SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1995
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. [ ]
Issuer's revenues for its most recent fiscal year: $373,000
At January 2, 1996 the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $55,000.
At January 2, 1996 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 117 pages
Exhibit Index on page 34
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TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1995
I N D E X
Page(s)
Part I, Item 1. Description of Business 3 - 15
" Item 2. Description of Properties 15 - 16
" Item 3. Legal Proceedings 16 - 23
" Item 4. Submission of Matters to a Vote
of Security Holders 23
Part II, Item 5. Market for Common Equity and
Related Stockholder Matters 24
" Item 6. Management's Discussion and
Analysis or Plan of Operation 24
" Item 7. Financial Statements 24
" Item 8. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 24
Part III, Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 25 - 26
" Item 10. Executive Compensation 26 - 28
" Item 11. Security Ownership of Certain
Beneficial Owners and Management 28 - 30
" Item 12. Certain Relationships and Related
Transactions 30 - 32
Part IV, Item 13. Exhibits and Reports on Form 8-K 33
Signatures 34
Exhibit Index 35 - 38
<PAGE>
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"), generates
electricity utilizing methane gas, supervises and performs landfill
monitoring and closure procedures, manages methane gas recovery
operations and has investments in computer equipment under lease
(see "Continuing Operations" below).
During 1995, the Company divested its interests in two
subsidiaries. The first of these subsidiaries manufactured and
sold specialty directional and flow control valves, fluid power
components, hydraulic and pneumatic cylinders, and complete valve
systems for commercial and military use. The second marketed
carbide lime and other high alkali products for use as
neutralization agents in municipal and industrial wastewater
treatment plants (see "Discontinued Operations" below).
The Company and certain subsidiaries were previously involved
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 "Prior Operations" below and Part I, Item 3, Legal
Proceedings).
At December 31, 1995, the Company employed 16 persons on a
full-time basis.
Continuing Operations
Electricity Generation. Revenues from operations which
generate electricity through the use of methane gas represented 55%
of consolidated revenues in each of the years ended December 31,
1995 and 1994. The facility consists of four diesel/generating
units each capable of generating approximately 48,000 kwh/day at
full capacity. Electricity generated is sold pursuant to a long
term contract with a local utility. Production decreased 40%
during the year ended December 31, 1995 compared to the prior year.
The decrease was due to a series of unrelated equipment failures
which subjected two of the four electric generating units to
significant down-time for repairs. All generating units were
placed back into service during the fourth quarter of 1995.
Environmental Services. The environmental services subsidiary
supervises and performs landfill monitoring and closure procedures
and manages methane gas operations. Approximately 61% of the
<PAGE>
environmental services subsidiary's gross revenues for the year,
compared to 51% for the prior year, were either from other members
of the consolidated group or from third parties providing services
to another member of the consolidated group, and were therefore
eliminated in consolidation. The subsidiary contributed 45% to
consolidated revenues, in each of the years ended December 31, 1995
and 1994, after elimination of intercompany sales. Substantially
all third party sales during 1995 and 1994 were to a single
customer. The decline in sales (prior to the elimination of
intercompany activity) during 1995 was primarily due to the
completion of the construction phase of its work for the third
party and the substantial completion of the construction phase of
the remediation work at a closed landfill owned by the Company.
During the last two years, the Company has expanded the
customer base of this subsidiary to entities outside the
consolidated group. The subsidiary has provided, and continues to
provide, quotes on construction and maintenance projects involving
the closure and remediation of waste sites and contaminated
properties. The subsidiary participates in a competitive market on
the basis of price and experience. Some construction projects may
have bonding requirements which are beyond the subsidiary's ability
to secure. The subsidiary continues performing closure activities
on sites previously operated by other subsidiaries of the Company.
During August 1995 the subsidiary negotiated a joint marketing
agreement with a national engineering firm that committed each
party to utilize the other's services within a designated area in
the northeastern United States on projects involving the closure
and remediation of municipal waste sites. Pursuant to this
agreement, for an initial term of one year, the subsidiary and the
engineering firm agreed to use their respective best efforts to
market post-closure services involving their respective
capabilities in a defined market area exclusively for their mutual
benefit. Submissions to prospective clients, bids and estimates
and advertising materials representing the joint relationship must
be approved by both parties. The parties also agreed that each may
separately pursue opportunities in the market area where a
potential client requires only one or the other's individual
capabilities. Further, the parties agreed that if their joint
marketing efforts resulted in opportunities for the provision of
joint services in the market area, they would share profits derived
from the performance of such services equally under a joint venture
agreement to be executed by them. Each of the subsidiary and the
engineering firm agreed to be responsible for their own marketing
and related costs incurred in connection with the joint marketing
agreement. Either party may terminate the agreement for any reason
upon ten days' notice. The one year term of the joint marketing
agreement is automatically renewed at the end of each year subject
to the foregoing termination right. Anticipated revenues to the
subsidiary under the joint marketing agreement and through its
individual efforts cannot presently be ascertained.
<PAGE>
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, of which
$2.6 million 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 base 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. From 1989 to 1993, the Company's
deductions for accelerated depreciation and interest expense
exceeded rental income. However, from 1994 through July 1997, the
annual rental income will exceed such annual tax deductions,
generating net taxable income.
Beginning in 1991, the Company has reduced its estimate of the
future rental and residual value of the computer equipment to
reflect the decline in market values and lease rates of equipment
of the type owned by the Company. The Company believes that the
carrying value of its investment in this computer equipment at
December 31, 1995 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 this type.
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 were less than a specified amount, as measured by the
rate of return on the Company's investment. This right was
exercisable in the first two months of 1995 or 1996, and was
forfeited for the remaining life of the Computer Purchase Agreement
when it was not exercised. The purchase price of the Equipment
which TSG would have been required to pay the Company if the
Company had exercised the right would have equalled the amount
necessary for the Company to achieve the specified rate of return.
The rate of return through December 31, 1995 was greater than the
specified rate, therefore the Company was unable to exercise this
right.
The Internal Revenue Service has questioned the deductions
claimed by the Company in connection with its investment in the
computer equipment (see Part I, Item 3, Legal Proceedings).
<PAGE>
Other Businesses. The other subsidiaries of the Company hold
assets consisting of cash and marketable securities, real property,
notes receivable and contract rights.
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 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 1977, the landfill operated by Mac Sanitary Land Fill, Inc.
("Mac") was closed. Pursuant to certain federal and state
environmental laws, these subsidiaries continue to be responsible
for maintenance and monitoring activities associated with the
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 and Mac landfill. Amounts held in certain
trusts dedicated to post-closure activities of Kinsley's are netted
against the accrual for presentation in the Company's balance
sheet.
Kin-Buc. The Kin-Buc landfill, located in Edison, New Jersey,
was operated by a wholly-owned subsidiary of the Company, Kin-Buc,
Inc. ("KB"), through August 1975. From September 1975 until the
landfill ceased operations in November 1977, the landfill was
managed by Earthline Company ("Earthline"), a partnership formed by
Wastequid, Inc. ("Wastequid"), then a wholly-owned subsidiary of
the Company, and Chemical Waste Management of New Jersey, Inc.
("CWMNJ"), a wholly-owned subsidiary of SCA Services, Inc. ("SCA")
and an affiliate of WMX Technologies, Inc. (formerly known as Waste
Management, Inc.) ("WMX"). The Company and others have been
remediating the Kin-Buc landfill and certain neighboring areas
under orders (the "Orders") issued by the United States
Environmental Protection Agency ("EPA") in September 1990 and
November 1992 to 12 respondents: the Company, KB, Earthline,
Wastequid, CWMNJ, SCA, Chemical Waste Management, Inc. (an
affiliate of WMX), Filcrest Realty, Inc. (a wholly-owned subsidiary
of the Company), Inmar Associates, Inc. (a company owned and
<PAGE>
controlled by Marvin H. Mahan, a former director, officer and
principal shareholder of the Company), Marvin H. Mahan, Robert
Meagher (a former director and officer of the Company and Inmar
Associates, Inc.) and Anthony Gaess (a former director and officer
of SCA). Contractors have completed the construction required by
EPA, and the Company is awaiting EPA review and acceptance of the
work performed. Maintenance of remedial systems installed at the
site and operation of a fluid treatment plant that was constructed
to treat fluids at the site are required for a 30-year period
beginning in 1995. The total cost of the construction, operations
and maintenance of remedial systems over this period plus the cost
of past remedial activities is estimated to be in the range of $80
million to $100 million.
A study to determine the nature and extent of contamination,
and the sources thereof, on approximately one acre of land adjacent
to the Kin-Buc site has been substantially completed. On the basis
of such study, a design for a remedial program involving the
installation of a slurry cut-off wall around this one acre parcel
was presented to the EPA in late January 1996 for its review and
approval. The cost of such installation may range from $1 million
to $2 million. It is not possible to predict, at this time,
whether the EPA will require additional remedial measures to be
taken or will mandate long-term maintenance of the slurry wall.
Therefore, the total cost associated with such remediation cannot
now be predicted. In view of the $20 million difference between
the high and low estimates of the total cost of the remediation of
the Kin-Buc site, the addition of as much as $2 million in costs
for the installation of the slurry wall around this one-acre parcel
will not result in a significant increase in the total costs of the
remediation. Other areas within the vicinity of the site also may
become the subject of future studies due to the historic use of the
area for waste disposal operations. The cost of studies and
remediation of such areas is not included in the present estimates
of the total cost of the remediation of the Kin-Buc landfill since
such work is outside the scope of the Orders. An obligation to
undertake significant remediation of areas outside the scope of the
Orders could have a material adverse effect on the total estimated
costs of remediation.
The construction at the Kin-Buc site since July 1994 has been
financed in part with funds provided by SCA and in part with funds
provided from negotiated settlements with certain parties to a suit
that the Company initiated in June 1990 in the United States
District Court for the District of New Jersey against approximately
450 generators and transporters of waste disposed of at the site
for the purpose of obtaining contribution toward the cost of
remediation (the "1990 Action"). The Company's cause of action
against these parties arises under certain provisions of the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), which imposes joint and several
<PAGE>
liability for the remediation of certain sites upon persons
responsible for the generation, transportation and disposal of
wastes at such sites.
Outstanding issues relating to the Kin-Buc site impact the
liquidity of the Company in several ways. One category of expense
relates to the litigation costs of continuing the 1990 Action and
the defense of derivative actions and countersuits brought by
defendants in the 1990 Action. These actions had been stayed
through most of 1994, with only minimal discovery occurring during
that time, pending the outcome of the appeals of denials of motions
to dismiss. The 1990 Action has now resumed active status. As a
result, the Company faces increasing costs associated with
discovery and motions for summary judgment.
The Company is also incurring costs in contesting the validity
of a 1986 agreement among the Company, on the one hand, and SCA and
certain of its affiliates, on the other hand (the "SCA Group").
That agreement allocated to the Company 75% of the costs incurred
by the parties for the remediation of the Kin-Buc site. In 1993,
the Company filed a demand for arbitration (the "Company
Arbitration") seeking rescission or reformation of the agreement
with the SCA Group. SCA moved to enjoin the Company Arbitration on
the grounds that the Company's demand was barred by the statute of
limitations. In March 1995, the SCA Group filed its own demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of approximately $17 million, representing 75% of the
remediation expenses purportedly funded by the SCA Group through
that time. Certain issues raised by SCA's motion to enjoin the
Company Arbitration were referred to a referee. In October 1995,
the referee decided that in 1986 the Company knew or should have
known facts giving rise to its legal right to challenge its
agreement with SCA. In November 1995, SCA moved to confirm the
referee's report and the Company moved to reject it. In January
1996, the Court ruled that the referee had not considered the
appropriate issues and remanded the referral to the same referee
for another hearing, which has not yet been scheduled. Pending
resolution of these issues, the SCA Arbitration is proceeding,
discovery as to expenditures made by the parties with respect to
the remediation and related matters is taking place and a hearing
is tentatively set for May 1996. The recovery by SCA of a judgment
against the Company in the SCA Arbitration would have a materially
adverse effect on the financial condition of the Company, depending
upon the structuring of payments pursuant to the judgment and the
ability of the Company to recover a portion of such costs from
insurance carriers and other parties liable for remediation of the
Kin-Buc site. Such judgment, however, cannot be enforced by SCA
until and unless the motion to enjoin the Company Arbitration is
resolved in SCA's favor.
