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 September 30, 2007
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) 564-3122
(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 November 12, 2007. 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 50 pages
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Financial Statements for the periods
ending September 30, 2007 and 2006 are unaudited):
Consolidated Balance Sheets as of September 30,
2007 and December 31, 2006 3 - 4
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Nine
Months Ended September 30, 2007 and 2006 5
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three
Months Ended September 30, 2007 and 2006 6
Consolidated Statements of Cash Flows for the
Nine months Ended September 30, 2007 and 2006 7 - 8
Notes to Consolidated Financial Statements 9 - 20
Item 2. Management's Discussion and Analysis
or Plan of Operation 21 - 39
Item3A(T). Controls and Procedures 40
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 41
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Submission of Matters to a Vote of
Security Holders 42
Item 5. Other Information 42
Item 6. Exhibits 43
SIGNATURES 44
EXHIBITS 45 - 50
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September 30, December 31,
2007 2006
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 724 $ 1,601
Marketable securities 3,626 4,645
Accounts receivable - trade 60 29
Refundable income taxes 386 88
Prepaid expenses and other 92 25
Restricted escrow accounts for
post-closure costs 1,012 1,013
Total current assets 5,900 7,401
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 567 354
Machinery and equipment 3,370 3,421
Total gross assets 5,004 4,842
Less accumulated depreciation 3,005 2,997
Net property, plant and
equipment 1,999 1,845
OTHER ASSETS
Restricted escrow accounts for
post-closure costs 6,816 6,543
Other 191 142
Total other assets 7,007 6,685
TOTAL ASSETS $14,906 $15,931
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
September 30, December 31,
2007 2006
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 10 $ 14
Accounts payable 310 217
Current portion of income taxes
payable 209 219
Accrued income taxes 48 48
Accrued professional fees 362 326
Accrued miscellaneous liabilities 75 66
Deferred taxes 14 -
Current portion of accrued post-
closure costs 1,030 1,013
Total current liabilities 2,058 1,903
OTHER LIABILITIES
Long-term debt 20 27
Income taxes payable 778 933
Accrued post-closure costs 7,864 8,399
Total other liabilities 8,662 9,359
STOCKHOLDERS' EQUITY
Common stock, $.50 par value,
10,000,000 shares authorized,
4,864,940 shares issued 2,432 2,432
Additional paid-in capital 1,450 1,450
Retained earnings 11,164 11,821
Accumulated other comprehensive
income (loss) 154 (20)
Subtotal 15,200 15,683
Treasury stock, at cost - 1,885,750
shares (11,014) (11,014)
Total stockholders' equity 4,186 4,669
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $14,906 $15,931
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 Nine months Ended
September 30,
2007 2006
NET OPERATING REVENUES $ 400 $ 277
COST OF OPERATIONS
Direct operating costs 224 216
Selling, general and administrative
expenses 1,317 1,208
Accretion expense 274 296
Total cost of operations 1,815 1,720
LOSS FROM OPERATIONS (1,415) (1,443)
OTHER INCOME (EXPENSE)
Investment income 136 192
Investment income on restricted
escrow account 224 188
Interest expense (2) (6)
Rental income 6 61
Proceeds from insurance claims 56 435
Miscellaneous income, net of
miscellaneous expenses 40 136
Total other income 460 1,006
LOSS BEFORE INCOME TAX BENEFIT (955) (437)
Income tax benefit (298) (141)
NET LOSS $ (657) $ (296)
NET LOSS PER COMMON SHARE $ (.22) $ (.10)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE LOSS:
NET LOSS $ (657) $ (296)
Change in unrealized loss, net of tax 174 83
NET COMPREHENSIVE LOSS $ (483) $ (213)
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
September 30,
2007 2006
NET OPERATING REVENUES $ 189 $ 110
COST OF OPERATIONS
Direct operating costs 71 77
Selling, general and administrative
expenses 450 339
Accretion expense 91 99
Total cost of operations 612 515
LOSS FROM OPERATIONS (423) (405)
OTHER INCOME (EXPENSE)
Investment income 34 57
Investment income on restricted
escrow account 80 60
Interest expense - (4)
Rental income - 20
Proceeds from insurance claims 56 89
Miscellaneous income, net of
miscellaneous expenses 40 2
Total other income 210 224
LOSS BEFORE INCOME TAX BENEFIT (213) (181)
Income tax benefit (42) (69)
NET LOSS $ (171) $ (112)
NET LOSS PER COMMON SHARE $ (.06) $ (.04)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE LOSS:
NET LOSS $ (171) $ (112)
Change in unrealized gain (loss),
net of tax 207 165
NET COMPREHENSIVE LOSS $ 36 $ 33
See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
For the Nine months Ended
September 30,
2007 2006
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 369 $ 312
Cash paid to suppliers and employees (1,474) (1,368)
Interest and dividends received 136 192
Other income received 102 633
Interest paid (2) (6)
Income taxes paid, net of refunds (165) (281)
Payment of post-closure costs, net of
proceeds from escrow of $84 and
$424, respectively (675) (102)
Net cash used in operating activities (1,709) (620)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of
marketable securities 7,004 6,589
Purchase of marketable securities (5,945) (4,507)
Collection of notes receivable - 1
Proceeds from sale of equipment 16 -
Purchase of property, plant and
equipment (232) (358)
Net cash provided by investing
activities 843 1,725
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from vehicle financing - 25
Principal payments on vehicle financing (11) (35)
Net cash used in financing
activities (11) (10)
NET DECREASE IN CASH
AND CASH EQUIVALENTS (877) 1,095
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 1,601 2,071
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 724 $ 3,166
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Nine months Ended
September 30,
2007 2006
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $ (657) $ (296)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation 62 34
Accretion expense 274 296
Earnings on restricted escrow accounts (224) (188)
(Increase) decrease in assets:
Accounts receivable net (31) 35
Refundable income taxes (298) 272
Prepaid expenses and other (67) (8)
Deposits (49) -
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 85 43
Income taxes payable (165) (164)
Accrued income taxes - (529)
Accrued professional fees 36 (13)
Accrued post-closure costs, net of
proceeds from escrow of $84 and $424,
respectively (675) (102)
NET CASH USED IN OPERATING ACTIVITIES $(1,709) $ (620)
See Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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
accounting principles generally accepted in the United States of America 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, 2006 for further
information.
