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 June 30, 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 August 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 57 pages
Exhibit index on page 51
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED June 30, 2005
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30,
2005 and December 31, 2004 3 - 4
Consolidated Statements of Operations
and Comprehensive Income for the Six
Months Ended June 30, 2005 and 2004 5
Consolidated Statements of Operations
and Comprehensive Income for the Three
Months Ended June 30, 2005 and 2004 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2005 and 2004 7 - 8
Notes to Consolidated Financial Statements 9 - 20
Item 2. Management's Discussion and Analysis
or Plan of Operation 21 - 37
Item 3. Controls and Procedures 38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 39 - 48
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 48
Item 3. Defaults Upon Senior Securities 48
Item 4. Submission of Matters to a Vote of
Security Holders 48
Item 5. Other Information 48
Item 6. Exhibits 49
SIGNATURES AND CERTIFICATIONS 50
EXHIBIT INDEX 51
EXHIBITS 52 - 57
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
June 30, December 31,
2005 2004
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $1,429 $ 1,038
Marketable securities 3,472 1,993
Accounts receivable - trade (net of 319 344
allowance for doubtful accounts of
$56,000)
Refundable income taxes 1,111 1,111
Deferred income taxes 31 -
Restricted escrow accounts for post-
closure costs 1,003 1,017
Prepaid expenses and other 79 60
Total current assets 7,444 5,563
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 125 125
Machinery and equipment 3,102 3,085
Total gross assets 4,294 4,277
Less accumulated depreciation 2,937 2,916
Net property, plant and equipment 1,357 1,361
OTHER ASSETS
Escrowed proceeds from sale of
subsidiary - 123
Restricted escrow accounts for post-
closure costs 6,962 7,244
Assets held for sale 190 190
Other 245 246
Total other assets 7,397 7,803
TOTAL ASSETS $16,198 $14,727
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2005 2004
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 20 $ 20
Accounts payable 166 181
Current portion of income taxes
payable 219 219
Accrued income taxes 529 48
Accrued professional fees 282 372
Accrued miscellaneous liabilities 429 175
Current portion of accrued post-
closure costs 1,003 1,017
Total current liabilities 2,648 2,032
OTHER LIABILITIES
Long-term debt 45 55
Income taxes payable 1,243 1,370
Accrued post-closure costs 8,969 9,178
Total other liabilities 10,257 10,603
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, 2,432 2,432
10,000,000 shares authorized,
4,864,940 shares issued
Additional paid-in capital 1,450 1,450
Retained earnings 10,393 9,219
Accumulated other comprehensive income
32 5
Subtotal 14,307 13,106
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity 3,293 2,092
TOTAL LIABILITIES AND STOCKHOLDERS' $16,198 $14,727
EQUITY
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In $000's, except per share data)
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
NET OPERATING REVENUES $ 151 $ 162
COST OF OPERATIONS
Direct operating costs 132 100
Selling, general and administrative
expenses 671 712
Accretion expense 214 148
Total cost of operations 1,017 960
INCOME (LOSS) FROM OPERATIONS (866) (798)
OTHER INCOME (EXPENSE)
Investment income (loss) 37 27
Investment income on restricted
escrow account 147 148
Interest expense (2) (2)
Interest expense related to income
taxes payable - (116)
Gain (loss) from sale of securities - (2)
Rental income 42 63
Proceeds from insurance claims 2,710 -
Miscellaneous income (expense) (247) 4
Total other income (expense) 2,687 122
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) 1,821 (676)
Income tax expense (benefit) 647 (190)
NET INCOME (LOSS) $1,174 $ (486)
NET INCOME (LOSS)PER COMMON SHARE $ .39 $ (.16)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS) $1,174 $ (486)
Change in unrealized gain (loss),
net of tax 27 (7)
NET COMPREHENSIVE INCOME (LOSS) $1,201 $ (493)
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
June 30
2005 2004
NET OPERATING REVENUES $ 55 $ 99
COST OF OPERATIONS
Direct operating costs 60 42
Selling, general and administrative
expenses 377 372
Accretion expense 107 37
Total cost of operations 544 451
INCOME (LOSS) FROM OPERATIONS (489) (352)
OTHER INCOME (EXPENSE)
Investment income (loss) 21 11
Investment income on restricted
escrow account 50 37
Interest expense (1) (1)
Interest expense related to income
taxes payable - (58)
Gain (loss) from sale of securities - (2)
Rental income 21 44
Proceeds from insurance claims 2,710 -
Miscellaneous income (expense) (246) 5
Total other income (expense) 2,555 36
