$56)
Refundable income taxes 1,111 1,111
Recoverable post-closure costs due from
escrow fund 211 265
Prepaid expenses and other 53 60
Total current assets 4,496 4,811
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 125 125
Machinery and equipment 3,099 3,085
Total gross assets 4,291 4,277
Less accumulated depreciation 2,926 2,916
Net property, plant and equipment 1,365 1,361
OTHER ASSETS
Escrowed proceeds from sale of
subsidiary 123 123
Assets held for sale 190 190
Other 245 246
Total other assets 558 559
TOTAL ASSETS $ 6,419 $ 6,731
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2005 2004
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 20 $ 20
Accounts payable 211 181
Current portion of income taxes
payable 219 219
Accrued income taxes 48 48
Accrued professional fees 319 372
Accrued miscellaneous liabilities 186 175
Current portion of accrued post-
closure costs 18 18
Total current liabilities 1,021 1,033
OTHER LIABILITIES
Long-term debt 50 55
Income taxes payable 1,315 1,370
Accrued post-closure costs 2,189 2,181
Total other liabilities 3,554 3,606
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, 2,432 2,432
10,000,000 shares authorized,
4,864,940 shares issued
Additional paid-in capital 1,450 1,450
Retained earnings 8,974 9,219
Accumulated other comprehensive income
2 5
Subtotal 12,858 13,106
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity 1,844 2,092
TOTAL LIABILITIES AND STOCKHOLDERS' $ 6,419 $ 6,731
EQUITY
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In $000's, except per share data)
(Unaudited)
For the Three Months
Ended
March 31,
2005 2004
NET OPERATING REVENUES $ 96 $ 63
COST OF OPERATIONS
Direct operating costs 72 58
Selling, general and administrative
expenses 294 340
Total cost of operations 366 398
INCOME (LOSS) FROM OPERATIONS (270) (335)
OTHER INCOME (EXPENSE)
Investment income (loss) 16 16
Interest expense (1) (1)
Interest expense related to income
taxes payable - (58)
Accretion expense (107) (111)
Investment income on landfill
escrow account 97 111
Rental income 21 19
Miscellaneous income (expense) (1) (1)
Total other income (expense) 25 (25)
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) (245) (360)
Income tax expense (benefit) - (122)
NET INCOME (LOSS) $ (245) $ (238)
NET INCOME (LOSS)PER COMMON SHARE $ (.08) $ (.08)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
NET INCOME (LOSS) $ (245) $( 238)
Change in unrealized gain (loss),
net of tax (3) -
NET COMPREHENSIVE INCOME (LOSS) $ (248) $ (238)
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
For the Three Months
Ended
March 31,
2005 2004
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 102 $ 65
Cash paid to suppliers and employees (308) (443)
Interest and dividends received 16 16
Other income received 20 18
Interest paid (1) (1)
Income taxes paid (net of refunds) (55) 89
Payment of landfill post-closure costs, net of
proceeds from escrow of $257,000 and
$252,000, respectively (3) (2)
Net cash provided by (used in)
operating activities (229) (258)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of
marketable securities 1,491 -
Purchase of marketable securities - (8)
Payments on notes receivable 2 -
Purchase of property, plant and equipment
(14) -
Net cash provided by (used in)
investing activities 1,479 (8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on vehicle financing (5) (4)
Net cash provided by (used in) financing
activities (5) (4)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,245 (270)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 1,038 4,322
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 2,283 $ 4,052
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Three Months
Ended
March 31,
2005 2004
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ (245) $ (238)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation 10 9
Accretion expense 107 111
Earnings on landfill escrow accounts (97) (111)
Deferred income tax provision - 1
(Increase) decrease in assets:
Accounts receivable -net 5 1
Refundable income taxes - 80
Post-closure costs due from escrow 54 9
Prepaid expenses and other 7 (97)
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 41 (17)
Accrued income taxes - (55)
Accrued professional fees (53) 51
Income taxes payable (55) -
Landfill post-closure costs, net of proceeds
from escrow of $257,000 and $252,000,
respectively (3) (2)
NET CASH PROVIDED BY (USED IN) OPERATING $ (229) $ (258)
ACTIVITIES
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently
do not include all of the disclosures normally required by
generally accepted accounting principles or those normally made
in the Company's annual Form 10-KSB filing. Accordingly, the
reader of this Form 10-QSB may wish to refer to the Company's
Form 10-KSB for the year ended December 31, 2004 for further
information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 2004 financial statements in order to
conform to the presentation followed in preparing the 2005
financial statements. Quarterly financial information has not
been audited. In the opinion of management, the information
presented reflects all adjustments necessary for a fair statement
of interim results. All such adjustments are of a normal and
recurring nature except as disclosed herein.
In preparing financial statements in accordance with
accounting principles generally accepted in the United States,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those
estimates. See Part I, Item 2. Management's Discussion and
Analysis or Plan of Operation for additional information
regarding the estimates and assumptions the Company makes that
affect its financial statements.
NOTE 2 - GOING CONCERN UNCERTAINTY
The Company's financial statements have been prepared on
a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the
normal course of business. The Company has incurred significant
operating losses in each of the prior five years and it is
anticipated that such operating losses will continue as general
and administrative expenses are expected to exceed the Company's
available earnings from its remaining operating businesses in the
near-term. The Company owes $1.5 million for taxes and interest
relating to the settlement of issues raised by the Internal
Revenue Service resulting from audits of the Company's
consolidated Federal income tax returns for the years 1980
through 1991 (See Note 6). The Company has been aggressively
pursuing numerous alternatives to raise funds, including: (i)
continuing legal claims against non-settling excess insurance
carriers for recovery of past remediation costs, (ii) the
collection of amounts due the Company, and (iii) the disposition
of all of its non-operating assets held for sale (See Note 5).
Toward this end the Company successfully completed settlements of
its claims against certain excess insurance carriers in 1999,
2000 and 2001, and the sale of certain operations and certain
property held for sale during the period of 1995 through 1998.
However, the Company is currently unable to determine whether the
timing and the amount of cash generated from these continuing
efforts will be sufficient to discharge the Company's tax
liability, contingent obligations and its continuing operating
liabilities as they come due. The consolidated financial
statements do not include any adjustments that might result if
the Company is unable to continue as a going concern.
NOTE 3 - MARKETABLE SECURITIES
At March 31, 2005, the Company's marketable securities
consisted primarily of U. S. Treasury bills classified as
available-for-sale and are carried at their fair value of
$499,000, with a cost of $496,000, and unrealized gain of $3,000.
Net unrealized gains included in stockholder's equity, as of
March 31, 2005 decreased from December 31, 2004 by $3,000.
Proceeds from the maturity of marketable securities were
$1,491,000 for the three months ended March 31, 2005. No
marketable securities were sold during the three months of 2005.
No marketable securities either matured or were sold during the
same period for 2004.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable-trade as of March 31, 2005 and December
31, 2004 includes $304,000, net of an allowance for doubtful
accounts of $50,000, related to a project at the Southern Ocean
Landfill ("SOLF") in New Jersey. Payment of the amount due the
Company is subject to New Jersey Department of Environmental
Protection ("NJDEP") review and approval of the Company's
invoices and the work performed. During January 2005, NJDEP
accepted the work performed by the Company at SOLF and is
currently verifying the remaining amounts to be paid vendors from
escrow accounts dedicated to SOLF closure costs. The Company
expects full payment of its receivable during the second quarter
of 2005.
