SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 0-6512
TRANSTECH INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (908) 981-0777
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.50 par value
(Title of Class)
Check whether the issuer (l) 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
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $18,650,000
At February 6, 1995 the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $155,000.
At February 6, 1995 the issuer had outstanding 2,829,090 shares of
Common Stock, $.50 par value. In addition, at such date, the registrant
held 1,885,750 shares of Common Stock, $.50 par value, in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Page 1 of 54 pages
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
________________
FORM 10-KSB/A
FOR THE YEAR ENDED DECEMBER 31, 1994
The registrant filed Form 10-KSB for the year ended December
31, 1994 on April 14, 1995. On May 5, 1995, the registrant filed
a Form 10-KSB/A amending and restating Part I, Item 3 of this Form
10-KSB in its entirety. This filing of Form 10-KSB/A is being made
for the following purposes:
(a) to amend and restate Part I, Item 1 (Description of
Business) in its entirety;
(b) to further amend and restate Part I, Item 3 (Legal
Proceedings) in its entirety;
(c) to amend and restate Part III, Item 10 (Executive
Compensation) in its entirety;
(d) to amend and restate Part III, Item 12 (Certain
Relationships and Related Transactions) in its entirety; and
(e) to amend and restate, in their entirety, the following
portions of Exhibit 13 to such Form 10-KSB (Annual report to
stockholders):
(i) Liquidity, in Liquidity and Capital Resources,
Management's Discussion and Analysis or Plan of Operations;
(ii) Capital, in Liquidity and Capital Resources,
Management's Discussion and Analysis or Plan of Operations;
(iii) Remediation and Closure Costs, in Liquidity and
Capital Resources, Management's Discussion and Analysis or
Plan of Operations;
(iv) Note 7 - Long-term Debt, Notes to Consolidated
Financial Statements;
(v) Note 8 - Remediation and Closure Costs, Notes to
Consolidated Financial Statements;
(vi) Note 11 - Legal Proceedings, Notes to Consolidated
Financial Statements;
(vii) Note 14 - Segment Information, Notes to Consolidated
Financial Statements; and
(viii) Report of Independent Certified Public Accountants.
I N D E X
Page(s)
Part I, Item 1. Description of Business. 4 - 11
Part I, Item 3. Legal Proceedings. 12 - 19
Part III, Item 10. Executive Compensation. 20 - 22
Part III, Item 12. Certain Relationships and Related
Transactions. 23 - 25
Exhibit 13.
Annual report Management's Discussion and Analysis
to stockholders. or Plan of Operations.
Liquidity and Capital Resources:
Liquidity 26
Capital 27 - 28
Remediation and Closure
Costs 29 - 30
Exhibit 13.
Annual report Notes to Consolidated Financial
to stockholders. Statements.
Note 7 - Long-term Debt 31 - 35
Note 8 - Remediation and
Closure Costs 36 - 41
Note 11 - Legal Proceedings 42 - 50
Note 14 - Segment Information 51
Exhibit 13.
Annual report Report of Independent Certified
to stockholders. Public Accountants. 52 - 53
Signatures 54
Part I, Item 1. Description of Business.
General
Transtech Industries, Inc. ("Transtech") was incorporated
under the laws of the State of Delaware in 1965. Transtech,
directly and through its subsidiaries (Transtech and its
subsidiaries collectively referred to as the "Company"), is
primarily engaged in the following lines of business:
- since September 1991, the manufacture and sale of
specialty directional and flow control valves, fluid
power components, hydraulic and pneumatic cylinders, and
complete valve systems for commercial and military use;
and
- the marketing of carbide lime and other high alkali
products used as neutralization agents in municipal and
industrial wastewater treatment plants.
In addition, Transtech and its subsidiaries have investments
in computer leases, generate electricity from methane gas,
supervise and perform landfill monitoring and closure procedures,
and manage methane gas recovery operations.
The Company and certain subsidiaries were previously active in
the resource recovery and waste management industries. These
activities included the operation of three landfills and a solvents
recovery facility. Although these sites are now closed, the
Company continues to own and/or remediate them and has both
incurred and accrued for the substantial costs associated therewith
(see Item 3 - Legal Proceedings).
At December 31, 1994, the Company employed 163 persons on a
full-time basis, 81 of whom are represented by the United
Steelworkers Union.
Valves. Hunt Valve Company, Inc. ("Hunt"), an Ohio
corporation, located in Salem, Ohio, manufactures specialty
directional and flow control valves, fluid power components,
hydraulic and pneumatic cylinders and complete valve systems for
commercial and military use. Hunt conducts its operations through
two divisions, Hunt Valve ("HV"), and Waeco. Hunt's sales
constituted 91%, 89% and 92% of the Company's consolidated
operating revenue in 1992, 1993 and 1994, respectively.
Sales from the HV division approximated 51% of Hunt's sales in
the year ended December 31, 1994. The HV division manufactures
hydraulic and pneumatic directional and flow control valves and
cylinders, hydraulic pumps and complete systems, including valve
stands and power units. Its products are sold principally to
<PAGE>
the primary metals industry, and, to a lessor extent, the
automotive, glass, pulp and paper, textile, city sewage and water
treatment industries.
The HV division is one of the few domestic producers of high
water-based fluid power products. The Company believes that water-
based hydraulic fluid power products offer several advantages over
traditional oil-based systems, including reduced environmental
concerns, non-flammability and lower fluid costs. The lower
viscosity of water versus oil generally requires high water-based
products to be manufactured to closer tolerances. These closer
tolerances result in a product which is less subject to wear,
requires lower energy and maintenance costs and has a longer life
than comparable oil-based products.
The HV division produces standard products, but in many
applications, the standard products are modified and become
specialty items used where problems arise with existing components
or in new equipment that has stringent performance requirements.
Sales from the Waeco division approximate 49% of Hunt's sales
in the year ended December 31, 1994. The Waeco division
manufactures steam and water two-way shutoff valves, including
globe, gate and check valves. These valves are based on standard
designs, differing with respect to size and material. Waeco valves
are used in military applications and are sold to the United States
Navy and major shipyards. The Waeco division also produces large
(up to twelve inches) naval valves under the Steam Specialties
name. The Waeco division also manufactures pressure relief valves,
refueling-at-sea equipment and specialty products, including
electric brakes and couplings, principally for use on Navy ships
and submarines, under the Union Flonetics name.
On October 4, 1994, Hunt purchased from P.J. Valves, Inc.
certain machinery and equipment, contract rights and technology
required to produce certain valves and related products. The
transaction provides Hunt with additional product lines, primarily
a line of ball valves designed for military applications. The net
purchase price for the assets approximated $370,000. During 1994,
Hunt recognized sales of $69,000 related to the acquired product
lines.
Hunt competes primarily on the basis of product quality and
performance. This is especially true for those products with
military applications, as few companies can provide the production
methods, quality levels, testing and traceability of components
required by the government and insured by the presence of
government inspectors at Hunt's facility. The number of
competitors the HV division encounters varies with each of its
served markets, ranging from three competitors for applications
requiring certain water-based products to approximately ten for
applications requiring pneumatic controls.
Hunt distributes its products through its own sales staff and
a network of third-party sales representatives and distributors
located in the United States, Europe, South America and Asia.
Hunt manufactures all of its products at its 100,000 square
foot facility in Salem, Ohio, located between Youngstown and
Pittsburgh. Hunt employs approximately 140 people, 81 of whom are
represented by the United Steelworkers Union. The current three
year contract with the union members was ratified on March 19,
1993. During the negotiation process, Hunt experienced an 11 day
strike. Since then, Hunt's relationship with the union members has
been satisfactory.
Hunt's products utilize a variety of raw materials, including
stainless steel, aluminum, cast iron and brass. Hunt believes that
there are multiple sources available for these materials at
competitive prices. Hunt also utilizes casting and forging
produced by third-party foundries and machine shops. Replacing such
sources is not a significant concern. Hunt's top five suppliers
accounted for approximately 29% of production materials purchased
during the year ended 1994. A significant factor affecting Hunt's
purchases is the volatility of prices of high alloy metals used
primarily in military lines.
The Waeco division has a high concentration of customers due
to the limited number of major shipyards in the United States.
Five customers accounted for at least 66% of Waeco's annual sales
during the year ended December 31, 1994, and one of the five
customers accounted for approximately 26% of its net sales for the
year. This one customer accounted for approximately 11.8% of the
Company's 1994 consolidated operating revenues. None of the HV
division's customers accounted for more than 7% of the HV
division's sales, with its top five customers accounting for 23% of
the division's sales for 1994.
Hunt holds three U.S. patents (one of which expires in June
1995), three British patents, and two Canadian patents on various
products and has rights to three additional U.S. patents developed
by an affiliate (one of which expired during 1993). The Company
believes the expiration of the patents will have little effect on
its operations.
Expenditures related to research and development activities
approximated $79,000 in 1994, $132,000 in 1993 and $147,000 in
1992.
All of the issued and outstanding stock of Hunt was acquired
by the Company from two individuals, unaffiliated with the Company,
on September 27, 1991, when THV Acquisition Corp., a wholly-owned
subsidiary of Transtech, acquired all of the stock of Hunt's
parent, HVHC, Inc. ("HVHC"), whose sole asset was Hunt.
The consideration paid to the sellers for the capital stock of
HVHC consisted of $9.7 million in cash, including an aggregate of
$200,000 in consideration for non-competition agreements from the
sellers (the "Cash Payment"), plus $500,000 payable in the form of
two junior subordinated five-year promissory notes of Hunt, payable
in 60 equal monthly installments of principal commencing October 1,
1991 and bearing interest at a variable annual rate equal to 2.5%
above Texas Commerce Bank's "prime rate."
THV Acquisition Corp. and its wholly-owned subsidiary invested
$2.5 million in common stock of Hunt and an additional $2 million
in 7% preferred stock of Hunt. The $5.2 million balance of the
Cash Payment, the refinancing of approximately $7.8 million of
existing debt of Hunt and HVHC, and additional funds for Hunt's
working capital were provided by a revolving loan facility and an
aggregate of $11.5 million in term loans to Hunt. The loans are
secured by substantially all of the assets of Hunt. Hunt issued
ten-year nominal exercise price warrants to the lenders of the term
loans to acquire up to an aggregate of 19.34% of the common stock
of Hunt. In addition, the lenders of the term loans are entitled
to minority representation on Hunt's board of directors.
The terms of the financing restrict the distribution of cash
to corporate affiliates of Hunt to management fees, preferred stock
dividends and amounts due under tax sharing arrangements. The
payments of management fees and preferred stock dividends are
subject to Hunt's financial performance and maintenance of certain
loan covenants (see Note 7 to the Consolidated Financial Statements
contained within the Company's Annual Report to Stockholders filed
herewith as Exhibit 13). Hunt paid $275,000 of management fees
during 1994. Preferred stock dividends have not been paid since
March 1992. Amounts due under the tax sharing agreement have been
made as requested.
Alkali Products. Through its wholly-owned subsidiary, Cal-
Lime, Inc. ("Cal-Lime"), the Company engages in the marketing of
high alkali products, primarily lime slurry, to customers needing
acid neutralization agents, such as municipal and industrial
wastewater treatment plants. Sales from this business constituted
7% of the Company's consolidated operating revenues in both 1992
and 1993, and 5% in 1994.
Cal-Lime has constructed and maintains specialized mixing and
storage facilities for the production of slurry. The facilities
provide the ability to tailor Cal-Lime's products and services to
fit the needs of its customers. Cal-Lime has one significant
competitor in its market area (Pennsylvania, New Jersey, New York,
Connecticut, Massachusetts and Rhode Island). Cal-Lime competes on
the basis of product quality, price and service.
Cal-Lime's lime slurry is a blend of either carbide lime, a
by-product of the production of acetylene gas, or in certain
circumstances high calcium hydrate lime, and water. One of Cal-
Lime's three suppliers of carbide lime slurry discontinued the
supply of that product around November 1992, but renewed production
in October 1994. A second supplier drastically reduced production
and eventually ceased operations during 1994 after filing a
petition under Chapter 11 of the U.S. Bankruptcy Code during 1993.
As a result, Cal-Lime has been supplying certain customers with a
product blended from higher priced hydrate lime, and raised the
price of its product. Cal-Lime has 15 years remaining on an
exclusive contract with the third supplier. Cal-Lime has not
experienced shortages in the supply of hydrate lime.
