UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
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 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
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___ No X
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 10, 2006. 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 47 pages
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30,
2006 and December 31, 2005 3 - 4
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Six
Months Ended June 30, 2006 and 2005 5
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three
Months Ended June 30, 2006 and 2005 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2006 and 2005 7 - 8
Notes to Consolidated Financial Statements 9 - 19
Item 2. Management's Discussion and Analysis
or Plan of Operation 20 - 35
Item 3. Controls and Procedures 36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 37
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 39
Item 3. Defaults Upon Senior Securities 39
Item 4. Submission of Matters to a Vote of
Security Holders 39
Item 5. Other Information 39
Item 6. Exhibits 40
SIGNATURES 41
EXHIBITS 42 - 47
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
June 30, December 31,
2006 2005
(Unaudited) ____________
CURRENT ASSETS
Cash and cash equivalents $ 1,263 $ 2,071
Marketable securities 4,533 4,445
Accounts receivable - trade 20 57
Refundable income taxes 82 436
Deferred tax asset 17 22
Restricted escrow accounts for post-
closure costs 1,000 988
Prepaid expenses and other 86 57
Total current assets 7,001 8,076
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 157 125
Machinery and equipment 3,290 3,098
Total gross assets 4,514 4,290
Less accumulated depreciation 2,976 2,954
Net property, plant and equipment 1,538 1,336
OTHER ASSETS
Restricted escrow accounts for post-
closure costs 6,551 6,692
Assets held for sale 190 190
Other 243 243
Total other assets 6,984 7,125
TOTAL ASSETS $15,523 $16,537
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,
2006 2005
(Unaudited) ___________
CURRENT LIABILITIES
Current portion of long-term debt $ 27 $ 21
Accounts payable 316 181
Current portion of income taxes
payable 219 219
Accrued income taxes 56 577
Accrued professional fees 313 318
Accrued miscellaneous liabilities 266 315
Current portion of accrued post-
closure costs 1,000 988
Total current liabilities 2,197 2,619
OTHER LIABILITIES
Long-term debt 43 34
Income taxes payable 1,042 1,151
Accrued post-closure costs 8,532 8,758
Total other liabilities 9,617 9,943
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 11,007 11,191
Accumulated other comprehensive loss
(166) (84)
Subtotal 14,723 14,989
Treasury stock, at cost - 1,885,750 (11,014) (11,014)
shares
Total stockholders' equity 3,709 3,975
TOTAL LIABILITIES AND STOCKHOLDERS' $15,523 $16,537
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 (LOSS)
(In $000's, except per share data)
(Unaudited)
For the Six Months Ended
June 30,
2006 2005
NET OPERATING REVENUES $ 167 $ 151
COST OF OPERATIONS
Direct operating costs 139 132
Selling, general and administrative
expenses 869 671
Accretion expense 197 214
Total cost of operations 1,205 1,017
LOSS FROM OPERATIONS (1,038) (866)
OTHER INCOME (EXPENSE)
Investment income 135 37
Investment income on restricted
escrow account 128 147
Interest expense (2) (2)
Rental income 41 42
Proceeds from insurance claims 346 2,710
Miscellaneous income (expense) 134 (247)
Total other income 782 2,687
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) (256) 1,821
Income tax expense (benefit) (72) 647
NET INCOME (LOSS) $ (184) $1,174
NET INCOME (LOSS)PER COMMON SHARE $ (.06) $ .39
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS) $ (184) $1,174
Change in unrealized gain (loss),
net of tax (82) 27
NET COMPREHENSIVE INCOME (LOSS) $ (266) $1,201
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
June 30,
2006 2005
NET OPERATING REVENUES $ 58 $ 55
COST OF OPERATIONS
Direct operating costs 91 60
Selling, general and administrative
expenses 466 377
Accretion expense 99 107
Total cost of operations 656 544
LOSS FROM OPERATIONS (598) (489)
OTHER INCOME (EXPENSE)
Investment income 84 21
Investment income on restricted
escrow account 55 50
Interest expense (1) (1)
Rental income 20 21
Proceeds from insurance claims 346 2,710
Miscellaneous income (expense) 3 (246)
Total other income 507 2,555
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE(BENEFIT) (91) 2,066
Income tax expense (benefit) (27) 647
NET INCOME (LOSS) $ (64) $1,419
NET INCOME (LOSS)PER COMMON SHARE $ (.02) $ .48
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS) $ (64) $1,419
Change in unrealized gain (loss),
net of tax (33) 30
NET COMPREHENSIVE INCOME (LOSS) $ (97) $1,449
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,
2006 2005
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 205 $ 176
Cash paid to suppliers and employees (971) (880)
Interest and dividends received 135 37
Other income received 521 2,754
Interest paid (2) (2)
Income taxes paid (net of refunds) (205) (322)
Payment of post-closure costs, net of proceeds
from escrow of $156 and $464, respectively
(209) 13
Net cash (used in) provided from operating
activities (526) 1,776
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of
marketable securities 4,434 1,986
Purchase of marketable securities (4,507) (3,470)
Collection of notes receivable 1 3
Collection of escrowed proceeds - 123
Purchase of property, plant
and equipment (224) (17)
Net cash (used in) provided by
investing activities (296) (1,375)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from vehicle financing 25 -
Principal payments on vehicle financing (11) (10)
Net cash from (used in) financing
activities 14 (10)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (808) 391
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 2,071 1,038
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 1,263 $ 1,429
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,
2006 2005
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET INCOME (LOSS) $ (184) $ 1,174
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation 22 21
Accretion expense 197 214
Earnings on restricted escrow accounts (128) (147)
Deferred income tax provision - (29)
(Increase) decrease in assets:
Accounts receivable net 37 25
Refundable income taxes 353 -
Prepaid expenses and other (29) (19)
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 50 261
Income taxes payable (109) (128)
Accrued income taxes (521) 481
Accrued professional fees (5) (90)
Accrued post-closure costs, net of proceeds
from escrow of $156 and $464, respectively
(209) 13
NET CASH PROVIDED BY (USED IN) OPERATING $ (526) $ 1,776
ACTIVITIES
See Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited 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, 2005 for further information.