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) 2,066 (316)
Income tax expense (benefit) 647 (68)
NET INCOME (LOSS) $1,419 $ (248)
NET INCOME (LOSS)PER COMMON SHARE $ .48 $ (.08)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMREHENSIVE INCOME (LOSS):
NET INCOME (LOSS) $1,419 $ (248)
Change in unrealized gain (loss),
net of tax 30 (7)
NET COMPREHENSIVE INCOME (LOSS) $1,449 $ (255)
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 Six Months Ended
June 30,
2005 2004
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 176 $ 126
Cash paid to suppliers and employees (851) (832)
Interest and dividends received 37 27
Other income received 2,754 67
Interest paid (2) (1)
Income taxes paid (net of refunds) (322) 88
Payment of landfill post-closure costs, net of
proceeds from escrow of $464,000 and
$465,000, respectively (16) (2)
Net cash provided by (used in)
operating activities 1,776 (527)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of marketable
securities 1,986 966
Purchase of marketable securities (3,470) (2,102)
Net collection (issuance) of
notes receivable 3 (10)
Collection of escrowed proceeds from sale of
subsidiary 123 -
Purchase of property, plant and equipment
(17) (1)
Net cash provided by (used in)
investing activities (1,375) (1,147)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on vehicle financing (10) (8)
Net cash provided by (used in) financing
activities (10) (8)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 391 (1,682)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 1,038 4,322
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 1,429 $ 2,640
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ 1,174 $ (486)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation 21 21
Accretion expense 214 148
Earnings on restricted escrow accounts (147) (148)
(Gain) loss from sale of securities - 2
Deferred income tax provision (29) -
(Increase) decrease in assets:
Accounts receivable net 25 (5)
Refundable income taxes - (788)
Prepaid expenses and other (19) 101
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 290 (168)
Accrued income taxes 481 803
Accrued professional fees (90) (5)
Income taxes payable (128) -
Landfill post-closure costs, net of proceeds
from escrow of $464,000 and $465,000,
respectively (16) (2)
NET CASH PROVIDED BY (USED IN) OPERATING $1,776 $ (527)
ACTIVITIES
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are presented in accordance with the
requirements of Form 10-QSB and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's annual Form 10-KSB filing. Accordingly,
the reader of this Form 10-QSB may wish to refer to the Company's Form 10-KSB
for the year ended December 31, 2004 for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices except for certain reclassifications to the 2004
financial statements in order to conform to the presentation followed in
preparing the 2005 financial statements. In particular, the Company has
reclassified certain assets, liabilities and expenses as required to comply with
accounting treatments suggested by the United States Securities and Exchange
Commission. The Company has reclassified restricted escrow accounts from an off
set to the related liability for landfill post-closure obligations to separate
line items within the assets section of the consolidated balance sheets,
eliminated the amounts previously reported as receivable from the restricted
escrow accounts and reclassified accretion expense from non-operating expense to
operating expense. The reclassifications do not affect reported net income for
the periods addressed in this report.
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
approximately $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 7). 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, 2001 and 2005, 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 June 30, 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 $3,472,000, with a cost of $3,471,000, and unrealized gain
of $1,000. Net unrealized gains included in stockholder's equity and related to
the Company's marketable securities decreased from December 31, 2004 to June 30,
2005 by $4,000. Proceeds from the maturity of marketable securities were
$1,986,000 for the six months ended June 30, 2005. No marketable securities
were sold during the six months of 2005. The Company realized gross losses of
$2,000 from the sale of marketable securities during the same period for 2004.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable-trade as of June 30, 2005 and December 31, 2004
includes $354,000 for its work on a project at the Southern Ocean Landfill
("SOLF") in New Jersey. The Company had reserved an allowance for doubtful
accounts of $50,000 toward such receivable. Payment of the amount due the
Company was 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.