Computer Leasing. In July 1989, Transtech entered into a
purchase agreement (the "Computer Purchase Agreement") with The Tax
Strategy Group, Inc. ("TSG") pursuant to which Transtech purchased
certain high-end IBM mainframe computer equipment (the "Equipment")
subject to a master lease with Computer Leasing, Inc. for a term of
eight years (the "Master Lease") and user leases of varying terms.
The purchase price of the Equipment was $35.8 million, $2.6 million
of which was paid in cash at closing and the balance of $33.2
million payable in equal consecutive monthly installments of
$586,741 representing principal and interest at the rate of 13.5%
per year over an eight year period.
Pursuant to the Computer Purchase Agreement and the Master
Lease, the monthly rental income under the Master Lease equals the
Company's monthly payments to TSG. Commencing in July 1994, the
Company began receiving additional rental income equal to 75% of
rents actually paid by users of the Equipment through the
expiration of the Master Lease. During the period of 1989 through
1993, the Company had the benefit of deductions for accelerated
depreciation and interest expense in excess of rental income. The
annual rental income for 1994 exceeded such annual tax deductions,
generating taxable income in 1994, and shall continue to do so
through July 1997.
Beginning in 1991, the Company has reduced its estimates of
future rentals and residual values to reflect the decline in market
values and lease rates of equipment of the type subject to this
lease. Accordingly, for the year ended December 31, 1992, the
Company recorded a charge to earnings and reduced its investment in
this leveraged lease by $2,255,000 to reflect a 30% reduction in
estimated future shared rentals under the user leases and a 40%
reduction in the estimated residual value of the Equipment at the
termination of the Master Lease. For the year ended December 31,
1993, the Company recorded a $2,739,000 charge to earnings to
reflect a 58% reduction in estimated future shared rentals under
the user leases. For the year ended December 31, 1994, the Company
recorded a charge of $1,819,000 to earnings to reflect a 53%
reduction in estimated future shared rentals and 75% reduction in
the estimated residual value. The Company believes that the
carrying value of its investment in this leveraged lease at
December 31, 1994 approximates its net realizable value; however,
there can be assurance that future adjustments to its carrying
value will not be required to give effect to further market
declines in equipment values or lease rates for computer equipment
of the type subject to this lease.
Terms of the Computer Purchase Agreement grant the Company the
right to require TSG to repurchase the Equipment if the lease's
cumulative financial benefits to the Company through December 31,
1994 or 1995 are less than a specified amount as measured by the
rate of return on its investment. This right is exercisable in the
first two months of 1995 or 1996, and is forfeited for the
remaining life of the Computer Purchase Agreement if not exercised
when it is first available. The purchase price of the Equipment
which TSG would be required to pay the Company upon the exercise of
the right would equal the amount necessary for the Company to
achieve the specified rate of return. The rate of return through
December 31, 1994 remains greater than the specified amount. It is
unlikely that this right will be exercisable based on performance
to date.
Other Businesses. Subsidiaries of the Company have been
involved in the recovery of methane gas and the operation of
methane gas-fueled electric generators. Electricity so generated
is sold to local utilities. Sales of electricity constituted 2%,
3% and 2% of the Company's consolidated operating revenues in 1992,
1993 and 1994, respectively.
Another subsidiary of the Company supervises and performs
certain landfill maintenance, monitoring and closure procedures,
and installs and operates gas recovery systems and methane gas-
fueled electric generators. Sales to third parties by this
subsidiary accounted for 1% of the Company's consolidated operating
revenues for both 1993 and 1994. In 1992, the subsidiary's
activities had been performed only for other subsidiaries of the
Company and, therefore, eliminated in the consolidated results.
Prior Operations
Landfill and Waste Handling Operations. In February 1987, the
landfill owned and operated by Kinsley's Landfill, Inc.
("Kinsley's"), the last of the three solid waste landfills
previously owned or operated by subsidiaries of the Company,
reached permitted capacity and was closed. Previously, in 1976,
the landfill owned and operated by Kin-Buc, Inc. ("Kin-Buc") was
closed and, in 1985, the landfill operated by Mac Sanitary Land
Fill, Inc. ("Mac") was closed. Pursuant to certain federal and
state environmental laws, the Company's subsidiaries continue to be
responsible for maintenance and monitoring activities associated
with the final closure procedures of these landfills. The closure
procedures typically include the final cover, testing and
monitoring of the landfill and associated wells. In addition, the
Company has incurred significant professional fees in lawsuits
regarding these activities and efforts to obtain contributions
towards the cost of closure procedures from waste generators and
other parties.
The Company's accruals for closure and remediation activities
equal the present value of the Company's estimated share of future
costs related to a site less funds held in trust for such purposes.
Such estimates require a number of assumptions, and therefore may
differ from the ultimate outcome. The costs of litigation
associated with a site are expensed as incurred. The Company has
accrued remediation and closure costs for the Kin-Buc landfill,
Kinsley's landfill, Mac landfill and the Carlstadt facility,
formally a solvents recovery operation. Amounts held in certain
trusts dedicated to these activities and certain prepaid expenses
are netted against the accrual for presentation in the Company's
balance sheet.
Kinsley's landfill and Mac landfill are in the maintenance
phase of their respective closure plans.
During 1993, a $22 million contract was awarded for the
construction of a containment system and leachate treatment plant
at the Kin-Buc landfill in accordance with the engineered design
and standards accepted by the United States Environmental
Protection Agency ("EPA") in satisfaction of certain closure
requirements (such closure requirements referred to herein as the
"EPA Orders"). The contract was to be financed through funds
available in a trust established in 1993 with the proceeds from
settlements obtained from a portion of the defendants in a lawsuit
initiated by the Company in 1990 to obtain contributions from its
former customers toward the remediation of the site. During May
1994, the Company met with representatives of EPA to discuss the
impact delays in securing settlement proceeds would have on the
Company's ability to finance the construction within the time frame
required by EPA. In July 1994, after meeting with EPA, SCA
Services, Inc. ("SCA"), an affiliate of WMX Technologies, Inc.
("WMX") and a respondent to EPA's Orders, entered into a contract
with the contractor installing the containment system and treatment
plant, thereby alleviating the potential for delays in this phase
of the construction due to financial limitations. WMX, formerly
known as Waste Management, Inc., had previously provided EPA with
a financial guaranty of SCA's and the Company's obligations under
the EPA Orders. In August 1994, a contract was awarded by SCA for
certain activities mandated by the EPA Orders for the remediation
of certain areas neighboring the Kin-Buc landfill. Construction on
this aspect of the remediation commenced during the third quarter
of 1994.
The execution of the contracts between SCA and the contractors
does not relieve the Company of liability for such costs since the
Company entered into an agreement with SCA in 1986 which allegedly
obligates the Company to bear 75% of the costs incurred by the
parties for the remediation of the site. The Company filed a
demand for arbitration in 1993 seeking rescission or reformation of
the agreement with SCA. During March 1995, WMX filed a demand for
arbitration seeking reimbursement from the Company of $10.7
million, which equals 75% of the $14.3 million of remediation
expenses purportedly funded by WMX through December 31, 1994. The
status of such arbitration demands, as yet unresolved, is described
in Item 3 - Legal Proceedings.
If the current phase of the remediation does not proceed in
accordance with the EPA Orders, EPA could bring an action against
the Company and the other respondents to the EPA's Orders for the
imposition of fines for such violations. Management anticipates
EPA's requirements will be met.
Additional material adjustments to the Company's current
accrual may become necessary as the above costs are incurred and
weighed against allocations to other respondents and potentially
responsible parties.
At December 31, 1994, the Company has accrued approximately
$23.7 million for its portion of the estimated closure and
remediation costs of these landfills. Of such amount,
approximately $9.3 million is held in trusts maintained by trustees
for post-closure activities at Kinsley's landfill (see Item 3 -
Legal Proceedings).
Part I, Item 3. Legal Proceedings.
As to the Kin-Buc Landfill
In 1966, Kin-Buc, Inc. ("Kin-Buc"), a wholly-owned subsidiary
of Transtech Industries, Inc. ("Transtech"), leased approximately
19 acres of land in Edison, New Jersey from Inmar Associates, Inc.
("Inmar"), a corporation controlled by Marvin H. Mahan, a former
officer, director and principal shareholder of Transtech, and
operated a waste disposal facility at that site. In 1969, another
wholly-owned subsidiary of Transtech, Filcrest Realty, Inc.
("Filcrest") acquired a number of lots near Kin-Buc's site and
several contiguous to it. In September 1975, Transtech and SCA
entered into an agreement pursuant to which a wholly-owned
subsidiary of SCA, Chemical Waste Management of New Jersey, Inc.
("CWMNJ"), and a wholly-owned subsidiary of Transtech, Wastequid,
Inc. ("Wastequid"), formed a partnership known as Earthline Company
("Earthline"). In connection with the formation of this
partnership, Kin-Buc entered into two new leases with Inmar,
superseding and replacing the 1966 lease. Pursuant to these
leases, Kin-Buc leased a total of 77 acres from Inmar, 27 acres,
including the original 19 acre disposal site, in one lot, and 50
acres in a contiguous lot. Simultaneously therewith, Earthline
entered into an agreement with Kin-Buc permitting it to dispose of
waste at the leased site. From 1972 through 1976, the Kin-Buc site
operated as a state approved facility for the disposal of solid and
liquid industrial and municipal waste. In July 1976, it stopped
accepting liquid waste. In December 1976, Kin-Buc acquired title
to the 27 acres it had been leasing from Inmar. In 1977, Kin-Buc
stopped accepting solid waste at the site. Such site is referred
to herein as the Kin-Buc Landfill. In February 1979, EPA brought
suit in the United States District Court for the District of New
Jersey against Transtech, Kin-Buc and Filcrest, certain former
officers, directors and shareholders of Transtech, and Inmar in
connection with the ownership and operation of the Kin-Buc
Landfill. This suit was placed on administrative hold by the Court
because Transtech and SCA agreed to undertake the remediation of
the site. This suit remains on administrative hold.
In 1986, Transtech sold the stock of Wastequid to SCA, and,
simultaneously therewith, Transtech, Kin-Buc, Filcrest and Inmar
(the "Transtech Group") entered into a settlement agreement (the
"Settlement Agreement") with SCA, CWMNJ, Wastequid and Earthline
(the "SCA Group") regarding the sharing of remediation costs of the
Kin-Buc Landfill, pursuant to which the Transtech Group agreed to
pay 75% of such costs and the SCA Group the remaining 25%. The
parties also agreed to establish and fund a trust for the payment
of these costs (see Note 8).
In June 1990, Transtech, Kin-Buc and Filcrest commenced a suit
in the United States District Court for the District of New Jersey
entitled Transtech Industries, Inc. et al. v. A&Z Septic Clean et
al. against approximately 450 generators and transporters of waste
disposed of at the Kin-Buc Landfill (the "PRPs") for contribution
towards the cost of cleanup of the landfill. Stayed for some time
pending multiple unsuccessful appeals of the denial of a motion to
dismiss brought by a group of PRPs, the suit is now in discovery.
In 1991, 1992 and 1993, Transtech, Kin-Buc, Filcrest, SCA,
CWMNJ and Wastequid (the "Kin-Buc Response Group") presented
settlement proposals to approximately 300 of these 450 PRPs; of the
450, these 300 PRPs were believed to be responsible, individually,
for no more than 1%, and in the aggregate, no more than 25% of the
non-municipal waste disposed of at the Kin-Buc Landfill (the "De
Minimis PRPs"). Approximately 200 of the 300 De Minimis PRPs
accepted settlement, paying an aggregate of approximately $10
million towards the cost of the remediation of the Kin-Buc
Landfill.
With changes in ownership, mergers, consolidations,
insolvencies, bankruptcies, dissolutions and liquidations of the
PRPs from the time of their involvement with the Kin-Buc Landfill
to the present, approximately 50 Fifty De Minimis PRPs, believed to
be responsible, in the aggregate, for approximately 15% of the non-
municipal waste disposed of at the Kin-Buc Landfill, remain in the
litigation, along with 24 non-De Minimis, or major PRPs, believed
to be responsible, in the aggregate, for approximately 75% of such
waste.
In December 1992, substantially all of the PRPs filed three
pleadings in the case, two of which are against Transtech or its
subsidiaries. The first such pleading is a counterclaim against
Transtech, Kin-Buc and Filcrest and a third-party complaint against
other owners or alleged operators of the Kin-Buc Landfill
(including the SCA Group, Inmar, Marvin H. Mahan, another former
officer and director of Transtech and a former principal of SCA.)