NOTE 5 - ASSETS HELD FOR SALE
Assets held for sale consist of approximately 60 acres of
real property and structures located in Deptford, N.J. under
contract for sale and are carried at a cost, net of depreciation,
of $190,000 as of March 31, 2005 and December 31, 2004. The
Company entered into a contract to sell the property during May
2001. The contract, as amended, contemplates the sale of the 60
acres (45 acres usable land and 15 acres of wetlands), which
adjoins the Kinsley's Landfill, for $2.1 million. During March
2005, the Company agreed to the Purchaser's request for an
additional extension of the closing date from April 2005 to
December 22, 2005 subject to definitive documentation. The sale
is contingent upon, among other conditions, the buyer obtaining
approval of its plans for the property from applicable local and
state agencies. The buyer has begun paying installments that
totaled $126,000 through March 31, 2005. The installments have
been treated as un-earned income for financial presentation
purposes, and reported as an accrued miscellaneous liability.
NOTE 6 - INCOME TAXES
The Company recognized a federal income tax benefit for the
three months ended March 31, 2004 due to its ability to carry-
back net operating losses to 2002 for credit against federal
income taxes paid with respect to such year. Federal tax laws
limit the carry-back of losses to two preceding years, therefore
no federal tax benefit was recognized for the period in 2005
since the value of such benefit may not be realized.
The State of New Jersey enacted state income tax
legislation, that, among other changes, limited the carry-forward
of losses to offset taxable income to 50% of taxable income for
2004 and 2005.
The provision for income tax expense (benefit) for the three
months ended March 31, 2004 is based upon the Company's
anticipated annual effective tax rate and consists of the
following (in 000's):
2004
Provision for operations
Currently payable (refundable):
Federal $ (122)
State -
(122)
Deferred:
Federal -
State -
-
Total income tax provision $ (122)
(credit)
During October 2000 the Company concluded litigation it
began in 1994 against the United States Internal Revenue Service
(the "Service") in Tax Court regarding the Company's tax
liability for taxable years 1980-88 and certain issues from
taxable years 1989-91. The Company settled all of the issues
before the Tax Court and reached agreement with the Service as to
its tax liability for all taxable years through 1996. After
taking into account available net operating losses and tax
credits, the Company was assessed $905,000 of federal income tax
plus interest. The Company paid the portion of the federal
assessment related to 1995; $9,000 for taxes and $5,000 for
interest.
During March 2001, the Company filed an Offer in Compromise
with the Service with respect to federal income taxes and
interest due as a result of the Tax Court settlement. The March
2001 offer requested a reduction in the amount due and permission
to pay the reduced obligation in installments. The Service
rejected the March 2001 offer, the Company appealed the Service's
rejection of its offer, and in June 2004 the Company submitted an
amendment to a revised offer (the "Offer"). The Offer was
accepted by the Service by letter dated July 21, 2004. As of the
date the Offer was accepted, the Company had accrued taxes and
interest on the accrued taxes of approximately $896,000 and
$3,926,000, respectively.
The Offer commits the Company to pay a total of $2,490,000
in satisfaction of the assessed federal income taxes and
interest. A payment of $810,000 was made during October 2004 and
the balance due is being paid in monthly installments over nine
years as follows: (a) $18,230 per month for each of the forty-
eight months beginning August 2004, and (b) $13,416 per month for
each of the following sixty months beginning August 2008. The
amount due for the five years subsequent to December 31, 2004 are
as follows: $218,760 for 2005, 2006 and 2007; $195,000 for 2008;
and $161,000 for 2009. The Service does not impose interest on
amounts payable pursuant to the Offer. The Company will be
permitted to receive refunds of prior tax overpayments and from
the carryback of losses. Should the Company default in any of
the terms of the Offer, the Service may initiate suit to impose
one or more remedies available to it, including the reinstatement
of the total amount previously assessed and/or impose interest.
The Company recognized income from this transaction of
approximately $2,332,000, or $.78 per share, in its financial
statements for the year ended December 31, 2004. Such amount is
equal to the difference between the Company's previously accrued
estimate of its federal tax obligation and the amount of the
total payments to the Service required pursuant to the Offer.
This income was not subject to income tax. The amount of the
payments due during the twelve months subsequent to March 31,
2005 has been classified as a current liability and the balance
of the payments due has been classified as a long-term liability.
The Company paid state income taxes and interest of
approximately $80,000 in 2003 with the filing of amended state
tax returns reflecting adjustments to previously reported income
resulting from the settlements with the Service. Such amounts
were previously accrued as the Company adjusted its accruals for
the estimated state income taxes and interest throughout the
course of the negotiations and settlements reached with the
Service. State tax authorities may assert that additional
interest and penalties are owed in connection with the state tax
liability arising from these settlements. The accrued income
taxes classified as current as of March 31, 2005 includes $48,000
for accrued state interest.
NOTE 7 - POST-CLOSURE COSTS AND CONTINGENT ENVIRONMENT
LIABILITIES
The Company has future obligations for post-closure costs
with respect to a landfill it owns and operated, the Kinsley's
Landfill, and a landfill it operated on real property leased from
others, the MAC Landfill. Kinsley's Landfill ceased accepting
solid waste at its landfill in Deptford Township, New Jersey on
February 6, 1987 and commenced closure of that facility. Mac
Sanitary Land Fill, Inc. ("Mac"), a wholly-owned subsidiary of
the Company, operated a landfill in Deptford Township, New Jersey
which ceased operations in 1977. Post-closure costs include
estimated costs to be incurred for providing required post-
closure monitoring and maintenance of the landfill. Post-closure
activities occur after the entire landfill ceases to accept waste
and closes. These activities involve methane gas control,
leachate management and groundwater monitoring, surface water
monitoring and control, and other operational and maintenance
activities that occur after the site ceases to accept waste. The
post-closure period generally runs for up to 30 years after final
site closure for municipal solid waste landfills. Obligations
associated with monitoring and controlling methane gas migration
and emissions are set forth in applicable landfill permits and
these requirements are based upon the provisions of the Clean Air
Act of 1970, as amended.
The Company has accrued for such post-closure costs in
accordance with Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143").
Pursuant to SFAS 143, a liability for an asset retirement
obligation should be initially measured at fair value. In
situations where quoted market prices are unavailable, the
estimate of fair value should be based on the best available
information, including the results of present value techniques in
accordance with Statement of Financial Accounting Concepts No. 7,
"Using Cash Flow and Present Value in Accounting Measurements"
("SFAC 7"). Changes in the liability due to the passage of time
are recognized as operating items in the income statement and are
referred to as accretion expense. Changes in the liability due
to revisions to estimated future cash flows are recognized by
increasing or decreasing the liability, with, in the case of
closed landfills, an offset to the statement of operations.
The Company relies on third parties to provide certain
materials, supplies and professional services for post-closure
activities. Accordingly, the fair market value of these future
obligations is based upon quoted and actual prices paid for
similar work. The Company's personnel perform the majority of
the services required for its post-closure obligations. The
Company has added a profit margin onto the cost of such services
to better reflect their fair market value as required by SFAS
143.