The Company received approximately $323,000 in full satisfaction of this
receivable during July 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 June 30, 2005 and December 31,
2004. The Company entered into a contract to sell the property during May 2001.
The property includes structures which house the operations of the Company's
environmental services segment. 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 2005, subject to definitive documentation. Negotiations
continue regarding the Company's use of structures on the property post closing
and accommodation of stormwater run-off. 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 $136,000 through June 30, 2005. The installments have
been treated as un-earned income for financial presentation purposes, and
reported as an accrued miscellaneous liability.
NOTE 6 - RESTRICTED ESCROW ACCOUNTS FOR POST-CLOSURE COSTS
At June 30, 2005 and December 31, 2004 the Company held $7,965,000 and
$8,261,000, respectively, in restricted escrow accounts which are to be used to
fund post-closure costs at Kinsley's Landfill. The escrow funds are legally
restricted for purposes of settling closure and post-closure costs and were
established to provide financial assurance through the deposit of a portion of
the tipping fee charged when the landfill was operating. The balance of funds,
if any, remaining after the end of the post-closure activities will revert to
the State of New Jersey. The escrow for post-closure costs at June 30, 2005 and
December 31, 2004 consisted of government backed debt securities. The
securities are carried at their fair value of $7,965,000, with a cost of
$7,934,000 and net unrealized gains of $31,000 consisting of unrealized gains of
$130,000 and unrealized losses of $99,000. The net unrealized gains are
included in stockholder's equity, as of June 30, 2005. The portion of the
restricted escrow funds reported as current equals the current portion of post-
closure costs related to the Kinsley's Landfill (see Note 8).
NOTE 7 - INCOME TAXES
The provision for income tax expense (benefit) for the six months ended
June 30, 2004 is based upon the Company's anticipated annual effective tax rate
and consists of the following (in 000's):
2005 2004
Provision for operations
Currently payable (refundable):
Federal $ 585 $ (190)
State 91 -
676 (190)
Deferred:
Federal (29) -
State - -
- -
Total income tax provision $ 647 $ (190)
(credit)
The Company recognized a federal income tax benefit for the six months
ended June 30, 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.
The State of New Jersey enacted state income tax legislation, that, among
other changes, limited the amount of losses a company may carry-forward to
offset taxable income to 50% of taxable income for 2004 and 2005. The
calculation of the above provision includes available state net operating loss
carry-forwards as permitted.
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.
In June 2004 the Company submitted an amended Offer in Compromise (the
"Offer") that 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 per year 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 June 30, 2005 has been classified as a current liability
and the balance of the payments due has been classified as a long-term
liability.
Although the Company has paid its calculations of state income taxes and
interest due as a result of the settlements 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 June 30, 2005 includes $48,000
for accrued state interest.
NOTE 8 - 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 in Note 6. 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 six months
ended June 30, 2005 (in $000):
2005
Asset retirement obligation
liability, beginning of period $10,195
Accretion expense 214
Obligations settled during
the period (437)
Asset retirement obligation
liability, end of period 9,972
Less: Current portion (1,003)
Long-term portion $ 8,969
The Company's total and current portion of accrued post-closure costs by
site as of June 30, 2005 and December 31, 2004 are as follows (in $000's):
June 30, December 31,
2005 2004
Kinsley's landfill $ 9,929 $10,139
Mac landfill 43 56
Total $ 9,972 $10,195
June 30, December 31,
2005 2004
Kinsley's landfill $ 985 $ 999
Mac landfill 18 18
Total $ 1,003 $ 1,017
The Company intends to annually review its calculations with respect to
landfill asset retirement obligations unless there is a significant change in
the facts and circumstances related to a landfill during the year, in which case
the Company will review its calculations after the significant change has
occurred.
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
regarding the Kin-Buc Landfill 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 9 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2005 and
December 31, 2004 (in $000's):
June 30, 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. $ 16 $ 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. 30 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. 19 21
Total long-term debt 65 75
Less: Current portion (20) (20)
Long-term portion $ 45 $ 55
NOTE 10 - 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 six months ended June 30, 2005 and 2004 follows.