<PAGE>
The Company believes that it has already contributed its fair
share of remediation costs for the Kin-Buc site, having expended in
excess of $12 million for direct remediation, carrying costs and
ancillary activities related to the site (in historical dollars).
The Company is advised, by consultants experienced in CERCLA cost
allocation methods, that the Company's share of the cost of
remediation of the site will be affected by a variety of factors
that are presently being assessed. Such assessment is being
developed as discovery of facts relevant thereto is made. It is
expected that proceedings for discovery of relevant facts will
continue in the 1990 Action for a period of six months to a year.
On the basis of this assessment, the Company's share of remediation
costs could range from $11 million to $37 million. Insurance
proceeds and settlement payments may be available to pay a portion
of the Company's share. The insurance companies from which the
Company has sought recovery have contested the Company's claim. In
addition, the Company may be liable for the payment of some or all
of certain other potentially responsible parties' ("PRPs") shares
of remediation costs pursuant to disposal agreements with such PRPs
which provided for indemnification of those PRPs against certain
liabilities. However, the enforceability of such indemnification
provisions is being contested by the Company in the 1990 Action.
Indemnification provisions in such agreements vary greatly in scope
and import, and the Company has contested them on various grounds.
It is not possible to predict at this point which, if any, of these
provisions will be held inapplicable or unenforceable; accordingly,
the impact upon the Company of the outcome of this issue is not
determinable at this time. Because the Company's share of
remediation costs may exceed the $12 million thus far expended by
the Company (that is, may be between the $12 million already spent
and the $37 million estimate set forth above) and may not be
covered by insurance and settlement proceeds, and because of the
Company's potential obligation to indemnify other PRPs, the Company
may be required to contribute cash or other assets at the
conclusion of the 1990 Action and the related derivative actions
and countersuits.
The Company has currently accrued $10,693,000 for future
remediation costs at the Kin-Buc site. The amount ultimately borne
by the Company, as well as the timing of such future payments,
however, cannot be determined with certainty and are dependent upon
the following: (i) determination of the total costs to remediate
the landfill as required by current or future orders and directives
of the EPA, (ii) the allocation of the total remediation costs to
each of the potentially responsible parties named to the Orders,
(iii) the success of the Company's pending arbitration for
rescission or reformation of the cost sharing agreement with the
SCA Group and (iv) the success of the SCA Group's demand in
arbitration for reimbursement of 75% of the costs it has expended
to date in the remediation effort. Any or all of the preceding
<PAGE>
items could ultimately be resolved in a manner that could have a
material adverse effect on the financial condition, results of
operations or net cash flows of the Company.
Kinsley's. 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 that time. Kinsley's has
accrued $11.5 million for remaining costs of closure and post-
closure care of this facility, of which $9.5 million is being held
in interest-bearing trust accounts. Such funds are presently
anticipated to be adequate to finance post-closure care at the site
through the year 2016 based on current costs and absent any
unforeseen changes in the condition of the site.
Mac. Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey that ceased operations in 1977. The costs of
maintaining and monitoring at the facility are being funded by the
Company and were $69,000 and $25,000 for the years ended December
31, 1995 and 1994, respectively. At December 31, 1995, Mac has
accrued closing costs amounting to $151,000 for the costs of
continuing post-closure care and monitoring at the facility. The
Company increased its accrual during 1995 due to unanticipated
engineering and testing costs incurred to respond to inquiries from
environmental agencies. The accrual as of December 31, 1995 is
based upon the present value of the estimated maintenance costs of
the site's containment systems through the year 2007.
Carlstadt. In September 1995, the Court approved a settlement
of litigation regarding the allocation of the cost of remediation
of a site in Carlstadt, New Jersey, on which the Company had
operated a solvents recovery facility. The facility was last
operated by the Company in 1970. The settlement agreement relieves
the Company from future obligations to the group of responsible
parties which has been financing the remediation of the site in
exchange for a cash payment, proceeds of the settlement of certain
insurance claims and an assignment of Carlstadt-related claims that
had been filed against the Company's excess insurance carriers.
Notwithstanding such settlement, the Company may have liability in
connection with the site to the EPA for its costs of overseeing the
remediation of the site, and to parties who had not contributed to
the cost of the remediation at the time the settlement was approved
but who later do so. The Company has received no indication that
the EPA intends to assert a claim for oversight costs and the
Company believes that the EPA may not have the legal right to do
so. Based on the comprehensive discovery performed during the
litigation, the Company believes that substantially all responsible
parties have been identified, and that the share of remediation
costs that is attributable to parties who had not been contributing
<PAGE>
to those costs is de minimis. Therefore, the Company's liability
to those parties, which would arise only if and when those parties
actually paid their share, would not be significant.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material changes in remediation and closure costs related
to the Company's past waste handling activities, possibly in excess
of the Company's available financial resources.
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, 1995, the Company has accrued approximately
$22.3 million for its portion of the estimated closure and
remediation costs of these landfills. Of such amount,
approximately $9.5 million is held in trusts maintained by trustees
for post-closure activities at Kinsley's landfill (see Part I, Item
3, Legal Proceedings).
Discontinued Operations
Valve Manufacturing Segment. Hunt Valve Company, Inc.,
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's sales constituted 91%, 89% and 92% of the Company's
consolidated operating revenue in 1992, 1993 and 1994,
respectively.
On August 17, 1995, the Company executed a letter of intent
pursuant to which the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), agreed to sell all of the issued and
outstanding stock of HVHC, Inc., a Delaware corporation ("HVHC"),
the then parent of Hunt Valve Company, Inc., an Ohio corporation
("Old Hunt") to ValveCo Inc. On October 24, 1995, the Company
executed the definitive stock purchase agreement.
As part of the Company's plan to protect the market value of
Old Hunt through the severance of HVHC from the Company's
consolidated federal income tax group in 1995, thereby relieving
HVHC and Old Hunt from joint and several liability for the
Company's federal income taxes for 1996 and subsequent years, the
Company and THV caused Old Hunt to merge with and into HVHC (the
"Merger"), whose sole asset was the common stock of Old Hunt. The
Merger became effective on December 26, 1995 (the "Merger Date").
On that date, HVHC changed its name to Hunt Valve Company, Inc.
Accordingly, except as otherwise expressly provided herein, all
references to Hunt herein and the description of documents
described herein with respect to matters or events preceding the
<PAGE>
Merger Date are references to Old Hunt, and all references to
"Hunt" herein with respect to matters or events on or after the
Merger Date are references to Hunt, as successor by merger to Old
Hunt.
Since the net assets of Hunt represented substantially all of
the net assets of the Company, the sale was subject to approval by
the Company's shareholders. Such approval was granted at a special
meeting of the shareholders on February 29, 1996 and the sale was
consummated on March 1, 1996. No other offers were received or
considered, and no other bids for Hunt were solicited, by the Board
of Directors.
The definitive stock purchase agreement provided for a
purchase price of $2,208,000 for Hunt's common stock, representing
$18.0 million in cash, reduced by the sum of (i) $12,721,000,
representing the amount of Hunt's indebtedness for borrowed money
as of the closing of the sale, which had been fixed by the parties
at such amount solely for purposes of determination of the purchase
price, (ii) $500,000, representing the negotiated amount required
to redeem the minority equity position held by Hunt's senior
secured note holders, (iii) $2,000,000, representing the amount
required to be paid by Hunt to THV upon the redemption by Hunt of
its issued and outstanding 7% preferred stock, without par value,
all of which was owned by THV and (iv) $571,000, representing the
amount to be paid by Hunt to THV in repayment of the senior
subordinated note issued by Hunt to THV in the original principal
amount of $500,000. The net cash proceeds of the sale (i.e., the
sum of the purchase price plus (iii) and (iv) above, less
transaction costs) were approximately $3,975,000. A portion of the
net cash proceeds ($750,000) was placed in escrow to secure the
Company's indemnification obligations to the purchaser under the
purchase agreement, including indemnification for any payments made
by Hunt after the closing in respect of income taxes owed by the
Company for the period that Hunt was a member of the Company's
consolidated tax group. The escrow will terminate upon the earlier
to occur of (i) the release of all funds from escrow in accordance
with the terms thereof or (ii) the later to occur of (x) the
expiration of the applicable statute of limitations for the
assessment of federal income taxes for all taxable years in which
Hunt was a member of the Company's consolidated tax group and (y)
the satisfaction by the Company of all assessments or other claims
by the Internal Revenue Service for taxes of the consolidated tax
group for such years.
The stock of Old Hunt was acquired by the Company from two
individuals, unaffiliated with the Company, on September 27, 1991,
when THV acquired all of the stock of HVHC, whose sole asset was
Old Hunt. Through THV and HVHC, the Company invested $2.5 million
in common stock of Old Hunt and an additional $2 million in 7%
preferred stock of Old Hunt. The total consideration paid to the
two individual sellers for the capital stock of HVHC consisted of
<PAGE>
$9.7 million in cash, including $200,000 paid for non-competition
agreements from the sellers (the "Cash Payment"), plus $500,000 in
the form of two junior subordinated five-year promissory notes of
Old Hunt. Funds for the $5.2 million balance of the Cash Payment,
together with the refinancing of approximately $7.8 million of
existing debt of Old Hunt and HVHC and additional funds for Old
Hunt's working capital, were provided by a revolving loan facility
and an aggregate of $11.5 million in term loans to Old Hunt (the
"Term Debt"). The loans were secured by substantially all of the
assets of Old Hunt. In connection with such financing, Old Hunt
issued ten-year warrants (the "Lender Warrants") entitling the
lenders of the Term Debt (the "Term Lenders") to acquire up to an
aggregate of 19.34% of the common stock of Old Hunt for a nominal
exercise price.
ValveCo Inc. ("ValveCo"), a newly-formed Delaware corporation
organized by Three Cities Research, Inc. ("TCR"), a Delaware
corporation unaffiliated with the Company or any of its directors
and officers, purchased 100% of the Hunt common stock owned by THV,
representing 79.05% of the issued and outstanding Hunt common
stock. Eighty-five percent of the common stock issued by ValveCo
was purchased by TCR investors and 15% was purchased by certain
directors and executive officers who are members of management of
the Company and Hunt, namely, Robert V. Silva, David Huberfield,
Andrew J. Mayer, Jr. and Gerald Bogner, for $150,000. Such
directors and executive officers, along with certain other members
of senior management of Hunt yet to be determined, also obtained
the right to acquire, for an aggregate cost of $2.75 million, an
additional 15% of ValveCo's common stock pursuant to the exercise
of performance and value-based options. In addition, the
aforementioned directors and executive officers of the Company and
Hunt were employed in various capacities by ValveCo and Hunt after
the sale (see Part III, Item 12, Certain Relationships and Related
Transactions).
In September and October 1995, representatives of the Company,
Hunt, the Term Lenders and the Purchaser conducted negotiations
with respect to the repurchase of the Lender Warrants and the Term
Debt, and with respect to the amount payable to the Term Lenders
upon the prepayment of the Term Debt prior to September 27, 2001
(the "Prepayment Premium"). The Prepayment Premium was determined
to be approximately $1,800,000 as of December 31, 1995. After
efforts of the Company to negotiate a reduced Prepayment Premium
were unsuccessful, representatives of TCR joined the negotiations
and offered to purchase the Term Debt and Lender Warrants on the
condition that the Term Lenders reduce the Prepayment Premium. On
October 24, 1995 (the "Term Debt Assignment Date"), the Term
Lenders entered into an agreement to assign (the "Term Debt and
Warrant Assignment") their entire interests in the Term Debt and
the Lender Warrants, to Terold N.V. ("Terold"), a designee of the
Purchaser, in consideration for a total of $11,822,480 paid to the
<PAGE>
Term Lenders. Terold is a wholly-owned subsidiary of Real Ltd.
Real Ltd. is a party to an advisory agreement with TC Holding,
Inc., which, in turn, owns 100% of the capital stock of TCR.