The financial information has been prepared in accordance with the
Company's customary accounting practices except for certain
reclassifications to the 2006 consolidated financial statements in order to
conform to the presentation followed in preparing the 2007 consolidated
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 the consolidated 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 consolidated 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 both
the nine and three month periods ended September 30, 2007 and 2006, and
represented 100% of the Company's Accounts Receivable - Trade as of
September 30, 2007 and December 31, 2006.
In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109, which clarifies the
accounting and disclosure for uncertainty in tax positions, as defined. FIN
48 seeks to reduce the diversity in practice associated with certain aspects
of the recognition and measurement related to accounting for income taxes.
This interpretation is effective for fiscal years beginning after December
15, 2006. The adoption of FIN 48 has not resulted in a material effect on
the Company's financial condition or results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting principles
generally accepted in the United States, and expands disclosures about fair
value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, with earlier
application encouraged. Any amounts recognized upon adoption as a
cumulative effect adjustment will be recorded to the opening balance of
retained earnings in the year of adoption. The Company has not yet
determined the impact of this statement on its results of operations or
financial condition.
In February 2007, the FASB issued SFAS No. 159, "Establishing the Fair
Value Option for Financial Assets and Liabilities" to permit all entities to
choose to elect to measure eligible financial instruments at fair value.
The decision whether to elect the fair value option may occur for each
eligible item either on a specified election date or according to a
preexisting policy for specified types of eligible items. However, that
decision must also take place on a date on which criteria under SFAS 159
occurs. Finally, the decision to elect the fair value option shall be made
on an instrument-by-instrument basis, except in certain circumstances. An
entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date,
and recognize upfront costs and fees related to those items in earnings as
incurred and not deferred. SFAS No. 159 applies to fiscal years beginning
after November 15, 2007, with early adoption permitted for an entity that
has also elected to apply the provisions of SFAS No. 157, Fair Value
Measurements. An entity is prohibited from retrospectively applying SFAS
No. 159, unless it chooses early adoption. SFAS No. 159 also applies to
eligible items existing at November 15, 2007 (or early adoption date). The
Company has not yet determined the impact of this statement on its results
of operations or financial condition.
NOTE 2 - MARKETABLE SECURITIES
At September 30, 2007, 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 $3,626,000, with a cost of $3,585,000 and
unrealized gains of $41,000. At December 31, 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 $4,645,000, which
approximated cost. The unrealized gains related to the Company's marketable
securities are included in stockholders' equity, net of income tax
(stockholders' equity also includes net unrealized gains related to the
restricted escrow accounts discussed in Note 3). Proceeds from the maturity
of marketable securities for the nine months ended September 30, 2007 were
$7,004,000. No marketable securities were sold prior to their maturity
during the period in either 2007 or 2006.
NOTE 3 - RESTRICTED ESCROW ACCOUNTS FOR POST-CLOSURE COSTS
At September 30, 2007 and December 31, 2006 the Company held
$7,828,000 and $7,556,000, respectively, in restricted escrow accounts
which are to be used to fund post-closure costs at Kinsley's Landfill (the
"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 September
30, 2007 the securities are carried at their fair value of $7,828,000, with
a cost of $7,701,000, gross unrealized gains of $151,000 and gross
unrealized losses of $24,000. At December 31, 2006 the securities had a
fair market value of $7,556,000, with a cost of $7,576,000, gross unrealized
gains of $55,000 and gross unrealized losses of $75,000. The net unrealized
gains and 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 accrued post-closure costs related to the Kinsley's Landfill (see Note
5).