The Company's estimates of costs to discharge asset
retirement obligations for landfills are developed in today's
dollars. The estimated costs are inflated to the expected time
of payment and then discounted back to present value. The
estimated costs in current dollars were inflated to the expected
time of payment using an inflation rate of 2.5%, and the inflated
costs were discounted to present value using a credit-adjusted,
risk-free discount rate of 4.5%. The credit-adjusted, risk-free
rate is based on the risk-free interest rate on obligations of
similar maturity and adjusted for the risk associated with
investments permitted and typically held in the Company's post-
closure escrow accounts discussed below. Changes in the credit-
adjusted, risk-free rate do not change recorded liabilities, but
subsequently recognized obligations are measured using the
revised credit-adjusted, risk-free rate.
The following table summarizes the actual activity in the
Company's asset retirement obligation liabilities for post-
closure costs for the three months ended March 31, 2005 (in
$000):
2005
Asset retirement obligation
liability, beginning of period $10,460
Accretion expense 107
Obligations settled during
the period (260)
Asset retirement obligation
liability, end of period 10,307
Less: Current portion (a) (18)
Long-term portion $10,289
(a) Represents estimated post-closure costs for Mac Landfill.
Funds for payment of the current portion of Kinsley's Landfill
post-closure costs are withdrawn from escrow.
At March 31, 2005 and December 31, 2004 the Company held
$8,100,000 and $8,261,000, respectively, in escrow accounts which
are to be used to fund post-closure costs at Kinsley's landfill
and have been netted against the accrual for presentation in the
Company's balance sheet. The escrow for post-closure costs at
March 31, 2005 consisted of government backed debt securities and
the cost of these securities approximated the fair market value.
The escrow funds cannot be utilized for any other purpose, and
the balance of funds, if any, remaining after the end of the post-
closure period will revert to the State of New Jersey.
The Company's accrued post-closure costs by site as of March 31,
2005 and December 31, 2004 are as follows (in $000's):
March 31, December 31,
2005 2004
Kinsley's landfill
Accrued costs $10,254 $10,404
Escrowed funds (8,100) (8,261)
Net 2,154 2,143
Mac landfill 53 56
Total 2,207 2,199
Less: Current portion (18) (18)
Long-term portion $ 2,189 $ 2,181
The Company intends to annually review its calculations with
respect to landfill asset retirement obligations unless there is
a significant change in the facts and circumstances related to a
landfill during the year, in which case the Company will review
its calculations after the significant change has occurred.
Contingent Environmental Liabilities
The Kin-Buc Landfill, located in Edison, New Jersey, and
operated on property both owned and leased by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"), ceased operations in 1977.
The operation and maintenance of remedial measures implemented at
the Kin-Buc Landfill continue pursuant to the provisions of
Administrative Orders issued by the United States Environmental
Protection Agency ("EPA") to the Company and other respondents,
including SCA Services, Inc. ("SCA"), an affiliate of Waste
Management, Inc. ("WMI"). On December 23, 1997, the Company
entered into four agreements which settled lawsuits related to
the allocation of costs of remediation of the Kin-Buc Landfill
and substantially relieved the Company from certain future
obligation with respect to the site. As part of the settlement,
SCA agreed to defend and indemnify Transtech, Kin-Buc and another
subsidiary, Filcrest Realty, Inc. ("Filcrest") from claims by non-
settling non-municipal waste and municipal waste potentially
responsible parties in the litigation. SCA will also defend and
indemnify the Company from certain liabilities in connection with
the remediation of the Kin-Buc Landfill. However, the Company
remains a responsible party under the Administrative Orders
issued by EPA discussed above, and may continue to incur
administrative and legal costs for issues and activities related
to the site.
The construction required by EPA pursuant to the
Administrative Orders has been substantially completed. Operation
of the treatment plant and maintenance of the facilities is being
conducted by an affiliate of SCA. The total cost of the
construction, operation and maintenance of remedial systems for a
30-year period, plus the cost of past remedial activities, was
estimated at the time of the December 1997 settlement to be in
the range of approximately $80 million to $100 million. In
conjunction with the remediation, 26 acres of undeveloped land
neighboring the site and owned by Filcrest were utilized for the
construction of the containment system, treatment plant and
related facilities. The property had been reflected at nominal
value on the Company's financial statements.
During May 2002, the Company and other respondents to the
Administrative Orders were named as defendants to a suit filed by
the Office of the United States Attorney in which EPA sought
reimbursement of costs it allegedly incurred and penalties for
past construction delays. During September 2002, the New Jersey
Department of Environmental Protection and New Jersey Spill
Compensation Fund filed a similar suit against the same
respondents, seeking reimbursement of past costs it allegedly
incurred with respect to the site and for alleged natural
resource damages. During December 2004, the Company entered into
a consent decree which, when entered by the Court, will resolve
this suit (see Part II, Item 1. Legal Proceedings).
During September 2002, EPA issued a notice of potential
liability and of consent decree violations to potentially
responsible parties regarding a site located in Carlstadt, New
Jersey that has been undergoing remediation. During November
2004, the Company along with certain other potentially
responsible parties were named as respondents to an Unilateral
Administrative Order issued by EPA. EPA seeks contribution
toward the remediation of an area designated Operable Unit 2
estimated to cost $7.5 million and $2.0 million of past oversight
and administrative costs (see Part II, Item 1. Legal
Proceedings). The Company ceased operations of a solvents
recovery facility at the site in 1970.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to these sites, possibly in excess of the Company's
available financial resources. A significant increase in such
costs could have a material adverse effect on the Company's
financial position, results of operations and net cash flows.
The costs of litigation associated with a site are expensed as
incurred.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following as of March 31,
2005 and December 31, 2004 (in $000's):
March 31, December
31,
2005 2004
Note payable to bank due in monthly
installments of $691, including
interest at 7.0% per annum, to August
2007; secured by a vehicle carried
at a cost of $35,000. $ 18 $ 20
Note payable to a finance company,
non-interest bearing, due in monthly
installments of $884, including
effective interest at 5.5% per
annum, to July 2008 (less unamortized
discount of $6,000); secured by a
vehicle carried at a cost of $46,000. 32 34
Note payable to a finance company, due
in monthly installments of $459,
including interest at 7.99% per annum,
to August 2009; secured by a vehicle
carried at a cost of $23,000. 20 21
Total long-term debt 70 75
Less: Current portion (20) (20)
Long-term portion $ 50 $ 55
NOTE 9 - SEGMENT INFORMATION
The Company's continuing operations are grouped into three
segments: (a) operations which generate electricity from
recovered methane gas, (b) operations which perform maintenance,
remediation and related services on landfill sites, and (c)
corporate and other. Corporate and other includes selling,
general and administrative expenses not specifically allocable to
the other segments. Corporate assets are represented primarily
by cash and cash equivalents, marketable securities and real
estate held for investment and sale. Financial information by
segment for the three months ended March 31, 2005 and 2004
follows.
(In $000's) Electricity Environmental Corporate
Generation Services and Other
2005
Gross operating revenues $ 96 $ 207 $ -
Intercompany revenues(a) $ - $ (207) $ -
Net operating revenues $ 96 - -
Depreciation expense $ 2 $ 6 $ 2
Income (loss)
from operations $ 24 $ (6) $ (288)
Capital expenditures $ 13 $ - $ 1
2004
Gross operating revenues $ 63 $ 245 $ -
Intercompany revenues(a) $ - $ (245) $ -
Net operating revenues $ 63 $ - $ -
Depreciation expense $ 2 $ 6 $ 1
Income (loss)
from operations $ 5 $ (5) $ (335)
Capital expenditures $ - $ - $ -
(a) Intercompany revenues reflect intercompany sales within
the environmental services segment.