The financial information has been prepared in accordance with the
Company's customary accounting practices except for certain reclassifications to
the 2005 financial statements in order to conform to the presentation followed
in preparing the 2006 financial statements.
Quarterly financial information has not been audited. In the opinion of
management, the information presented reflects all adjustments necessary for a
fair statement of interim results. All such adjustments are of a normal and
recurring nature except as disclosed herein.
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates. See Part I, Item 2.
Management's Discussion and Analysis or Plan of Operation for additional
information regarding the estimates and assumptions the Company makes that
affect its financial statements.
The Company sells the electricity it generates to a local utility. Such
sales account for 100% of the Company's Net Operating Revenues for the six
months ended June 30, 2006 and 2005, and represented 100% of the Company
Accounts Receivable - Trade as of June 30, 2006 and December 31, 2005.
The Company's adoption of the recent accounting pronouncement SFAS 123R had
no effect on the Company's basic and diluted loss per share for the six months
ended June 30, 2006.
NOTE 2 - MARKETABLE SECURITIES
At June 30, 2006, 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 $4,533,000, with a cost of $4,507,000 and unrealized gains
of $26,000. At December 31, 2005, the Company's marketable securities consisted
primarily of U.S. Treasury bills classified as available-for-sale and are
carried at their fair value of $4,445,000 with a cost of $4,433,000, and gross
unrealized gains of $12,000. The unrealized gains related to the Company's
marketable securities are included in stockholder's equity, net of income tax
(stockholders' equity also includes net unrealized losses related to the
restricted escrow accounts discussed in Note 4). Proceeds from the maturity of
marketable securities for the six months ended June 30, 2006 were $4,434,000.
No marketable securities were sold prior to maturity during the period in both
2006 and 2005.
NOTE 3 - ASSETS HELD FOR SALE
Assets held for sale consist of approximately 60 acres of real property and
buildings 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, 2006 and December 31,
2005. The property adjoins the Kinsley's Landfill. The contract, as amended,
contemplates the sale of the 60 acres (45 acres usable land and 15 acres of
wetlands) for $2.1 million. During April 2006, the Company entered into an
amendment to the contract that, among other conditions, extended the closing to
a date no later than December 2006. The building which houses the machinery and
equipment utilized for the Company's operations is located on the property under
contract, therefore the Company is constructing a replacement facility. 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 been paying installments which total $201,000 through June 30, 2006. The
installments have been treated as un-earned income for financial presentation
purposes, and reported as an accrued miscellaneous liability.
NOTE 4 - RESTRICTED ESCROW ACCOUNTS FOR POST-CLOSURE COSTS
At June 30, 2006 and December 31, 2005 the Company held $7,551,000 and
$7,680,000, 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 primarily consists
of U.S. Treasury Notes and government backed debt securities. At June 30, 2006
the securities are carried at their fair value of $7,551,000, with a cost of
$7,733,000 and net unrealized losses of $182,000. At December 31, 2005 the
securities had a fair market value of $7,680,000, with a cost of $7,771,000 and
unrealized gains and losses of $30,000 and $121,000, respectively. The net
unrealized losses are included in stockholder's equity for the respective
periods (stockholders' equity also includes net unrealized gains related to the
Company's marketable securities discussed in Note 2). The portion of the
restricted escrow funds reported as current equals the current portion of post-
closure costs related to the Kinsley's Landfill (see Note 6).
NOTE 5 - INCOME TAXES
The Company recognized a federal income tax benefit for the six months
ended June 30, 2006 due to its ability to carry-back net operating losses to
2005 for credit against federal income taxes paid with respect to such year.
Federal tax laws limit the carry-back of losses to two preceding years.
The provision for income tax expense (benefit) for the six months ended
June 30, 2006 and 2005 is based upon the Company's anticipated annual effective
tax rate and consists of the following (table in 000's):
2006 2005
Provision for operations
Currently payable (refundable):
Federal $(82) $585
State 10 91
(72) 676
Deferred:
Federal - (29)
State - -
- (29)
Total income tax provision $(72) $647
(benefit)
Income taxes payable represents the amount due the United States Internal
Revenue Service (the "Service") in settlement of litigation concluded during
October 2000 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. During July 2004, the Service
accepted the Company's Offer in Compromise (the "Offer") which requested a
reduction in the amount payable with respect to such settlements and permission
to pay the reduced obligation in installments. The Offer committed the Company
to pay a total of $2,490,000 in satisfaction of the assessed federal income
taxes and interest. 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 total of the installments paid through June 30, 2006 equals
$419,000. The approximate amounts due for the five years subsequent to June 30,
2006 are as follows: $219,000; $219,000; $166,000; $161,000; and $161,000. 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 sum of the payments due during the twelve months subsequent to June 30,
2006 has been classified as a current liability and the balance of the payments
due have been classified as a long-term liability.
The Company has paid state income taxes and interest due, in accordance with
its calculations, as a result of the settlements with the Service. However
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, 2006 includes
$48,000 for accrued state interest.