NOTE 4 - INCOME TAXES
The Company recognized a federal income tax benefit for the nine
months ended September 30, 2007 due to its ability to carry-back net
operating losses to 2006 and 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 nine months
ended September 30, 2007 and 2006 is based upon the Company's anticipated
annual effective tax rate and consists of the following (table in 000's):
2007 2006
Provision for operations
Currently payable (refundable):
Federal $(315) $(141)
State 17 -
(298) (141)
Deferred:
Federal - -
State - -
- -
Total income tax provision (benefit) $(298) $(141)
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 of
approximately $4,800,000. 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 sixty
months beginning August 2008. The total of the installments paid from
inception through September 30, 2007 equals approximately $693,000. The
approximate amounts due for the five years subsequent to September 30, 2007
are as follows: $209,000; $161,000; $161,000; $161,000 and $161,000. The
Service does not impose interest on amounts payable pursuant to the Offer.
The Company is 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
September 30, 2007 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 also 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 September 30, 2007 includes $48,000 for accrued state
interest.
NOTE 5 - POST-CLOSURE COSTS AND CONTINGENT ENVIRONMENTAL LIABILITIES
Post-Closure Costs
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 3.
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 tables summarize the actual activity in the Company's
asset retirement obligation liabilities for post-closure costs for the nine
months ended September 30, 2007 and 2006 (table in $000):
2007 2006
Asset retirement obligation
liability, beginning of period $ 9,412 $ 9,746
Accretion expense 274 296
Obligations settled during
the period (752) (742)
Other adjustments (discussed below) (40) 186
Asset retirement obligation
liability, end of period 8,894 9,486
Less: Current portion (1,030) (1,007)
Long-term portion $ 7,864 $ 8,479
The amount reported as current portion represents the estimate of the
cost to be incurred during the subsequent twelve months.
The Company's total and current portion of accrued post-closure costs
by site as of September 30, 2007 and December 31, 2006 are as follows (table
in $000's):
September 30, December 31,
2007 2006
Kinsley's landfill $ 8,876 $ 9,385
Mac landfill 18 27
Total $ 8,894 $ 9,412
Kinsley's landfill $ 1,012 $ 986
Mac landfill 18 27
Current portion $ 1,030 $ 1,013
The post-closure maintenance costs of the Kinsley's Landfill are
funded from a restricted escrow account (see Note 3).
The Company annually reviews 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.
The Company began re-grading a section of the Kinsley's Landfill in
2006 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, if any, will be submitted
to NJDEP for reimbursement from the Kinsley's Escrow. The amounts reported
as Other adjustments in the above tables equal the proceeds generated from
the materials received in the re-grading project at the Kinsley's Landfill,
less related re-grading expenses.
During July, 2007 the Company received notice from the NJDEP that it
has modified its approval of the re-grading plan. Such modifications may
negatively impact the quantity of the fee producing materials the Company
may accept for the re-grading project and increase the cost of utilizing
such materials. The Company has challenged the NJDEP's modification to the
re-grading plan and has requested to present its objections before an
administrative hearing.
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 the United States Environmental Protection Agency ("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 the 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 the 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 and
had been named as a respondent to the Administrative Order issued regarding
the SCP site in 1990. 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, 2006, 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 the 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 mile 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 the 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 the 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 and consequently no liability has been recorded on the
Company's financial statements.
The Kin-Buc Landfill, located in Edison, New Jersey, 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 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 the 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 6 - LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2007 and
December 31, 2006 (table in $000's, except for monthly installment amounts):
September 30, December 31,
2007 2006
Note payable to bank due in monthly
installments of $691, including
interest at 7.0% per annum, to August
2007 $ - $ 5
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 $13 10 13
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 $21 20 23
Total long-term debt 30 41
Less: Current portion (10) (14)
Long-term portion $ 20 $ 27
NOTE 7 - 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 nine months ended September 30, 2007 and 2006 follows.
(table in $000's) Electricity Environmental Corporate
Generation Services and Other Total
2007
Gross operating revenues $ 400 $ 745 $ - $ 1,145
Eliminations (a) - (745) - (745)
Net operating revenues 400 - - 400
Depreciation expense 37 19 6 62
Income (loss)
from operations (b) 153 (297) (1,271) (1,415)
Capital expenditures 2 227 3 232
2006
Gross operating revenues $ 277 $ 951 $ - $ 1,228
Eliminations (a) - (951) - (951)
Net operating revenues 277 - - 277
Depreciation expense 7 18 9 34
Income (loss)
from operations (b) 68 (53) (1,458) (1,443)
Capital expenditures 260 86 12 358
(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 $274,000 and $296,000 for 2007 and
2006, respectively.
NOTE 8 - 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, 2006.