NOTE 10 - LEGAL PROCEEDINGS
See Part II, Item 1. Legal Proceedings of this Form 10-QSB
for a discussion of recent developments with respect to the
Company's legal matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements
and related notes, which provide additional information
concerning the Company's financial activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934, and the Private
Securities Litigation Reform Act of 1995. These statements
relate to future events or the Company's future financial
performance. In some cases, forward-looking statements can be
identified by terminology such as may, will, should, expect,
plan, anticipate, believe, estimate, intend, potential or
continue, and similar expressions or variations. These
statements are only predictions. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity,
performance or achievement of the Company, or industry results,
to be materially different from any future results, levels of
activity, performance or achievement expressed or implied by such
forward-looking statements. Such factors include, among others,
the following: general economic and business conditions; the
ability of the Company to implement its business strategy; the
Company's ability to successfully identify new business
opportunities; changes in the industry; competition; the effect
of regulatory and legal proceedings; and other factors discussed
herein. As a result of the foregoing and other factors, no
assurance can be given as to the future results and achievements
of the Company. All forward-looking statements included in this
document are based on information available to the Company and
its employees on the date of filing, and the Company and its
employees assume no obligation to update any such forward-looking
statements. In evaluating these statements, the reader should
specifically consider various factors.
Discussion of Critical Accounting Policies
For a discussion of the Company's critical accounting
policies, see the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2004.
Results of Operations
Consolidated net operating revenues were $96,000 for the
three months ended March 31, 2005, an increase of $33,000 or 50%,
compared to $63,000 for the period ended March 31, 2004.
Consolidated operating revenues by business segment for each of
the quarters ended March 31, 2005 and 2004 were as follows (in
$000):
2005 2004
Environmental Svcs. $207 $245
Electricity Generation 96 63
Subtotal 303 308
Intercompany (207) (245)
Net Operating Revenues $ 96 $ 63
The environmental services segment provides construction,
remedial and maintenance services at landfills, commercial and
industrial sites, and manages methane gas recovery operations.
The environmental services segment reported $207,000 of gross
operating revenues for the period in 2005(prior to elimination of
intercompany sales) compared to $245,000 for the period in 2004.
All of the environmental services segment's revenues for the
period in 2005 and 2004, were for services provided within the
consolidated group, discussed below, and therefore eliminated in
consolidation.
The Company's environmental services segment performs post-
closure activities on sites previously operated by the Company's
subsidiaries. Work performed on a landfill owned by the Company,
the Kinsley's Landfill, is submitted for reimbursement to one of
two escrow accounts established to finance the closure activities
at the site (the "Kinsley's Escrows") (see Note 6 to the
Company's Consolidated Financial Statements). The Company billed
the Kinsley's Escrows approximately $204,000 and $242,000 for
services performed during the three months ended March 31, 2005
and 2004, respectively. Such amounts are included in the amount
of intercompany sales reported above, and eliminated in the
calculation of net operating revenue. The Company has submitted
a revised plan for re-grading the Kinsley's Landfill to the New
Jersey Department of Environmental Protection ("NJDEP") for its
approval. The re-grading plan calls for the use of recycled
materials to fill and re-contour the areas of the mound having
depressions. The cost will be funded by the Kinsley's Escrows,
however, the Company intends to utilize recycled materials to the
fullest extent possible in order to minimize the impact of the
associated costs on the Kinsley's Escrows.
The Company is continuing its efforts to expand the customer
base of the environmental services segment to additional entities
beyond the consolidated group. The definition of the scope,
commencement and duration of other opportunities are in various
stages of development. There are no assurances such efforts will
result in work for the Company.
Revenues from the segment which generates electricity using
methane gas as fuel were approximately $96,000 and $63,000 for
the three months ended March 31, 2005 and 2004, respectively.
Methane gas is a component of the landfill gas generated by a
landfill site owned by the Company and located in Deptford, New
Jersey. The electricity generating facility consists of four
trailer mounted diesel/electricity generator units ("Gen-set(s)")
each capable of generating approximately 11,000 kWh/day when
operating at 85% capacity. Only two of the Gen-sets are
operating; the two non-operating Gen-sets require major repairs.
The Company continues to evaluate alternatives to the current
operation, including offers to purchase the electricity
generating operations, prior to investing in the repairs of the
Gen-sets. Electricity generated is sold pursuant to a contract
with a local utility that has two years remaining. The contract
with the local utility allows for a continuous interruption in
electricity supply for a period of up to twelve months. Revenues
are a function of the number of kilowatt hours sold, the rate
received per kilowatt hour and capacity payments. The Company
sold 1.7 million kWh during the three months ended March 31, 2005
compared to 1.3 million kWh sold in the period of the prior year.
The average combined rate received (per Kilowatt and capacity
payment) in the current period when compared to the comparable
period last year increased 11%. Engineering studies indicate
sufficient quantities of gas at the landfill to continue the
operation of the facility for approximately seven years.
Elements of the landfill gas are more corrosive to the equipment
than traditional fuels, resulting in more hours dedicated to
repair and maintenance than with equipment utilizing traditional
fuels.
Cost of Operations
Consolidated direct operating costs for the three months
ended March 31, 2005 were $72,000, an increase of $14,000 or 24%
when compared to $58,000 reported for the period in 2004.
Substantially all the costs of operations related to the
environmental services segment for the period in 2005 and 2004
were incurred for intercompany transactions and, therefore,
eliminated in consolidation. All of the reported costs,
therefore, pertain to the electricity generating segment. The
increase in costs of the electricity generating segment was due
primarily to increased equipment repair costs. An additional
$13,000 of repair costs to ancillary equipment was capitalized
during the three months ended March 31, 2005.
Consolidated selling, general and administrative expenses
for the three months ended March 31, 2005 were $294,000, a
decrease of $46,000 or 14% from $340,000 reported for the period
in the prior year. Components of selling, general and
administrative expenses for the three months ended March 31, 2005
and 2004 were as follows:
2005 2004
Legal expenses $ 37,000 $ 60,000
Other professional fees 27,000 31,000
Non-operating subsidiary expenses 10,000 11,000
All other administrative expenses 220,000 238,000
$ 294,000 $ 340,000
Legal expenses reported for the period in 2005 and 2004
include approximately $10,000 and $13,000, respectively, of fees
for matters related to the Kin-Buc Landfill. The operating costs
of the non-operating subsidiaries, consisting primarily of
insurance premiums, franchise, corporate and real estate taxes,
aggregated approximately $10,000 and $11,000 for the period in
2005 and 2004, respectively. The net $18,000 decrease in all
other administrative expenses, from $238,000 for the period in
2004 to $220,000 for 2005, was primarily due to a decrease in
employee compensation and related expenses. Professional fees and
administrative costs continue to be incurred in support of the
Company's ongoing environmental and insurance litigation,
business development and asset divestiture efforts (see Liquidity
and Capital Resources below).
Operating Loss
The Company's consolidated operating loss for the three
months ended March 31, 2005 decreased to $270,000 from a loss of
$335,000 reported for the period in 2004.
Other Income (Expense)
Consolidated investment income of $16,000 reported for the
three months ended March 31, 2005 was unchanged from that
reported for the period in 2004.
Consolidated interest expense of $1,000 reported for the
three months ended March 31, 2005 was unchanged from that
reported for the period in 2004.