The second pleading is a third-party complaint against six parties,
not named by Transtech in its complaint, which also allegedly
arranged for the disposal of or transported hazardous wastes to the
Kin-Buc Landfill. Discovery in respect of the issues raised in
these pleadings is being conducted together with those raised in
the case in chief.
The third pleading is a counterclaim against Transtech and a
third-party complaint against parties to transactions with
Transtech which are alleged to have been fraudulent conveyances.
The claimants seek to have the consideration paid in these
transactions returned and placed in the hands of a receiver. The
transactions identified are the 1988 payment of fees to a
consultant and relative of a former director of the Company for his
services in connection with the sale of the assets of Allentown
Cement Co., Inc.; the 1988 purchase of clay from Inmar; the 1988
settlement with Tang Realty, Inc. ("Tang"), a corporation
controlled by Marvin H. Mahan, for the remediation of its
Piscataway, New Jersey property; a 1989 bonus to a former officer
and director of Transtech; and the 1989 redemption of Transtech
stock from certain shareholders. Transtech has denied these
allegations and has been defending certain former officers and
directors and redeemed shareholders with respect to some of the
issues raised in this pleading. Discovery is being conducted
separately on these issues.
During August 1993, the Company served a demand for
arbitration (the "Transtech Arbitration") on WMX Technologies, Inc.
("WMX") (formerly named Waste Management, Inc.) and the SCA Group.
The Company is seeking reformation or rescission of the Settlement
Agreement, including the apportionment of Kin-Buc Landfill
remediation costs, and reimbursement of overpayments made in
accordance therewith. WMX brought an action in the Supreme Court
for the State of New York in September 1993 seeking to enjoin the
Transtech Arbitration. The Transtech Arbitration has been stayed
pending a decision by the Court. In February 1995, the Court
assigned WMX's and the SCA Group's motion to permanently enjoin the
Transtech Arbitration to a special referee to report and recommend
with regard to the claim that the Transtech Arbitration should be
enjoined permanently on the grounds that the statute of limitations
has run. The hearing before the referee has not yet been
scheduled. In March 1995, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of $10.7 million, which equals 75% of the $14.3 million of
remediation expenses purportedly funded by WMX through December 31,
1994. The Company brought an action in the Supreme Court for the
State of New York in March 1995 seeking to stay the SCA Arbitration
pending a decision on WMX's and the SCA Group's motion to enjoin
the Transtech Arbitration. On April 12, 1995, the court heard the
Company's motion to stay the SCA Arbitration and instructed the
parties to draft an order permitting the SCA Arbitration to
commence, with the consent of the arbitrator, who would make
limited factual determinations regarding the amount of funds
expended on the remediation and the reasonableness of such
expenditures, subject to and without prejudice to the Company's
rights to seek reformation or rescission of the Settlement
Agreement.
The Company believes that a portion of the owner-operator
share of the cost of the remediation of the Kin-Buc Landfill will
be allocated to it by the Court. At this point, management is
unable to assess whether this portion will exceed the costs already
borne by the Company. Further, it is too early in the proceedings
in the Transtech Arbitration and the SCA Arbitration to assess
whether the Settlement Agreement will be enforced, and whether, if
it is enforced, recoveries from PRPs will be sufficient to satisfy
the Company's obligations thereunder. The financial condition of
the Company will be materially and adversely affected if the
Company is required to make any significant additional contribution
to the cost of the remediation.
In April 1991, Inmar demanded that, in accordance with certain
provisions of the lease from Inmar to Kin-Buc of 50 acres upon
which a portion of the Kin-Buc Landfill is located, Transtech
indemnify Inmar and Marvin H. Mahan against liability for
remediation of such property and pay Inmar $6.6 million in damages
for loss of value of its adjoining property. These demands are the
subject of negotiations with Inmar discussed below.
As to the Carlstadt Site
Transtech is one of 43 respondents to a September 1990
Administrative Order of the EPA concerning the implementation of
interim environmental remediation measures at a site in Carlstadt,
New Jersey owned by Inmar and operated by Transtech as a solvents
recovery plant for approximately five years ending in 1970. During
1990 and 1991 Transtech contributed $750,000 in the aggregate
towards the cost of such interim remedy.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in a
civil action in the United States District Court for the District
of New Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the
"AT&T Suit") by a group of generators of waste (the "AT&T Group")
alleging, among other things, that the primary responsibility for
the clean-up and remediation of the Carlstadt site rests with
Transtech, Inmar and Marvin H. Mahan.
Thereafter, Transtech, Inmar and Marvin H. Mahan brought an
action for a declaratory judgment against insurance companies which
issued policies of primary and excess comprehensive general
liability insurance ("CGL Insurance") to them and to another
operator of the site now in dissolution, and against approximately
240 generators of waste handled at the site who are also
potentially responsible for its remediation. Extensive discovery
was conducted as to both the case in chief and the declaratory
judgment action, and, during the pendency of a motion for summary
judgment brought by the plaintiffs, the District Court ordered that
the parties attempt to mediate their claims. Settlement
negotiations continued throughout, and Transtech, Inmar and Mr.
Mahan settled with one of the two insurers which provided primary
CGL Insurance to the other operator, and with the four insurers
which provided primary CGL Insurance to them over a 20-year period
from November 1967 through September 1987. The settlements
resulted in payments to Transtech and Inmar of $4.075 million.
Transtech and Inmar, their respective subsidiaries and affiliates
and Mr. Mahan agreed to terminate all their rights under the CGL
Insurance provided by these four insurers over that 20-year period.
Transtech, Inmar and Mr. Mahan have been negotiating a settlement
with the plaintiffs and the third-party defendants pursuant to
which Transtech, Inmar and Mr. Mahan would pay over to these
parties a total of $4.22 million, consisting of the $4.075 million
in payments from the insurers, $72,500 from Transtech and $72,500
from Inmar and Mr. Mahan, in exchange for a complete release from
these parties of all liability to them arising from or in any way
connected with the contamination of the Carlstadt site and its
environs.
Management is advised that if a settlement along these lines
is not achieved the pending motion for summary judgment as to the
Company's liability to the plaintiffs will be granted; subsequent
proceedings in the suit will deal with the allocation to the
Company of its share of the costs of the remediation. The
financial condition of the Company will be materially and adversely
affected if the Company is required to make any significant
contribution to the cost of the remediation beyond the amounts it
has recovered from its insurers.
In December 1989, Inmar and Transtech agreed to share equally
certain costs in connection with the AT&T Suit. As of December 31,
1992, Transtech paid $514,000 towards such costs. Inmar has
disputed which expenses are to be shared. Further, in April 1991,
Marvin H. Mahan made a demand upon Transtech for reimbursement of
approximately $300,000 in costs which he incurred in connection
with the AT&T Suit. The dispute concerning the shared expenses and
Mr. Mahan's demand for reimbursement are subjects of the
negotiations with Inmar discussed below.
In a related matter, in October 1989, Transtech (along with
owners and operators of industrial sites in the Hackensack
meadowlands near Carlstadt, New Jersey) was sued in the United
States District Court for the District of New Jersey for
contribution towards the cost of remediation of a creek in the
Hackensack meadowlands by Morton International, Inc., Velsicol
Chemical Corp. and other members of a group of owners and operators
of industrial sites in that area who have been ordered to remediate
that creek. The claim against the Company is based upon certain
provisions of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), which
imposes liability for the remediation of certain sites jointly and
severally upon persons responsible for the generation,
transportation and disposal of wastes at such sites. In this
regard, the plaintiffs allege that the creek was polluted in part
by contamination from wastes handled at the Carlstadt, New Jersey
solvents recovery facility operated by Transtech from 1970 to 1975.
The plaintiffs have been negotiating with the governmental entities
enforcing the remediation as to the scope of the plaintiffs'
liability, and, pending the conclusion of these negotiations, have
entered into stipulations with the defendants, including Transtech,
staying the suit. Since the case was stayed before any discovery
had taken place, it is not possible to determine the extent of
Transtech's liability in the matter. There is no indication at
present as to when the suit will be reactivated.
As to the Tang Site
Pursuant to a December 1988 agreement with Tang, in 1988, 1989
and 1990 Transtech spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by Transtech for a limited period of time. In October
1990, Transtech determined that it would no longer continue to
contribute to the remediation of that site. The EPA has now
undertaken remediation at the site and has requested information
from approximately 100 potentially responsible parties concerning
their involvement with the Tang site. Transtech has had no direct
involvement with the EPA since October 1990 and has not been the
recipient of an EPA request for information.
In connection with its determination not to continue to
contribute to the remediation of the Tang site, in March 1991
Transtech made a demand upon Tang for reimbursement of the amounts
it had expended in connection with such remediation. In April
1991, Tang rejected the demand for reimbursement and demanded
Transtech resume the remediation. These demands are the subject of
negotiations with Tang discussed below.
As to Negotiations with Mahan Interests
Transtech has been negotiating with Inmar, Tang and Marvin H.
Mahan (collectively, the "Mahan Interests") toward a settlement of
disputes with Transtech, including those involving the indemnity
against liability for remediation of the Kin-Buc Landfill and the
demand for damages for loss of value of property adjoining the Kin-
Buc Landfill, the sharing of expenses of the AT&T Suit, and the
reimbursement of remediation costs at the Tang site. Such
negotiations are continuing. The Company believes that, if decided
against the Company, the outcome of any suit brought by the Mahan
Interests on the basis of any or all such claims would have a
materially adverse effect on the financial condition of the
Company. Management is unable to determine at this time whether
the Mahan Interests will bring suit against the Company on any or
all such claims.
As to Sale of a Subsidiary
In June 1992, Transtech was sued in the United States District
Court for the Eastern District of Pennsylvania by Eastern
Industrial Corporation ("Eastern") and John Moore, a former officer
of Transtech. The plaintiffs sought an order declaring Transtech
in breach of an indemnity provision of a Stock Purchase Agreement
which effected a sale by Transtech to Moore in 1986 of all of the
<PAGE>
stock of Eastern, then a wholly-owned subsidiary of Transtech, and
demanding indemnification from Transtech against certain
environmental liabilities allegedly arising from operations of
Eastern prior to the sale to Moore.
During December 1993, a settlement was reached which provided
the plaintiffs with a nominal cash payment from the Company and the
ability to recover from the Company up to $300,000 for
reimbursement of certain expenditures if after two years the
plaintiffs are unsuccessful in their efforts to obtain coverage for
certain liabilities from the Company's and the plaintiffs'
insurance carriers. It is not possible to assess, at this point,
whether the plaintiffs will be unable to obtain such coverage.
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service") asserted
numerous and, in some cases, significant adjustments in connection
with its audit of the Company's federal income tax returns for the
years 1982 through 1988. In 1993, the Service issued a deficiency
notice against the Company, asserting a deficiency for federal
income taxes of approximately $13.5 million, penalties of $2.5
million and significant interest. The Company filed a petition with
the tax court contesting many of the proposed adjustments in the
deficiency notice. A proposal is being negotiated under which the
Service and the Company would agree to settle certain proposed
adjustments, thereby narrowing the issues to be contested in court.
The proposed adjustments covered by the settlement represent
approximately $6.5 million of the $13.5 million of tax liability
asserted in the deficiency notice and relate principally to those
issues on which the Service would likely prevail in court. The
accelerated recognition of certain of the Company's deferred tax
assets will reduce the Company's estimated current liability
related to the settled adjustments to approximately $1,382,000
($185,000 of taxes and $1,187,000 of interest as of December 31,
1994). Estimated state income taxes associated with the proposed
settlement approximate $868,000 ($364,000 of tax and $522,000 of
interest as of December 31, 1994). These estimates exclude
punitive interest charges and penalties that may be assessed by the
jurisdictions involved. The Company's accrual at December 31, 1994
totals $2,258,000 reflecting the amount that would be payable to
the Service and state authorities under the proposed settlement.
The use of the Company's net operating loss and tax credit carry-
forwards to offset adjustments which result from the proposed
settlement will result in increased tax liabilities when the
Company recognizes approximately $15.8 million of taxable income
related to the reversal of deferred tax liabilities generated by
the Company's investment in computer leases. Such income will be
recognized during 1995, 1996 and for seven months of 1997. The
Company is currently examining the ramifications of the proposed
settlement on the Company's resources and future tax obligations.
The financial condition, results of operations and net cash
flows of the Company could be materially affected if the Company is
either unsuccessful in the defense of the issues remaining in
dispute with the Service or unable to settle such issues in a
manner which can be funded by the Company's available resources.