Results of Operations
Results for the nine months ended September 30, 2007 and 2006
Consolidated net operating revenues were $400,000 for the nine months
ended September 30, 2007, an increase of $123,000 or 44%, compared to
$277,000 reported for the period ended September 30, 2006. Consolidated
operating revenues by business segment for the nine months ended September
30, 2007 and 2006 were as follows (table in $000):
2007 2006
Environmental Svcs. $ 745 $ 951
Electricity Generation 400 277
Subtotal 1,145 1,228
Eliminations (745) (951)
Net Operating Revenues $ 400 $ 277
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 $745,000 of gross operating revenues for the period in
2007 (prior to eliminations) compared to $951,000 for the period in 2006.
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 3 and 5 to the Company's Consolidated
Financial Statements). The Company billed the Kinsley's Escrow
approximately $725,000 and $616,000 for post-closure maintenance performed
during the nine months ended September 30, 2007 and 2006, respectively. The
Company is also 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, if any, will be submitted
to NJDEP for reimbursement from the Kinsley's Escrow. The Company intends
to utilize recycled materials to the fullest extent possible in order to
minimize the amount of re-grading costs paid from the Kinsley's Escrow, if
any. The Company competes with certain landfills and development projects
for the revenue producing materials on the basis of the fee imposed for
accepting the materials and transportation cost, and must obtain NJDEP
approval prior to utilizing material from a new source. The gross revenue
reported for the environmental services segment for the period in 2007 and
2006 includes $12,000 and $184,000 from such fees (see Note 5).
The decline in the revenue associated with the recycled material is
due to competition for such materials from a nearby re-development project
and delays in the receipt of approvals of materials from the NJDEP. During
July, 2007 the Company received notice from the NJDEP that it has modified
its approval of the re-grading plan. Such modifications may continue to
negatively impact the quantity of the fee producing materials the Company
may accept for the re-grading project and increase the cost of utilizing
such materials. The Company has challenged the NJDEP's modification to the
re-grading plan, and has requested to present its objections before an
administrative hearing.
Billings to the Kinsley's Escrow and for services provided to members
of the consolidated group, and the 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 $400,000 and $277,000 for the nine months ended
September 30, 2007 and 2006, 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 kilowatt hours ("kWh") per day when
operating at 85% capacity. Two of the four Gen-sets were operational
during 2006. The third Gen-set was refurbished during 2006 and became
operational during January 2007. Repairs to the fourth Gen-set have been
deferred. Electricity generated is sold pursuant to a contract with a
local utility. Revenues are a function of the number of kWh sold, the rate
received per kWh and capacity payments. The Company sold 5.78 million kWh
during the nine months ended September 30, 2007 compared to 4.64 million
kWh sold in the period of the prior year. The average combined rate (kWh
and capacity payments) received per kWh for the nine months ended September
30, 2007 and 2006 equaled $.0692 and $.0579, respectively. The kWh
produced during the second quarter in 2007 was adversely impacted by a
failure in the operation's switch gear. The facility did not generate
power for approximately 41 days as temporary equipment was located and
installed. The Company anticipates replacement equipment will be installed
during the fourth quarter of 2007 and cannot predict the amount of time the
facility may be idle for such purpose. Engineering studies indicate that
the quantity of gas generated by the landfill is declining but project
sufficient landfill gas to continue the operation of three of the existing
Gen-sets through 2011 and two of the existing Gen-sets for the period of
2012 through 2017. Elements of the landfill gas are more corrosive to the
equipment than traditional fuels, resulting in more off-line hours
dedicated to repair and maintenance than with equipment utilizing
traditional fuels.
Cost of Operations
Consolidated direct operating costs for the nine months ended
September 30, 2007 were $224,000, an increase of $8,000 or 4% when compared
to $216,000 reported for the period in 2006. All the direct operating
costs related to the environmental services segment for the period in 2007
were incurred for the intercompany transactions described above and,
therefore, eliminated in consolidation. The environmental segment reported
costs of $8,000 after the elimination of intercompany activity for the
period in 2006. The direct operating costs of the electricity generating
segment for the period in 2007 and 2006 were $224,000 and $208,000,
respectively. The increase in operating costs is primarily attributable to
work performed toward the start-up of the third Gen-set.
Consolidated selling, general and administrative expenses for the nine
months ended September 30, 2007 and 2006 were $1,317,000 and $1,208,000,
respectively. Components of selling, general and administrative expenses
for the nine months ended September 30, 2007 and 2006 were as follows
(table in $000):
2007 2006
Legal expenses $ 302 $ 293
Other professional fees 157 121
Non-operating subsidiary expenses 40 42
All other administrative expenses 818 752
Total $1,317 $1,208
Legal expenses reported for the period in 2007 and 2006 include
approximately $169,000 and $168,000, 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 potentially responsible party ("PRP") or
potential PRP. Such fees in the periods for both 2007 and 2006 were
primarily attributable to matters related to the Kin-Buc Landfill and the
Berry's Creek Study Area. Other professional fees include fees due to
accountants, engineers, consultants and directors. The increase in other
professional fees for the period in 2007 is due in part to services
associated with documentation and evaluation of the Company's financial
reporting controls as required pursuant to the Sarbanes-Oxley Act of 2002.