Of the total consideration of $11,822,480 paid by Terold, (x)
$10,822,480 represented Hunt's outstanding Term Debt obligations
through the Term Debt Assignment Date, consisting of $10,733,334 of
principal plus $89,146 of accrued and unpaid interest on the Term
Debt through the Term Debt Assignment Date, (y) $500,000
represented payment for the Lender Warrants and (z) $500,000 was a
transaction fee payable to the Term Lenders in lieu of the
Prepayment Premium. Of such transaction fee, $250,000 was paid by
Terold and $250,000 was paid by THV to induce Terold to enter into
the Term Debt and Warrant Assignment and to waive its right, as
assignee of the Term Debt, to collect the Prepayment Premium if the
sale is consummated.
In connection with the Term Debt and Warrant Assignment, the
Company, THV, Terold and the Purchaser entered into an agreement on
the Term Debt Assignment Date (the "Recapitalization Agreement"),
pursuant to which the parties agreed as follows: On or before the
earlier of (i) the closing of the sale of Hunt's common stock and
(ii) December 26, 1995, the Company and THV would cause Old Hunt to
merge with and into HVHC, with HVHC (now known as Hunt) being the
surviving corporation in the Merger. If the closing of the sale
did not occur by December 27, 1995, Terold would exercise the
Lender Warrants (which had an exercise price of $.01 per share) to
acquire 215.79 shares, representing 19.34% of the issued and
outstanding shares, of Hunt common stock. This is the same
percentage as Terold would have acquired of Old Hunt if Terold had
exercised the Lender Warrants prior to the Merger. Concurrently
with such exercise, Terold would purchase from THV 18 shares of
Hunt, representing 2% of the common stock of Hunt held by THV (the
"Supplemental Stock"), for an aggregate purchase price of $50,000,
or $2,777.78 per share. After the exercise by Terold of the Lender
Warrants and the purchase by Terold of the Supplemental Stock, the
Company and its subsidiaries owned less than 80% of the outstanding
Hunt voting stock. As a result, Hunt ceased to be a member of the
Company's consolidated federal income tax return filing group and
therefore would not be liable for the Company's 1996 consolidated
federal income taxes.
Alkali Products. Cal-Lime, Inc. ("Cal-Lime") engaged 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
1993, and 5% in 1994.
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to the Cal-Lime name, and
gave a non-compete covenant, thereby effectively selling the
<PAGE>
on-going operations of Cal-Lime which markets alkali products to a
competitor. The Company received a cash payment of $600,000 in
consideration for the Cal-Lime assets, and is entitled to
additional payments of up to $25,000 which are contingent upon the
availability of lime slurry from a specified source to the
purchaser. The Company intends to liquidate the remaining fixed
assets of the subsidiary and has included the book value of the
property, buildings and equipment not part of this transaction
under the caption "assets held for sale" on the accompanying
balance sheet.
Part I, Item 2. Description of Properties.
1. A subsidiary of the Company, Filcrest Realty, Inc., owns
parcels of land totalling approximately 125 acres in Edison
Township, Middlesex County, New Jersey, which are currently not
being used. This property is located in the vicinity of the Kin-
Buc, Inc. property (see Paragraph 5 below). Approximately 26 acres
of Filcrest's property has been dedicated to the remediation of
areas neighboring the Kin-Buc, Inc. property.
2. One of the Company's subsidiaries, Kinsley's Landfill,
Inc., owns, and until February 1987, operated a landfill on
approximately 320 acres in Deptford Township, Gloucester County,
New Jersey. This landfill is now undergoing post-closure
procedures.
3. Other subsidiaries and Transtech own approximately 218
acres in Deptford Township, Gloucester County, New Jersey, which
are currently being held for sale. Certain of these parcels are
subject to mortgages which total approximately $387,000 as of
December 31, 1995.
4. Another subsidiary of the Company, Mac Sanitary Land Fill,
Inc., leased approximately 88 acres in Deptford Township,
Gloucester County, New Jersey for use as a landfill site until
February 1977. At that time, the lease was terminated in
accordance with provisions of the lease which permitted termination
when and as the landfill reached the maximum height allowed under
New Jersey law. Mac currently conducts post-closure activities at
the site.
5. Another subsidiary of the Company, Kin-Buc, Inc., owns a
27 acre site in Edison Township, Middlesex County, New Jersey, upon
which it operated a landfill. At present, only remediation
activities are conducted on the site.
6. Harrison Returns, Inc. (f/k/a Cal-Lime, Inc.), a
subsidiary of the Company, owns approximately two acres of real
property in Readington Township, Hunterdon County, New Jersey on
which a single-story office building and a two-story single family
house are situated. This property is currently held for sale.
<PAGE>
7. The Company leases its principal executive offices in
Piscataway, New Jersey pursuant to a lease which commenced in
February 1992 and terminates February 28, 1997. The monthly rent
equalled $4,000 from inception through August 1992, $4,277 through
June 1994, and $4,277 from December 1994 through expiration. Such
offices occupy approximately 5,132 square feet.
Part I, Item 3. Legal Proceedings.
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The 1989-91 tax audit is discussed below. The Company
filed a petition with the Tax Court contesting many of the proposed
adjustments asserted in the deficiency notice. On June 5, 1995,
August 14, 1995 and March 7, 1996, respectively, the Company and
the Service executed a stipulation of partial settlement of issues
in the Tax Court case and first and second revised stipulations of
partial settlement. These partial settlements have resolved most of
the adjustments asserted in the deficiency notice.
Taking into account the partial settlements that have been
concluded to date, the Company has accepted approximately $5.2
million of the $33.3 million of total adjustments to income
asserted by the Service. Many of the adjustments accepted by the
Company relate to issues on which the Service would likely have
prevailed in court. The Service has conceded adjustments totalling
$27.4 million of taxable income and penalties, leaving only one
issue, involving several taxable years, unresolved from the 1980-88
period. Also unresolved are the adjustments, discussed below,
asserted by the Service for the 1989-91 period. The Company cannot
predict the outcome of further settlement negotiations or
litigation with the Service over these issues.
The Service has concluded an audit of the Company's federal
income tax returns for 1989 through 1991, and has questioned the
deductions claimed by the Company in connection with its investment
in computer equipment under lease (see Part I, Item 1, Continuing
Operations). The Service also challenged certain real property
deductions and certain expenses that were deducted by the Company,
but that the Service believes should have been capitalized. These
<PAGE>
deductions will be addressed in the pending Tax Court case because
losses in 1989-91 were carried back and deducted in years covered
by the Tax Court case. Discussions with the Service on the 1989-91
issues, including the computer equipment issue, are in progress.
The financial condition, results of operations and net cash
flows of the Company could be materially and adversely 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.
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
<PAGE>
"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.
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 conclusion of settlements, 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,
remained 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 November 1995, an additional 145 PRPs were joined in the
litigation. Of these, 88 are municipalities whose waste was
disposed of at the Kin-Buc landfill and 57 are companies which
transported such municipal waste to the landfill.
In December 1992, substantially all of the non-municipal waste
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.
In October 1995, a referee appointed by the Court to determine
when the Company knew or should have known facts giving rise to its
legal right to challenge the 1986 agreement (that is, what the cost
to remediate the Kin-Buc Landfill would be), found that the Company
knew or should have known such facts as early as 1986. In November
1995, the SCA Group moved to confirm the referee's report and the
Company moved to reject it. In January 1996, the Court ruled that
the referee had not considered the appropriate issues and remanded
the referral to the same referee for another hearing, which has not
yet been scheduled.
<PAGE>
In March 1995, while the Court's referral on the Company's
arbitration was pending, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of 75% of remediation expenses purportedly funded by WMX
through that time. 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. In April 1995, the
Court narrowed the issues to be arbitrated to the amount of funds
expended on the remediation and the reasonableness of such
expenditures and made any findings on such issues subject to
resolution of the Company's arbitration as to the enforceability of
the 1986 agreement. Discovery as to such expenditures is ongoing,
and a hearing is tentatively set for May 1996.
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 and the Company's insurance
carriers will be sufficient to satisfy the Company's obligations
thereunder. The financial condition, results of operations and net
cash flows 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.
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")
<PAGE>
alleging, among other things, that the primary responsibility for
the clean-up and remediation of the Carlstadt site rests with
Transtech, Inmar and Marvin H. Mahan.
In September 1995, the Court approved a settlement of the AT&T
Suit among Transtech, Inmar, Mr. Mahan, the AT&T group and other
generators and transporters of waste handled at the Carlstadt site
who had contributed to the costs of the remediation of the site.
Pursuant to such settlement, Transtech, Inmar and Mr. Mahan agreed
to (i) pay $4.1 million of proceeds from settlements with primary
insurers of a coverage action brought by the Company and Inmar
against their primary and excess insurers, (ii) pay an additional
$145,000 ($72,500 from Transtech and $72,500 from Inmar and Mr.
Mahan) and (iii) assign their Carlstadt Site-related insurance
claims against an excess insurer in exchange for a complete release
from these parties of all liability arising from or on account of
environmental contamination at the Carlstadt Site and the parties'
remediation of the same. Notwithstanding such settlement, the
Company may have liability in connection with the site to the EPA
for its cost of overseeing the remediation of the site, and to
parties who had not contributed to the remediation at the time the
settlement was approved but who later do so. The Company has
received no indication that the EPA intends to assert a claim for
oversight costs and the Company believes that the EPA may not have
the legal right to do so.
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.
<PAGE>
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.
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 is performing
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.
<PAGE>
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. No such demand for reimbursement has been made
by the plaintiffs.
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
litigation and 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 I, Item 4. Submission of Matters to a Vote of
Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1995.
<PAGE>
PART II
Part II, Item 5. Market for Common Equity and Related
Stockholder Matters.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 6. Management's Discussion and Analysis or Plan
of Operation.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 7. Financial Statements.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Part III, Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Securities Exchange Act.
Directors and Executive Officers of the Company
Robert V. Silva (52) - President and Chief Executive Officer
and a director of the Company from April 1991 and Chairman of the
Board of Directors from November 1991. Mr. Silva served as a
consultant to the Company from December 1990 until his appointment
in April 1991 as an officer of the Company. Mr. Silva was employed
from September 1987 to December 1990 as Executive Vice President of
Kenmare Capital Corp. ("Kenmare"), an investment firm, and provided
financial and management consulting services to companies acquired
by Kenmare's affiliates. In connection with such financial and
management services, Mr. Silva served as Vice President and a
Director of Old American Holdings, Inc. and its subsidiary from
1988 to 1990, and Vice President and a Director of Compact Video
Group, Inc. and its subsidiaries from 1988 to 1991 and of Manhattan
Transfer/Edit, Inc. from 1989 to 1991. Mr. Silva also served as a
Director of General Textiles from 1989 to 1991. From June 1985 to
September 1987, Mr. Silva served as Vice President of, and provided
management consulting services to, The Thompson Company, a private
investment firm controlled by the Thompson family of Dallas, Texas.
Mr. Silva's wife is the sister-in-law of Gary Mahan, the son of
Marvin H. Mahan and Ingrid T. Mahan.
Arthur C. Holdsworth, III (48) - A director of the Company
since 1988. Since August 1991, Mr. Holdsworth has been Vice
President of Sales at Millington Quarry, Inc. Prior to that and
from 1977, Mr. Holdsworth was General Manager of Dallenbach Sand
Co., Inc. Both corporations are owned by members of the Mahan
family.
Andrew J. Mayer, Jr. (40) - Vice President-Finance and Chief
Financial Officer of the Company from November 1991 and a director
of the Company from December 1991 and, from April 1992, Secretary
of the Company. From 1988 to November 1991, Mr. Mayer served as
Vice President, Secretary and Treasurer of Kenmare. From 1984 to
1988, Mr. Mayer served as Financial Analyst and Controller of
Kenmare. In connection with management and financial services
provided by Kenmare, Mr. Mayer served in a variety of capacities
for the following companies: Old American Holdings, Inc. and its
subsidiary from 1988 to 1991; The Shannon Group, Inc. and its
subsidiaries from 1988 to 1990; Detroit Tool Group, Inc. and its
subsidiaries from 1989 to 1990; Compact Video Group, Inc. from 1988
to 1991; Manhattan Transfer/Edit, Inc. from 1989 to 1991; and
General Textiles from 1989 to 1990.
<PAGE>
Compliance with Section 16(a) of Securities
Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors
and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
forms they file. Base solely on a review of the copies of such
forms furnished to the Company, or written representations that no
Forms 5 were required, the Company believes that during the
Company's fiscal year ending December 31, 1995 all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with,
except that a report on Form 4, as to one transaction, was filed
late by Arthur C. Holdsworth, III, and a report on Form 4 was filed
by Nancy M. Ernst to correct the total number of shares held by
her.