General
In the ordinary course of conducting its business, the Company
becomes involved in certain lawsuits and administrative proceedings
(other than those described herein), some of which may result in
fines, penalties or judgments being assessed against the Company.
The management of the Company is of the opinion that these
proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated
financial position.
The uncertainty of the outcome of the aforementioned tax audit
and environmental litigation and the impact of future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, could result in increased remediation and
closure costs, and increased tax and other potential liabilities.
A significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows. The Company may ultimately incur costs and
liabilities in excess of its available financial resources.
Part III, Item 10. Executive Compensation.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or
earned by the President and Chief Executive Officer (the "Chief
Executive Officer") and the Vice President-Finance, Chief Financial
Officer and Secretary (the "Named Executive Officer") in the years
ending December 31, 1994, 1993 and 1992 ("Fiscal 1994", "Fiscal
1993" and "Fiscal 1992", respectively) for services rendered by
them to the Company in all capacities during such years. Both the
Chief Executive Officer and the Named Executive Officer were the
only executive officers of the Company whose total annual salary
and bonus exceeds $100,000 and were serving as executive officers
of the Company at December 31, 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation (a)
<S> <C> <C> <C> <C>
Robert V. Silva 1994 $264,000(b) $48,000(b) $2,668
President and 1993 $240,431(c) 0 $2,398
Chief Executive 1992 $242,868(d) $6,750(d) $ 994
Officer
Andrew J. Mayer, Jr. 1994 $126,000 $7,500 $1,270
Vice President- 1993 $120,592 $1,000 $1,200
Finance, Chief 1992 $122,052 0 0
Financial Officer
and Secretary
</TABLE>
<TABLE>
Long Term Compensation
<CAPTION>
Awards Payouts
Options/ Long-Term All
Name and Restricted Stock App- Incentive Other
Principal Fiscal Stock reciation Plan Compen-
Position Year Awards Rights Payouts sation
<S> <C> <C> <C> <C> <C>
Robert V. Silva 1994 0 0 0 0
President and 1993 0 0 0 0
Chief Executive 1992 0 0 0 0
Officer
Andrew J. Mayer, Jr. 1994 0 0 0 $10,000(e)
Vice President- 1993 0 5,000 0 0
Finance, Chief 1992 0 0 0 0
Financial Officer
and Secretary
<FN>
(a) In each case, the amount shown as other annual
compensation is the Company's matching contributions to its
401(k) Plan on behalf of the Chief Executive Officer and the
Named Executive Officer during each of Fiscal 1994, Fiscal 1993
and Fiscal 1992. In each of Fiscal 1994 and Fiscal 1993, the
Company's 401(k) Plan provided for a match equal to 50% of a
participant's contribution to the plan in that year, subject to a
maximum of (i) 2% of compensation in that year or (ii) applicable
Internal Revenue Service limits. In Fiscal 1992, prior to the
merger of the Hunt and Company 401(k) Plans, the Hunt Plan
provided for a match equal to 50% of a participant's
contribution, subject to a maximum of (i) 2% of compensation or
(ii) applicable Internal Revenue Service limits, and the Company
Plan provided for a match equal to 10% of a participant's
contribution, subject to a maximum of (i) 3% of compensation or
(ii) applicable Internal Revenue Service limits.
(b) Mr. Silva's Fiscal 1994 aggregate annual compensation
of $264,000 was allocated $160,000 to Transtech and $104,000 to
Hunt. The bonuses totalling $48,000 were paid by Hunt. Mr.
Silva serves as Chairman of the Board of Directors and Chief
Executive Officer of Hunt.
(c) Mr. Silva's Fiscal 1993 aggregate annual compensation of
$240,431 was allocated $160,320 to the Company and $80,111 to
Hunt.
(d) Mr. Silva's Fiscal 1992 aggregate annual compensation of
$242,868 was allocated $162,148 to the Company and $80,720 to
Hunt. The bonus of $6,750 was paid by Hunt.
(e) Represents Fiscal 1994 director fees paid by Hunt.
</FN>
</TABLE>
STOCK OPTION PLANS
The following table sets forth, with respect to grants of
stock options and stock appreciation rights ("SARs") to the Chief
Executive Officer and the Named Executive Officer during Fiscal
1994: (a) the number of options granted; (b) the percent the
grant represents of total options granted to employees during
Fiscal 1994; (c) the per-share exercise price of the options
granted; and (d) the expiration date of the options.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1994
% Of Total
Options/SARs*
Options/ Granted to Exercise
SARs* Employees in or Base Expiration
Name Granted (#)FiscalYear Price($/sh) Date
<S> <C> <C> <C> <C>
Robert V. Silva 0 N/A N/A N/A
Andrew J. Mayer, Jr. 0 N/A N/A N/A
<FN>
*No SARs have been issued by the Company.
</FN>
</TABLE>
The following table sets forth: (a) the number of shares received
and the aggregate dollar value realized in connection with each exercise
of outstanding stock options during Fiscal 1994 by the Chief Executive
Officer and the Named Executive Officer; (b) the total number of all
outstanding, unexercised options (separately identifying exercisable and
unexercisable options) held by such executive officers as of the end of
Fiscal 1994; and (c) the aggregate dollar value of all such unexercised
options that are in-the-money (i.e., options as to which the fair market
value of the underlying common stock of the Company that is subject to
the option exceeds the exercise price of the option), as of the end of
Fiscal 1994.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
Number of Value of
Unexercised Unexercised
Options/SARs* In-the-Money
at Fiscal Options/SARs*
Year-End(#) at Fiscal Year-
End($)
Shares
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert V. Silva ** 0 N/A 50,000/0 0/0
Andrew J. Mayer, Jr. 0 N/A 5,000/0 0/0
<FN>
* No SARs have been issued by the Company.
** Excludes warrants to purchase shares of Company's wholly-owned
subsidiary HVHC, Inc. discussed in footnote (e) to the table showing
security ownership of certain beneficial owners and management contained
in Item 11.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company who are not also employees are paid annual
directors' fees of $1,875 per calendar quarter, plus $500 for attending
each meeting of the board. In Fiscal 1994, Arthur C. Holdsworth, III
earned fees of $9,000 and Kenneth A. Ernst, a Director of the Company
through April 29, 1994, earned fees of $3,000.
<PAGE>
Part III, Item 12. Certain Relationships and Related Transactions.
RELATED PARTY TRANSACTIONS
In 1988, Marvin H. Mahan, a former officer, director and principal
shareholder of the Company, Inmar Associates, Inc. ("Inmar"), a New
Jersey corporation controlled by Mr. Mahan, and Transtech were sued in
a civil action in the United States District Court for the District of
New Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the "AT&T
Suit") by a group of generators of waste (the "AT&T Group") alleging,
among other things, that the primary responsibility for the clean-up and
remediation of a Carlstadt, New Jersey site operated by the Company as
a solvents recovery plant for a five year period ended in 1970 rests
with the Company, Inmar and Mr. Mahan. Thereafter, the Company and
Inmar brought third-party actions against, among others, the insurance
companies which issued policies of comprehensive general liability
insurance to them and to another operator of the site now in
dissolution. Settlements with these insurers have resulted in payments
to Transtech, Inmar and Mr. Mahan of a total of $4.075 million which is
to be applied to the Company's, Inmar's and Mr. Mahan's liability to the
AT&T Group. The Company believes that the terms of the settlements are
no less favorable to the Company than could be obtained with non-
affiliated parties.
In December 1989, the Company and Inmar agreed to share equally
certain expenses in connection with the AT&T Suit. As of December 31,
1992, the Company paid $514,000 towards such costs. Inmar has disputed
which expenses are to be shared. Further, in April 1991, Mr. Mahan made
a demand upon the Company for reimbursement of approximately $300,000 in
costs which he incurred in connection with the AT&T Suit. The dispute
concerning the shared expenses and Mr. Mahan's demand for reimbursement
are subjects of the negotiations with Inmar discussed below.
Pursuant to a December 1988 agreement with Tang Realty, Inc.
("Tang"), a corporation controlled by Mr. Mahan, in 1988, 1989 and 1990
the Company spent approximately $4.3 million for the remediation of a
Piscataway, New Jersey site owned by Tang and operated by the Company
for a limited period of time. In October 1990, the Company determined
that it would no longer continue to contribute to the remediation of
that site and in March 1991 the Company made a demand upon Tang for
reimbursement of the amounts it had expended in connection with such
remediation. In April 1991 Tang rejected the demand for reimbursement
and demanded the Company resume the remediation. These demands are the
subject of negotiations with Tang discussed below. One of the Company's
wholly-owned subsidiaries, Kin-Buc, Inc. ("Kin-Buc"), leases from Inmar
approximately 50 acres of land upon which a portion of the Kin-Buc
landfill (the "Kin-Buc Landfill") is located. This lease (the "Kin-Buc
Lease") runs until July 1995 and may be extended by Kin-Buc for an
additional 20 years. The annual base rent of $162,500 has been waived
by Inmar because the Kin-Buc Landfill is no longer operating. In
consideration of the waiver of base rent, Inmar may terminate the Kin-
Buc Lease upon 30 days' notice. In April 1991, Inmar demanded that, in
accordance with certain provisions of the Kin-Buc Lease, the Company
indemnify Inmar and Mr. Mahan against liability for remediation of the
leased tract, and pay Inmar $6.6 million in damages for loss of value of
its adjoining property. These demands are the subject of negotiations
with Inmar discussed below.
In 1988, Kin-Buc paid $1,200,000 to Inmar for clay to be used for
the closure of the Kin-Buc Landfill. Under its agreement with Inmar,
the Company has a right to a refund of the purchase price of the clay if
it is unable to extract the clay or if it is unable to use it for such
closure. However, there is substantial uncertainty that the Company
will be able to obtain a refund of the purchase price if the clay cannot
be removed, sold or used for the closure.
The Company has been negotiating with Inmar, Tang and Mr. Mahan
(collectively, the "Mahan Interests") toward a settlement of disputes
with the Company, including those involving Mr. Mahan's and Inmar's
claims for indemnity against liability for remediation of the Kin-Buc
Landfill and the demand for damages for loss of value of property
adjoining the Kin-Buc Landfill, the sharing of expenses of the AT&T
Suit, and the reimbursement of remediation costs at the Tang site.
Negotiations to date have not yielded any definitive agreement on any of
the disputed issues. The filing, in December 1992, of two third-party
actions in the Company's action against generators and transporters of
waste disposed of at the Kin-Buc Landfill by a group of defendants in
that action against Inmar and Mr. Mahan (among others) for contribution
to the costs of the remediation of the Landfill, and against the Mahan
Interests (among others) for the return of amounts paid to the Mahan
Interests in allegedly fraudulent transactions with the Company (one
such transaction being the Company's reimbursement of remediation costs
at the Tang site), made resolution between the Company and the Mahan
Interests of the issues being negotiated in advance of resolution of
such third-party actions inadvisable, from the Company's point of view.
The Mahan Interests and the Company have agreed to waive, as a defense
to any suit on such disputes which any of them might bring against any
other, the preclusion of suit resulting from such party's not having
joined such disputes in the third-party actions.
Effective November 1, 1991, a $1,000,000 obligation evidenced by a
note dated June 29, 1989 payable to Ingrid T. Mahan, a former
shareholder of the Company, on June 30, 1992, with interest only payable
quarterly at the annual rate of 10%, was restructured to provide for a
principal payment of $250,000 and an interest payment of $7,906 on
November 1, 1991, and eight consecutive monthly payments of principal
and interest aggregating $90,654 per payment, commencing November 30,
1991. In 1992, an aggregate of $544,000, constituting the balance of
the note, was paid. The principal amount of the restructured note
approximated the net present value of the original note's scheduled
payments of interest and principal discounted at 25%. The total of the
revised scheduled payments of principal and interest under the
restructured note was approximately $92,000 less than the original note.
The Company believes that the terms of the restructured note were no
less favorable to the Company than could have been obtained with non-
affiliated parties.
On August 28, 1992, the Company made an advance of $10,000 to
Robert V. Silva, President and Chief Executive Officer of the Company.
This advance is evidenced by a note which bears interest at a floating
prime rate plus 1% and is due and payable as determined by the Board of
Directors. On April 22, 1994 the Company made a loan of $75,000 to Mr.
Silva, evidenced by a note which bears interest at a floating prime rate
plus 1% and is due and payable on its first anniversary. The Company
believes that the terms of the advance and the loan to Mr. Silva are no
less favorable to the Company than could be obtained with non-affiliated
parties.
Exhibit 13. Annual report to stockholders.
Management's Discussion and Analysis or Plan of Operations.