The operating costs of the non-operating subsidiaries, consisting primarily
of insurance premiums, franchise, corporate and real estate taxes,
aggregated approximately $40,000 and $42,000 for the period in 2007 and
2006, respectively. All other administrative expenses increased $66,000 to
$818,000 for the period in 2007 from $752,000 for the period in 2006. This
increase was primarily attributable to rent paid to occupy the building
sold in October 2006 which houses the environmental services operations,
labor hours spent toward the relocation of operations to the newly
constructed facility and general operating 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). The Company also incurs legal and other
professional fees, and administrative expenses, during the course of
evaluating businesses for possible acquisition.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure costs was $274,000 and
$296,000 for the nine months ended September 30, 2007 and 2006,
respectively.
Operating Loss
The Company's consolidated operating loss for the nine months ended
September 30, 2007 decreased to $1,415,000 from a loss of $1,443,000
reported for the period in 2006.
Other Income (Expense)
Consolidated investment income was $136,000 for the nine months ended
September 30, 2007 versus $192,000 reported for 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
$224,000 and $188,000 for the nine months ended September 30, 2007 and 2006,
respectively.
Consolidated interest expense was $2,000 and $6,000 for the nine
months ended September 30, 2007 and 2006, respectively.
Consolidated rental income, net of related expenses, was $6,000 and
$61,000 for the nine months ended September 30, 2007 and 2006,
respectively. Income included in this category consists of royalty
payments, reported net of commission, received from the lessee of certain
of the Company's real property situated beneath the lessee's landfill and
income earned from the rental of certain of the Company's property. The
decrease in rental income is primarily attributable to the sale of certain
real estate during October 2006 (see "Liquidity and Capital Resources -
Sale of Real Property" below).
Proceeds from insurance claims of $56,000 and $435,000 reported for
the nine months ended September 30, 2007 and 2006, respectively, represent
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 net miscellaneous income for the nine months ended
September 30, 2007 and 2006 was $40,000 and $136,000, respectively. The
income reported for the period in 2007 reflects $40,000 received in
settlement of litigation initiated by the Company to recover a portion of
the costs incurred during the Company's evaluation of a business for
possible acquisition. The income reported for the period in 2006 includes
$129,000 received in settlement of litigation initiated by the Company
regarding its interest in a former real estate partnership.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $955,000 for the
nine months ended September 30, 2007, compared to a loss of $437,000 for
the period in 2006.
Income Tax Benefit
The provision for federal and state income tax benefit for the nine
months ended September 30, 2007 and 2006 equaled $298,000 and $141,000,
respectively. The Company recognized federal income tax benefit for the
periods due to its ability to carry-back net operating losses to 2006 and
2005 for credit against federal income taxes paid with respect to such
years.
Net Income (Loss)
Net loss for the nine months ended September 30, 2007 was $657,000 or
$.22 per share, compared to a net loss of $296,000 or $.10 per share, for
the nine months ended September 30, 2006.
Results for the three months ended September 30, 2007 and 2006
Consolidated net operating revenues were $189,000 for the three months
ended September 30, 2007, an increase of $79,000 or 72%, compared to
$110,000 for the period ended September 30, 2006. Consolidated operating
revenues by business segment for the three months ended September 30, 2007
and 2006 were as follows (table in $000):
2007 2006
Environmental Svcs. $ 209 $ 334
Electricity Generation 189 110
Subtotal 398 444
Eliminations (209) (334)
Net Operating Revenues $ 189 $ 110
The environmental services segment reported $209,000 of gross
operating revenues for the period in 2007 (prior to eliminations) compared
to $334,000 for the period in 2006. The Company billed the Kinsley's
Escrow approximately $205,000 and $190,000 for post-closure services
performed during the three months ended September 30, 2007 and 2006,
respectively. Revenues of the environmental services segment for the period
in 2006 also includes $139,000 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 electricity generation segment were approximately
$189,000 and $110,000 for the three months ended September 30, 2007 and
2006, respectively. The Company sold 2.43 million kWh during the three
months ended September 30, 2007 compared to 1.75 million kWh sold in the
period of the prior year. The average combined rate (kWh and capacity
payments) received per kWh for the three months ended September 30, 2007
were $.078 and $.062, respectively. Two of the four Gen-sets were
operational during the period in 2006, and three of the four Gen-sets were
operational during the period in 2007.
Cost of Operations
Consolidated direct operating costs for the three months ended
September 30, 2007 were $71,000, a decrease of $6,000 or 8% when compared
to $77,000 reported for the period in 2006. Substantially all the costs of
operations related to the environmental services segment for the period in
2007 and 2006 were incurred for the intercompany transactions described
above and, therefore, eliminated in consolidation. Therefore, the
consolidated direct operating costs represent the direct operating costs of
the electricity generating segment for the period in 2007 and 2006.