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, 1995, 1994 and 1993 ("Fiscal 1995", "Fiscal
1994" and "Fiscal 1993", 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, 1995.
<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 1995 $278,688(b) $25,000(b) $1,964
President and Chief 1994 $264,000(c) $48,000(c) $2,668
Executive Officer 1993 $240,431(d) $0 $2,398
Andrew J. Mayer, Jr. 1995 $136,000 $0 $1,435
Vice President- 1994 $126,000 $7,500 $1,270
Finance, Chief 1993 $120,592 $1,000 $1,200
Financial Officer
and Secretary
Long Term Compensation
Awards Payouts
Options/ Long-Term All
Name and Restricted Stock App- Incentive Other
Principal Fiscal Stock reciation Plan Compen-
Position Year Awards Rights Payouts ation
Robert V. Silva 1995 0 0 0 0
President and Chief 1994 0 0 0 0
Executive Officer 1993 0 0 0 0
Andrew J. Mayer, Jr. 1995 0 0 0 $10,000(e)
Vice President- 1994 0 0 0 $10,000(e)
Finance, Chief 1993 0 5,000 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 1995, Fiscal 1994 and
Fiscal 1993. In each of Fiscal 1995, 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.
(b) Mr. Silva's Fiscal 1995 aggregate annual compensation of
$278,688 was allocated $160,000 to the Company and $118,688 to
Hunt. The bonus of $25,000 was paid by Hunt. Mr. Silva served as
Chairman of the Board of Directors and Chief Executive Officer of
Hunt.
(c) 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.
(d) Mr. Silva's Fiscal 1993 aggregate annual compensation of
$240,431 was allocated $160,000 to Transtech and $80,111 to Hunt.
(e) Represents Fiscal 1995 and 1994 director fees paid by
Hunt.
</FN>
</TABLE>
Stock Option Plans
The following table sets forth, with respect to grants of
stock options and stock appreciation rights ("SARs") to the Chief
Executive Officer and the Named Executive Officer during Fiscal
1995: (a) the number of options granted; (b) the percent the grant
represents of total options granted to employees during Fiscal
1995; (c) the per-share exercise price of the options granted; and
(d) the expiration date of the options.
<TABLE>
OPTION/SAR GRANTS IN FISCAL 1995
<CAPTION>
% Of Total
Options/SARs*
Options/ Granted to Exercise
SARs* Employees in or Base
Name Granted (#) Fiscal Year Price ($/sh) Expiration 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 1995 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 1995; 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 1995.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs* Options/SARs* at
Year-End(#) Fiscal Year-End($)
Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) 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.
</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 1995, Arthur C.
Holdsworth, III earned fees of $10,000.
Part III, Item 11. Security Ownership of Certain Beneficial Owners
and Management.
As of the close of business on March 4, 1996, the Company has
issued and outstanding 2,829,090 shares of Common Stock, which
figure excludes 1,885,750 shares owned by the Company which are not
outstanding and are not eligible to vote.
Set forth below is a table showing, as of March 4, 1996,the
number of shares of Common Stock owned beneficially by:
(1) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of such
Common Stock;
(2) each director of the Company;
(3) the chief executive officer of the Company (the
"Chief Executive Officer");
(4) the most highly compensated executive officers of
the Company (other than the Chief Executive Officer) whose total
annual salary and bonus exceeds $100,000 (the "Named Executive
Officer"); and
(5) all officers and directors of the Company as a
group.
<PAGE>
Unless otherwise specified, the persons named in the table
below and footnotes thereto have the sole right to vote and dispose
of their respective shares.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Beneficially Owned of Class
<S> <C> <C>
Roger T. Mahan 325,435 (a),(d) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (a),(b),(d) 11.3%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (a),(c),(d) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Herzog, Heine & Geduld 296,518 10.4%
525 Washington Blvd.
Jersey City, NJ 07310
Robert V. Silva 50,000 (e) 1.8%
200 Centennial Avenue
Piscataway, NJ 08854
Arthur C. Holdsworth, III 0 --
200 Centennial Avenue
Piscataway, NJ 08854
Andrew J. Mayer, Jr. 5,000 (f) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 55,000 (g) 2.0%
and directors as a group
(3 in group)
<FN>
(a) Roger T. Mahan, Nancy M. Ernst and Gary A. Mahan are the
children of Marvin H. Mahan, a former officer, director and principal
shareholder of the Company, and his wife, Ingrid T. Mahan. Marvin H. and
Ingrid T. Mahan disclaim beneficial ownership of the shares owned by
their children.
(b) Includes 8,600 shares owned by Nancy M. Ernst's husband, Kenneth A.
Ernst, and 18,200 shares owned by their minor children. Mr. Ernst was
a director of the Company from June 1987 through April 29, 1994.
(c) Includes 8,600 shares owned by Gary A. Mahan's wife, Elizabeth
Mahan, and 8,600 shares owned by their minor child.
(d) Members of the Mahan family, consisting of Roger T. Mahan, Nancy M.
Ernst and Gary A. Mahan, their spouses and children and their parents,
Marvin H. Mahan and Ingrid T. Mahan, own 967,911 shares of Common Stock,
which represent approximately 34% of the shares outstanding. In addition,
Ingrid T. Mahan is executrix of the estate of Arthur Tang, which owns an
additional 32,750 shares of such common stock.
(e) Represents incentive options to purchase 50,000 shares at $.75 per
share, all of which are presently exercisable.
(f) Represents incentive options to purchase 5,000 shares at $0.438 per
share, all of which are presently exercisable.
(g) Consists of incentive options to purchase 55,000 shares held by two
officers of the Company, all of which are presently exercisable.
</FN>
</TABLE>
Part III, Item 12. Certain Relationships and Related 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 resulted in payments
to Transtech, Inmar and Mr. Mahan of a total of $4.075 million
which was 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"), leased from
Inmar approximately 50 acres of land upon which a portion of the
Kin-Buc landfill (the "Kin-Buc Landfill") is located. This lease
ran to July 1995. The annual base rent of $162,500 had been waived
by Inmar because the Kin-Buc Landfill was not operating. 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.
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 in May
<PAGE>
1997. 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 in May 1997. A total of
$93,000 was outstanding with respect to the advance and loan,
including interest, as of December 31, 1995. 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.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a newly-formed
Delaware corporation organized by Three Cities Research, Inc.
("TCR"), a Delaware corporation unaffiliated with the Company or
any of its directors and officers, purchased 100% of the Hunt Valve
Company, Inc. common stock owned by THV Acquisition Corp, a wholly-
owned subsidiary of the Company, representing 79.05% of the issued
and outstanding Hunt common stock. Fifteen percent of the common
stock issued by ValveCo was purchased by certain directors and
executive officers who are members of management of the Company and
Hunt, namely, Robert V. Silva (7.5%), David Huberfield (4%), Andrew
J. Mayer, Jr. (2%) and Gerald Bogner (1.5%) for $150,000. Such
directors and executive officers, along with certain other members
of senior management of Hunt yet to be determined, also obtained
the right to acquire, for an aggregate cost of $2.75 million, an
additional 15% of ValveCo's common stock pursuant to the exercise
of performance and value-based options. In addition, the
aforementioned directors and executive officers of the Company and
Hunt have been employed in various capacities by ValveCo and Hunt
after the sale (see Part I, Item 1, Description of Business,
Discontinued Operations).
<PAGE>
PART IV
Part IV, Item 13. Exhibits and Reports on Form 8-K.
Exhibits
The exhibits to this report are listed in the Exhibit Index on
pages 35 to 38.
Reports on Form 8-K
In a report filed on Form 8-K dated November 1, 1995, the
Company reported that on October 24, 1995, THV Acquisition Corp.,
a wholly-owned subsidiary of the Company, entered into an agreement
to sell all of the issued and outstanding shares of the capital
stock of HVHC, Inc., its wholly-owned subsidiary and, indirectly,
all of the issued and outstanding shares of the common capital
stock of Hunt Valve Company, Inc. owned by HVHC, Inc., to ValveCo
Inc. (see Part I, Item 1, Discontinued Operations, Valve
Manufacturing Segment).
<PAGE>
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/ Robert V. Silva
Robert V. Silva, President and
Chief Executive Officer
and Director
Dated: April 15, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the date
indicated.
/s/ Robert V. Silva April 15, 1996
Robert V. Silva, President and
Chief Executive Officer
and Director
/s/ Andrew J. Mayer, Jr. April 15, 1996
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
/s/ Arthur C. Holdsworth, III April 15, 1996
Arthur C. Holdsworth, III, Director
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Page No.
3 Articles of Incorporation and By-Laws:
3 (a) Articles of incorporation: Incorporated by
reference to Exhibit 3 (a) to the Company's
Annual Report on Form 10-K for fiscal year
ended December 31, 1989
3 (b) By-laws: Incorporated by reference to Exhibit
3 (b) to the Company's Annual Report on Form
10-K for fiscal year ended December 31, 1989
3 (c) Amended and restated by-laws: See "G" below
10 Material contracts:
10 (a) Stock Purchase Agreement dated June 29, 1989
among the Company and the Tendering
Shareholders, as therein defined: See "A"
below
10 (b) Stock Option Cancellation Agreement dated June
29, 1989 among the Company, Charles F. Trapp
and Edward Egan: See "B" below
10 (c) Purchase Agreement dated as of July 14, 1989
between The Tax Strategy Group, Inc. and the
Company: See "B" below
10 (d) Non-Negotiable, Non-Recourse Installment
Promissory Note dated as of July 14, 1989 by
the Company to The Tax Strategy Group, Inc.:
See "B" below
10 (e) Security Agreement dated as of July 14, 1989
between the Company and The Tax Strategy
Group, Inc.: See "B" below
10 (f) Master Lease Agreement dated as of July 14,
1989 between The Tax Strategy Group, Inc. and
CLI Equity Resources XV, L.P. ("CLI"),
assigned by CLI to the Company by Consent and
Assignment Agreement dated as of July 14,
1989: See "B" below
<PAGE>
Sequential
Exhibit No. Page No.
10 (n) Property Purchase Agreement dated December 31,
1992 by and among Red Robin Realty, Inc. as
Seller and James Messner, Sr. and James
Messner, Jr. as Buyers: See "C" below
10 (o) Asset Purchase Agreement dated December 31,
1992 by and among Genetic Farms, Inc., as
Seller and James Messner, Sr. and James
Messner, Jr., as Buyers: See "C" below
10 (p) Settlement Agreement and Mutual Release dated
October 28, 1992 among Transtech Industries,
Inc. and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The Continental Insurance Company:
See "C" below
10 (q) Order for Approval of De Minimis Settlement
and for Dismissal of Certain Defendants of the
District Court for the District of New Jersey
dated November 2, 1992 in Transtech
Industries, Inc. et al. v. A&Z Septic Clean,
et al., Civil Action No. 90-2578 (HAA)
approving settlements with certain defendants
identified on Exhibits 1 and 2 to such Order
pursuant to The Kin-Buc Landfill Contribution
Agreement in the form of Exhibit 3 to such
Order: See "C" below
10 (y) Settlement Agreement and Mutual Release dated
May 31, 1994 among Transtech Industries, Inc.
and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The City Insurance Company: See "D"
below
10 (z) Settlement Agreement and Release dated April
20, 1994 among Transtech Industries, Inc.
Inmar Associates, Inc., Marvin H. Mahan, Mt.
Vernon Insurance Company and The United States
Liability Insurance Company: See "D" below
10 (ac) Settlement Agreement and Release dated
September 16, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
<PAGE>
Sequential
Exhibit No. Page No.