NOTE 6 - POST-CLOSURE COSTS AND CONTINGENT ENVIRONMENTAL 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 during February 1987 and commenced closure of that facility. Mac
Sanitary Land Fill, Inc. ("Mac"), a wholly owned subsidiary of the Company,
operated a landfill in Deptford Township, New Jersey that ceased operations in
1977.
Post-closure costs include estimated costs to be incurred for providing
required post-closure monitoring and maintenance of the landfill. Post-closure
activities occur after the entire landfill ceases to accept waste and closes.
These activities involve methane gas control, leachate management and
groundwater monitoring, surface water monitoring and control, and other
operational and maintenance activities that occur after the site ceases to
accept waste. The post-closure period generally runs for up to 30 years after
final site closure for municipal solid waste landfills. Obligations associated
with monitoring and controlling methane gas migration and emissions are set
forth in applicable landfill permits and these requirements are based upon the
provisions of the Clean Air Act of 1970, as amended.
The Company has accrued for such post-closure costs in accordance with
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). Pursuant to SFAS 143, a liability for an
asset retirement obligation should be initially measured at fair value. In
situations where quoted market prices are unavailable, the estimate of fair
value should be based on the best available information, including the results
of present value techniques in accordance with Statement of Financial Accounting
Concepts No. 7, "Using Cash Flow and Present Value in Accounting Measurements"
("SFAC 7"). Changes in the liability due to the passage of time are recognized
as operating items in the statement of operations and are referred to as
accretion expense. Changes in the liability due to revisions to estimated
future cash flows are recognized by increasing or decreasing the liability,
with, in the case of closed landfills, an offset to the statement of operations.
The Company relies on third parties to provide certain materials, supplies
and professional services for post-closure activities. Accordingly, the fair
market value of these future obligations is based upon quoted and actual prices
paid for similar work. The Company's personnel perform the majority of the
services required for its post-closure obligations. The Company has added a
profit margin onto the cost of such services to better reflect their fair market
value as required by SFAS 143.
The Company's estimates of costs to discharge asset retirement obligations
for landfills are developed in today's dollars. The estimated costs are
inflated to the expected time of payment and then discounted back to present
value. The estimated costs in current dollars were inflated to the expected
time of payment using an inflation rate of 2.5%, and the inflated costs were
discounted to present value using a credit-adjusted, risk-free discount rate of
4.5%. The credit-adjusted, risk-free rate is based on the risk-free interest
rate on obligations of similar maturity and adjusted for the risk associated
with investments permitted and typically held in the Company's post-closure
escrow accounts discussed in Note 4. 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, 2006 (table in $000):
2006
Asset retirement obligation
liability, beginning of period $ 9,746
Accretion expense 197
Obligations settled during
the period (554)
Other adjustments 143
Asset retirement obligation
liability, end of period 9,532
Less: Current portion (1,000)
Long-term portion $ 8,532
The amount reported as current portion represents the estimate of the cost
to be incurred during the subsequent twelve months.
The Company has begun re-grading a section of the Kinsley's Landfill in
accordance with a plan approved by the New Jersey Department of Environmental
Protection ("NJDEP"). The re-grading plan calls for the use of both recycled
and non-recycled materials to fill and re-contour the areas of the mound
containing depressions. The Company receives a fee to accept certain of the
recycled materials. The costs incurred for re-grading activities shall be paid
from such fees. However, costs incurred for re-grading activities in excess of
such fees will be submitted to NJDEP for reimbursement from the Kinsley's
Escrow. The amount reported as other adjustments in the above table equals the
proceeds generated from the materials received in the re-grading project at the
Kinsley's Landfill, less related re-grading expenses.
The Company's total and current portion of accrued post-closure costs by
site as of June 30, 2006 and December 31, 2005 are as follows (table in $000's):
June 30, December 31,
2006 2005
Kinsley's landfill $ 9,499 $ 9,706
Mac landfill 33 40
Total $ 9,532 $ 9,746
Kinsley's landfill $ 981 $ 969
Mac landfill 19 19
Current portion $ 1,000 $ 988
The post-closure maintenance costs of the Kinsley's Landfill are funded
from restricted escrow accounts (see Note 4).
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
During November 2004, the Company along with fourteen other potentially
responsible parties was named as respondents to an Unilateral Administrative
Order issued by EPA regarding a site located in Carlstadt, New Jersey. The site
is known as the Scientific Chemical Processing Superfund Site (the "SCP Site").
and has been undergoing remediation pursuant to an Administrative Order issued
by EPA in 1990. The November 2004 Unilateral Administrative Order seeks
contribution from the fifteen respondents, and a group of sixty nine other
potentially responsible parties, toward the remediation of an area designated
Operable Unit 2, estimated to cost $7.5 million, and reimbursement to EPA of
$2.0 million of alleged 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 Company, together with the property
owner, have contributed cash and proceeds from insurance settlements toward the
remediation of the SCP Site. Such contributions total $16.4 million through
December 31, 2005, plus interest earned thereon, which the Company believes
should satisfy the share of remediation costs which could be found attributable
to the Company for the SCP Site.