(In $000's) Electricity Environmental Corporate
Generation Services and Other
2005
Gross operating revenues $ 151 $ 429 $ -
Intercompany revenues(a) $ - $ (429) $ -
Net operating revenues $ 151 - -
Depreciation expense $ 5 $ 11 $ 5
Income (loss)
from operations $ 19 $ (11) $ (874)
Capital expenditures $ 13 $ - $ 4
2004
Gross operating revenues $ 162 $ 474 $ -
Intercompany revenues(a) $ - $ (474) $ -
Net operating revenues $ 162 $ - $ -
Depreciation expense $ 5 $ 11 $ 5
Income (loss)
from operations $ 62 $ (11) $ (849)
Capital expenditures $ - $ - $ 1
(a) Intercompany revenues reflect intercompany sales within the
environmental services segment.
NOTE 11 - 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
Results for the six months ended June 30, 2005 and 2004
Consolidated net operating revenues were $151,000 for the six months ended
June 30, 2005, a decrease of $11,000 or 7%, compared to $162,000 for the period
ended June 30, 2004. Consolidated operating revenues by business segment for
the six months ended June 30, 2005 and 2004 were as follows (in $000):
2005 2004
Environmental Svcs. $429 $474
Electricity Generation 151 162
Subtotal 580 636
Intercompany (429) (474)
Net Operating Revenues $151 $162
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
$429,000 of gross operating revenues for the period in 2005(prior to elimination
of intercompany sales) compared to $474,000 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 restricted escrow accounts established
to finance the closure activities at the site (the "Kinsley's Escrows") (see
Notes 6 and 8 to the Company's Consolidated Financial Statements). The Company
billed the Kinsley's Escrows approximately $413,000 and $472,000 for services
performed during the six months ended June 30, 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
received New Jersey Department of Environmental Protection ("NJDEP") approval to
begin re-grading the Kinsley's Landfill. The re-grading plan calls for the use
of both recycled and non-recycled materials to fill and re-contour the areas of
the mound containing depressions. The 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 $151,000 and $162,000 for the six months ended June 30,
2005 and 2004, respectively. Methane gas is a component of the landfill gas
generated by a landfills. The electricity generating facility is located at the
Kinsley's Landfill and 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. 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. 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 2.7 million kWh during the six months ended
June 30, 2005 compared to 3.1 million kWh sold in the period of the prior year.
Each of the two operating Gen-sets underwent scheduled maintenance and repairs
during the period in 2005. The average combined rate received (per Kilowatt and
capacity payment) in the current period when compared to the comparable period
last year increased 7%.
Cost of Operations
Consolidated direct operating costs for the six months ended June 30, 2005
were $132,000, an increase of $32,000 or 32% when compared to $100,000 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 six months ended June 30, 2005.
Consolidated selling, general and administrative expenses for the six
months ended June 30, 2005 were $671,000, a decrease of $41,000 or 6% from
$712,000 reported for the period in the prior year. Components of selling,
general and administrative expenses for the three months ended June 30, 2005 and
2004 were as follows:
2005 2004
Legal expenses $ 117,000 $ 105,000
Other professional fees 62,000 73,000
Non-operating subsidiary expenses 29,000 29,000
All other administrative expenses 463,000 505,000
$ 671,000 $ 712,000
Legal expenses reported for the period in 2005 and 2004 include
approximately $40,000 and $38,000, respectively, of fees for matters related to
the Company's landfills or the remediation of sites to which the Company has
been named as a PRP or potential PRP, and are primarily attributable to 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 $29,000 for the period in 2005
and 2004. The net $42,000 decrease in all other administrative expenses, from
$505,000 for the period in 2004 to $463,000 for 2005, was primarily due to a
decreases in personnel and insurance expenses. Professional fees and
administrative costs continue to be incurred in support of the Company's ongoing
environmental and insurance litigation, business development and asset
divestiture efforts (see Liquidity and Capital Resources below).
Consolidated accretion expense recognized on the Company's asset retirement
obligation for landfill post-closure costs was $214,000 and $148,000 for the six
months ended June 30, 2005 and 2004, respectively.