Inmar Associates, Inc., and its subsidiaries
and affiliates, and the National Union Fire
Insurance Company of Pittsburgh, Pa.: See "E"
below
10 (ad) Settlement Agreement and Mutual Release dated
October 3, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
Inmar Associates, Inc. and its subsidiaries
and affiliates, Marvin H. Mahan and Allstate
Insurance Company: See "E" below
10 (au) Settlement Agreement approved in September
1995 among Transtech Industries, Inc., Inmar
Associates, Inc., Marvin H. Mahan and certain
members of the 216 Paterson Plank Road
Cooperating PRP Group: See "F" below
10 (av) Income Tax Sharing Agreement dated September
27, 1991 among Transtech Industries, Inc., THV
Acquisition Corp., HVHC, Inc. and Hunt Valve
Company, Inc.: See "F" below
10 (aw) Stock Purchase Agreement dated as of October
24, 1995 between ValveCo Inc. and THV
Acquisition Corp. (without schedules): See
"G" below
10 (ax) Amended and Restated Stock Purchase Agreement
dated as of January 15, 1996 among THV
Acquisition Corp., ValveCo Inc., Transtech
Industries, Inc., Hunt Valve Company, Inc. and
Terold N.V., with exhibits, and letter
agreement dated February 5, 1990 among THV
Acquisition Corp., ValveCo Inc. and Transtech
Industries, Inc.: See "H" below
10 (ay) Escrow Agreement dated March 1, 1996 by and
among THV Acquisition Corp., ValveCo Inc. and
United States Trust Company of New York, as
escrow agent 39 - 51
11 Statement regarding computation of net loss
per share 52 - 53
13 Annual report to Stockholders 54 - 116
22 Subsidiaries of the Registrant 117
<PAGE>
"A" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
June 30, 1989
"B" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
July 14, 1989
"C" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992, as
amended on May 18, 1993
"D" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1994
"E" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1994
"F" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995
"G" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
October 24, 1995
"H" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
March 1, 1996
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated March 1, 1996, by
and among THV Acquisition Corp. ("Seller"), a Delaware corporation
and a wholly-owned subsidiary of Transtech Industries, Inc.
("Transtech"), ValveCo Inc., a Delaware corporation ("Buyer"), and
United States Trust Company of New York, as Escrow Agent (the
"Escrow Agent").
Buyer and Seller have entered into an Amended and Restated
Stock Purchase Agreement (the "Purchase Agreement"), dated as of
January 15, 1996, pursuant to which Buyer is purchasing from Seller
882 of the issued and outstanding shares of capital stock of Hunt
Valve Company, Inc., a Delaware corporation (the "Company").
Pursuant to the Purchase Agreement, the Seller has agreed to
indemnify the Buyer with respect to certain claims and liabilities,
including, without limitation, any Taxes that the Company may pay,
after the Closing Date, resulting from any liability for Taxes of
the Transtech Group under Section 1.1502-6 of the Treasury
Regulations (as such terms are defined in the Purchase Agreement).
The Purchase Agreement provides that, at the Closing,
$750,000 representing a portion of the Purchase Price shall
be paid to and held by the Escrow Agent subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms shall be used with the meaning or meanings
ascribed to them in the Purchase Agreement.
2. Establishment of Escrow Fund. The Buyer hereby
deposits with the Escrow Agent $750,000 (the "Funds"), representing
a portion of the Purchase Price; the Funds, together with any
interest accrued thereon, shall be hereinafter referred to as the
"Escrow Fund." The Escrow Fund shall be held as security for all
of the Seller's obligations to indemnify the Buyer under Section
6.2 of the Purchase Agreement, including, without limitation, the
Seller's indemnification obligations under Section 6.2(b) of the
Purchase Agreement with respect to any Taxes that the Company may
pay after the Closing Date that result from any liability for Taxes
of the Transtech Group under Section 1.1502-6 of the Treasury
Regulations. The Escrow Agent will hold, invest and dispose of the
Escrow Fund in accordance with the terms and conditions hereof.
3. Procedure as to Distributions.
(i) The Buyer may notify the Escrow Agent in
writing, with a copy to the Seller, at any time and from time to
time before the termination of this Escrow Agreement in accordance
with Section 4, of any and all claims ("Buyer Claims") which, in
the opinion of the Buyer, entitle the Buyer under the Purchase
Agreement to the payment of any portion of the Escrow Fund. The
Buyer shall notify the Escrow Agent of a Buyer Claim if the
provisions of Section 6.5(c) of the Purchase Agreement apply. When
the Escrow Agent receives notice of a Buyer Claim, it shall
promptly notify the Seller.
(ii) If the Escrow Agent is given any notice of a
Buyer Claim, it shall, to the extent there are sufficient funds in
the Escrow Fund, disburse the amount requested (not in the
aggregate in excess of the Escrow Fund) to the Buyer on the date
which is twenty days after Seller receives notice of a Buyer Claim
from the Escrow Agent, unless prior to the date for disbursement
the Escrow Agent has received written notice from the Seller, with
a copy to the Buyer, that the Buyer is not entitled to the
disbursement and that the Escrow Agent is not to make the
disbursement, in which event the Escrow Agent shall be entitled
with respect to that portion of the Escrow Fund represented by the
Buyer Claim to take any action authorized by Sections 6.4 and 6.6.
(iii) The Seller may notify the Escrow Agent in
writing, with a copy to the Buyer, of any offer (a "Settlement
Offer") by the Internal Revenue Service for the satisfaction, by
Transtech or the Seller, for all Consolidated Years (defined in
Section 4) of all outstanding assessments and other claims for
federal income taxes ("Claims") for which the Company would be
severally liable. The Seller shall certify to the Escrow Agent and
the Buyer in such notice the amount being sought by the Internal
Revenue Service for the full satisfaction of all Claims for all
Consolidated Years. When the Escrow Agent receives notice of a
Settlement Offer, it shall promptly notify the Buyer.
(iv) If the Escrow Agent is given any notice of a
Settlement Offer, it shall, to the extent there are sufficient
funds in the Escrow Fund to satisfy in full all Claims for all
Consolidated Years, disburse the amount required (not in the
aggregate in excess of the amount remaining in the Escrow Fund) to
the Internal Revenue Service on the date which is twenty days after
the Buyer receives notice of the Settlement Offer from the Escrow
Agent, unless prior to the date for disbursement the Escrow Agent
has received written notice from the Buyer, with a copy to the
Seller, that the Seller is not entitled to have such funds
disbursed and that the Escrow Agent is not to make the
disbursement, in which case the Escrow Agent shall be entitled with
respect to that portion of the Escrow Fund represented by the
Settlement Offer to take any action authorized by Sections 6.4 and
6.6.
(v) The Escrow Agent shall, to the extent there are
sufficient funds in the Escrow Fund, disburse the amount in the
Escrow Fund (or portions thereof) from time to time within ten days
of receiving a joint written notice from the Seller and the Buyer
requesting such disbursement.
4. Termination of this Escrow Agreement. This Agreement
shall terminate upon the earlier to occur of (i) the later to
occur of (x) the expiration of the statute of limitations for the
assessment of federal income taxes of the affiliated group of
corporations for which Transtech filed a consolidated federal
income tax return (the "Transtech Group") for all taxable years of
the Transtech Group with respect to which the Company, Hunt Valve
Company, Inc., an Ohio corporation which merged with and into the
Company in December 1995, or both of them were members of the
Transtech Group (the "Consolidated Years") and (y) the satisfaction
by Transtech or the Seller of all outstanding assessments or other
claims for income taxes of the Transtech Group by the Internal
Revenue Service for all Consolidated Years and (ii) the
distribution and transfer of the Escrow Fund as provided above,
unless sooner terminated by a written agreement of all the parties;
provided, however, that the events set forth in clauses (i) and
(ii) of this Section 4 shall not result in the termination of this
Agreement with respect to any Buyer Claims that had previously been
asserted by the Buyer with
respect to any provision under the Purchase Agreement other than
Section 6.2(b) thereof.
5. Investment of the Escrow Fund. All cash held in the
Escrow Fund shall be invested by the Escrow Agent in United States
government issued securities, shares in the Government Money Fund
issued by Excelsior Funds, Inc. and in such other investments as
Seller may instruct the Escrow Agent in writing.
6. Escrow Agent.
6.1 Duties. The duties and obligations of the Escrow
Agent shall be determined solely by the express provisions of this
Agreement and shall be limited to the performance of such duties
and obligations as are specifically set forth in this Agreement.
6.2 Reliance. In the performance of its duties
hereunder, the Escrow Agent shall be entitled to rely upon any
document, instrument or signature reasonably believed by it to be
genuine and signed by Buyer or Seller, as the case may be. The
Escrow Agent may assume that any person purporting to give any
notice in accordance with the provisions hereof has been duly
authorized to do so.
6.3 Liability. The Escrow Agent shall not be liable
for any error of judgment, or any action taken or omitted to be
taken hereunder in good faith, except in the case of its bad faith,
gross negligence or willful misconduct.
6.4 Resignation and Removal. The Escrow Agent or any
successor as escrow agent hereafter appointed may at any time
resign and be discharged of the duties imposed hereunder by giving
notice to Buyer and Seller, such resignation to take effect upon
the earlier of (i) the appointment of a successor escrow agent by
Buyer and Seller or (ii) 90 days after the giving of such notice
(provided that prior to the expiration of such 90 day period the
Escrow Agent (or any successor) shall have deposited the Escrow
Fund with a court of competent jurisdiction to determine the
relative rights of Buyer and Seller to the Escrow Fund). Buyer and
Seller, acting jointly, may at any time substitute a new Escrow
Agent by giving ten days' notice thereof to the current Escrow
Agent then acting and paying all fees and expenses of the current
Escrow Agent.
6.5 Compensation. The Escrow Agent shall be entitled
to receive reasonable compensation, as agreed upon between the
Escrow Agent, Buyer and Seller, for the Escrow Agent's services
hereunder, and to be reimbursed for its reasonable out-of-pocket
expenses, including reasonable counsel fees, disbursements and
other charges, incurred in the performance of its duties and the
enforcement of its rights hereunder. Such compensation and
expenses shall not be paid out of the Escrow Fund but shall be
borne by the Buyer and Seller equally and shall be paid by them
promptly following receipt of the Escrow Agent's invoices therefor.
6.6 Limited Actions. The Escrow Agent shall not take
any action by reason of any instructions given by the Buyer or
Seller (together, the "Parties") or by any other person, firm or
corporation, except only (i) such instructions as are herein
specifically provided for, (ii) such instructions as are signed by
both Parties, and (iii) such instructions as are pursuant to orders
or process of any court entered or issued with competent
jurisdiction. In the event that the Escrow Agent shall be
uncertain as to its duties or rights hereunder, (a) it shall be
entitled to refrain from taking any action until it shall be
directed otherwise in writing by the Parties or by an order of a
court of competent jurisdiction, and (b) it shall have the right
(but not the obligation) to file a suit in interpleader (with its
expenses covered pursuant to Section 6.5) and obtain an order from
a court of appropriate jurisdiction requiring all persons involved
to interplead and litigate in such court their several claims and
rights among themselves and upon the conclusion thereof to instruct
the Escrow Agent as to how to proceed.
6.7 Indemnification. The Parties hereby jointly and
severally agree to hold harmless and indemnify the Escrow Agent
against any loss or claim, including reasonable counsel fees,
disbursements and other charges, arising out of or in connection
with the performance of the Escrow Agent's obligations hereunder,
including the costs and expenses incurred in connection with the
collection of its fees and expenses and including the costs and
expenses of defending itself against any claim or liability arising
out of or in connection with the performance of its duties
hereunder, except for any loss or claim resulting from its
bad faith, gross negligence or willful misconduct. Any claim by
the Escrow Agent for indemnification or reimbursement hereunder
shall be evidenced by a notice to the Parties describing the nature
of the claim sought. The foregoing indemnities in this paragraph
shall survive the resignation of the Escrow Agent or the
termination of this Agreement.
7. Miscellaneous.
7.1 Notices. All notices, notifications, demands or
other communications required or permitted by this Agreement shall
be in writing and shall be deemed given then delivered personally,
by facsimile transmission or overnight express delivery, or three
business days after being sent by registered or certified mail,
postage prepaid (but notice shall be given in the same manner to
every party entitled to such notice hereunder):
(a) If to Buyer, addressed to:
ValveCo Inc.
c/o Three Cities Research, Inc.
24th Floor
135 East 57th Street
New York, New York 10022
Facsimile: (212) 980-1142
Attention: H. Whitney Wagner
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Facsimile: (212) 757-3990
Attention: Robert M. Hirsh, Esq.
(b) If to Seller, addressed to:
THV Acquisition Corp.