Consolidated selling, general and administrative expenses for the
three months ended September 30, 2007 and 2006 were $450,000 and $339,000,
respectively. Components of selling, general and administrative expenses
for the three months ended September 30, 2007 and 2006 were as follows
(table in $000):
2007 2006
Legal expenses $ 79 $ 60
Other professional fees 74 24
Non-operating subsidiary expenses 11 10
All other administrative expenses 286 245
Total $450 $339
Legal expenses reported for the period in 2007 and 2006 include
approximately $15,000 and $29,000, 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 potentially responsible party ("PRP") or
potential PRP. Such fees in the periods for both 2007 and 2006 were
primarily attributable to matters related to the Kin-Buc Landfill and the
Berry's Creek Study Area. The increase in other professional fees for the
period in 2007 is due in part to services associated with documentation and
evaluation of the Company's financial reporting controls as required
pursuant to the Sarbanes-Oxley Act of 2002. The operating costs of the
non-operating subsidiaries, consisting primarily of insurance premiums,
franchise, corporate and real estate taxes, aggregated approximately
$11,000 and $10,000 for the period in 2007 and 2006, respectively. All
other administrative expenses increased $41,000 to $286,000 for the period
in 2007 from $245,000 for the period in 2006. This increase was primarily
attributable to rent expense, labor hours spent toward the relocation of
operations to the newly constructed facility and general operating
expenses.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure costs was $91,000 and
$99,000 for the three months ended September 30, 2007 and 2006,
respectively.
Operating Loss
The Company's consolidated operating loss for the three months ended
September 30, 2007 increased to $423,000 from a loss of $405,000 reported
for the period in 2006.
Other Income (Expense)
Consolidated investment income was $34,000 for the three months ended
September 30, 2007 versus $57,000 reported for 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
$80,000 and $60,000 for the three months ended September 30, 2007 and 2006,
respectively.
Consolidated interest expense was less than $1,000 for the three
months ended September 30, 2007 and $4,000 for the period in 2006.
Consolidated rental income, net of related expenses, was less than
$1,000 for the three months ended September 30, 2007 and $20,000 for the
period in 2006. The decrease in rental income is primarily attributable to
the sale of certain real estate during October 2006 (see "Liquidity and
Capital Resources - Sale of Real Property" below).
Proceeds from insurance claims of $56,000 and $89,000 reported for the
three months ended September 30, 2007 and 2006, respectively, represents
the proceeds received from claims filed against certain of the Company's
insolvent excess insurance carriers.
Consolidated net miscellaneous income for the three months ended
September 30, 2007 and 2006 was $40,000 and $2,000, respectively. The
income reported for the period in 2007 reflects $40,000 received in
settlement of litigation initiated by the Company to recover a portion of
the costs incurred during the Company's evaluation of a business for
possible acquisition.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $213,000 for the
three months ended September 30, 2007, compared to a loss of $181,000 for
the period in 2006.
Income Tax Benefit
The provision for federal and state income tax benefit for the three
months ended September 30, 2007 and 2006 equaled $42,000 and $69,000,
respectively. The Company recognized federal income tax benefit for the
periods due to its ability to carry-back net operating losses to 2006 and
2005 for credit against federal income taxes paid with respect to such
years.
Net Income (Loss)
Net loss for the three months ended September 30, 2007 was $171,000 or
$.06 per share, compared to a net loss of $112,000 or $.04 per share, for
the three months ended September 30, 2006.
Liquidity and Capital Resources
General
As discussed herein, 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. The Company's past participation in the waste handling,
treatment and disposal industries subjects the Company to additional claims
that may be made against the Company for the remediation of sites in which
the Company is deemed a potentially responsible party. In addition, future
events or changes in environmental laws or regulations, which cannot be
predicted at this time, could result in material increases in post-closure
costs, and other potential liabilities, that may ultimately result in costs
and liabilities in excess of the Company's 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 nine months ended
September 30, 2007 was $1,709,000 versus a use of $620,000 reported for the
period in 2006. The primary sources of cash from operating activities for
the period in 2007 was $369,000 received from customers, and the primary
sources of cash from operating activities for the period in 2006 were
$312,000 received from customers, and $633,000 of other income which
includes $435,000 of proceeds from claims filed against certain of the
Company's insolvent excess insurance carriers and $129,000 received in
settlement of litigation related to an investment in a real estate
partnership. The primary use of cash from operating activities for the
period in both 2007 and 2006 were payments totaling $1,474,000 and
$1,368,000, respectively, made 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 in 2005, reported net of a $436,000
federal income tax refund, and for both 2007 and 2006, $165,000 and
$164,000, respectively, in 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 $675,000 and
$102,000 for the period in 2007 and 2006, respectively, reported net of
reimbursements of $84,000 and $424,000, respectively, received from the
Kinsley Escrow. 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. Post-closure costs of the Mac Landfill are funded from the
Company's general funds, and equaled $4,000 and $8,000 for the period in
2007 and 2006, respectively. See "Post-Closure Costs" below for further
discussion of the Company's landfill post-closure cost obligations.
Net cash flow provided by investing activities equaled $843,000 for
the period in 2007 versus $1,725,000 reported for the period for 2006.