Operating Loss
The Company's consolidated operating loss for the six months ended June 30,
2005 increased to $866,000 from a loss of $798,000 reported for the period in
2004.
Other Income (Expense)
Consolidated investment income was $37,000 reported for the six months
ended June 30, 2005 versus $27,000 reported for the period in 2004.
Consolidated investment income earned on the restricted escrow accounts
dedicated to the funding of the Company's landfill post-closure costs was
$147,000 and $148,000 for the six months ended June 30, 2005 and 2004,
respectively.
Consolidated interest expense of $2,000 reported for the six months ended
June 30, 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 six months ended June 30, 2004 was
$116,000. Interest no longer accrues on this tax obligation as a result of the
acceptance of the Company's Offer in Compromise during July 2004 as discussed
below.
Consolidated loss from the sale of marketable securities of $2,000 was
reported for the six months ended June 30, 2004.
Consolidated rental income for the six months ended June 30, 2005, net of
related expenses, was $42,000 compared to $63,000 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).
Proceeds from insurance claims of $2,710,000 reported for the six months
ended June 30, 2005 represents the proceeds received from claims filed against
certain of the Company's insolvent excess insurance carriers. See "Liquidity
and Capital Resources - Insurance Claims for past Remediation Costs" for further
discussion of this issue.
Consolidated miscellaneous expense of $247,000 was reported for the six
months ended June 30, 2005 versus income $4,000 reported for the period in 2004.
The expense for the period in 2005 includes a charge of $250,000 related to a
payment pursuant to a 2001 agreement that was contingent upon the Company's
receipt of proceeds from claims against excess insurance carriers discussed
above.
Income (Loss) before Income Tax Expense (Benefit)
The consolidated income before income tax expense (benefit) was $1,821,000
for the six months ended June 30, 2005, compared to a loss of $676,000 for the
period in 2004.
Income Tax Expense (Benefit)
The provision for federal and state income tax expense (benefit) for the
six months ended June 30, 2004 equaled $647,000 and $(190,000), respectively.
The Company recognized federal income tax benefit for the six months ended June
30, 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.
Net Income
Net income for the six months ended June 30, 2005 was $1,174,000 or $.39
per share, compared to a net loss of $486,000 or $.16 per share, for the six
months ended June 30, 2004.
Results for the three months ended June 30, 2005 and 2004
Consolidated net operating revenues were $55,000 for the three months ended
June 30, 2005, a decrease of $44,000 or 44%, compared to $99,000 for the period
ended June 30, 2004. Consolidated operating revenues by business segment for
the quarter ended June 30, 2005 and 2004 were as follows (in $000):
2005 2004
Environmental Svcs. $222 $229
Electricity Generation 55 99
Subtotal 277 328
Intercompany (222) (229)
Net Operating Revenues $ 55 $ 99
The environmental services segment reported $222,000 of gross operating
revenues for the period in 2005(prior to elimination of intercompany sales)
compared to $229,000 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 billed the Kinsley's Escrows approximately $209,000 and
$229,000 for services performed during the three months ended June 30, 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.
Revenues from the segment which generates electricity using methane gas as
fuel were approximately $55,000 and $99,000 for the three months ended June 30,
2005 and 2004, respectively. Each of the two operating Gen-sets underwent
repairs and maintenance during the period in 2005. The Company sold 982,000 kWh
during the three months ended June 30, 2005 compared to 1.8 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 4%.
Cost of Operations
Consolidated direct operating costs for the six months ended June 30, 2005
were $60,000, an increase of $18,000 or 43%, when compared to $42,000 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 and maintenance costs.
Consolidated selling, general and administrative expenses for the three
months ended June 30, 2005 were $377,000, a decrease of $5,000 from $372,000
reported for the period in the prior year. Components of selling, general and
administrative expenses for the three months ended June 30, 2005 and 2004 were
as follows:
2005 2004
Legal expenses $ 80,000 $ 45,000
Other professional fees 35,000 42,000
Non-operating subsidiary expenses 19,000 18,000
All other administrative expenses 243,000 267,000
$ 377,000 $ 372,000
Legal expenses reported for the period in 2005 and 2004 include
approximately $30,000 and $25,000, respectively, of fees for matters related to
the Kin-Buc Landfill or the remediation of sites to which the Company has been
named a PRP. The operating costs of the non-operating subsidiaries, consisting
primarily of insurance premiums, franchise, corporate and real estate taxes,
aggregated approximately $19,000 and $18,000 for the period in 2005 and 2004,
respectively. The net $24,000 decrease in all other administrative expenses,
from $267,000 for the period in 2004 to $243,000 for 2005, was primarily due to
a decreases in general operating expenses.