200 Centennial Avenue - Suite 202
Piscataway, New Jersey 08854
Facsimile: (908) 981-1856
Attention: Arthur C. Holdsworth, III
with a copy to:
Baer Marks & Upham
805 Third Avenue
New York, New York 10022
Facsimile: (212) 702-5941
Attention: Joel M. Handel, Esq.
(c) If to the Escrow Agent, addressed to:
United States Trust Company of New York
114 West 47th Street
15th Floor
New York, New York 10036
Facsimile: (212) 852-1625
Attention: Patricia Stermer
or to any other address or addresses which shall hereafter have
been designated from time to time by the respective parties by
notice to the others for such purpose. A copy of any notice,
notification, demand or other communication given by any party to
any other party hereto, with reference to this Agreement, shall be
given at the same time to the other parties to this Agreement.
7.2 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties, their legal
representatives, successors and assigns.
7.3 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely
within such State.
7.4 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
agreement.
7.5 Headings. The section headings in this Agreement
are for convenience only and do not constitute part of this
Agreement.
7.6 Amendment. This Agreement can be amended only by
a writing signed by Buyer, Seller, and the Escrow Agent.
7.7 Assignability. This Agreement is not assignable
except by operation of law, provided that Seller may freely assign
its rights (but not its obligations) hereunder.
7.8 Waiver of Compliance; Consents. Except as
otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the
benefits thereof only by a written instrument signed by (i) the
party granting such waiver and (ii) the Escrow Agent, but such
waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other
failure.
7.9 Dispute Resolution. Either Buyer or Seller may
elect to resolve any disputes relating to the distribution of funds
held in the Escrow Fund through the appointment of KPMG Peat
Marwick LLP or another so-called "Big Six" accounting firm
acceptable to both Buyer and Seller (the "Independent Accountant")
for such purpose. Such election shall be binding on the other
parties hereto. Upon retaining such Independent Accountant, Seller
and Buyer (i) shall each submit to the Independent Accountant in
writing, no later than ten days after the Independent
Accountant is retained, their respective positions with respect to
the disputed matter or matters, together with such supporting
documentation as they deem necessary or as the Independent
Accountant requests, and (ii) shall direct the Independent
Accountant to render its decision as to the dispute within 30 days
after receiving the positions of both Seller and Buyer and all
supplementary supporting documentation requested by the Independent
Accountant. The decision of the Independent Accountant shall be
final and binding on, and nonappealable by, Seller and Buyer. The
fees of the Independent Accountant shall be borne equally by Buyer
and Seller.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written.
VALVECO INC.
By s/s Willem F.P. de Vogel
Name: Willem F. P. de Vogel
Title: Vice President
THV ACQUISITION CORP.
By/s/ Robert V. Silva
Name:Robert V. Silva
Title:President & CEO
UNITED STATES TRUST COMPANY
OF NEW YORK,
As Escrow Agent
By /s/ Patricia Stermer
Name: Patricia Stermer
Title: Assistant Vice President
Exhibit 13. Annual Report to Stockholders.
TRANSTECH INDUSTRIES, INC.
ANNUAL REPORT
1995
<PAGE>
COMPANY PROFILE
Transtech Industries, Inc. and its subsidiaries
provide environmental services, generate
electricity utilizing methane gas and have
investments in computer equipment under lease.
The Company's headquarters are located in
Piscataway, New Jersey.
TABLE OF CONTENTS
Page
President's Letter 2
Management's Discussion and Analysis or
Plan of Operations 3
Consolidated Balance Sheets 16
Consolidated Statements of Operations 18
Consolidated Statements of Stockholders' Equity 20
(Deficit)
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 24
Report of Independent Certified Public Accountants 60
Market Prices of Common Stock 61
Directory 62
<PAGE>
Transtech Industries, Inc.
President's Letter
To Our Stockholders:
In my letter to you which accompanied the 1994 Annual
Report, I discussed the problems which face your Company
involving environmental clean-ups, taxes and related litigation.
During 1995, the continuation of these issues led to a strategy
of enhancing liquidity at Transtech.
In early 1995, the Company took steps to value and list for
sale much of its dormant real estate. While we have had some
ongoing discussions in this area, commercial real estate remains
a soft market.
During mid-1995, we initiated and completed the sale of our
Cal-Lime subsidiary to a competitor. Cal-Lime faced with a
shrinking market for its product and lost bids for a number of
contracts. Transtech chose not to provide funding to support an
uncertain future for Cal-Lime.
During October, 1995 we entered into an agreement to sell
our Hunt Valve subsidiary. The sale was completed on March 1,
1996 and resulted in a significant increase in liquidity at
Transtech. The details of these transactions were included in
the proxy material sent to you in conjunction with the Special
Meeting of Shareholders held on February 29, 1996.
During 1996, we will continue our efforts to raise liquidity
on an accelerated basis and expand our environmental services
segment. We also intend to increase our efforts to settle the
numerous pieces of litigation which are tied to our past
environmental problems.
Although the Company has completed the sale of the two
subsidiaries described above, and is pursuing the sale of
property held for sale, no assurance can be given that the timing
and amount of the proceeds of such sales will be sufficient to
meet the capital requirements of the Company, since such
requirements can only be ascertained as the Company resolves its
tax and environmental litigation. In addition, the Company
cannot ascertain whether its remaining operations and funding
sources will be adequate to satisfy its future capital
requirements, including its anticipated tax and environmental
liabilities.
Sincerely,
Robert V. Silva
<PAGE>
Transtech Industries, Inc.
Management's Discussion and Analysis or Plan of Operations
Results of Operations
Introduction
The Company's continuing operations consist of the parent
company and 25 subsidiaries, two of which conduct active
operations: one is engaged in the generation and sale of
electricity utilizing methane gas and the other is engaged in the
performance of environmental services. The parent has investments
in computer equipment under lease. The other subsidiaries of the
Company hold assets consisting primarily of cash and marketable
securities, real property, notes receivable and contract rights.
During 1995, the Company sold the segment of its operations
which marketed alkali products and entered into an agreement to
sell its valve manufacturing segment. Both transactions are
discussed below.
Operating Revenues
Consolidated operating revenues decreased 36%, or $206,000,
for the year ended December 31, 1995, compared to the year ended
December 31, 1994. Consolidated operating revenues by business
segment for the years ended December 31, 1995 and 1994 were as
follows (in $000):
- Quarter - Total
1995 1st 2nd 3rd 4th Year
Electric Generation $ 62 $ 44 $ 36 $ 64 $ 206
Environmental Svcs. 149 139 92 51 431
Intercompany (95) (86) (48) (35) (264)
Total revenues $116 $ 97 $ 80 $ 80 $ 373
1994
Electric Generation $ 96 $ 78 $ 74 $ 68 $ 316
Environmental Svcs. 134 129 131 142 536
Intercompany (67) (54) (71) (81) (273)
Total revenues $163 $153 $134 $129 $ 579
Revenues from operations which generate electricity from
methane gas were $206,000 in 1995, a decrease of $110,000 or 35%
compared to the prior year. The decrease is the result of a series
of equipment failures which subjected two of the four electric
generating units to significant down-time for repairs during 1995.
Certain units were also out of service at various times during 1994
in order to overhaul the equipment. All generating units were
placed back in service during the fourth quarter of 1995.
The environmental services segment reported $431,000 of
operating revenues (prior to elimination of intercompany sales)
compared to $536,000 for 1994. Approximately $264,000 or 61% of
the environmental services segment's revenues for 1995, and
$273,000 or 51% for 1994, were either from other members of the
consolidated group or from third parties providing services to
another member of the consolidated group, and were therefore
eliminated in consolidation. Substantially all the third party
sales during 1995 and 1994 were to a single customer. The decline
in sales (prior to the elimination of intercompany activity) during
1995 was primarily due to the completion of the construction phase
of its work for the third party and the substantial completion of
the construction phase of the remediation work at a closed landfill
owned by the Company. As part of the Company's effort to expand
the customer base of the environmental services segment, in August
1995 the Company entered into a joint marketing agreement with a
national engineering firm with respect to projects involving the
closure and remediation of municipal waste sites in the
northeastern United States. Anticipated revenues to the segment
under the joint marketing agreement and through its individual
efforts cannot presently be ascertained.
Cost of Operations
Consolidated direct operating costs for the year ended
December 31, 1995 were $377,000, a decrease of $58,000 or 13% when
compared to 1994. The costs of the electricity generating
operation declined 8% for the year ended December 31, 1995 when
compared to the prior year due to expenses incurred during 1994 for
the overhaul of certain electric generating equipment. Costs of the
environmental services segment declined 6% overall due primarily to
the decrease in sales volume.
Consolidated selling, general and administrative expenses for
the year ended December 31, 1995 were $2,925,000, an increase of
$655,000 or 29% from the prior year, due to a $415,000 increase in
professional fees primarily relating to the Company's ongoing
environmental and tax litigation (see Note 14 to the Company's
Financial Statements), a $50,000 charge related to an increase in
the bad debt reserve pertaining to a note held by the Company and
a $124,000 charge related to the reversal of a preferential real
estate tax rate previously granted on certain properties held for
sale by the Company. The Company presently anticipates that
expenditures for professional fees will remain at the level of
present expenditures until resolution of the Company's
environmental and tax litigation. Administrative costs are not
anticipated to decline appreciably in the near future due primarily
to continued administrative support required for the Company's
litigation, marketing and asset divestiture efforts (see Liquidity
and Capital Resources). The operating costs of the non-operating
subsidiaries, consisting primarily of insurance and franchise,
income and real estate taxes, aggregated approximately $226,000 and
$112,000 for the years ended December 31, 1995 and 1994,
respectively. Such expenses are anticipated to decline if the
Company is successful in its efforts to divest certain real
property as discussed herein (see Liquidity and Capital Resources).
Operating Loss
The Company's consolidated operating loss for the year ended
December 31, 1995 increased to $2,929,000 from a loss of $2,126,000
reported for the prior year.
Other Income (Expense)
Consolidated investment income increased by $303,000 for the
year ended December 31, 1995 to $530,000. The increase is
primarily attributable to a gain of $269,000 on the sale of
marketable securities in 1995 versus a loss of $52,000 in 1994.
Consolidated interest expense decreased from $787,000 for the
year ended December 31, 1994 to a credit of $190,000 for 1995. The
decrease in interest expense for the period is primarily due to a
reduction of the interest accrued for state income taxes which may
result from the ongoing litigation between the Company and the
Internal Revenue Service (discussed below.) The reduction reflects
the effect of a March 1996 settlement of certain issues in the
litigation.
The Company charged $360,000 against income in 1995 to reflect
a reduction in the carrying value of its leveraged computer lease
investment. The charge reflects the continued decline in the
current market value for IBM mainframe computer equipment and the
rental income commanded by such equipment, and assumes a 16%
reduction in the estimate of the variable portion of future rentals
and an 82% reduction in the estimated residual value. The Company
recorded a charge of $1,819,000 related to this investment during
1994.
The Company has recognized income of $1,451,000 during the
year ended December 31, 1995 due to the reversal of the balance of
amounts previously accrued for future expenditures related to a
site in Carlstadt, New Jersey on which the Company had operated a
solvents recovery facility. In September 1995, the court approved
a settlement of litigation regarding the allocation of costs of
remediation of the site which substantially relieved the Company
from future obligations with respect to the site in exchange for a
cash payment, proceeds from the settlement of certain insurance
claims and an assignment of Carlstadt-related claims that had been
filed against the Company's excess insurance carriers. (See Note 14
to the Company's Financial Statements).
The Company incurred a charge of $131,000 for the year ended
December 31, 1995 due to an increase in the accrual for closure
costs related to a landfill previously operated by Mac Sanitary
Land Fill, Inc., a subsidiary of the Company. During 1995, the
Company incurred higher than anticipated engineering and testing
costs in order to respond to inquiries from environmental
regulators.
The gain on sale of property and equipment increased by
$69,000 to $116,000 for the year ended December 31, 1995 due
primarily to an increase in the amount of deferred income
recognized in the period associated with a 1992 installment sale of
real property.
Consolidated miscellaneous income for the year ended December
31, 1995 decreased $244,000 to $270,000 when compared to income of
$514,000 in 1994. The amount reported for 1994 includes $394,000
of income due to the reversal of accrued insurance premiums
relating to the policies terminated in conjunction with the
settlement of litigation regarding a site in Carlstadt, New Jersey
(see Note 14 to the Company's Financial Statements). The amount
reported for 1995 includes $133,000 of management fees received
from discontinued operations subsequent to August 31, 1995 (see
Discontinued Operations).