Interest reported as "Interest expense related to accrued
income taxes" represents the amount of interest accrued during
the period on estimated income taxes accrued as a result of the
Company's Tax Court litigation concluded during 2000. Interest
expense reported for the three months ended March 31, 2004 was
$58,000. Interest no longer accrues on this tax obligation as a
result of the acceptance of the Company's Offer in Compromise
during July 2004 discussed below.
Consolidated accretion expense recognized on the Company's
asset retirement obligation for landfill post-closure costs was
$107,000 and $111,000 for the three months ended March 31, 2005
and 2004, respectively.
Consolidated investment income earned on escrow accounts
dedicated to the funding of the Company's landfill post-closure
costs was $97,000 and $111,000 for the three months ended March
31, 2005 and 2004, respectively.
Consolidated rental income for the three months ended March
31, 2005, net of related expenses, was $21,000 compared to
$19,000 reported for 2004. Income included in this category
consists of income earned from the rental of certain of the
Company's property held for sale (see Liquidity and Capital
Resources - Assets Held for Sale below).
Consolidated miscellaneous expense of $1,000 reported for
three months ended March 31, 2005 was unchanged from that
reported for the period in 2004.
Income (Loss) before Income Tax Expense (Benefit)
The consolidated loss before income tax expense (benefit)
was $245,000 for the three months ended March 31, 2005, compared
to a loss of $360,000 for the period in 2004.
Income Tax Expense (Benefit)
The provision for federal and state income tax expense
(benefit) for the three months ended March 31, 2004 equaled
$(122,000). The gain for reduction in tax liability reported for
2004 is not subject to income tax. The Company recognized
federal income tax benefit for the three months ended March 31,
2004 due to its ability to carry-back net operating losses to
2002 for credit against federal income taxes paid with respect to
such year. No tax benefits were recognized for the period in
2005 since the value of such benefits may not be realized.
Net Income
Net loss for the three months ended March 31, 2005 was
$245,000 or $.08 per share, compared to a net loss of $238,000 or
$.08 per share, for the three months ended March 31, 2004.
Liquidity and Capital Resources
General
The Company faces significant short-term and long-term cash
requirements for (i) funding its professional and administrative
costs, (ii) federal income taxes and interest as discussed below,
and (iii) funding post-closure costs and other expenses
associated with sites of past operations. As discussed in detail
below, the Company owes the Internal Revenue Service
approximately $1.5 million as a result of the settlement of
issues before the U.S. Tax Court regarding the Company's income
tax liability for the years 1980 through 1991. The Company's
past participation in the waste handling, treatment and disposal
industries subjects the Company to future events or changes in
environmental laws or regulations, that cannot be predicted at
this time, which could result in material increases in post-
closure costs, and other potential liabilities that may
ultimately result in costs and liabilities in excess of its
available financial resources.
The Company continues to pursue the sale of certain assets
and claims against non-settling excess insurers, however, no
assurance can be given that the timing and amount of the proceeds
from such sales and claims will be sufficient to meet the cash
requirements of the Company as they come due. In addition, the
Company cannot ascertain whether its remaining operations and
funding sources will be adequate to satisfy its future cash
requirements.
In the event of an unfavorable resolution of the Company's
challenge to the arbitrator's award to SCA Services, Inc. and
claims made against the Company by the United States
Environmental Protection Agency, discussed below, or should the
proceeds of asset sales and claims against the estates of certain
excess insurance carriers be insufficient to meet the Company's
future cash requirements, including its tax liabilities, then, if
other alternatives are unavailable at that time, the Company will
be forced to consider a plan of liquidation of its remaining
assets, whether through bankruptcy proceedings or otherwise.
Statement of Cash Flow
Net cash used in operating activities for the three months
ended March 31, 2005 decreased to $229,000 from a use of $258,000
reported for the period in the prior year. The primary use of
cash in both periods was the amount paid to suppliers and
employees. A significant use of cash during 2005 was the payment
of $55,000 toward federal income taxes due pursuant to the
Company's Offer in Compromise, as discussed below. Payments of
landfill post-closure costs related to the Kinsley's Landfill and
the Mac Landfill were $260,000 and $254,000 for the period in
2005 and 2004, respectively. The proceeds from post-closure
escrow funds reported for 2005 and 2004, $257,000 and $252,000
respectively, were received from the escrow accounts dedicated to
fund the post-closure costs of the Kinsley's Landfill. Post-
closure costs of the Mac Landfill are funded from the Company's
general funds. See Note 7 to the Company's Consolidated
Financial Reports for further discussion of the Company's
landfill post-closure cost obligations. Net cash flow provided
by investing activities of $1,479,000 reported for 2005 reflects
proceeds from the maturity of marketable securities being
utilized for operations or retained as cash equivalents. The
cash flow used in financing activities of $5,000 and $4,000 for
the period in 2005 and 2004, respectively, represents payments
toward long term debt. As a result of these activities, funds
held by the Company in the form of cash and cash equivalents
increased as of March 31, 2005 to $2,283,000 from December 31,
2004, and equaled $4,052,000 for the period last year. The sum
of cash, cash equivalents and marketable securities as of March
31, 2005 decreased to $2,782,000 from $3,031,000 when compared to
December 31, 2004.
Working capital equaled $3,474,000 and $3,778,000 for as of
March 31, 2005 and December 31, 2004, respectively, and the ratio
of current assets to current liabilities was 4.4 to 1 as of March
31, 2005 and 4.7 to 1 as of December 31, 2004.
Taxes
During October 2000 the Company concluded litigation it
began in 1994 against the Internal Revenue Service (the
"Service") in Tax Court regarding the Company's tax liability for
taxable years 1980-88 and certain issues from taxable years 1989-
91. The Company settled all of the issues before the Tax Court
and reached agreement with the Service as to its tax liability
for all taxable years through 1996. After taking into account
available net operating losses and tax credits, the Company was
assessed $905,000 of federal income tax plus interest. The
Company paid the portion of the federal assessment related to
1995; $9,000 for taxes and $5,000 for interest.
During July 2004, the Service accepted the Company's Offer
in Compromise (the "Offer"), which requested a reduction in the
amount due and permission to pay the reduced obligation in
installments. As of the date the Offer was accepted, the Company
had accrued taxes and interest on the accrued taxes of
approximately $896,000 and $3,926,000, respectively.
The Offer commits the Company to pay a total of $2,490,000
in satisfaction of the assessed federal income taxes and interest
discussed above. A payment of $810,000 was made during October
2004, and the balance due of $1,680,000 is being paid in monthly
installments over nine years as follows: (a) $18,230 per month
for each of the forty-eight months beginning August 2004, and (b)
$13,416 per month for each of the following sixty months
beginning August 2008. As of March 31, 2005, the total of the
remaining installments payable pursuant to the Offer equaled
$1,534,000. The Service does not impose interest on the amounts
payable pursuant to the Offer. The Company will be permitted to
receive refunds of prior tax overpayments and from the carryback
of losses. Should the Company default in any of the terms of the
Offer, the Service may initiate suit to impose one or more
remedies available to it, including the reinstatement of the
total amount previously assessed and/or impose interest.
The Company recognized income from this transaction of
approximately $2.3 million in its financial statements for the
year ended December 31, 2004. Such amount is equal to the
difference between the Company's previously accrued estimate of
its federal tax obligation and the amount of the total payments
to the Service required pursuant to the Offer. This income is
not subject to income tax.