Consolidated accretion expense recognized on the Company's asset retirement
obligation for landfill post-closure costs was $107,000 and $37,000 for the
three months ended June 30, 2005 and 2004, respectively.
Operating Loss
The Company's consolidated operating loss for the three months ended June
30, 2005 increased to $489,000 from a loss of $352,000 reported for the period
in 2004.
Other Income (Expense)
Consolidated investment income was $21,000 for the three months ended June
30, 2005 versus $11,000 reported for the period in 2004.
Consolidated investment income earned on escrow accounts dedicated to the
funding of the Company's landfill post-closure costs was $50,000 and $37,000 for
the three months ended June 30, 2005 and 2004, respectively.
Consolidated interest expense of $1,000 reported for the three months ended
June 30, 2005 was unchanged from that reported for the period in 2004.
Interest expense related to income taxes payable reported for the three
months ended June 30, 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 as discussed below.
Consolidated loss from the sale of marketable securities of $2,000 was
reported for the three months ended June 30, 2004.
Consolidated rental income for the three months ended June 30, 2005, net of
related expenses, was $21,000 compared to $44,000 reported for 2004. The amount
reported for the period in 2004 includes a payment in settlement of rent
adjustments due from a tenant.
Proceeds from insurance claims of $2,710,000 reported for the three months
ended June 30, 2005 represents the proceeds received from the settlement of
claims against certain of the Company's insolvent excess insurance carriers.
See "Liquidity and Capital Resources - Insurance Claims for past Remediation
Costs" for further discussion of this issue.
Consolidated miscellaneous expense of $246,000 reported for three months
ended June 30, 2005 includes the $250,000 charge for a payment that was
contingent upon the receipt of proceeds from claims discussed above.
Miscellaneous income of $5,000 was reported for the in 2004.
Income (Loss) before Income Tax Expense (Benefit)
Consolidated income before income tax expense (benefit) was $2,066,000 for
the three months ended June 30, 2005, compared to a loss of $316,000 for the
period in 2004.
Income Tax Expense (Benefit)
The provision for federal and state income tax expense (benefit) for the
three months ended June 30, 2005 and 2004 equaled $647,000 and $(68,000),
respectively. The Company recognized federal income tax benefit for the three
months ended June 30, 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.
Net Income
Net income for the three months ended June 30, 2005 was $1,419,000 or $.48
per share, compared to a net loss of $248,000 or $.08 per share, for the three
months ended June 30, 2004.
Liquidity and Capital Resources
General
The Company faces significant short-term and long-term cash requirements
for (i) funding its professional and administrative costs, (ii) federal income
taxes and interest as discussed below, and (iii) funding post-closure costs and
other expenses associated with sites of past operations. As discussed in detail
below, the Company owes the Internal Revenue Service (the "Service")
approximately $1.5 million as a result of the settlement of issues before the
U.S. Tax Court regarding the Company's income tax liability for the years 1980
through 1991. The Company's past participation in the waste handling, treatment
and disposal industries subjects the Company to future events or changes in
environmental laws or regulations, that cannot be predicted at this time, which
could result in material increases in post-closure costs, and other potential
liabilities that may ultimately result in costs and liabilities in excess of its
available financial resources.
The Company continues to pursue the sale of certain assets and claims
against non-settling excess insurers, however, no assurance can be given that
the timing and amount of the proceeds from such sales and claims will be
sufficient to meet the cash requirements of the Company as they come due. In
addition, the Company cannot ascertain whether its remaining operations and
funding sources will be adequate to satisfy its future cash requirements.