The Company was one of 158 recipients of a Notice of Potential Liability
and Request to Perform Remedial Investigation/Feasibility Study (the "Notice"),
issued by EPA on March 9, 2006, regarding the contamination of the Berry's Creek
Study Area (the "Creek Area") located in Bergen County, N.J. A tributary
adjacent to the SCP Site flows into Berry's Creek. The Creek Area includes the
approximately seven miles long water body known as Berry's Creek, a canal, all
tributaries to Berry's Creek and related wetlands. Tidal areas of the river
into which Berry's Creek empties are also subject of the Notice. Each recipient
of the Notice is designated as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
and may be held liable for the cleanup of the Creek Area and costs EPA has
incurred with regard to the Creek Area. The investigation and feasibility study
regarding the scope of the remediation of the Creek Area is ongoing. The
selection of the ultimate remediation methodology from alternative approaches is
expected to be made by EPA in 2010. Since no discovery has taken place
concerning allegations against the Company, it is not possible to estimate the
Company's ultimate liability, if any, with respect to the Creek Area.
The Kin-Buc Landfill is located in Edison, New Jersey, and was operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc. ("Kin-
Buc"). Operations at the Kin-Buc Landfill ceased in 1977. The operation and
maintenance of remedial measures implemented at the Kin-Buc Landfill continue
pursuant to the provisions of Administrative Orders issued by the United States
Environmental Protection Agency ("EPA") to the Company and other respondents,
including SCA Services, Inc. ("SCA"), an affiliate of Waste Management, Inc.
("WMI"). During December 1997, the Company entered into four agreements that
settled lawsuits related to the allocation of costs of remediation of the Kin-
Buc Landfill and substantially relieved the Company from certain future
obligations 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 also agreed to
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
continues to incur administrative and legal costs for issues and activities
related to the site.
The impact of future events or changes in environmental laws and
regulations, which cannot be predicted at this time, could result in material
increases in remediation and closure costs related to these sites, possibly in
excess of the Company's available financial resources. A significant increase
in such costs could have a material adverse effect on the Company's financial
position, results of operations and net cash flows. The costs of litigation
associated with a site are expensed as incurred.
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2006 and December
31, 2005 (table in $000's, except for monthly installment amounts):
June 30, December 31,
2006 2005
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 net book value of $15 $ 9 $ 12
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); secured by a vehicle carried
at a net book value of $24 21 26
Note payable to a finance company, due
in monthly installments of $459,
including interest at 7.99% per annum,
to August 2009; secured by a vehicle
carried at a net book value of $17 15 17
Note payable to a bank, due in monthly
installments of $505, including
interest at 7.75% per annum, to June
2011; secured by a vehicle carried
at a net book value of $25 25 -
Total long-term debt 70 55
Less: Current portion (27) (21)
Long-term portion $ 43 $ 34
NOTE 8 - SEGMENT INFORMATION
The Company's continuing operations are grouped into three segments: (a)
operations which generate electricity from recovered methane gas, (b) operations
which perform maintenance, remediation, closure, post-closure and related
services on landfill sites, and (c) corporate and other. Corporate and other
includes selling, general and administrative expenses not specifically allocable
to the other segments. Corporate assets are represented primarily by cash and
cash equivalents, marketable securities and real estate held for investment and
sale. Financial information by segment for the six months ended June 30, 2006
and 2005 follows.
(table in $000's) Electricity Environmental Corporate
Generation Services and Other Total
2006
Gross operating revenues $ 167 $ 617 $ - $ 784
Eliminations (a) $ - $ 617 $ - $ (617)
Net operating revenues $ 167 - - $ 167
Depreciation expense $ 5 $ 11 $ 6 $ 22
Income (loss)
from operations (b) $ 37 $ (48) $(1,027) $(1,038)
Capital expenditures $ 150 $ 64 $ 10 $ 224
2005
Gross operating revenues $ 151 $ 429 $ - $ 580
Eliminations (a) $ - $ (429) $ - $ (429)
Net operating revenues $ 151 $ - $ - $ 151
Depreciation expense $ 5 $ 11 $ 5 $ 21
Income (loss)
from operations (b) $ 19 $ (11) $ (874) $ (866)
Capital expenditures $ 13 $ - $ 4 $ 17
(a) Eliminations include intercompany sales, billings to the Kinsley's
Escrow and fees received in conjunction with the Kinsley's Landfill re-grading
project.
(b) Income (loss) from operations of the Environmental Services segment
includes accretion expense of $197,000 and $214,000 for 2006 and 2005,
respectively.
NOTE 9 - 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, 2005.
Results of Operations
Results for the six months ended June 30, 2006 and 2005
Consolidated net operating revenues were $167,000 for the six months ended
June 30, 2006, an increase of $16,000 or 11%, compared to $151,000 for the
period ended June 30, 2005. Consolidated operating revenues by business segment
for the six months ended June 30, 2006 and 2005 were as follows (in $000):
2006 2005
Environmental Svcs. $617 $429
Electricity Generation 167 151
Subtotal 784 580
Eliminations (617) (429)
Net Operating Revenues $167 $151
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
$617,000 of gross operating revenues for the period in 2006 (prior to
eliminations) compared to $429,000 for the period in 2005.
The Company's environmental services segment performs post-closure
activities on landfills previously operated by the Company's subsidiaries. Post
closure work performed on a landfill owned by the Company, the Kinsley's
Landfill, is submitted for reimbursement to a restricted escrow account
established to finance the post-closure activities at the site (the "Kinsley's
Escrow") (see Notes 4 and 6 to the Company's Consolidated Financial Statements).
The Company billed the Kinsley's Escrow approximately $425,000 and $413,000 for
post-closure maintenance performed during the six months ended June 30, 2006 and
2005, respectively. The Company has begun re-grading a section of the Kinsley's
Landfill in accordance with a plan approved by the New Jersey Department of
Environmental Protection ("NJDEP"). The re-grading plan calls for the use of
both recycled and non-recycled materials to fill and re-contour the areas of the
mound containing depressions. The Company receives a fee to accept certain of
the recycled materials. The costs incurred for re-grading activities shall be
paid from such fees. However, costs incurred for re-grading activities in
excess of such fees will be submitted to NJDEP for reimbursement from the
Kinsley's Escrow. The gross revenue reported for the environmental services
segment for the period in 2006 includes $184,000 from such fees (see Note 6).