Liquidity and Capital Resources
Liquidity
Net cash provided by operating activities for the year ended
December 31, 1994 decreased to $10,000 from $2,007,000 when compared to
last year. The decline reflects last year's receipt of both an income
tax refund of $1,724,000 and the receipt of $935,000 due the Company for
reimbursement of certain legal expenses. Net cash provided by investing
activities increased this year to a positive $257,000 from a negative
$2,340,000, due primarily to the maturity of certain marketable
securities. Purchase of capital equipment increased $509,000 to
$760,000. Approximately $385,000 of the increase relates to the
purchase of assets from P.J. Valves. The use of cash in financing
activities declined from $1,493,000 to $1,012,000 for the period
compared to last year, with the difference largely attributable to the
decrease in the amounts repaid toward the Company's debt. Funds held by
the Company in the form of cash and cash equivalents decreased as of
December 31, 1994 to $880,000 from $1,625,000. The sum of cash, cash
equivalents and marketable securities as of December 31, 1994 decreased
$1,000,000 to $3,345,000 when compared to last year.
Working capital, when calculated excluding Hunt, was $1.7 million
and the ratio of current assets to current liabilities, again excluding
Hunt, was 1.55 to 1 as of December 31, 1994, compared to $3.2 million
and a ratio of 2.2 to 1 at December 31, 1993. Working capital, when
calculated including Hunt but excluding long-term debt in default
classified as current, was $3.1 million with a ratio of 1.35 to 1,
compared to $4.2 million and a ratio of 1.5 to 1 at December 31, 1993.
The inventory level as of December 31, 1994 was $4,780,000, an
increase of $938,000 or 26% above that reported for December 31, 1993.
Two-thirds of such increase is attributable to product line acquisitions
and the balance is due to changes in the production schedule of certain
products.
The uncertainty of the outcome of the Company's ongoing tax and
environmental litigation, discussed below and in the notes to the
Company's consolidated financial statements for the year ended December
31, 1994, and the impact of future events or changes in environmental
laws or regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs, tax and
other potential liabilities. The Company may ultimately incur costs and
liabilities in excess of its available financial resources.
Capital
Hunt's financing agreements limit payments to the Company during
1994 to management fees of $300,000 (subject to Hunt's maintenance of
certain covenants) and payments pursuant to a tax sharing agreement.
Lenders participating in the financing of Hunt have security interests
in substantially all of Hunt's assets.
Hunt has a secured revolving credit facility with a finance company
available for general funding requirements. Borrowings are limited to
a percentage of eligible receivables and inventories. At December 31,
1994, approximately $1.4 million was borrowed under this facility with
a maximum borrowing limit of $3 million.
During April 1994, Hunt completed negotiations with the finance
company and executed an amendment to the loan agreement which cured
certain technical defaults existing at December 31, 1993 and reset
financial covenants contained within the loan agreement. In
consideration for the lender's amending the covenants and waiving prior
defaults, the amount of maximum borrowings permitted under the revolving
credit facility was reduced to $3 million from $5 million, the maximum
amount to be borrowed against inventories was reduced from $2.5 to $1.5
million, and Hunt paid a $27,000 restructuring fee.
The revolving credit facility's previous maturity date of September
27, 1994 has been extended to April 27, 1995. The finance company has
yet to consent to any further extension. Hunt is considering
alternative financing sources. If Hunt is unsuccessful in extending or
replacing the current revolving credit facility, Hunt would be unable to
fund its operations, repay the outstanding balance on the existing
facility and fund the mandatory principal prepayment due under its
senior secured note.
The Company's success in either extending the existing revolving
credit facility or obtaining alternative financing sources is primarily
dependent on the Company's ability to satisfy potential lenders that
Hunt's assets can be sheltered from the future federal tax liabilities
of the Transtech consolidated group (see Note 15 for discussions of the
Company's future tax liability and outstanding issues with the Internal
Revenue Service) and, to a lesser extent, on Hunt's ability to amend the
amount and due dates of the mandatory principal prepayments required
under its senior tern loan. Management is evaluating the effect on the
Company of alternative plans to accomplish these objectives, including
the sale of a minority interest in Hunt to effect its deconsolidation
from the consolidated group and the sale of assets to provide funding of
the Company's tax obligations.
The Company believes the revolving credit lender will continue to
provide funding through 1995, and the senior term lenders will extend
the due date of the current mandatory principal payment while the
Company finalizes its plan.
Also in April 1994, Hunt cured a default of the senior secured
notes, prompted by Hunt's decision to pay a mandatory prepayment due
September 30, 1993 in installments, by paying the balance due on such
prepayment. In May 1994, the senior secured lenders waived the right to
declare a default of the senior secured notes due to the default of the
revolving credit agreement existing at December 31, 1993 and a technical
reporting requirement. The senior secured lenders subsequently agreed
to defer the $1,000,000 installment previously due September 30, 1994 to
May 31, 1995.
In March 1994, Hunt entered into an agreement which provided
approximately $54,000 of financing for the purchase of computer
equipment with the equipment's manufacturer.
Remediation and Closure Costs
As of December 31, 1994, the Company has accrued $23.7 million for
its estimated share of remediation and closure costs related to the
Company's former landfill and waste handling operations. Approximately
$9.3 million is held in trust and maintained by trustees for the post
closure activities of one site located in Deptford, New Jersey (see Note
8).
The Company and other responsible parties have been remediating the
Kin-Buc Landfill, located in Edison, New Jersey, under an Amended
Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990 (the "1990
Order"). In November 1992, EPA issued an Administrative Order (the
"1992 Order", and, together with the 1990 Order, the "Orders") for the
remediation of certain areas neighboring the Kin-Buc Landfill.
Construction and support activities at the site began during August
1993, and are expected to be completed during 1995.
In January 1993, a trust (the "1993 Trust") was established to fund
the remediation of the Kin-Buc Landfill and such neighboring areas out
of proceeds provided from a negotiated settlement with certain parties
to a suit the Company initiated in 1990 with the intent of obtaining
contribution toward the cost of remediation. As of February 28, 1995,
approximately $24,000 of uncommitted funds remained in the 1993 Trust of
the $7.1 million received from settlements through such date. During
June 1994, approximately 36 generators of de minimis volumes of waste
accepted a settlement proposed by the Company and other respondents to
the 1990 Order, which will result in an additional $2.7 million of
contributions available for the remediation effort, of which $2.1
million had been deposited into a new trust created for this purpose as
of February 28, 1995.
During May 1993, a $22 million contract was awarded for the
construction of a containment system and leachate treatment plant at the
Kin-Buc Landfill in accordance with the engineered design and standards
accepted by the EPA in satisfaction of certain requirements of the 1990
Order. The contract was to be financed through the funds available in
the 1993 Trust. During May 1994, the Company met with representatives
of EPA to discuss the impact delays in securing settlement proceeds
would have on the Company's ability to finance the construction within
the time frame required by EPA. In July 1994, after meeting with EPA,
SCA Services, Inc. ("SCA"), an affiliate of WMX Technologies, Inc.
("WMX") and a respondent to the Orders, entered into a contract with the
contractor installing the containment system and treatment plant,
thereby alleviating the potential for delays in this phase of the
construction due to financial limitations. WMX, formerly known as Waste
Management, Inc., had previously provided EPA with a financial guaranty
of SCA's and the Company's obligations under the Orders. In August 1994,
a contract was awarded by SCA for certain activities mandated by the
1992 Order. Construction on this aspect of the remediation commenced
during the third quarter of 1994.
The execution of the contracts between SCA and the contractors does
not relieve the Company of liability for such costs since the Company
entered into an agreement with SCA and certain affiliates ("SCA Group")
in 1986 which obligated the Company to bear 75% of the costs incurred by
the parties for the remediation of the site. The Company filed a demand
for arbitration in 1993 seeking rescission or reformation of the
agreement with the SCA Group. During March 1995, the SCA Group filed a
demand for arbitration seeking reimbursement from the Company of $10.7
million, which equals 75% of the $14.3 million of remediation expenses
purportedly funded by WMX through December 31, 1994. The status of such
arbitration demands, as yet unresolved, is described in Note 11 to the
Company's consolidated financial statements contained herein.
If the current phase of the remediation does not proceed in
accordance with EPA approved plans, or if this phase is not completed by
May 24, 1995, EPA could bring an action against the Company and the
other respondents to the 1990 Order for the imposition of fines for
violations of the 1990 Order. Management anticipates the EPA's
requirement will be met.
Engineering studies and construction planning are continuing in
regard to satisfying the remaining requirements of the 1992 Order.
Additional material adjustments to the Company's current accrual
may become necessary as the above costs are incurred and weighed against
allocations to other respondents and potentially responsible parties.
Notes to Consolidated Financial Statements.
Note 7 - Long-term Debt:
Long-term debt consists of the following (in $000's):
<TABLE>
<CAPTION>
Hunt 1994 1993
<S> <C> <C>
Revolving credit facility $ 1,461 $ 1,756
13% Senior secured notes (net
of unamortized debt discount
of $390,000 and $473,000,
respectively) 10,610 10,877
Variable rate secured notes 136 244
Junior subordinated notes 275 444
Other 65 -
All other operations
10% to 11% Mortgages payable, due
in monthly installments, through
December 2004, secured by certain
land and buildings, carried at a
cost of $1,752,000 446 504
Other obligations 34 79
Total debt 13,027 13,904
Less: Current portion 3,700 3,509
Less: Long-term debt in default
classified as current - 9,743
Long-term portion $ 9,327 $ 652
</TABLE>
Revolving Credit Facility
Hunt has a $3 million revolving credit facility with a
financial institution. The facility's previous maturity date of
September 27, 1994 has been extended to April 27, 1995. The
financial institution has yet to consent to any further extension
and Hunt is pursuing alternative financing sources. If Hunt is
unsuccessful in extending or replacing the current revolving credit
facility, Hunt would be unable to fund its operations, repay the
outstanding balance on the existing facility and fund the mandatory
principal prepayment on its senior secured note now due on May 1,
1995.
The Company's success in either extending the existing
revolving credit facility or obtaining alternative financing
sources is primarily dependent on the Company's ability to
satisfy potential lenders that Hunt's assets can be sheltered from
the future federal tax liabilities of the Transtech consolidated
group (see Note 15 for discussions of the Company's future tax
liability and outstanding issues with the Internal Revenue Service)
and, to a lesser extent, on Hunt's ability to amend the amount and
due dates of the mandatory principal prepayments required under its
senior tern loan. Management is evaluating the effect on the
Company of alternative plans to accomplish these objectives,
including the sale of a minority interest in Hunt to effect its
deconsolidation from the consolidated group and the sale of assets
to provide funding of the Company's tax obligations.
The Company believes the revolving credit lender will continue
to provide funding through 1995, and the senior term lenders will
extend the due date of the current mandatory principal payment
while the Company finalizes its plan.
Borrowings under the revolving credit facility bear interest
at that institution's prime rate (equal to 8.5% at December 31,
1994) plus 2%. Amounts borrowed are limited to a percentage of
eligible accounts receivable, raw materials and finished goods
inventories. The amount borrowed against inventories may not
exceed $1.5 million. Borrowings under this facility are secured by
Hunt's accounts receivable, intangibles and inventory, and certain
other assets.
The terms of the agreement require that Hunt maintain minimum
levels of net worth and earnings, and certain interest and debt
coverage and debt-to-equity ratios. The agreement also limits the
amount of capital expenditures, officers' compensation and payments
to affiliates, and prohibits the payment of dividends on common
stock. Additionally, the agreement requires certain prepayment
penalties in the event that Hunt terminates the agreement prior to
maturity.
As of December 31, 1993, Hunt was in technical default of the
loan agreement related to its revolving credit facility due to its
failure to achieve covenanted earnings levels and financial ratios
and its default of certain terms of its senior secured notes and
junior subordinated notes. In April 1994, Hunt obtained an
amendment to the loan agreement pursuant to which the lender waived
the defaults and reset financial covenants. In consideration for
such amendment, the Company agreed to reduce the maximum
borrowings permitted under the facility from $5 to $3 million,
reduce the maximum amount to be borrowed against inventories from
$2.5 to $1.5 million and pay a restructuring fee of $27,000.
Concurrently, Hunt cured the aforementioned defaults of its senior
secured and junior subordinated notes.