The consolidated loss from continuing operations before income
tax credits was $863,000 for the year ended December 31, 1995,
compared to a loss of $3,944,000 for last year.
Income Taxes
Income tax credits from continuing operations for the year
ended December 31, 1995 equalled $228,000, a $954,000 decrease over
the $1,182,000 credit for 1994. As discussed below (see Liquidity
and Capital Resources - Taxes), the Company filed a petition with
the Tax Court to contest certain items contained in a deficiency
notice issued by the Internal Revenue Service (the "Service") as a
result of the Service's audit of the Company's federal tax returns
for the years 1982 through 1988. Income tax expense for 1995 and
1994 includes provisions (credits) of $(91,000) and $858,000 for
federal taxes, respectively, and $(127,000) and $364,000 for state
taxes, respectively, which result from the acceptance of partial
settlements of certain adjustments asserted by the Service in its
notice of deficiency (see Note 8 to the Company's Financial
Statements).
The credit for income taxes during the year ended December 31,
1994 was less than that calculated using the statutory rates since
the realization of deferred tax benefits was not assured.
Discontinued Operations
Income (loss) from discontinued operations relates to two of
the Company's subsidiaries, one of which marketed alkali products,
and the other which manufactured commercial valves and hydraulic
systems.
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to the subsidiary's name, and
gave a non-compete covenant, thereby effectively selling the on-
going operations of Cal-Lime, Inc., a subsidiary which marketed
alkali products, to a competitor. The Company received a cash
payment of $600,000 for the assets sold and is entitled to
additional payments of up to $25,000 which are contingent upon the
availability of lime slurry from a specified source to the
purchaser. The Company has reported a gain of $262,000 from the
sale which is net of taxes of $155,000. The Company intends to
liquidate the remaining fixed assets of the subsidiary and has
included the book value of the property, buildings and equipment
not part of this transaction under the caption "Assets held for
sale" on the accompanying balance sheet. The amounts reported as
income from discontinued operations of $35,000 and $2,000 for the
years ended December 31, 1995 and 1994, respectively, are reported
net of provisions for income taxes of $18,000 and $1,000,
respectively.
On October 24, 1995, the Company executed a stock purchase
agreement pursuant to which the Company's wholly-owned subsidiary,
THV Acquisition Corp. ("THV") agreed to sell all of the issued and
outstanding stock of Hunt Valve Company, Inc. ("Hunt") to ValveCo
Inc. Certain directors and executive officers who are members of
management of the Company and Hunt acquired a 15% equity stake in
ValveCo Inc. The net assets of Hunt represented substantially all
of the net assets of the Company; therefore, the sale was subject
to approval by the Company's shareholders. Such approval was
granted at a special meeting of the Company's shareholders held on
February 29, 1996 and the sale was completed on March 1, 1996.
The purchase agreement provided for a purchase price of
$2,208,000 for Hunt's common stock, representing $18.0 million in
cash reduced by the sum of (i) $12,721,000, representing the amount
of Hunt's indebtedness for borrowed money as of the closing of the
sale, which had been fixed by the parties at such amount solely for
purposes of determination of the purchase price, (ii) $500,000,
representing the negotiated amount required to redeem the minority
equity position held by Hunt's senior secured note holders, (iii)
$2,000,000, representing the amount required to be paid by Hunt to
THV upon the redemption by Hunt of its issued and outstanding 7%
preferred stock, without par value, all of which was owned by THV
and (iv) $571,000 representing the amount to be paid by Hunt to THV
in repayment of the senior subordinated note issued by Hunt to THV
in the original principal amount of $500,000. The net cash
proceeds of the sale (i.e., the sum of the purchase price plus
(iii) and (iv) above less transaction costs) were approximately
$3,975,000. A portion of the net cash proceeds ($750,000) was
placed in escrow to secure the Company's indemnification
obligations to the purchaser under the purchase agreement,
including indemnification for any payments made by Hunt after the
closing in respect of income taxes owed by the Company during the
period that Hunt was a member of the Company's consolidated tax
group. The escrow will terminate upon the earlier to occur of (i)
the release of all funds from escrow in accordance with the terms
thereof or (ii) the later to occur of (x) the expiration of the
applicable statute of limitations for the assessment of federal
income taxes for all taxable years with respect to which Hunt was
a member of the Company's consolidated tax group and (y) the
satisfaction by the Company of all assessments or other claims by
the Service for taxes of the consolidated tax group during such
years (see Note 4 of Notes to Consolidated Financial Statements
contained herein for information regarding interested parties to
the transaction and the acquisition of Hunt's senior term loan by
a designee of the purchaser).
The Company has reported a loss on the sale of approximately
$772,000 for financial reporting purposes. The loss has been
calculated as of August 31, 1995, the measurement date, and
includes (i) estimates of costs incurred in connection with the
sale, (ii) earnings from the measurement date to the date of
disposition, (iii) a provision for taxes on earnings from the
measurement date through the date of disposition of $154,000 and
(iv) loss on sale at the disposal date. No tax benefit has been
recognized for the loss at disposition as losses from the sale of
a consolidated subsidiary are generally not deductible for federal
income tax purposes.
Net Loss
Net loss for the year ended December 31, 1995 was $768,000, or
$.27 per share, compared to net loss of $2,370,000, or $.84 per
share, for the year ended December 31, 1994.
Liquidity and Capital Resources
General
Net cash provided by operating activities for the year ended
December 31, 1995 decreased to a net use of $1,988,000 from a
source of $11,000 when compared to last year due primarily to the
inclusion of activities of the discontinued segments in 1994. Net
cash provided by investing activities decreased this year to
$1,711,000 from $257,000 due primarily to the maturity of certain
marketable securities, the inclusion in 1995 of $310,000 of net
proceeds from the sale of discontinued segments ($600,000 in
proceeds related to the sale of alkali products segment and
$290,000 of transaction costs related to the valve manufacturing
segment), and the inclusion of capital expenditures made by the
discontinued segments in the 1994 data. The use of cash in
financing activities declined from $1,012,000 to $177,000 for the
period compared to last year, due primarily to the inclusion of
activities of the discontinued segments in 1994. Funds held by the
Company in the form of cash and cash equivalents decreased as of
December 31, 1995 to $420,000 from $874,000. The sum of cash, cash
equivalents and marketable securities as of December 31, 1995
decreased $2,464,000 from $3,339,000 when compared to last year.
Working capital was $4.5 million and the ratio of current
assets to current liabilities, was 2.5 to 1 as of December 31,
1995, compared to $6.8 million and a ratio of 3.3 to 1 at December
31, 1994.
The Company holds notes in the aggregate amount of $121,000 as
of December 31, 1995 which were issued by a firm which produces and
distributes gases, and by a partnership whose members include
certain owners of the firm. The notes are secured by a first
mortgage on the real property on which the firm's facility is
located and are guaranteed by certain owners of this firm and
members of the partnership. An explosion destroyed the firm's only
facility on March 26, 1996. It is presently uncertain what
operations of the firm will continue and the extent the firm's
insurance proceeds will be available for payment of amounts due
under the notes.
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, 1995, 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.
The Company faces significant short-term and long-term cash
requirements for (i) federal and state income tax obligations, most
of which will become due following litigation or settlement with
the Internal Revenue Service (the "Service") of the Company's tax
liability for the years 1980 through 1991, (ii) income taxes that
will be imposed in 1996 and 1997 on rental income from the
Company's investment in computer equipment as a result of the
exhaustion of tax depreciation that had previously sheltered such
rental income from tax and (iii) expenses associated with
environmental remediation activity and related litigation.
Although the Company has completed the sale of the two
business segments described above, and is pursuing the sale of
property held for sale, no assurance can be given that the timing
and amount of the proceeds of such sales will be sufficient to meet
the capital requirements of the Company, since such requirements
can only be ascertained as the Company resolves its tax and
environmental litigation. The Company cannot ascertain whether its
remaining operations and funding sources will be adequate to
satisfy its future capital requirements, including its anticipated
tax and environmental liabilities. In the event that the proceeds
of asset sales are insufficient to meet the Company's future
capital requirements, including its tax and environmental
liabilities, then, if other alternatives are unavailable at that
time, the Company will be forced to consider a plan of liquidation
of its remaining assets, whether through bankruptcy proceedings or
otherwise.
Taxes
As discussed in greater detail below, the Company is currently
litigating with the Service in Tax Court over its tax liability for
taxable years 1980-88. Certain issues from taxable years 1989-91
are also part of the Tax Court litigation because losses from those
years were carried back to 1988. The Company estimates that after
taking into account partial settlements that have been reached
through March 7, 1996 regarding certain of the adjustments asserted
by the Service, and taking into account available net operating
losses and tax credits, approximately $8.1 million of federal and
$237,000 of state income taxes and $8.1 million of federal and
$240,000 of state interest, calculated through December 31, 1995,
would be owed if the Company were unsuccessful in its defense of
all remaining unsettled issues in the Tax Court litigation. (All
tax liability estimates presented herein exclude penalties which
may be sought by the jurisdictions involved, except that the
Service has conceded penalties on all issues in the Tax Court
litigation.)
In 1991, the Service asserted numerous adjustments to the tax
liability of the Company and its subsidiaries for tax years 1980
through 1988, along with interest and penalties thereon. In 1993,
after the conclusion of administrative proceedings, the Service
issued a deficiency notice to the Company asserting adjustments to
income of $33.3 million and a corresponding deficiency in federal
income taxes of approximately $13.5 million, as well as penalties
of $2.5 million and interest on the asserted deficiency and
penalties. In addition, the Service challenged the carryback of
losses incurred by the Company in taxable years 1989 through 1991,
thereby bringing those years, which had been the subject of an
ongoing audit, into the deficiency notice. The 1989-91 tax audit
is discussed below. The Company filed a petition with the Tax
Court contesting many of the proposed adjustments asserted in the
deficiency notice. On June 5, 1995, August 14, 1995 and March 7,
1996, respectively, the Company and the Service executed a
stipulation of partial settlement of issues in the Tax Court case
and first and second revised stipulations of partial settlement.
These partial settlements have resolved most of the adjustments
asserted in the deficiency notice.
Taking into account the partial settlements to date, the
Company has accepted approximately $5.2 million of the $33.3
million of total adjustments to income asserted by the Service.
Many of the adjustments accepted by the Company relate to issues on
which the Service would likely have prevailed in court. The Service
has conceded adjustments totalling $27.4 million of taxable income
and penalties, leaving only one issue, involving several taxable
years, unresolved from the 1980-88 period. Also unresolved are the
adjustments, discussed below, asserted by the Service for the 1989-
91 period. The Company cannot predict the outcome of further
settlement negotiations or litigation with the Service over these
issues.
The Company has net operating loss and tax credit
carryforwards that will partly offset the tax liability resulting
from the settled adjustments to taxable income. Taking into
account such carryforwards, the federal income tax and interest
that will be due on account of the settlements reached to date is
approximately $1,323,000, with interest through December 31, 1995
($93,000 of taxes and $1,230,000 of interest). The settlements
also will result in approximately $477,000 of state tax liabilities
($237,000 of state income tax and $240,000 of interest through
December 31, 1995), not including penalties and penalty interest
that may be assessed by the states involved. Payment of the
federal tax liability resulting from both settled issues and any
issues litigated before the Tax Court will be due after the
conclusion of the Tax Court case. The date for payment of the
state tax liabilities varies by state. The first of such payments,
in the amount of approximately $349,000, consisting of state taxes
of $109,000 and interest of $240,000 through December 31, 1995, is
expected to be paid during 1996. This state currently has a tax
amnesty program in effect pursuant to which all interest and
penalties for back taxes will be waived upon payment of the tax
liability. The Company is currently investigating whether it
qualifies under this amnesty program.