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 Escrow.
Billings to the Kinsley's Escrow and for services provided to members of the
consolidated group, and fees received in conjunction with the re-grading project
are eliminated in the calculation of net operating revenue.
The Company is continuing its efforts to expand the customer base of the
environmental services segment to additional entities beyond the consolidated
group. The definition of the scope, commencement and duration of one such
opportunity, involving the potential beneficial use of landfill gas generated at
a site located in New Jersey, and owned by a third-party, is on-going. There
are no assurances such efforts will result in work for the Company.
Revenues from the segment that generates electricity using methane gas as
fuel were approximately $167,000 and $151,000 for the six months ended June 30,
2006 and 2005, respectively. Methane gas is a component of the gas generated by
landfills. The electricity generating facility is located at the Kinsley's
Landfill and consists of four trailer mounted diesel engine/electricity
generator units ("Gen-set(s)") each capable of generating approximately 11,000
kWh/day when operating at 85% capacity. Only two of the Gen-sets are operating;
the two non-operating Gen-sets require major repairs. Electricity generated is
sold pursuant to a contract with a local utility. Revenues are a function of
the number of kilowatt hours sold, the rate received per kilowatt hour and
capacity payments. The Company sold 2.9 million kWh during the six months ended
June 30, 2006 compared to 2.7 million kWh sold in the period of the prior year.
The average combined rate received (per Kilowatt and capacity payment) in the
current period increased approximately 3% when compared to the comparable period
last year. Engineering studies indicate that the quantity of gas generated by
the landfill is declining but sufficient to continue the operation of the
facility for at least seven years. Elements of the landfill gas are more
corrosive to the equipment than traditional fuels, resulting in more hours
dedicated to repair and maintenance than with equipment utilizing traditional
fuels.
Cost of Operations
Consolidated direct operating costs for the six months ended June 30, 2006
were $139,000, an increase of $7,000 or 5% when compared to $132,000 reported
for the period in 2005. The costs incurred by the environmental segment
remaining after the elimination of intercompany activity were $8,000 for the
period in 2006. Substantially all the costs of operations related to the
environmental services segment for the period in 2005 were incurred for
intercompany transactions and, therefore, eliminated in consolidation. The
costs of the electricity generating segment were $131,000 for the period in
2006, compared to $132,000 reported for the period in 2005. An additional
$13,000 incurred for re-building 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, 2006 were $869,000, an increase of $198,000 or 30% from
$671,000 reported for the period in the prior year. Components of selling,
general and administrative expenses for the six months ended June 30, 2006 and
2005 were as follows:
2006 2005
Legal expenses $ 233,000 $ 117,000
Other professional fees 97,000 62,000
Non-operating subsidiary expenses 32,000 29,000
All other administrative expenses 507,000 463,000
Total $ 869,000 $ 671,000
Legal expenses reported for the period in 2006 and 2005 include
approximately $139,000 and $40,000, 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. Such fees in the period for 2006 were
primarily attributable to matters related to the Kin-Buc Landfill and the
Berry's Creek Study Area. The Company also incurs legal and other professional
fees during the course of evaluating businesses for possible acquisition. The
increase in legal and other professional fees for the period in 2006 was also
due, in part, to such costs as the Company conducted due diligence of a company
for acquisition. The operating costs of the non-operating subsidiaries,
consisting primarily of insurance premiums, franchise, corporate and real estate
taxes, aggregated approximately $32,000 and $29,000 for the period in 2006 and
2005, respectively. The net $44,000 increase in all other administrative
expenses, to $507,000 for the period in 2006 from $463,000 for 2005, was
primarily due to increases in personnel related expenses. Professional fees and
administrative costs also continue to be incurred in regard to the Company's
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 $197,000 and $214,000 for the six
months ended June 30, 2006 and 2005, respectively.
Operating Loss
The Company's consolidated operating loss for the six months ended June 30,
2006 increased to $1,038,000 from a loss of $866,000 reported for the period in
2005.
Other Income (Expense)
Consolidated investment income was $135,000 for the six months ended June
30, 2006 versus $37,000 reported for the period in 2005 due to an increase in
the amount of cash equivalents and marketable securities available for
investment and the receipt of interest earned on a refund of income taxes
received during the period in 2006.
Consolidated investment income earned on the restricted escrow accounts
dedicated to the funding of the Company's landfill post-closure costs was
$128,000 and $147,000 for the six months ended June 30, 2006 and 2005,
respectively.
Consolidated interest expense was $2,000 for the six months ended June 30,
2006 and 2005.
Consolidated rental income, net of related expenses, was $41,000 and
$42,000 for the six months ended June 30, 2006 and 2005, respectively. 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) and net royalty payments received from the lessee of
certain of the Company's real property situated beneath the lessee's landfill.
Proceeds from insurance claims of $346,000 and $2,710,000 reported for the
six months ended June 30, 2006 and 2005, respectively, represent 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 income for the six months ended June 30, 2006
was $134,000 versus an expense of $247,000 reported for the period in 2005. The
income reported in the period for 2006 includes $129,000 received in settlement
of litigation initiated by the Company regarding its interest in a former real
estate partnership. The expense for the period in 2005 includes a charge of
$250,000 related to a payment made 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 loss before income tax expense (benefit) was $256,000 for
the six months ended June 30, 2006, compared to income of $1,821,000 for the
period in 2005.