Post-Closure Costs
As of March 31, 2005, the Company has accrued $10.3 million
for its estimated share of post-closure costs related to two of
the Company's former landfill operations; the Kinsley's Landfill
and Mac Landfill. Approximately $8.1 million is held in escrow
for the post-closure activities of the Kinsley's Landfill (see
Note 7 to the Company's Consolidated Financial Statements).
Contingent Environment Liabilities
The Kin-Buc Landfill, located in Edison, New Jersey, was
operated on parcels of property owned and leased by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). The Kin-Buc Landfill and
certain neighboring areas are undergoing remediation under
Administrative Orders issued by the United States Environmental
Protection Agency ("EPA") in September 1990 and November 1992 to
the Company and other responsible parties including SCA Services,
Inc. ("SCA"), which is an affiliate of Waste Management, Inc.
("WMI"). The Company initiated a suit in 1990 against generators
and transporters of waste deposited at the site with the intent
of obtaining contribution toward the cost of remediation. On
December 23, 1997, the Company entered into four agreements which
settled lawsuits related to the allocation of such costs of
remediation. One of the December 23, 1997 agreements provided
SCA's commitment to defend and indemnify the Company from future
liability for the remediation of the site (see Part II, Item 1.
Legal Proceedings). However, the Company remains a responsible
party under the aforementioned Administrative Orders issued by
EPA, and continues to incur administrative and legal costs
complying with such Administrative Orders.
During May, 2002 the Company and other respondents to the
Administrative Orders were named as defendants to a suit filed by
the Office of the United States Attorney on behalf of EPA in
which EPA sought reimbursement of costs it allegedly incurred
with respect to the Kin-Buc Landfill and penalties for alleged
past construction delays at the site. During September 2002, the
New Jersey Department of Environmental Protection and New Jersey
Spill Compensation Fund filed a similar suit against the same
respondents, seeking reimbursement of past costs it allegedly
incurred with respect to the site and for alleged natural
resource damages. During December 2004, the Company and the
other respondents executed a Consent Decree which, when entered
by the Court, will resolve these claims (see Part II, Item 1.
Legal Proceedings).
In conjunction with the 1997 settlement of the litigation
related to the Kin-Buc Landfill discussed above, the Company
agreed to allow SCA to claim against a portion of the proceeds,
not to exceed $3.5 million, arising from the Company's litigation
against its excess insurance carriers. A dispute regarding the
calculation of the amount of such claim was submitted to
arbitration for resolution. The arbitrator's award to SCA is the
subject of litigation initiated by the Company in February 2004.
In accordance with the terms of the 1997 settlement, $3.5 million
of the proceeds from the Company's 2001 settlement with certain
of the carriers was placed in escrow until the amount of such
obligation is determined.
During September 2002, EPA issued a notice of potential
liability and of consent decree negotiations to potentially
responsible parties regarding a site located in Carlstadt, New
Jersey, that has been undergoing remediation. During November
2004, the Company along with certain of the other potentially
responsible parties were named as respondents to an Unilateral
Administrative Order issued by EPA. EPA seeks contribution
toward estimated remediation costs of $7.5 million and $2.0
million of past oversight and administrative costs (see Part II,
Item 1. Legal Proceedings). The Company ceased operation of a
solvents recovery facility at the site in 1970. The Company had
assigned its claim against excess insurance carriers for the
recovery of past remediation costs related to this site to
certain potentially responsible parties as discussed below.
Insurance Claims for Past Remediation Costs
In February 2002, the Company consummated a settlement of
litigation it had commenced in 1995 against its excess insurers
who provided coverage during the period of 1965 through 1986 (the
"Lloyds Suit"). The Company continues to pursue its claims
against the non-settling defendants. Many of the non-settling
London and London Market insurance companies are insolvent,
however the estates of some of these insolvent companies have
sufficient assets to make a partial contribution toward claims
filed by the Company (see Part II, Item 1. Legal Proceedings).
Certain members of the AT&T Group (defined below) shall receive
the first $250,000 that is collected from the non-settling excess
insurers, net of attorney fees and expenses, and the Company
shall retain the balance of amounts recovered, if any. The
Company initiated the Lloyds Suit to recover past remediation
costs and indemnification for future costs incurred in connection
with the remediation of various sites located in New Jersey, and
for the defense of litigation related thereto. The defendant
insurers included various Underwriters at Lloyd's, London, and
London Market Insurance Companies, First State Insurance Company
and International Insurance Company. The Company had assigned
its claims for remediation costs incurred at a site of past
operations located in Carlstadt, New Jersey to certain third-
parties named as potentially responsible parties (the "AT&T
Group") in conjunction with the 1995 settlement of certain
litigation regarding the remediation costs for such site. The
Company's share of the settlement agreement proceeds and interest
earned during the collection of the proceeds was approximately
$13 million.
In addition to the $3.5 million of the proceeds from the
Lloyds Suit set aside for claims by SCA, as discussed above, the
Company also agreed that a portion of the proceeds be paid to the
law firm representing the Company in the Lloyds Suit. The law
firm represents the Company in the Lloyds Suit and certain other
matters pursuant to an engagement agreement that contains a fixed
fee and contingent fee component. The amount of total fees due
is dependent, in part, upon the outcome of the matters. The
Company has paid approximately $278,000 toward such fees during
2004 and has accruals of approximately $252,000 as of March 31,
2005 and December 31, 2004 for such fees which are due at the
conclusion of all matters addressed in the engagement agreement.
Assets Held for Sale
Assets held for sale consists of approximately 60 acres of
real property and structures located in Deptford, N.J. under
contract for sale and is carried at a cost, net of depreciation,
of $190,000 as of March 31, 2005 and December 31, 2004. The
Company entered into the contract to sell the property during May
2001. The contract as amended, contemplates the sale of the 60
acres (45 acres usable land and 15 acres of wetlands), which
adjoins the Kinsley's Landfill, for $2.1 million. During March
2005, the Company agreed to the Purchaser's request for an
additional extension of the closing date from April 2005 to no
later than December 22, 2005 subject to definitive documentation.
The sale is contingent upon, among other conditions, the buyer
obtaining approval of its plans for the property from applicable
local and state agencies. The buyer has begun paying
installments that total $126,000 through March 31, 2005.
The Company is pursuing the disposition of its remaining
property through the sale of individual parcels and/or groups of
parcels (including approximately 120 acres upon which the
landfill owned and operated by Kinsley's is situated). The
Company is unable to determine when sale(s) of the remaining
parcels will ultimately be consummated and proceeds received
given the proximity of the properties to the landfill, access
issues and the location of wetlands on certain properties.
Escrowed Proceeds from Sale of Subsidiary
A portion of the net cash proceeds from the 1996 sale of a
subsidiary was placed in an interest bearing escrow account to
secure the Company's indemnification obligations to the purchaser
under the purchase agreement. The escrow will terminate upon the
earlier to occur of (i) the release of all funds from escrow in
accordance with the terms thereof or (ii) the later to occur of
(x) the expiration of the applicable statute of limitations for
the assessment of federal income taxes for all taxable years with
respect to which the subsidiary was a member of the Company's
consolidated tax group and (y) the satisfaction by the Company of
all assessments or other claims by the Internal Revenue Service
for taxes of the consolidated tax group during such years. No
indemnification claims have been asserted. During December 2000,
$841,000 was released to the Company from the escrowed funds at
the request of the Company when it became evident that the income
tax liability for the years covered by the escrow were less than
$100,000. The escrowed funds with accrued interest income equal
$123,000 as of March 31, 2005 and December 31, 2004.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 3. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of its
principal executive officer and principal financial officer, the
effectiveness of its disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, the principal executive
officer and the principal financial officer of the Company
concluded that its disclosure controls and procedures are
designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
rules and regulations of the Securities and Exchange Commission
and are operating in an effective manner.