Funds provided by investing activities for the period in 2007 were
primarily utilized to fund operating activities. Capital expenditures of
$232,000 for the period in 2007 include $215,000 expended toward the
construction of a maintenance facility at Kinsley's Landfill, and the
balance for miscellaneous equipment. Capital expenditures of $358,000 for
the period in 2006 include $260,000 expended for refurbishing a Gen-Set,
$54,000 expended toward the construction of the new maintenance facility,
$28,000 for a vehicle and the balance for miscellaneous equipment.
Financing activities used $11,000 and $10,000 of cash for the period in
2007 and 2006, respectively.
As a result of these activities, funds held by the Company in the form
of cash and cash equivalents decreased $877,000 for the nine months ended
September 30, 2007 from December 31, 2006, versus an increase in cash and
cash equivalents held of $1,095,000 reported for the period in the prior
year. The sum of cash, cash equivalents and marketable securities as of
September 30, 2007 decreased to $4,350,000 from $6,246,000 reported as of
December 31, 2006.
Working capital equaled $3,842,000 and $5,498,000 as of September 30,
2007 and December 31, 2006, respectively, and the ratio of current assets
to current liabilities was 2.9 to 1 as of September 30, 2007 versus 3.9 to
1 as of December 31, 2006.
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 of approximately $4,800,000. 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 sixty months beginning August 2008. The
total of the installments paid from inception through September 30, 2007
equals approximately $693,000. The approximate amounts due for the five
years subsequent to September 30, 2007 are as follows: $209,000; $161,000;
$161,000; $161,000 and $161,000. The Service does not impose interest on
amounts payable pursuant to the Offer. The Company is 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.
During September 2007, the Service completed an examination of the
Company's federal income tax return filed for the year ended December 31,
2005. No change to the reported tax was proposed.
Post-Closure Costs
As of September 30, 2007, the Company has accrued approximately $8.9
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 $7.8 million is held in a restricted escrow
account to provide funding of the post-closure costs of the Kinsley's
Landfill (see Notes 3 and 5 to the Company's Consolidated Financial
Statements). All disbursements from such escrow must be approved by the
NJDEP. The NJDEP had suspended disbursements from such escrow until it
completes its review of the Company's projection of the costs of post-
closure activities at the Kinsley's Landfill through 2017. However, during
October 2007 the NJDEP approved a disbursement which reimbursed a portion
of funds expended by the Company on post-closure activities at the
Kinsley's Landfill. The timing of future approvals of outstanding
reimbursement requests is uncertain. See Note 5 to the Company's
Consolidated Financial Statements for further discussion of the Company's
landfill post-closure cost obligations.
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 the United States Environmental Protection
Agency ("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. 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, 2006, 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 and any contamination or
damage caused offsite. During October 2007 the Company filed a motion in a
previously reported action requesting the Court to compel the group of
potentially responsible parties controlling the remediation of the SCP Site
to provide the Company with an accounting of the use of the $16.4 million
contributed by the Company toward the remediation of the SCP Site (see Part
II, Item 1. Legal Proceedings).
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 the 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 mile 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 to 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 the EPA has incurred with regard to the Creek Area. The
investigation and feasibility study regarding the scope of the contamination
of the Creek Area is ongoing. The selection of the ultimate remediation
methodology from alternative approaches is projected to be made by the 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, located in Edison, New Jersey, 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 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 the 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.
Sale of Real Property
On October 19, 2006, the Company completed the sale of approximately
60 acres of real property located in the Township of Deptford, N.J. (the
"Township") pursuant to the contract with BWF Development, Inc. ("BWF").
The property adjoins the Kinsley's Landfill. The real estate sold consists
of approximately 45 acres of usable land and 15 acres of wetlands upon
which two metal buildings and two private residences are situated. The
Company continues to own approximately 364 contiguous acres in the
Township, adjacent to the property sold, of which approximately 110 acres
is occupied by the closed Kinsley's Landfill. The building currently
utilized to store the Company's machinery and equipment is located on the
property sold. The Company entered into an agreement to rent the building
through October 2007, and is constructing a replacement building. The
Company reported a net gain of $1,852,000 from the sale in its results for
the year-ended December 31, 2006.
The Company is pursuing the disposition of its remaining property
through the sale of individual parcels and/or groups of parcels. 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 Kinsley's Landfill, access issues and the location of
wetlands on certain properties.
On August 8, 2007, the Deptford Township Planning Board approved a
study prepared by the Township's planner entitled "Five Points Study Area,
Preliminary Investigation: Determination of an Area in Need of
Redevelopment". The Five Points Study Area includes all property owned by
the Company in Deptford Township, including the Kinsley's Landfill. The
study concluded that the area should be designated a redevelopment area
pursuant to the New Jersey Local Housing and Redevelopment Law.