In the event of an unfavorable resolution of the Company's challenge to the
arbitrator's award to SCA Services, Inc. and claims made against the Company by
the United States Environmental Protection Agency, discussed below, or should
the proceeds of asset sales and claims against the estates of certain excess
insurance carriers be insufficient to meet the Company's future cash
requirements, including its tax liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider a plan of
liquidation of its remaining assets, whether through bankruptcy proceedings or
otherwise.
Statement of Cash Flow
Net cash provided by operating activities for the six months ended June 30,
2005 equaled $1,776,000 versus a use of $527,000 reported for the period in the
prior year. The primary source of cash for the period in 2005 was $2,710,000 of
proceeds from claims filed against the estate of certain insolvent excess
insurers. 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 $322,000 toward federal income taxes due pursuant to the Company's Offer in
Compromise, as discussed below, and toward income taxes accrued for 2005.
Payments of landfill post-closure costs related to the Kinsley's Landfill and
the Mac Landfill were $480,000 and $467,000 for the period in 2005 and 2004,
respectively. The proceeds from post-closure escrow funds reported for 2005 and
2004, $464,000 and $465,000 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 8 to the Company's Consolidated Financial Reports for further
discussion of the Company's landfill post-closure cost obligations. Net cash
flow used in investing activities equaled $1,375,000 and $1,147,000 for the
period in 2005 and 2004, respectively. The funds invested in marketable
securities during both periods was greater than the amount of funds utilized for
operations or retained as cash equivalents. The cash flow used in financing
activities of $10,000 and $8,000 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 June 30, 2005 to $1,429,000 from December 31, 2004, versus a decrease of
$1,682,000 for the period last year. The sum of cash, cash equivalents and
marketable securities as of June 30, 2005 increased to $4,901,000 from
$3,031,000 when compared to December 31, 2004.
Working capital equaled $4,796,000 and $3,531,000 for as of June 30, 2005
and December 31, 2004, respectively, and the ratio of current assets to current
liabilities was 2.8 to 1 as of June 30, 2005 and 2.7 to 1 as of December 31,
2004.
Taxes
During October 2000 the Company concluded litigation it began in 1994
against the Internal Revenue Service (the "Service") in Tax Court regarding the
Company's tax liability for taxable years 1980-88 and certain issues from
taxable years 1989-91. The Company settled all of the issues before the Tax
Court and reached agreement with the Service as to its tax liability for all
taxable years through 1996. After taking into account available net operating
losses and tax credits, the Company was assessed $905,000 of federal income tax
plus interest. The Company paid the portion of the federal assessment related
to 1995; $9,000 for taxes and $5,000 for interest.
During July 2004, the Service accepted the Company's Offer in Compromise
(the "Offer"), which requested a reduction in the amount due and permission to
pay the reduced obligation in installments. As of the date the Offer was
accepted, the Company had accrued taxes and interest on the accrued taxes of
approximately $896,000 and $3,926,000, respectively.
The Offer commits the Company to pay a total of $2,490,000 in satisfaction
of the assessed federal income taxes and interest discussed above. A payment of
$810,000 was made during October 2004, and the balance due of $1,680,000 is
being paid in monthly installments over nine years as follows: (a) $18,230 per
month for each of the forty-eight months beginning August 2004, and (b) $13,416
per month for each of the following sixty months beginning August 2008. As of
June 30, 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 June 30, 2005, the Company has accrued $10.0 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
$8.0 million is held in escrow for the post-closure activities of the Kinsley's
Landfill (see Note 6 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). During June 2005, the Company's received proceeds of $2,710,000
on claims filed against the estates of four insolvent excess insurance carriers.
Pursuant to an agreement reached in 2001 between the Company and certain members
of the AT&T Group (defined below), the AT&T Group members are to receive
$250,000 that is collected from the non-settling excess insurers, net of
attorney fees and expenses. The Company recognized a charge in this amount in
its financial statements for the period ended June 30, 2005. During July 2005,
the Company received proceeds of $510,000 on claims filed against a fifth
insolvent excess insurance carrier. With the July 2005 payment, the Company has
resolved claims against an excess insurer representing approximately 97% of the
value assigned to the coverage provided under the policies that were the subject
of the Lloyd's Suit.