Income Tax Expense (Benefit)
The provision for federal and state income tax benefit for the six months
ended June 30, 2006 equaled $72,000. The Company recognized federal income tax
benefit for the period due to its ability to carry-back net operating losses to
2005 for credit against federal income taxes paid with respect to such year.
The provision for federal and state income tax expense for the period in 2005
equaled $647,000.
Net Income (Loss)
Net loss for the six months ended June 30, 2006 was $184,000 or $.06 per
share, compared to net income of $1,174,000 or $.39 per share, for the six
months ended June 30, 2005.
Results for the three months ended June 30, 2006 and 2005
Consolidated net operating revenues were $58,000 for the three months ended
June 30, 2006, an increase of $3,000 or 5%, compared to $55,000 for the period
ended June 30, 2005. Consolidated operating revenues by business segment for
the three months ended June 30, 2006 and 2005 were as follows (in $000):
2006 2005
Environmental Svcs. $348 $222
Electricity Generation 58 55
Subtotal 406 277
Eliminations (348) (222)
Net Operating Revenues $ 58 $ 55
The environmental services segment reported $348,000 of gross operating
revenues for the period in 2006 (prior to eliminations) compared to $222,000 for
the period in 2005. The Company billed the Kinsley's Escrow approximately
$189,000 and $209,000 for post-closure services performed during the three
months ended June 30, 2006 and 2005, respectively. Revenues of the environmental
services segment for the period in 2006 also includes $155,000 of fees received
for accepting re-cycled materials utilized in conjunction with the re-grading
project at the Kinsley's Landfill. Billings to the Kinsley's Escrow and for
services provided to members of the consolidated group, and fees received in
conjunction with the re-grading project are eliminated in the calculation of net
operating revenue.
Revenues from the segment that generates electricity using methane gas as
fuel were approximately $58,000 and $55,000 for the three months ended June 30,
2006 and 2005, respectively. The Company sold 1.1 million kWh during the three
months ended June 30, 2006 compared to 982,000 kWh sold in the period of the
prior year. The average combined rate received (per Kilowatt and capacity
payment) in the current period decreased 8% when compared to the comparable
period last year.
Cost of Operations
Consolidated direct operating costs for the three months ended June 30,
2006 were $91,000, an increase of $31,000 or 52% when compared to $60,000
reported for the period in 2005. The costs incurred by the environmental
segment remaining after the elimination of intercompany activity were $7,000 for
the period in 2006. Substantially all the costs of operations related to the
environmental services segment for the period in 2005 were incurred for
intercompany transactions and, therefore, eliminated in consolidation. The
costs of the electricity generating segment were $84,000 for the period in 2006,
an increase of $24,000 or 40% when compared to $60,000 reported for the period
in 2005. The increase was primarily due to an increase in equipment repair
costs.
Consolidated selling, general and administrative expenses for the three
months ended June 30, 2006 were $466,000, an increase of $89,000 or 24% from
$377,000 reported for the period in the prior year. Components of selling,
general and administrative expenses for the three months ended March 31, 2006
and 2005 were as follows:
2006 2005
Legal expenses $ 149,000 $ 80,000
Other professional fees 60,000 35,000
Non-operating subsidiary expenses 22,000 19,000
All other administrative expenses 235,000 243,000
Total $ 466,000 $ 377,000
Legal expenses reported for the period in 2006 and 2005 include
approximately $74,000 and $30,000, 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. Such fees for the period in 2006 were
primarily attributable to the Berry Creek Study Area issue. The increase in
legal and other professional fees for the period in 2006 was also due in part to
the Company's due diligence investigation of a company for possible acquisition.
The operating costs of the non-operating subsidiaries, consisting primarily of
insurance premiums, franchise, corporate and real estate taxes, aggregated
approximately $22,000 and $19,000 for the period in 2006 and 2005, respectively.
The net $8,000 decrease in all other administrative expenses, to $235,000 for
the period in 2006 from $243,000 for 2005, was primarily due to decreases in
general operating expenses offset in part by an increase in personnel related
expenses.
Consolidated accretion expense recognized on the Company's asset retirement
obligation for landfill post-closure costs was $99,000 and $107,000 for the
three months ended June 30, 2006 and 2005, respectively.
Operating Loss
The Company's consolidated operating loss for the three months ended June
30, 2006 increased to $598,000 from a loss of $489,000 reported for the period
in 2005.
Other Income (Expense)
Consolidated investment income was $84,000 for the three months ended June
30, 2006 versus $21,000 reported for the period in 2005 due to an increase in
the amount of cash equivalents and marketable securities available for
investment during the period in 2006 and the receipt of interest earned on
refunded income taxes.
Consolidated investment income earned on the restricted escrow accounts
dedicated to the funding of the Company's landfill post-closure costs was
$55,000 and $50,000 for the three months ended June 30, 2006 and 2005,
respectively.
Consolidated interest expense was $1,000 for the three months ended June
30, 2006 and 2005.
Consolidated rental income, net of related expenses, was $20,000 and
$21,000 for the three months ended June 30, 2006 and 2005, respectively.
Proceeds from insurance claims of $346,000 and $2,710,000 reported for the
three months ended June 30, 2006 and 2005, respectively, 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 income (expense) for the three months ended June
30, 2006 was $3,000 versus an expense of $246,000 reported for the period in
2005. 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 loss before income tax expense (benefit) was $91,000 for
the three months ended June 30, 2006, compared to income of $2,066,000 for the
period in 2005.