The designation of a redevelopment area under the New Jersey Local
Housing and Redevelopment Law grants a municipality many options to achieve
its objectives regarding the ultimate redevelopment of property located
within the redevelopment area. For example, municipalities have the
authority to designate a third party (generally a land developer) to
redevelop the redevelopment area in a manner consistent with the
municipalities' redevelopment plan for the area. In addition, in order to
advance the redevelopment project, municipalities may acquire property in
the redevelopment area for redevelopment through good faith negotiations
between the property owner and the designated redeveloper or through their
powers of eminent domain, compensating the property owner for its fair
market value.
The process of declaring an area a redevelopment area and to determine
the ultimate redevelopment plan for that redevelopment area may take years
to complete, and impact the use or sale of property located within the
redevelopment area during the process. The process begins with the
institution of a study by the planning board to determine whether or not an
area should be designated a redevelopment area. The planning board is
required by law to make a recommendation to the municipality's governing
body. After the municipality formally designates the area a redevelopment
area, the redevelopment agency which may, as in the case in Deptford, be
the municipality's agency, executes a redevelopment agreement with the
redeveloper (i.e. land developer), which sets forth, among other items, a
schedule for the redevelopment project. There is no specific time frame
set forth in the Local Housing and Redevelopment Law for completion of a
redevelopment project. The owner of property included in a redevelopment
area may initiate suit against a municipality to challenge the creation of
the redevelopment area, the designation of a redeveloper, the adoption of a
redevelopment plan and/or the amount of compensation offered for property.
The declaration of the Five Points Study Area as a redevelopment area
requires the approval of the Deptford Township's governing body, and
requires that certain procedures and public hearings occur prior to the
Township's approval. Deptford Township has informed the Company that it
has not finalized its intentions with respect to the Five Points Study
Area, or if all or any of the Company's property will ultimately be
included in the Redevelopment Area. The Company has notified the Deptford
Township Planning Board and Deptford Township Council of the Company's
objections to certain errors and mischaracterizations contained within the
Five Points Study, as well as it's the Planning Board's conclusion to
approve the Five Points Study and recommend that the Township declare the
Five Points Study Area a redevelopment area pursuant to the Local Housing
and Redevelopment Law. During September 2007 the Company filed suit
against the Township's Planning Board seeking, among other remedies, to set
aside the Planning Board's approval of the Study(see Part II, Item 1. Legal
Proceedings).
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 the third quarter
of 2007, the Company received $56,000 of proceeds related to claims filed
against the estates of insolvent insurers. During the second, third and
fourth quarters of 2006, the Company received proceeds totaling $600,000
related to such claims. The Company has resolved claims against its excess
insurers representing approximately 98% of the value assigned to the
coverage provided under the policies that were the subject of the Lloyds
Suit.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 3A(T). 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
On October 2, 2007, the Company filed a motion under the previously
reported action 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). This lawsuit had been brought by the
Company 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 sites in New Jersey (the "Lloyds
Suit")(see Part I - Financial Information, Item 2. Management's Discussion
and Analysis or Plan of Operation, Liquidity and Capital Resources,
Contingent Environmental Liabilities). The Company had assigned certain
rights under excess insurance policies to the SCP Cooperating PRP Group in
conjunction with the September 1995 settlement of litigation related to
allocation of liability for the remediation of the Carlstadt SCP Site
located in Carlstadt, New Jersey. The Company paid $4,200,000 to the SCP
Cooperating PRP Group as part of that settlement. During 1998, the Company
and the SCP Cooperating PRP Group, agreed to cooperate in the pursuit of the
excess insurance claims addressed in the Lloyd's Suit. A settlement with
the majority of the defendants to the Lloyd's Suit was consummated in
February 2002, resulting in the payment of $9,513,000 to the Company,
$3,500,000 to an escrow account established in settlement of litigation
among the Company and affiliates of Waste Management, Inc., and $12,000,000
to a Qualified Settlement Fund established to fund costs incurred for the
remediation of the Carlstadt SCP Site which is administered by the SCP
Cooperating PRP Group. The Company paid an additional $250,000 to the SCP
Cooperating PRP Group from the proceeds of the Company's claim against
certain insolvent excess insurers. The motion filed on October 22, 2007
seeks an Order compelling the SCP Cooperating PRP Group to account for how
and how much it has spent of the $16,450,000 paid by the Company to it as
recited above.
During September 2007, two subsidiaries of Transtech commenced
litigation entitled Kinsley's Landfill, Inc., and Birchcrest, Inc. v.
Planning Board of the Township of Deptford (No. L-001536-07) in the Superior
Court of New Jersey, Law Division, Gloucester County. The suit seeks, among
other remedies, to set aside the Planning Board of the Township of
Deptford's approval of a 2007 study prepared by the Township's planner
entitled "Five Points Study Area, Preliminary Investigation: Determination
of an Area in Need of Redevelopment" (see Part I - Financial Information,
Item 2. Management's Discussion and Analysis or Plan of Operation, Liquidity
and Capital Resources, Sale of Real Property).
No material developments have occurred with respect to the 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, 2006. 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 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: November 14, 2007 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
and
Date: November 14, 2007 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)