No change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under
the Securities Exchange Act of 1934) occurred during the most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, its internal control over
financial reporting.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously disclosed, the Company has been named as a
defendant in litigation related to two sites undergoing
remediation, specifically the Kin-Buc Landfill and a site located
in Carlstadt, New Jersey.
The Kin-Buc Landfill
On December 30, 2004, Transtech together with its two
wholly-owned subsidiaries Kin-Buc, Inc. ("Kin-Buc") and Filcrest
Realty, Inc. ("Filcrest") executed consent decrees which, when
entered by the U.S. District Court for the District of New Jersey
(the "Court"), will resolve the claims brought against the
Company and others by EPA, the New Jersey Department of
Environmental Protection and New Jersey Spill Compensation Fund
as set forth in the consolidated cases of United States of
America; New Jersey Department of Environmental Protection; and
Acting Administrator, New Jersey Spill Compensation Fund v.
Chemical Waste Management, Inc.; Earthline Company; Filcrest
Realty, Inc.; Anthony Gaess; Inmar Associates, Inc.; Kin-Buc,
Inc.; SCA Services, Inc.; SCA Services of Passaic, Inc.;
Transtech Industries, Inc.; Waste Management, Inc.; and
Wastequid, Inc., Civil Action No. 02-2077 (the "Lawsuit"),
regarding the Kin-Buc Landfill.
The Kin-Buc Landfill and certain neighboring property,
including parcels owned by Filcrest and other third parties, are
undergoing remediation pursuant to Administrative Orders issued
by EPA in September 1990 and November 1992 (the "Orders") to the
Company, and other responsible parties, including Inmar
Associates, Inc. ("Inmar") and affiliates of Waste Management,
Inc. ("WMI"). Inmar is controlled by Marvin H. Mahan, a former
principle shareholder and former officer and director of the
Company, and leased real property upon which the landfill is
situated to the Company.
During May, 2002 the U. S. Department of Justice, on behalf
of EPA filed a suit entitled United States of America vs.
Chemical Waste Management, Inc, et al, in the US District Court
for the District of New Jersey (Case No. 02-2077 (DMC)). The
named defendants were Transtech, Kin-Buc and Filcrest, Inmar WMI
and affiliates of WMI specifically Chemical Waste Management,
Inc., Earthline Company, Anthony Gaess, SCA Services, Inc., SCA
Services of Passaic, Inc., Waste Management Holdings, Inc. and
Wastequid, Inc. (WMI and its affiliates collectively referred
herein as the "WMI Group"). EPA sought payment of past response
costs, $3 million as of July 1999, allegedly incurred with
respect to the Kin-Buc Landfill. In addition, EPA sought
penalties for delays allegedly experienced in completing the
remediation pursuant to the Orders. The amount EPA sought for
penalties was not specified in the complaint, however subsequent
correspondence with EPA provided revised claim amounts. The claim
for unreimbursed past response costs increased to approximately
$4.2 million, and the claim for penalties totaled $18.1 million.
Both amounts were also subject to interest. The suit was stayed
pending the outcome of mediation.
During September 2002, the New Jersey Department of
Environmental Protection and New Jersey Spill Compensation Fund
(together referred herein as the "NJ Agencies") filed a similar
suit against the same respondents, entitled New Jersey Department
of Environmental Protection, and Acting Administrator, New Jersey
Spill Compensation Fund v. Chemical Waste Management, Inc. et.
al. in the United States District Court, District of New Jersey
(Case No. 02CV 4610 (DMC)), that sought reimbursement of
unspecified past costs allegedly incurred with respect to the Kin-
Buc Landfill and for unspecified alleged natural resource
damages. The suit was consolidated with the EPA suit discussed
above and was stayed pending the outcome of mediation.
The WMI Group had, inter alia, agreed to indemnify the
Company against EPA and New Jersey Agencies claims for past
response costs and natural resource damages pursuant to the terms
of a 1997 Settlement Agreement (discussed below). However, the
terms of the 1997 Settlement Agreement did not provide the
Company with complete indemnification against the penalties
sought by EPA in this action.
The documents executed by the Company on December 30,
2004 were (i) a Consent Decree among the Company, Inmar, the WMI
Group, the U.S. Department of Justice and EPA (the "Federal
Consent Decree"), (ii) a contract (the "CLF Contract") between
the Company and the Clean Land Fund ("CLF"), a third party non-
profit organization, (iii) deeds transferring title (the "Deeds")
to real property owned by Kin-Buc and certain real property owned
by Filcrest (such Kin-Buc and Filcrest property referred herein
as the "Subject Property") to CLF, (iv) conservation easements
(the "Conservation Easements") granted by Kin-Buc and Filcrest
with respect to the Subject Property to CLF, and (v) a Consent
Decree among the Company, Inmar, the WMI Group and the New Jersey
Department of Environmental Protection and New Jersey Spill
Compensation Fund (the "State Consent Decree").
The Federal Consent Decree resolved the claims of EPA
as alleged in the lawsuit. EPA agreed to accept a $2,625,000
cash payment, plus interest from November 8, 2004, from the WMI
Group in satisfaction of EPA's claims for past response costs
against all defendants. EPA agreed to resolve its claim for
penalties in exchange for a cash payment of $100,000, plus
interest from November 8, 2004, of which approximately $35,000
was paid by the Company, plus additional consideration consisting
of (a) the implementation by the Company of an Open Space
Preservation Project through the granting of the Conservation
Easements on the Subject Property to CLF, thereby preserving the
Subject Property as open space in perpetuity, and through the
execution of the Deeds thereby transferring title of the Subject
Property to CLF, (b) the commitment by the Company, through CLF
as its agent, to develop and implement a Wetlands Restoration and
Land Management Project, described below, for parcels of the
Subject Property together with, if possible, certain neighboring
properties owned or leased by third parties all in accordance
with the Federal Consent Decree, and (c) an initial payment of
$108,000 to CLF to fund its work related to (a) and (b) above, of
which the Company paid $68,000, pursuant to the CLF Contract. An
additional $15,000 shall be paid to CLF, $5,000 of which shall be
paid by the Company, if certain events transpire.
The Subject Property consists of one parcel of approximately
25 acres owned by Kin-Buc upon which a portion of the Kin-Buc
Landfill is situated and parcels totaling approximately 74 acres
of predominately wetlands in the vicinity of the Kin-Buc Landfill
owned by Filcrest. The Kin-Buc parcel and certain of the
Filcrest parcels are undergoing remediation pursuant to the
Orders. The Company's investment in the Subject Property was
written-off for book and tax purposes during the 1980's.
The Wetlands Restoration and Land Management Project is to
be accomplished through the implementation of an Open Space Land
Management Plan, Wetlands Restoration Plan, an Initial Financing
Plan and Final Financing Plan (collectively referred herein as
the "Plans") that are to be developed and implemented by CLF
pursuant to the CLF Contract and in accordance with the Federal
Consent Decree. The objective of the Plans is to identify,
restore, maintain and make self-sustaining all historic and
current wetlands on certain parcels of the Subject Property, and
to the extent possible, certain neighboring property held or
leased by third parties, and ensure that such properties are
preserved in perpetuity as open space and managed in accordance
with the terms of the Federal Consent Decree.