Income Tax Expense (Benefit)
The provision for federal and state income tax benefit for the three months
ended June 30, 2006 equaled $27,000. The provision for federal and state income
tax expense for the period in 2005 equaled $647,000.
Net Income (Loss)
Net loss for the three months ended June 30, 2006 was $64,000 or $.02 per
share, compared to net income of $1,419,000 or $.48 per share, for the three
months ended June 30, 2005.
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 payable, and (iii) funding post-closure costs and other expenses
associated with sites of past operations. As discussed below, the Company owes
the Internal Revenue Service (the "Service") approximately $1.3 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. In addition, the Company cannot ascertain if its
operations and funding sources will be adequate to satisfy its future cash
requirements.
Statement of Cash Flow
Net cash used in operating activities for the six months ended June 30,
2006 equaled $526,000 compared to $1,776,000 provided from operations for the
period in 2005. The primary sources of cash from operating activities for the
period in 2006 was $521,000 of other income, which included $346,000 received
from estate of insolvent insurer, and $129,000 of proceeds from the settlement
of litigation related to an investment in a real estate partnership. The
primary source of cash from operating activities in 2005 was $2,710,000 received
from the estates of insolvent insurers. The primary use of cash in operating
activities in 2006 and 2005 was the amount paid to suppliers and employees. A
significant use of cash in operating activities for the period in 2006 was the
payment of $531,000 toward income taxes accrued for 2005, reported net of a
$436,000 federal income tax refund received during May 2006, and for both 2006
and 2005, installments paid pursuant to the Company's Offer in Compromise
discussed below. Payments of landfill post-closure costs related to the
Kinsley's Landfill and the Mac Landfill were $365,000 and $480,000 for the
period in 2006 and 2005, respectively. Certain post-closure maintenance costs
of the Kinsley's Landfill are initially paid by the Company, such as personnel
costs and other necessary materials or services for which credit terms are
limited. The Company seeks reimbursement for such payments from the restricted
escrow accounts dedicated to fund the post-closure costs of the Kinsley's
Landfill. The proceeds from post-closure escrow funds reported for 2006 and
2005, $156,000 and $464,000 respectively, were received from the Kinsley's
Escrow. Post-closure costs of the Mac Landfill are funded from the Company's
general funds, and equaled $8,000 and $16,000 for the period in 2006 and 2005,
respectively. See Note 6 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 $296,000 for the period in
2006 versus $1,375,000 for the period for 2005. The funds invested in
marketable securities during the period in both 2006 and 2005 were greater than
the amount of funds utilized for operations or retained as cash equivalents.
Capital expenditures of $224,000 for the period in 2006 include $150,000
expended for refurbishing a GenSet, $31,000 expended on the construction of a
new maintenance facility at Kinsley's Landfill, $28,000 for a vehicle and the
balance for miscellaneous equipment. Capital expenditure of $17,000 for the
period in 2006 includes $13,000 for refurbishing gas blowers, and the balance
for miscellaneous equipment. The cash flow from financing activities of
$14,000 reported for the period in 2006 reflects proceeds from financing in
excess of payments toward long term debt.
As a result of these activities, funds held by the Company in the form of
cash and cash equivalents decreased for the six months ended June 30, 2006 by
$808,000 from December 31, 2005, versus an increase of $391,000 reported for the
period last year. The sum of cash, cash equivalents and marketable securities
as of June 30, 2006 decreased to $5,796,000 from $6,516,000 reported as of
December 31, 2005.
Working capital equaled $4,804,000 and $5,457,000 as of June 30, 2006 and
December 31, 2005, respectively, and the ratio of current assets to current
liabilities was 3.2 to 1 and 3.1 to 1 as of June 30, 2006 and December 31, 2005,
respectively.
Taxes
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. During July 2004, the Service accepted the
Company's Offer in Compromise (the "Offer") which requested a reduction in the
amount payable pursuant to such settlements and permission to pay the reduced
obligation in installments. The Offer committed the Company to pay a total of
$2,490,000 in satisfaction of the assessed federal income taxes and interest. 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 total
of the installments paid through June 30, 2006 equals $419,000. The approximate
amounts due for the five years subsequent to June 30, 2006 are as follows:
$219,000; $219,000; $166,000; $161,000 and $161,000. 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 carry-back
of losses. Should the Company default in any of the terms of the Offer, the
Service may initiate suit to impose one or more remedies available to it,
including the reinstatement of the total amount previously assessed and/or
impose interest.
Post-Closure Costs
As of June 30, 2006, the Company has accrued approximately $9.5 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
$7.5 million is held in escrow for the post-closure activities of the Kinsley's
Landfill (see Notes 4 and 6 to the Company's Consolidated Financial Statements).
Contingent Environment Liabilities
During November 2004, the Company along with fourteen other potentially
responsible parties were named as respondents to an Unilateral Administrative
Order issued by EPA regarding the Scientific Chemical Processing Superfund Site
(the "SCP Site") located in Carlstadt, New Jersey, which has been undergoing
remediation pursuant to Unilateral Administrative Order issued in 1990. The
November 2004 Unilateral Administrative Order seeks contribution from the
fifteen respondents, and a group of sixty nine other potentially responsible
parties, 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 Company, together with
the property owner, have contributed cash and proceeds from insurance
settlements toward the remediation of the SCP Site. Such contributions total
$16.4 million through December 31, 2005, plus interest earned thereon, which the
Company believes should satisfy the share of remediation costs which could be
found attributable to the Company for the SCP Site.