Senior Secured Notes
The senior secured notes are collateralized by a mortgage on
Hunt's real estate, a pledge of Hunt's common stock, a first
position in Hunt's machinery and equipment, and a subordinated
position in Hunt's accounts receivable, inventories and intangible
assets. The notes require mandatory payments annually due on
September 30, as follows: 1994 and 1995 - $1,000,000; 1996, 1997
and 1998 - $1,150,000; and 1999, 2000 and 2001 - $1,850,000. The
senior secured lenders have agreed to defer the $1,000,000 payment
due September 30, 1994 to May 1, 1995. Hunt has made all interest
payments when due.
The senior secured notes were issued with detachable stock
purchase warrants (see Note 13). A portion of the proceeds from
issuance of the notes has been allocated to the common stock
purchase warrants resulting in a reduction in the
recorded principal amount of the senior secured notes which is
being amortized as interest expense over the life of the notes at
an effective interest rate of 14.32%. The unamortized discount on
the senior secured notes was $390,000 and $473,000 at December 31,
1994 and 1993, respectively.
The senior secured notes contain provisions which require Hunt
to maintain certain minimum current, debt-to-equity and fixed
charges coverage ratios, and specified levels of net worth, and
also limit capital expenditures and payments to affiliates, and
prohibit the payment of dividends on common stock.
The senior secured notes also contain restrictions regarding
the payments of interest and principal on a $500,000 subordinated
note issued by Hunt to the Company in March 1993. The subordinated
note bears interest at prime plus 1% and pays interest through an
increase in the principal of the subordinated note through December
31, 1994. Cash payments of interest begin in 1995 if certain
financial performance is achieved by Hunt.
As of December 31, 1993, Hunt was in default of the senior
secured notes due to its decision to pay a mandatory prepayment due
September 30, 1993 in installments and the aforementioned technical
defaults of the revolving credit facility. In April 1994, Hunt
cured such defaults by paying the balance due on the September 30,
1993 prepayment, renegotiating the terms of the revolving credit
facility and obtaining waivers of certain reporting requirements
from the lenders.
Variable Rate Secured Notes
Hunt has $136,000 of outstanding notes issued under a bank
line-of-credit for the purpose of making capital expenditures. The
original principal of the variable rate secured notes equaled 90%
of the cost of the capital additions. The variable rate secured
notes bear interest at the prime rate plus 2%, and are secured by
the assets financed and the guaranty of the Company.
The terms of the agreement require that Hunt maintain certain
minimum current, debt-to-equity and fixed charges coverage ratios,
and specified levels of net worth, and also limit capital
expenditures and payments to affiliates, and prohibit the payment
of dividends on common stock.
Repayment of the variable rate secured notes are due in
monthly installments as follows: $9,012 through January 1996,
$2,154 from February 1996 through August 1996, and $1,312 from
September 1996 through November 1996.
Junior Subordinated Notes
The junior subordinated notes were issued to the sellers of
Hunt and are unsecured, bear interest at the prime rate plus 2.50%,
and are due in consecutive monthly installments of $8,333 through
September 1996.
During September 1992, Hunt suspended all payments of
scheduled interest and principal payable under the terms of the
junior subordinated notes pending the resolution of the default
conditions under the senior loan agreements at that time. The
negotiations with the note holders resulted in the forgiveness of
unpaid interest accrued on the junior subordinated notes through
February 28, 1994 of $51,000, and a $58,000 reduction in the
aggregate principal of the junior subordinated notes. In exchange,
the Company agreed to release certain pending claims against the
former owners and certain indemnification rights granted by the
former owners at the time the Company acquired Hunt. The total
amount of debt and interest forgiven is included as an
extraordinary item, net of income taxes of $37,000 in the
accompanying consolidated statement of operations.
Other
Hunt has $65,000 of outstanding installment notes payable to
finance companies. These notes bear interest at a weighted average
rate of approximately 5% and are due in monthly installments,
including principal and interest, of $1,701 through February 1998
and $438 from March 1998 through
September 1999. These notes are secured by data processing and
office equipment with a net book value of $67,000 at December 31,
1994.
Maturities
At December 31, 1994, long-term debt matures as follows (in
$000's):
<TABLE>
<S> <C>
1996 $ 1,572
1997 1,186
1998 1,107
1999 1,813
2000 and thereafter 3,649
$ 9,327
</TABLE>
At December 31, 1994, under the most restrictive covenants of
Hunt's loan agreements, the Company's entire investment in Hunt,
which amounted to $5,121,000, was restricted as to the payment of
dividends.
Note 8 - Remediation and Closure Costs:
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. The costs of litigation associated with a site are
expensed as incurred. The Company has accrued remediation and
closure costs for the following sites (in $000's):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Kin-Buc landfill $10,692 $10,693
Kinsley's landfill 2,043 2,081
Mac Sanitary landfill 88 113
Carlstadt facility 1,532 1,532
Total $14,355 $14,419
</TABLE>
Cash and securities held in certain trusts for these
activities and prepaid expenses have been netted against the
accrual for presentation in the Company's balance sheet.
Kin-Buc, Inc. ("Kin-Buc"), a wholly-owned subsidiary of the
Company, operated a landfill in Edison, New Jersey (the "Kin-Buc
Landfill") which ceased operations in 1977. Remediation and
closure activities continue at the Kin-Buc Landfill pursuant to the
provisions of an Amended Administrative Order issued by the United
States Environmental Protection Agency ("EPA") to the Company and
other respondents, including SCA Services, Inc. ("SCA"), an
unaffiliated company, in September 1990 (the "1990 Order"). In
November 1992, EPA issued an Administrative Order to the Company,
SCA and other respondents for the remediation of certain areas
neighboring the Kin-Buc Landfill (the "1992 Order"). Such action
by EPA creates joint and several liability for the named parties.
In 1986, the Company and certain subsidiaries and an affiliate
(the "Transtech Group"), and SCA and certain subsidiaries and
affiliates of SCA (the "SCA Group") entered into an agreement in
settlement of litigation among themselves regarding the sharing of
the remediation and closure costs of the Kin-Buc Landfill, whereby
75% of such costs would be borne by the Transtech Group and 25% by
the SCA Group (the "1986 Agreement"). The parties also agreed to
establish and fund a trust for the payment of these costs (the
"1986 Trust").
Both the 1990 Order and the 1992 Order required the Company,
SCA and the other respondents to submit financial assurance to the
EPA that all of the remediation required under those Orders would
be completed. In November 1990 the
Company entered into an agreement with SCA whereby SCA submitted
the guaranty by WMX Technologies, Inc. ("WMX") (formerly known as
Waste Management, Inc.), its indirect corporate parent, of all of
SCA's and the Company's obligations under the 1990 Order. In
conjunction with this guaranty, the Company contributed $3 million
to the 1986 Trust (and SCA contributed $1 million) and the Company
and SCA agreed to fund the 1986 Trust such that its balance would
never be less than $2 million. The Company also agreed to maintain
in its treasury $4 million in cash and cash equivalents less 75% of
recoveries from third parties ("PRPs") which are deposited in trust
for the remediation of the Kin-Buc Landfill. In 1992, SCA
submitted a revised guaranty by WMX to encompass SCA's and the
Company's obligations under the 1992 Order, based upon an estimated
aggregate remediation project cost of $99.8 million. The Company's
obligations to fund the 1986 Trust and maintain certain cash
balances have been satisfied with the creation and funding of a new
trust in January 1993.
The new trust was established in January 1993 to fund the
remediation of the Kin-Buc Landfill (the "1993 Trust") with funds
to be provided from negotiated settlements reached with certain De
Minimis PRPs during 1992 and 1993 (see Note 11). Terms of the
settlement allow for the reimbursement of up to $1.3 million of
past litigation costs incurred by SCA and the Company, with up to
$975,000 of that amount payable to the Company. Recovered
litigation costs of $15,000 and $960,000 in 1993 and 1992,
respectively, were reported in the section entitled "Other income"
since these costs were charged to operations in prior years. Other
current assets as of December 31, 1993 includes a $15,000
receivable for such recovery of litigation costs. Proceeds from
such initial settlements with the PRPs resulted in total deposits
of $7.1 million into the 1993 Trust through the year ended December
31, 1994. At December 31, 1994, $35,000 of the $7.1 million
received from such settlements remained in the 1993 Trust. The
1986 Trust was exhausted during 1994.
During May 1993, a $22 million contract was awarded for the
construction of a containment system and leachate treatment plant
at the Kin-Buc Landfill in accordance with the engineered design
and standards accepted by the EPA in satisfaction of certain
requirements of the 1990 Order. The contract was to be financed
through the funds available in the 1993 Trust. During May 1994,
the Company met with representatives of EPA to discuss the impact
delays in securing settlement proceeds would have on the Company's
ability to finance the construction within the time frame required
by EPA. In July 1994, after meeting with EPA, SCA entered into a
contract with the contractor installing the containment system and
treatment plant, thereby alleviating
the potential for delays in this phase of the construction due to
financial limitations. In August 1994, a contract was awarded by
SCA for certain activities mandated by the 1992 Order.
Construction on this aspect of the remediation commenced during the
third quarter of 1994 and is expected to be completed during May
1995. The execution of the contracts between SCA and the
contractors does not relieve the Company of liability for such
costs due to its obligations under the 1986 Agreement, which
obligations are being contested as set forth below.
In August 1993, the Company filed a demand for arbitration
seeking rescission or reformation of the agreement and
reimbursement of overpayments. During March 1995, the SCA Group
filed a demand for arbitration seeking reimbursement from the
Company of $10.7 million, representing 75% of the $14.3 million of
remediation expenses purportedly funded by the SCA Group through
December 31, 1994. The status of such arbitration demand, as yet
unresolved, is described in Note 11 below ("Legal Proceedings").
During June 1994, approximately 36 additional de minimis
defendants accepted a revised settlement proposed by the Company
and other respondents to the 1990 Order, which is expected to
result in an additional $2.7 million of contributions available for
the remediation effort. As of February 28, 1995 approximately $2.1
million of such additional contributions have been received and
deposited in a trust established in January 1995.
If the current phase of the remediation does not proceed in
accordance with EPA approved plans, EPA could bring an action
against the Company and the other respondents to the 1990 Order for
the imposition of fines for violations of the 1990 Order.
Engineering studies and construction planning are continuing
in regard to satisfying the remaining requirements of the 1992
Order.
In 1988, the Company purchased 150,000 cubic yards of clay to
be used for the closure of the Kin-Buc Landfill for $1.2 million
from Inmar Associates, Inc. ("Inmar"), a corporation owned and
controlled by a former principal shareholder, director and officer
of the Company, and applied this amount against its accrual for
remediation and closure costs. In 1992, the Company reclassified
approximately $1.1 million from its accrual for remediation and
closure costs to other long-term assets representing the cost of
the clay not required for the closure. Approximately 8,600 cubic
yards have been utilized for this purpose through December 31,
1994.
Under the purchase agreement, the Company has a right to a refund
if the clay is not used for the closure. However, there is
substantial uncertainty regarding Inmar's ability to make such a
refund.
In conjunction with the remediation, 26 acres of undeveloped
land neighboring the site and owned by a wholly-owned subsidiary of
the Company were utilized for the construction of the containment
system, treatment plant and related facilities. The property had
been reflected at nominal value on the Company's financial
statements.
At December 31, 1994 and 1993, Kin-Buc has accrued $10.7
million for its share of the costs of such remediation and closure.
At December 31, 1993, the accrual was reported net of $40,000 with
such amount equal to its share of funds held in the 1986 Trust.
The accrual is based upon the present value of the Company's share
of remaining closure costs for the site and operation and
maintenance costs related to the site's containment systems and
treatment plant less prepaid expenses and contingencies.
Additional material adjustments to the Company's current
accrual may become necessary as the above plans and related
implementation costs are refined and weighed against revised
allocations to other respondents and potentially responsible
parties.
Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-owned
subsidiary of the Company, ceased accepting solid waste at its
landfill in Deptford Township, New Jersey on February 6, 1987 and
commenced closure of that facility. At December 31, 1994 and 1993,
Kinsley's has accrued $11,371,000 and $11,361,000, respectively,
for the remaining costs of closure and post-closure care of this
facility, of which $9,328,000 and $9,280,000, respectively, is
being held in interest-bearing trust accounts. The accrual as of
December 31, 1994 was based upon the present value of the estimated
operation and maintenance costs related to the site's containment
systems and treatment plant through the year 2016.
Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey which ceased operations in 1977. The closure
of this facility has been substantially completed. At December 31,
1994 and 1993, Mac has accrued closing costs amounting to $88,000
and $113,000, respectively, for the costs of continuing post-
closure care and monitoring at the facility. The accrual as of
December 31, 1994 was based upon the present value of the estimated
maintenance costs of the site's containment systems through the
year 2007.