The EPA may impose financial penalties on the Company if the
Company or CLF should fail to adhere to the terms and conditions
of the Federal Consent Decree. A $100,000 penalty may be imposed
under certain circumstances if the CLF Contract is abandoned by
the Company. If CLF is unwilling or unable to fulfill the CLF
Contract, the Company must make its best effort to find a
suitable replacement and obtain EPA approval of such replacement.
Other violations may each be subject to a penalty of $500 per
day. The Company and CLF may be substantially relieved from the
development and implementation of the Plans if either (i) EPA
determines the Plans cannot be completed in accordance with the
terms of the Federal Consent Decree, or (ii) the U.S. Army Corp
of Engineers should proceed with the pending wetlands restoration
project submitted to them by CLF for properties in the area
including the Subject Property.
The State Consent Decree addresses the claims of the New
Jersey Department of Environmental Protection and New Jersey
Spill Compensation Fund (the "NJ Agencies"). The NJ Agencies
agreed to resolve their claims against the defendants in exchange
for a cash payment of $110,000 from the WMI Group and the
commitment of the WMI Group to perform wetlands restoration on
certain property in the vicinity of the Kin-Buc Landfill,
including certain parcels of the Subject Property.
The Federal Consent Decree and the State Consent Decree have
been signed by the appropriate officials within those agencies.
The Federal Consent Decree was lodged with the Court on March 30,
2005 for not less than thirty-days for public notice and comment.
EPA may or may not elect to amend or withdraw its Consent Decree
at the conclusion of the public review. If not amended or
withdrawn, the Federal Consent Decree would be submitted to the
Court for approval and entry after the period for public notice
expires. There is no lodging requirement for the State Consent
Decree.
The Carlstadt Site
Transtech was one of 43 respondents to a September 1990
Administrative Order of EPA concerning the implementation of
interim environmental remediation measures at a site in
Carlstadt, New Jersey owned by Inmar and operated by Transtech as
a solvents recovery plant for approximately five years ending in
1970. The site is known as the Scientific Chemical Processing
("SCP") Carlstadt Superfund Site.
In 1988, Transtech, Inmar and Marvin H. 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 the Carlstadt
site rests with Transtech, Inmar and Marvin H. Mahan.
In September 1995, the Court approved a settlement of the
AT&T Suit among Transtech, Inmar, Marvin H. Mahan, the AT&T Group
and other generators and transporters of waste handled at the
Carlstadt site who had contributed to the costs of the
remediation of the site. Pursuant to such settlement, Transtech,
Inmar and Marvin H. Mahan agreed to (i) pay $4.1 million of
proceeds from settlements with primary insurers of a coverage
action brought by the Company and Inmar against their primary and
excess insurers, (ii) pay an additional $145,000 ($72,500 from
Transtech and $72,500 from Inmar and Marvin H. Mahan), and (iii)
assign their Carlstadt site-related insurance claims against
excess insurers (see "Insurance Claims for Past Remediation
Costs" above) 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. The payments described above
were made into accounts established by the AT&T Group.
Notwithstanding the September 1995 settlement, the Company
may have liability in connection with the site to EPA for its
costs of overseeing the remediation of the site, and to parties
who had not contributed to the remediation at the time the
settlement was approved but who may later choose to do so.
During September 2002, EPA issued a notice of potential
liability and of consent decree violations to potentially
responsible parties regarding the Carlstadt site. On November
12, 2004 an Unilateral Administrative Order (the "UAO") was
issued by EPA naming fifteen companies, including the Company, as
respondents. The UAO requires the respondents to "make best
efforts to cooperate and coordinate with Settling Defendants" who
are in the process of implementing the response actions required
under the UAO. The Settling Defendants is a group of 69 PRPs
that have entered into a Consent Decree that requires the
implementation of the same response actions as the UAO. The
response actions include the design and implementation of the
remedy selected for the second operable unit ("OU2") at the site,
reimburse the United States for certain past costs allegedly
incurred at the site, and make payment of certain future response
costs that may be incurred in connection with the implementation
of the OU2 remedy. The "best efforts to cooperate and
coordinate with Settling Defendants" includes the requirement to
negotiate with the Settling Defendants as either to the amount of
work required under the UAO the Company will be willing to assume
or the amount of the cash contribution the Company is willing to
make toward the implementation of the UAO. The EPA estimated the
present value of the selected remedy is $7.5 million which
includes capital cost of $4.7 million plus annual O&M costs of
$180,000 per annum.
The Company has requested a complete and detailed accounting
of the actual total expenditures for the remediation work
completed at the Carlstadt site from either the AT&T Group or
EPA. The AT&T Group has relayed that in aggregate, $15 million
has been expended in regard to the site. The Company, as stated
above, together with the property owner, Inmar Associates, Inc.,
had previously contributed $145,000 cash and $4.1 million of
proceeds from the settlement with primary insurance carriers in
1995, an additional $12.0 million from the Company's 2001
settlement with its excess insurance carriers and pledged an
additional $250,000 from the claims being pursued against the
insolvent excess carriers, toward the remediation of the site.
Such contributions total $16.4 million, plus interest earned,
which the Company believes should more than satisfy its fair
share due for the site. The Company has informed EPA of its
intent to comply with the UAO and commence communications with
the Settling Defendants' representative.
General
With respect to the matters described above, the Company is
unable to predict the outcome of these claims or reasonably
estimate a range of possible loss given the current status of the
litigation. However, the Company believes it has valid defenses
to these matters and intends to contest the charges vigorously.
In the ordinary course of conducting its business, the
Company becomes involved in certain lawsuits and administrative
proceedings (other than those described herein), some of which
may result in fines, penalties or judgments being assessed
against the Company. The management of the Company is of the
opinion that these proceedings, if determined adversely
individually or in the aggregate, are not material to its
business or consolidated financial position.
The uncertainty of the outcome of the aforementioned
litigation and the impact of future events or changes in
environmental laws or regulations, which cannot be predicted at
this time, could result in reduced liquidity, increased
remediation and post-closure costs, and other potential
liabilities. 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 may
ultimately incur costs and liabilities in excess of its available
financial resources.
No material developments have occurred with respect to other
litigation, or the other pending legal proceedings involving the
Company, subsequent to that reported in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2004
Reference is made thereto for a description of such litigation,
and to the discussion contained in Part I, Item 2. Management's
Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources of this Form 10-QSB.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibit 31(a) - Certification Pursuant to Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange
Act of 1934 and Section 302 of the Sarbanes-
Oxley Act of 2002 by Chief Executive
Officer
Exhibit 31(b) - Certification Pursuant to Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange
Act of 1934 and Section 302 of the Sarbanes-
Oxley Act of 2002 by Chief Financial
Officer
Exhibit 32(a) - Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Chief
Executive Officer
Exhibit 32(b) - Certification Pursuant to 18 U.S.C. Section
1350,as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Chief
Financial Officer
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: May 16, 2005 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: May 16, 2005 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
31(a) Certification Pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of
1934 and Section 302 of the Sarbanes-Oxley Act
of 2002 by Chief Executive Officer 43 - 44
31(b) Certification Pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of
1934 and Section 302 of the Sarbanes-Oxley Act
of 2002 by Chief Financial Officer 45 - 46
32(a) Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Chief
Executive Officer 47
32(b) Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Chief
Financial Officer 48