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
June 30, 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 June 30, 2005 and December 31,
2004. The Company entered into the contract to sell the property during May
2001 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 2005 subject to definitive documentation. Negotiations continue
regarding the Company's use of structures on the property post closing and
accommodation of stormwater run-off. 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 $136,000 through June 30, 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 has been terminated at the Company's request and approximately $123,000
of funds held therein were released to the Company during June, 2005.
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 the
design and operation of its disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) 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 pursuing claims filed against
its excess insurance companies. In addition, 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.
Insurance Claims for Past Remediation Costs
During 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 (collectively referred to herein as
"Defendant Insurers").
During October 2001 the Company entered into a settlement agreement with
certain Underwriters at Lloyd's, London, and certain London Market Insurance
Companies (the "London Market Insurers"). The settlement agreement was
consummated during February 2002, when London Market Insurers representing
approximately 84.7% of the value assigned to the subject policies paid their
allocated portion of the settlement amount. The Company received approximately
$13 million of settlement proceeds.
Some of the Defendant Insurers are insolvent. The estates of some of these
insolvent insurers have sufficient assets to make a partial contribution toward
claims filed by the Company.
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, including
Inmar Associates, Inc. ("Inmar") and Tang Realty, Inc. ("Tang"), (collectively,
the "Mahan Interests"). Mr. Mahan is a former officer and director, and former
majority shareholder of Transtech.
In 1988, the Company, 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. Transtech is one
of the respondents to a September 1990 Administrative Order of U. S.
Environmental Protection Agency ("EPA") concerning the implementation of
environmental remediation measures at the Carlstadt Site. The site is owned by
Inmar and Transtech operated a solvents recovery plant at the site for
approximately five years ending in 1970.
In September 1995, the Court approved a settlement of the AT&T Suit.
Pursuant to such 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 the AT&T Group's claims
arising from or on account of environmental contamination at the Carlstadt Site
and the AT&T Group's remediation of the same. 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 were parties to the October 2001 settlement
with the London Market Insurers. The Company and the Cooperating PRP Group
agreed upon an allocation of the proceeds from the Lloyds Suit that provided the
Company 52% of the proceeds plus all of the interest earned on the settlement
proceeds while such proceeds are collected and held in escrow pending
consummation of the settlement. The Company also agreed to pursue non-settling
Defendant Insurers. The Cooperating PRP Group is to receive the first $250,000
that is collected from the non-settling Defendant Insurers, net of attorney fees
and expenses, and the Company shall retain the balance of amounts recovered.
In October 1998, the Company entered into an agreement with Mr. Mahan and
the Mahan Interests, which resolved certain 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 that are the subject of the Lloyd's Suit.
During June 2005, the Company received approximately $2.7 million with
respect to these settled claims which represents approximately 62% of the total
amount of the settled claims against the four estates. The June 2005 payment
pertains to claims filed against the estates of four insolvent insurers:
Kingscroft Insurance Company LTD, Walbrook Insurance Company LTD, El Paso
Insurance Company LTD and Mutual Reinsurance Company LTD. The four insurers
represented approximately 10% of the coverage provided under the policies that
were the subject of the Lloyd's Suit, as measured by the liability apportioned
to each of the Defendant Insurers at the time of the October 2001 settlement.
Pursuant to their respective liquidation plans, the estates of the four insurers
make payments toward agreed claims based upon the amount of their recovered
assets and expenditures funded from such assets. The estates may elect, based
upon their financial situation, to make additional distributions toward agreed
claims, however there are no assurances that additional distributions will be
paid. Additional claims against the four estates have been barred in accordance
with their liquidation plans. One firm manages the administration of the four
estates.
The Company continues to pursue claims against certain excess insurance
carriers that have not participated in any of the previous settlements. However,
the Company cannot predict the amount of the proceeds it may eventually receive
on account of such claims, if any.
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, including the Company. 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 public notice and comment. EPA may
or may not elect to amend or withdraw its Consent Decree upon the completion of
its review of comments received. 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 an additional
$250,000 pledged from the claims being pursued against the insolvent excess
carriers discussed above, 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: August 15, 2005 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: August 15, 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 June 30, 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 Officer52 - 53
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 Officer54 - 55
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 56
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 57