In 1988, the Company entered into a settlement agreement (the
"Tang Agreement") regarding the costs of remediation of certain
property in Piscataway, New Jersey owned by Tang Realty, Inc.
("Tang"), a company owned and controlled by a former principal
shareholder, director and officer of the Company (see Note 11).
Upon the signing of this agreement, the Company paid $2,000,000 to
Tang as reimbursement for damages and remediation costs incurred by
it, and agreed to assume all future remediation costs in connection
with the Piscataway site. During 1988, the Company accrued
$1,741,000 for current and future remediation costs, and during
1989, the Company accrued an additional $2,689,000 for such costs.
In October 1990, the Company rescinded the Tang Agreement based on
a reassessment of its involvement at the site. During the term of
the Tang Agreement, the Company accrued $6,430,000 for the costs of
current and future remediation at the site. As of the date of the
rescission, the Company had paid approximately $4,300,000 to Tang
in reimbursement for actual remediation costs incurred. As a
result of the rescission, amounts accrued by the Company for future
remediation costs (the sum of $2,238,000) were reversed and
reflected in income during 1990. In March 1991, the Company made
demand upon Tang for reimbursement of the $4,300,000 paid by the
Company in the remediation of the Piscataway site. Tang is
currently disputing the Company's right to rescind the Tang
Agreement and there is substantial uncertainty regarding Tang's
ability and intention to reimburse the Company for these costs.
Accordingly, no provision has been made for such reimbursement in
the accompanying financial statements.
During 1990 the Company joined with a group of 43 chemical
waste generators, all named as respondents to an October 1990
Administrative Order issued by EPA as to a site in Carlstadt, New
Jersey, to develop and fund a preliminary interim remedy (the
"Interim Remedy") for the clean-up of that site (see Note 11). The
Company had leased this site from Inmar and operated a solvents
recovery plant thereon during a five year period ended 1970.
During 1990 the Company charged to operations (i) $750,000 for its
share of the costs of implementing the Interim Remedy, (ii)
$1,537,000 for future remediation costs of a final remedy, and
(iii) $503,000 paid pursuant to an agreement with Inmar which
provides for a 50%/50% sharing of the costs of certain consulting
services, including those aimed at identifying parties who may be
responsible for the remediation of the site. In 1991, the Company
charged to operations an additional $101,000 towards these shared
expenses. At December 31, 1994 and 1993 the Company has accrued
approximately $1,532,000 for its portion of the estimated
remediation costs at this site. A proposed settlement with the co-
respondents to the EPA Order and other
responsible parties would, upon execution, in effect relieve the
Company of liability for all costs for the remediation of the site
(see Note 11).
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.
Note 11 - Legal Proceedings:
As to the Kin-Buc Landfill
In 1966, Kin-Buc leased approximately 19 acres of land in
Edison, New Jersey from Inmar and operated a waste disposal
facility at that site. In 1969, another wholly-owned subsidiary of
Transtech, Filcrest Realty, Inc. ("Filcrest") acquired a number of
lots near Kin-Buc's site and several contiguous to it. In
September 1975, Transtech and SCA entered into an agreement
pursuant to which a wholly-owned subsidiary of SCA, Chemical Waste
Management of New Jersey, Inc. ("CWMNJ"), and a wholly-owned
subsidiary of Transtech, Wastequid, Inc. ("Wastequid"), formed a
partnership known as Earthline Company ("Earthline"). In
connection with the formation of this partnership, Kin-Buc entered
into two new leases with Inmar, superseding and replacing the 1966
lease. Pursuant to these leases, Kin-Buc leased a total of 77
acres from Inmar, 27 acres, including the original 19 acre disposal
site, in one lot, and 50 acres in a contiguous lot.
Simultaneously therewith, Earthline entered into an agreement with
Kin-Buc permitting it to dispose of waste at the leased site. From
1972 through 1976, the Kin-Buc site operated as a state approved
facility for the disposal of solid and liquid industrial and
municipal waste. In July 1976, it stopped accepting liquid waste.
In December 1976, Kin-Buc acquired title to the 27 acres it had
been leasing from Inmar. In 1977, Kin-Buc stopped accepting solid
waste at the site. Such site is referred to herein as the Kin-Buc
Landfill. In February 1979, EPA brought suit in the United States
District Court for the District of New Jersey against Transtech,
Kin-Buc and Filcrest, certain former officers, directors and
shareholders of Transtech, and Inmar in connection with the
ownership and operation of the Kin-Buc Landfill. This suit was
placed on administrative hold by the Court because Transtech and
SCA agreed to undertake the remediation of the site. This suit
remains on administrative hold.
In 1986, Transtech sold the stock of Wastequid to SCA, and,
simultaneously therewith, Transtech, Kin-Buc, Filcrest and Inmar
(the "Transtech Group") entered into a settlement agreement (the
"Settlement Agreement") with SCA, CWMNJ, Wastequid and Earthline
(the "SCA Group") regarding the sharing of remediation costs of the
Kin-Buc Landfill, pursuant to which the Transtech Group agreed to
pay 75% of such costs and the SCA Group the remaining 25%. The
parties also agreed to establish and fund a trust for the payment
of these costs (see Note 8).
In June 1990, Transtech, Kin-Buc and Filcrest commenced a suit
in the United States District Court for the District of New Jersey
entitled Transtech Industries, Inc. et al. v. A&Z Septic Clean et
al. against approximately 450 generators and transporters of waste
disposed of at the Kin-Buc Landfill (the "PRPs") for contribution
towards the cost of cleanup of the landfill. Stayed for some time
pending multiple unsuccessful appeals of the denial of a motion to
dismiss brought by a group of PRPs, the suit is now in discovery.
In 1991, 1992 and 1993, Transtech, Kin-Buc, Filcrest, SCA,
CWMNJ and Wastequid (the "Kin-Buc Response Group") presented
settlement proposals to approximately 300 of these 450 PRPs; of the
450, these 300 PRPs were believed to be responsible, individually,
for no more than 1%, and in the aggregate, no more than 25% of the
non-municipal waste disposed of at the Kin-Buc Landfill (the "De
Minimis PRPs"). Approximately 200 of the 300 De Minimis PRPs
accepted settlement, paying an aggregate of approximately $10
million towards the cost of the remediation of the Kin-Buc
Landfill.
With changes in ownership, mergers, consolidations,
insolvencies, bankruptcies, dissolutions and liquidations of the
PRPs from the time of their involvement with the Kin-Buc Landfill
to the present, approximately 50 De Minimis PRPs, believed to be
responsible, in the aggregate, for approximately 15% of the non-
municipal waste disposed of at the Kin-Buc Landfill, remain in the
litigation, along with 24 non-De Minimis, or major PRPs, believed
to be responsible, in the aggregate, for approximately 75% of such
waste. Percentages of waste attributed to non-owner/operator PRPs
who arranged for the disposal of, or transported waste to the Kin-
Buc Landfill, are relevant to, but not dispositive of, those PRPs'
share of the cost of the remediation of the Landfill.
In December 1992, substantially all of the PRPs filed three
pleadings in the case, two of which are against Transtech or its
subsidiaries. The first such pleading is a counterclaim against
Transtech, Kin-Buc and Filcrest and a third-party complaint against
other owners or alleged operators of the Kin-Buc Landfill
(including the SCA Group, Inmar, Marvin H. Mahan, another former
officer and director of Transtech and a former principal of SCA).
The second pleading is a third-party complaint against six parties,
not named by Transtech in its complaint, which also allegedly
arranged for the disposal of or transported hazardous wastes to the
Kin-Buc Landfill. Discovery in respect of the issues raised in
these pleadings is being conducted together with those raised in
the case in chief.
The third pleading is a counterclaim against Transtech and a
third-party complaint against parties to transactions with
Transtech which are alleged to have been fraudulent conveyances.
The claimants seek to have the consideration paid in these
transactions returned and placed in the hands of a receiver. The
transactions identified are the 1988 payment of fees to a
consultant and relative of a former director of the Company for his
services in connection with the sale of the assets of Allentown
Cement Co., Inc.; the 1988 purchase of clay from Inmar; the 1988
settlement with Tang for the remediation of its Piscataway, New
Jersey property; a 1989 bonus to a former officer and director of
Transtech; and the 1989 redemption of Transtech stock from certain
shareholders. Transtech has denied these allegations and has been
defending certain former officers and directors and redeemed
shareholders with respect to some of the issues raised in this
pleading. Discovery is being conducted separately on these issues.
During August 1993, the Company served a demand for
arbitration (the "Transtech Arbitration") on WMX Technologies, Inc.
("WMX") (formerly named Waste Management, Inc.) and the SCA Group.
The Company is seeking reformation or rescission of the Settlement
Agreement, including the apportionment of Kin-Buc Landfill
remediation costs, and reimbursement of overpayments made in
accordance therewith. WMX brought an action in the Supreme Court
for the State of New York in September 1993 seeking to enjoin the
Transtech Arbitration. The Transtech Arbitration has been stayed
pending a decision by the Court. In February 1995, the Court
assigned WMX's and the SCA Group's motion to permanently enjoin the
Transtech Arbitration to a special referee to report and recommend
with regard to the claim that the Transtech Arbitration should be
enjoined permanently on the grounds that the statute of limitations
has run. The hearing before the referee has not yet been
scheduled. In March 1995, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of $10.7 million, which equals 75% of the $14.3 million of
remediation expenses purportedly funded by WMX through December 31,
1994. The Company brought an action in the Supreme Court for the
State of New York in March 1995 seeking to stay the SCA Arbitration
pending a decision on WMX's and the SCA Group's motion to enjoin
the Transtech Arbitration. On April 12, 1995, the court heard the
Company's motion to stay the SCA Arbitration and instructed the
parties to draft an order permitting the SCA Arbitration to
commence, with the consent of the arbitrator, who would make
limited factual determinations regarding the amount of funds
expended on the remediation and the reasonableness of such
expenditures, subject to and without prejudice to the Company's
rights to seek reformation or rescission of the Settlement
Agreement.
The Company believes that a portion of the owner-operator
share of the cost of the remediation of the Kin-Buc Landfill will
be allocated to it by the Court. At this point, management is
unable to assess whether this portion will exceed the costs already
borne by the Company. Further, it is too early in the proceedings
in the Transtech Arbitration and the SCA Arbitration to assess
whether the Settlement Agreement will be enforced, and whether, if
it is enforced, recoveries from PRPs will be sufficient to satisfy
the Company's obligations thereunder. The financial condition of
the Company will be materially and adversely affected if the
Company is required to make any significant additional contribution
to the cost of the remediation.
In April 1991, Inmar demanded that, in accordance with certain
provisions of the lease from Inmar to Kin-Buc of 50 acres upon
which a portion of the Kin-Buc Landfill is located, Transtech
indemnify Inmar and Marvin H. Mahan against liability for
remediation of such property and pay Inmar $6.6 million in damages
for loss of value of its adjoining property. These demands are the
subject of negotiations with Inmar discussed below.
As to the Carlstadt Site
Transtech is one of 43 respondents to a September 1990
Administrative Order of the EPA concerning the implementation of
interim environmental remediation measures at a site in Carlstadt,
New Jersey owned by Inmar and operated by Transtech as a solvents
recovery plant for approximately five years ending in 1970. During
1990 and 1991 Transtech contributed $750,000 in the aggregate
towards the cost of such interim remedy.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in a
civil action in the United States District Court for the District
of New Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the
"AT&T Suit") by a group of generators of waste (the "AT&T Group")
alleging, among other things, that the primary responsibility for
the clean-up and remediation of the Carlstadt site rests with
Transtech, Inmar and Marvin H. Mahan.
Thereafter, Transtech, Inmar and Marvin H. Mahan brought an
action for a declaratory judgment against insurance companies which
issued policies of primary and excess comprehensive general
liability insurance ("CGL Insurance") to them and to another
operator of the site now in dissolution, and against approximately
240 generators of waste handled at the site who are also
potentially responsible for its
remediation. Extensive discovery was conducted as to both the case
in chief and the declaratory judgment action, and, during the
pendency of a motion for summary judgment brought by the
plaintiffs, the District Court ordered that the parties attempt to
mediate their claims. Settlement negotiations continued
throughout, and Transtech, Inmar and Mr. Mahan settled with one of
the two insurers which provided primary CGL Insurance to the other
operator, and with the four insurers which provided primary CGL
Insurance to them over a 20-year period from November 1967 through
September 1987. The settlements resulted in payments to Transtech
and Inmar of $4.075 million. Transtech and Inmar, their respective
subsidiaries and affiliates and Mr. Mahan agreed to terminate all
their rights under the CGL Insurance provided by these four
insurers over that 20-year period. Transtech, Inmar and Mr. Mahan
have been negotiating a settlement with the plaintiffs and the
third-party defendants pursuant to which Transtech, Inmar and Mr.