The Company was one of 158 recipients of a Notice of Potential Liability
and Request to Perform Remedial Investigation/Feasibility Study (the "Notice"),
issued by EPA on March 9, 2006, regarding the contamination of the Berry's Creek
Study Area (the "Creek Area") located in Bergen County, N.J. A tributary
adjacent to the SCP Site in Carlstadt, N.J. flows into Berry's Creek. The Creek
Area includes the approximately seven miles long water body known as Berry's
Creek, a canal, all tributaries to Berry's Creek and related wetlands. Tidal
areas of the river into which Berry's Creek empties are also subject of the
Notice. Each recipient of the Notice is designated as a potentially responsible
party under CERCLA, and may be held liable for the cleanup of the Creek Area and
costs EPA has incurred with regard to the Creek Area. The investigation and
feasibility study regarding the scope of the remediation of the Creek Area is
ongoing. The selection of the ultimate remediation methodology from alternative
approaches is to be made by EPA in 2010. Since no discovery has taken place
concerning allegations against the Company, it is not possible to estimate the
Company's ultimate liability, if any, with respect to the Creek Area.
The Kin-Buc Landfill is located in Edison, New Jersey, and was operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc. ("Kin-
Buc"). Operations at the Kin-Buc Landfill ceased in 1977. The operation and
maintenance of remedial measures implemented at the Kin-Buc Landfill continue
pursuant to the provisions of Administrative Orders issued by the United States
Environmental Protection Agency ("EPA") to the Company and other respondents,
including SCA Services, Inc. ("SCA"), an affiliate of Waste Management, Inc.
("WMI"). During December 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 also agreed to
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
continues to incur administrative and legal costs for issues and activities
related to the site.
The impact of future events or changes in environmental laws and
regulations, which cannot be predicted at this time, could result in material
increases in remediation and closure costs related to these sites, possibly in
excess of the Company's available financial resources. A significant increase
in such costs could have a material adverse effect on the Company's financial
position, results of operations and net cash flows. The costs of litigation
associated with a site are expensed as incurred.
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, 2006 and December 31,
2005. The property adjoins the Kinsley's Landfill. The contract, as amended,
contemplates the sale of the 60 acres (45 acres usable land and 15 acres of
wetlands) for $2.1 million. During April 2006, the Company entered into an
amendment to the contract that, among other conditions, extended the closing to
a date no later than December 2006. The building which houses the machinery and
equipment utilized for the Company's operations is located on the property under
contract, therefore the Company is constructing a replacement facility. 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 been paying installments which total $201,000 through June 30, 2006.
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.
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"). Many of the non-settling
insurance companies are insolvent, however the estates of some of these
insolvent companies have sufficient assets to make a partial contribution toward
claims filed by the Company. During April 2006, the Company received proceeds
of $346,000 on claims filed against an insolvent excess insurance carrier.
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 a group
of potentially responsible parties ("the AT&T Group"), the AT&T Group members
received $250,000 of that 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.
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 is 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 reported, on December 30, 2004, Transtech together with its
two wholly-owned subsidiaries Kin-Buc, Inc. ("Kin-Buc") and Filcrest Realty,
Inc. ("Filcrest") and other parties identified below executed consent decrees
which resolved the claims brought against the Company and others by EPA, the New
Jersey Department of Environmental Protection and New Jersey Spill Compensation
Fund regarding the Kin-Buc Landfill 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") before the U.S. District Court for the
District of New Jersey (the "Court"). The Court entered the consent decrees on
October 18, 2005.
Included in the documents entered by the Court on October 18, 2005 were (i)
a Consent Decree executed by the defendants, the U.S. Department of Justice and
EPA on December 30, 2004 (the "Federal Consent Decree"), and (ii) a contract
(the "CLF Contract") between the Company and the Clean Land Fund ("CLF"), a
third party non-profit organization.
The Federal Consent Decree resolved the claims of EPA as alleged in the
Lawsuit. 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 (the
"OSPP") (b) the commitment by the Company, through CLF as its agent, to develop
and implement a Wetlands Restoration and Land Management Project, (the "WRLMP")
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 in December 2004, 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 OSPP and WRLMP is to be conducted on real property transferred to CLF
that consists of one parcel of approximately 25 acres previously 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 previously owned by Filcrest.
The WRLMP 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 a statement of work embodied in the Federal Consent Decree. CLF
had experienced delays in implementing the WRLMP. EPA is aware of such delays
having received status reports issued by CLF and having participated in
discussions regarding the factors contributing to the delays and the actions
taken to address them.
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 Company
abandons the CLF Contract. 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.
No material developments have occurred with respect to 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, 2005 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.
In the ordinary course of conducting its business, the Company becomes
involved in certain lawsuits and administrative proceedings (other than those
referred herein), some of which may result in fines, penalties or judgments
being assessed against the Company. The management of the Company is of the
opinion that these proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated financial position.
Item 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 10(bk) Second Amendment to the Agreement of Purchase and Sale
dated April 20, 2006 among Trantech Industries, Inc. (and
its subsidiaries Birchcrest, Inc. and Kinsley's Landfill,
Inc.) and BWF Development, LLC. (incorporated by reference
to the Company's report on Form 10-QSB filed for the
quarter ended March 31, 2006).
Exhibit 31(a) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer
Exhibit 31(b) - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial Officer
Exhibit 32(a) - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by Chief Executive Officer
Exhibit 32(b) - Certification Pursuant to 18 U.S.C. Section 1350,as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by Chief Financial Officer
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: August 14, 2006 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: August 14, 2006 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)