Mahan would pay over to these parties a total of $4.22 million,
consisting of the $4.075 million in payments from the insurers,
$72,500 from Transtech and $72,500 from Inmar and Mr. Mahan, in
exchange for a complete release from these parties of all liability
to them arising from or in any way connected with the contamination
of the Carlstadt site and its environs.
Management is advised that if a settlement along these lines
is not achieved the pending motion for summary judgment as to the
Company's liability to the plaintiffs will be granted; subsequent
proceedings in the suit will deal with the allocation to the
Company of its share of the costs of the remediation. The
financial condition of the Company will be materially and adversely
affected if the Company is required to make any significant
contribution to the cost of the remediation beyond the amounts it
has recovered from its insurers.
In December 1989, Inmar and Transtech agreed to share equally
certain costs in connection with the AT&T Suit. As of December 31,
1992, Transtech paid $514,000 towards such costs. Inmar has
disputed which expenses are to be shared. Further, in April 1991,
Marvin H. Mahan made a demand upon Transtech for reimbursement of
approximately $300,000 in costs which he incurred in connection
with the AT&T Suit. The dispute concerning the shared expenses and
Mr. Mahan's demand for reimbursement are subjects of the
negotiations with Inmar discussed below.
In a related matter, in October 1989, Transtech (along with
owners and operators of industrial sites in the Hackensack
meadowlands near Carlstadt, New Jersey) was sued in the United
States District Court for the District of New
Jersey for contribution towards the cost of remediation of a creek
in the Hackensack meadowlands by Morton International, Inc.,
Velsicol Chemical Corp. and other members of a group of owners and
operators of industrial sites in that area who have been ordered to
remediate that creek. The claim against the Company is based upon
certain provisions of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), which
imposes liability for the remediation of certain sites jointly and
severally upon persons responsible for the generation,
transportation and disposal of wastes at such sites. In this
regard, the plaintiffs allege that the creek was polluted in part
by contamination from wastes handled at the Carlstadt, New Jersey
solvents recovery facility operated by Transtech from 1970 to 1975.
The plaintiffs have been negotiating with the governmental entities
enforcing the remediation as to the scope of the plaintiffs'
liability, and, pending the conclusion of these negotiations, have
entered into stipulations with the defendants, including Transtech,
staying the suit. Since the case was stayed before any discovery
had taken place, it is not possible to determine the extent of
Transtech's liability in the matter. There is no indication at
present as to when the suit will be reactivated.
As to the Tang Site
Pursuant to a December 1988 agreement with Tang, in 1988, 1989
and 1990 Transtech spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by Transtech for a limited period of time. In October
1990, Transtech determined that it would no longer continue to
contribute to the remediation of that site. The EPA has now
undertaken remediation at the site and has requested information
from approximately 100 potentially responsible parties concerning
their involvement with the Tang site. Transtech has had no direct
involvement with the EPA since October 1990 and has not been the
recipient of an EPA request for information.
In connection with its determination not to continue to
contribute to the remediation of the Tang site, in March 1991
Transtech made a demand upon Tang for reimbursement of the amounts
it had expended in connection with such remediation. In April
1991, Tang rejected the demand for reimbursement and demanded
Transtech resume the remediation. These demands are the subject of
negotiations with Tang discussed below.
As to Negotiations with Mahan Interests
Transtech has been negotiating with Inmar, Tang and Marvin H.
Mahan (collectively, the "Mahan Interests") toward a settlement of
disputes with Transtech, including those involving the indemnity
against liability for remediation of the Kin-Buc Landfill and the
demand for damages for loss of value of property adjoining the Kin-
Buc Landfill, the sharing of expenses of the AT&T Suit, and the
reimbursement of remediation costs at the Tang site. Such
negotiations are continuing. The Company believes that, if decided
against the Company, the outcome of any suit brought by the Mahan
Interests on the basis of any or all such claims would have a
materially adverse effect on the financial condition of the
Company. Management is unable to determine at this time whether
the Mahan Interests will bring suit against the Company on any or
all such claims.
As to Sale of a Subsidiary
In June 1992, Transtech was sued in the United States District
Court for the Eastern District of Pennsylvania by Eastern
Industrial Corporation ("Eastern") and John Moore, a former officer
of Transtech. The plaintiffs sought an order declaring Transtech
in breach of an indemnity provision of a Stock Purchase Agreement
which effected a sale by Transtech to Moore in 1986 of all of the
stock of Eastern, then a wholly-owned subsidiary of Transtech, and
demanding indemnification from Transtech against certain
environmental liabilities allegedly arising from operations of
Eastern prior to the sale to Moore.
During December 1993, a settlement was reached which provided
the plaintiffs with a nominal cash payment from the Company and the
ability to recover from the Company up to $300,000 for
reimbursement of certain expenditures if after two years the
plaintiffs are unsuccessful in their efforts to obtain coverage for
certain liabilities from the Company's and the plaintiffs'
insurance carriers. It is not possible to assess, at this point,
whether the plaintiffs will be unable to obtain such coverage.
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service") asserted
numerous and, in some cases, significant adjustments in connection
with its audit of the Company's federal income tax returns for the
years 1982 through 1988. In 1993, the Service issued a deficiency
notice against the Company, asserting a deficiency for federal
income taxes of approximately $13.5 million, penalties of $2.5
million and significant interest. The Company filed a petition with
the tax court contesting many of the proposed adjustments in the
deficiency notice. A proposal is being negotiated under which the
Service and the Company would agree to settle certain proposed
adjustments, thereby narrowing the issues to be contested in court.
The proposed adjustments covered by the settlement represent
approximately $6.5 million of the $13.5 million of tax liability
asserted in the deficiency notice and relate principally to those
issues on which the Service would likely prevail in court. The
accelerated recognition of certain of the Company's deferred tax
assets will reduce the Company's estimated current liability
related to the settled adjustments to approximately $1,382,000
($185,000 of taxes and $1,187,000 of interest as of December 31,
1994). Estimated state income taxes associated with the proposed
settlement approximate $868,000 ($364,000 of tax and $522,000 of
interest as of December 31, 1994). These estimates exclude
punitive interest charges and penalties that may be assessed by the
jurisdictions involved. The Company's accrual at December 31, 1994
totals $2,258,000 reflecting the amount that would be payable to
the Service and state authorities under the proposed settlement.
The use of the Company's net operating loss and tax credit carry-
forwards to offset adjustments which result from the proposed
settlement will result in increased tax liabilities when the
Company recognizes approximately $15.8 million of taxable income
related to the reversal of deferred tax liabilities generated by
the Company's investment in computer leases. Such income will be
recognized during 1995, 1996 and for seven months of 1997. The
Company is currently examining the ramifications of the proposed
settlement on the Company's resources and future tax obligations.
The financial condition, results of operations and net cash
flows of the Company could be materially affected if the Company is
either unsuccessful in the defense of the issues remaining in
dispute with the Service or unable to settle such issues in a
manner which can be funded by the Company's available resources.
General
In the ordinary course of conducting its business, the Company
becomes involved in certain lawsuits and administrative proceedings
(other than those described herein), some of which may result in
fines, penalties or judgments being assessed against the Company.
The management of the Company is of the opinion that these
proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated
financial position.
The uncertainty of the outcome of the aforementioned tax audit
and environmental litigation and the impact of future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, could result in increased remediation and
closure costs, and increased tax and other potential liabilities.
A significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows. The Company may ultimately incur costs and
liabilities in excess of its available financial resources.
Note 14 - Segment Information:
The Company's operations can be grouped into four segments: valve
manufacturing, alkali products, computer leasing (see Note 12), and
corporate and other. Operations in alkali products involve the
marketing of lime slurry used as a neutralization agent by
wastewater treatment plants. Corporate and other includes (i)
operations which generate electricity from recovered methane gas;
(ii) operations which perform maintenance, remediation and like
services on landfill sites; (iii) selling, general and
administrative expenses not specifically allocable to the other
segments; and (iv) other administrative costs incurred for the
continuing closure and post-closure activities at the Company's
dormant landfill facilities. Corporate assets are represented
primarily by cash and cash equivalents, marketable securities,
notes receivable and real estate held for investment and sale.
<TABLE>
<CAPTION>
(In $000's) Valve Alkali Computer Corporate
Manufacturing Products Leasing and Other
1994
<S> <C> <C> <C> <C>
Operating revenues $17,154 $ 917 $ - $ 579
Income (loss)
from operations $ 2,538 $ 8 $ - $(2,132)
Identifiable assets $25,022 $1,232 $ 885 $ 9,215
Depreciation expense $ 852 $ 55 $ - $ 60
Capital expenditures $ 735 $ 2 $ - $ 23
1993
Operating revenues $14,779 $1,190 $ - $ 607
Income (loss)
from operations $ 688 $ 157 $ - $(2,094)
Identifiable assets $24,211 $1,316 $3,035 $10,634
Depreciation expense $ 783 $ 53 $ - $ 81
Capital expenditures $ 193 $ 46 $ - $ 12
1992
Operating revenues $17,148 $1,326 $ $ 414
Income (loss)
from operations $ 966 $ (21) $ - $(2,406)
Identifiable assets $22,499 $1,293 $5,774 $12,174
Depreciation expense $ 765 $ 44 $ - $ 189
Capital expenditures $ 412 $ 91 $ - $ 18
</TABLE>
During the year ended December 31, 1994, one customer of
the Company's Valve Manufacturing segment accounted for 11.8%
of the Company's consolidated operating revenues.
Report of Independent Certified Public Accountants.
To the Stockholders and the Board of Directors
Transtech Industries, Inc.
We have audited the accompanying consolidated balance sheets
of Transtech Industries, Inc. and subsidiaries as of December 31,
1994 and 1993, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Transtech Industries, Inc. and subsidiaries as of December 31, 1994
and 1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its methods of accounting for
income taxes and post-retirement health care benefits as of January
1, 1993.
As discussed in Notes 8 and 11 to the consolidated financial
statements, the Company is a party to various legal and
administrative actions. These actions seek to require the Company
to undertake and bear the costs of land remediation resulting from
alleged violations of environmental regulations at the Kin-Buc
Landfill in Edison, New Jersey and a solvents recovery plant in
Carlstadt, New Jersey. The ultimate outcome of these legal and
administrative actions, and the amount of future remediation costs
cannot presently be determined. Accordingly, future liabilities
resulting from these matters may differ materially from the amounts
provided in the accompanying consolidated financial statements.
<PAGE>
As discussed in Notes 8 and 11 to the consolidated financial
statements, during 1988 the Company entered into, and during 1990
rescinded, a settlement agreement with Tang Realty, Inc. a related
party, regarding responsibility for land remediation at a solvents
recovery plant in Piscataway, New Jersey. The determination of
responsibility for remediation of this site and the amount of
future land remediation costs cannot presently be determined.
Accordingly, future liabilities resulting from this matter may
differ materially from the amount provided in the accompanying
consolidated financial statements.
As discussed in Note 15 to the consolidated financial
statements, the Internal Revenue Service has conducted an
examination of the Company's federal income tax returns and has
proposed certain adjustments. The outcome of the examination
cannot be presently determined. Accordingly, future liabilities
resulting from the settlement of this examination may differ
materially from the amounts provided in the accompanying
consolidated financial statements.
The accompanying consolidated financial statements have been
prepared assuming that Hunt Valve Company, Inc. ("Hunt"), a
consolidated subsidiary of the Company, will continue as a going
concern. The Company's net investment in Hunt amounted to
$5,121,000 as of December 31, 1994. As discussed in Note 7 to the
consolidated financial statements Hunt's revolving credit facility
will expire on April 27, 1995. The financial institution has not,
as yet, consented to any further extension. Hunt's inability to
renew its existing revolving credit facility or obtain alternative
financing would raise substantial doubt about Hunt's ability to
continue as a going concern. Management's plans in regard to this
matter are also discussed in Note 7 to the consolidated financial
statements. The consolidated financial statements do not include
any adjustments to reflect the possible effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of Hunt to continue as a going concern.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
April 13, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, hereunto duly
authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary
and Director
Dated: February , 1996
<PAGE>