Use of the Company's net operating loss and tax credit
carryforwards to offset the settled adjustments will reduce the net
operating loss and tax credit carryforwards that otherwise would
have been available to partially offset the future tax liabilities
that will arise when the Company recognizes an estimated $9.7
million of net taxable income from its investment in computer
equipment. For federal income tax purposes, the Company has had
the benefit of tax deductions for depreciation of the equipment and
for interest on the long-term non-recourse debt that the Company
incurred to finance the acquisition of the computer equipment. In
prior years, those deductions exceeded the rental income that the
Company earned from leasing out the equipment. Those excess
deductions offset the Company's income from other sources. Rental
income from leasing the computer equipment exceeded the related
depreciation and interest deductions by approximately $5.8 million
in 1995 and $3.0 million in 1994. This excess income was largely
offset by deductions from other sources. Rental income will
continue to exceed depreciation and interest deductions in 1996 and
1997. The Company anticipates approximately $6.2 million and $3.5
million of net taxable income for 1996 and the first seven months
of 1997, respectively, on account of its computer equipment
investment. The Company does not expect to have sufficient
deductions from other sources in 1996 and 1997 to fully offset this
taxable income.
The Service has concluded an audit of the Company's federal
income tax returns for 1989 through 1991, and has questioned the
deductions claimed by the Company in connection with its investment
in the computer equipment discussed in the preceding paragraph. If
the Service prevails in disallowing the computer equipment
deductions, the Company's taxable income for 1989 through 1992
would be materially increased. However, in that case, its taxable
income from the computer equipment for 1994 through 1997 would be
reduced by a corresponding amount. Specifically, if the Company
prevails on all remaining issues in the Tax Court case other than
those related to the computer equipment, the incremental federal
income tax liability attributable to disallowance of the computer
equipment deductions will not exceed $5.9 million of tax and $2.7
million of interest, calculated through December 31, 1995. This
would increase the Company's aggregate liability for federal taxes
and interest attributable to both the settled issues and the
computer lease to $6.0 million and $3.9 million, respectively,
calculated through December 31, 1995. (This estimate is less than
the aforementioned estimated federal income tax liability of $8.1
million of tax and $8.1 million of interest, calculated through
December 31, 1995, because those estimates assumed the loss of all
remaining unresolved issues from the 1980-88 and 1989-91 periods,
not just the computer lease issue.) If the Company does not
prevail on the computer lease issue, the Company's net deferred tax
liability of $40,000 as of December 31, 1995 would be eliminated,
as would most of the $6.2 million and $3.5 million of taxable
income that the Company expects to realize from the computer
equipment in 1996 and 1997, respectively, as discussed in the
preceding paragraph. Disallowance of the computer equipment
deductions would not result in any state tax liability. For the
1989-91 period, the Service also challenged certain real property
deductions and certain expenses that were deducted by the Company,
but that the Service believes should have been capitalized. These
deductions will be addressed in the pending Tax Court case because
losses in 1989-91 were carried back and deducted in years covered
by the Tax Court case. Discussions with the Service on the 1989-91
issues, including the computer equipment issue, are in progress.
The incremental amount of federal taxes and interest that the
Company would owe if the Company were unsuccessful in its defense
of the remaining issue from the 1980-88 period and all of the
issues from the 1989-91 period, including the computer equipment
issue, is approximately $8 million of federal income taxes and $6.9
million of interest, calculated through December 31, 1995. (Such
amounts are in addition to the tax of $93,000 and interest of
$1,230,000, discussed above, that will be owed as a result of the
partial settlements to date.) No state income tax or interest is
anticipated on account of these issues.
Remediation and Closure Costs
As of December 31, 1995, the Company has accrued $22.3 million
for its estimated share of remediation and closure costs related to
the Company's former landfill and waste handling operations.
Approximately $9.5 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 10 to the Company's Consolidated
Financial Statements).
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.
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 negotiated settlements with
certain parties to a suit the Company initiated in 1990 with the
intent of obtaining contribution toward the cost of remediation.
Approximately $7.1 million had been received from such settlements
and deposited into the 1993 Trust, all of which had been expended
by December 31, 1995. During June 1994, approximately 36
generators of de minimis volumes of waste accepted a settlement
with certain generators of de minimis volumes of wasteproposed by
the Company and other respondents to the 1990 Order, which
resulted in an additional $3.0 million of contributions available
for the remediation effort which had been deposited into a new
trust established in January 1995. Approximately $20,000 remained
in the new trust as of December 31, 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
with funds from 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.
The execution of the contracts between SCA and the contractors
has not relieved the Company of liability for such costs since the
Company entered into a cost sharing agreement with SCA and certain
affiliates (the "SCA Group") in 1986 which allocated 75% of the
costs incurred by the parties for the remediation of the site to
the Company. In August 1993, the Company filed a demand for
arbitration seeking rescission or reformation of the cost sharing
agreement with the SCA Group and reimbursement of overpayment.
During March 1995, the SCA Group filed a demand for arbitration
seeking reimbursement from the Company of $17 million, representing
75% of the remediation expenses purportedly funded by WMX through
March 31, 1995. The status of such arbitration demands, as yet
unresolved, is described in Note 14 to the Company's Consolidated
Financial Statements.
The contractors have essentially completed the construction
required under the Orders, and the Company is awaiting EPA review
and acceptance of the work performed. Operation of the treatment
plant and maintenance of the facilities is being conducted by an
affiliate of SCA. The total cost of the construction, and the cost
of operation and maintenance of remedial systems for a 30-year
period, plus the cost of past remedial activities, has been
estimated to be in the range of approximately $80 million to $100
million.
A study to determine the nature and extent of contamination,
and sources thereof, on approximately one acre of land adjacent to
the Kin-Buc Landfill has been substantially completed. On the
basis of such study, in January 1996, a design for a remedial
program involving the installation of a slurry cut-off wall around
this one-acre parcel was presented to the EPA for its review and
approval. The cost of such installation may range from $1 million
to $2 million. It is not possible to predict, at this point,
whether EPA will require additional remedial measures to be taken
or will mandate long-term maintenance of the slurry wall. Other
areas within the vicinity of the site may become the subject of
future studies due to the historic use of the area for waste
disposal. The cost of studies and remediation of such areas is not
included in the present estimates of the total cost of the
remediation since such work is outside the scope of the Orders. An
obligation to undertake significant remediation of areas outside
the scope of the Orders could have a material adverse effect on the
total estimated costs of remediation.
The Company has currently accrued $10,693,000 for future
remediation costs at the Kin-Buc Landfill. The amount ultimately
borne by the Company as well as the timing of such future payments,
however, cannot be determined with certainty and are dependent upon
the following: (i) determination of the total costs to remediate
the landfill as required by current or future orders and directives
of the EPA, (ii) the allocation of the total remediation costs to
each of the potentially responsible parties named to the Orders,
(iii) the success of the Company's pending arbitration for
rescission or reformation of the cost sharing agreement with the
SCA Group, and (iv) the success of the SCA Group's demand in
arbitration for reimbursement of 75% of the costs it has expended
in the remediation effort. Any or all of the preceding items could
ultimately be resolved in a manner that could have a material
adverse effect on the financial condition, results of operations or
net cash flows of the Company.
Accounting Principles
Effective January 1, 1994, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 115 ("Accounting
for Certain Investments in Debt and Equity Securities"). In
accordance with the statement, the Company classifies all debt
securities purchased with remaining maturities of less than one
year as securities held to maturity which are carried at amortized
cost. All other debt and equity securities are classified as
securities available for sale which are carried at fair value as
determined by quoted market prices. The aggregate excess of fair
value over cost of such securities as of December 31, 1995 of
$144,000 is presented net of deferred income taxes of $49,000 and
included as a separate component of stockholders' equity.
<PAGE>
<TABLE>
Transtech Industries, Inc.
Consolidated Balance Sheets
(In $000's)
<CAPTION>
December 31, 1995 1994
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 420 $ 874
Marketable securities 2,044 2,465
Accounts and notes receivable (net
of allowance for doubtful
accounts of $11) 205 461
Deferred income taxes 42 587
Prepaid expenses and other 352 472
Net assets of discontinued operations:
Valve manufacturing segment 4,517 4,756
Alkali products segment - 173
Total current assets 7,580 9,788
Property, Plant and Equipment
Land 799 799
Buildings and improvements 327 327
Machinery and equipment 3,001 2,931
4,127 4,057
Less accumulated depreciation 3,176 3,144
Net property, plant and equipment 951 913
Other Assets
Notes receivable 750 968
Investment in leveraged lease 128 885
Assets held for sale 2,406 2,421
Clay deposits 1,077 1,077
Asset of discontinued operation:
Valve manufacturing segment 750 750
Other 40 39
Total other assets 5,151 6,140
Total Assets $13,682 $16,841
</TABLE>
See Accompanying Notes to Consolidated Financial Statements<PAGE>
<TABLE>
Transtech Industries, Inc.
Consolidated Balance Sheets, cont'd
(In $000's)
<CAPTION>
December 31, 1995 1994
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 356 $ 93
Accounts payable 357 291
Accrued income taxes 1,942 2,318
Accrued miscellaneous expenses 422 251
Total current liabilities 3,077 2,953
Long-Term Debt 66 388
Accrued Remediation and Closure Costs 12,851 14,355
Deferred Income Taxes 82 665
Stockholders' Equity (Deficit)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,840 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 4,652 5,420
Net unrealized gains on marketable
securities 95 201
Sub-Total 8,620 9,494
Treasury stock, at cost - 1,885,750 shares (11,014) (11,014)
Total stockholders' equity (deficit) (2,394) (1,520)
Total Liabilities and
Stockholders' Equity (Deficit) $13,682 $16,841
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Operations
(In $000's)
<CAPTION>
Years ended December 31, 1995 1994
<S> <C> <C>
Operating Revenues $ 373 $ 579
Cost of Operations
Direct operating costs 377 435
Selling, general and
administrative expenses 2,925 2,270
Total cost of operations 3,302 2,705
Operating Income (Loss) (2,929) (2,126)
Other Income (Expense)
Investment income (loss) 530 227
Interest expense (50) (60)
Interest (expense) credit - tax audits 240 (727)
Writedown of investment
in computer equipment (360) (1,819)
Remediation accrual reversal 1,451 -
Closure costs (131) -
Gain on sale of property and equipment 116 47
Miscellaneous income 270 514
Total other income (expense) 2,066 (1,818)
Loss From Continuing Operations
Before Income Taxes (Credit) (863) (3,944)
Income Taxes (Credit) (446) 40
Loss From Continuing Operations (417) (3,984)
Discontinued Operations
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $104 and $395,
respectively 124 1,612
Loss on disposal of segment,
net of taxes of $154 (772) -
Alkali Products Segment
Income from discontinued
operation, net of taxes
of $18 and $1, respectively 35 2
Gain on disposal of segment, net of
taxes of $155 262 -
Total discontinued operations (351) 1,614
Net Loss $ (768) $(2,370)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements<PAGE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Operations, cont'd
<CAPTION>
Years ended December 31, 1995 1994
Net Loss Per Common Share:
<S> <C> <C>
Loss from continuing
operations $(.15) $(1.41)
Discontinued Operations:
Income from discontinued
operations, net of taxes .06 .57
Loss on disposal of
discontinued operations,
net of taxes (.18) -
Net loss per common share $(.27) $(.84)
Weighted Average Shares
Outstanding 2,829,090 2,829,090
</TABLE>
See Accompanying Notes to Consolidated Financial Statements<PAGE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statement of Stockholders' Equity (Deficit)
(In $000's)
<CAPTION>
Years ended December 31, 1995 1994
Common Stock
<S> <C> <C>
Balance at December 31 $ 2,357 $ 2,357
Additional Paid-In Capital
Balance at December 31 1,516 1,516
Retained Earnings
Balance at January 1 5,420 7,790
Net loss (768) (2,370)
Balance at December 31 4,652 5,420
Net Unrealized Gains on Marketable
Securities
Balance at January 1 201 -
Valuation adjustments (161) 305
Provision for taxes 55 (104)
Balance at December 31 95 201
Treasury Stock
Balance at December 31 (11,014) (11,014)
Total Stockholders' Equity (Deficit) $ (2,394) $ (1,520)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements<PAGE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows
(In $000's)
<CAPTION>
Years ended December 31, 1995 1994
Increase (Decrease) in Cash
and Cash Equivalents
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 496 $ 18,442
Cash paid to suppliers and
employees (3,312) (17,041)
Interest and dividends received 148 247
Other income received 135 30
Interest paid (31) (1,668)
Cash received from discontinued
operations 574 -
Net cash provided by (used in)
operating activities (1,988) 10
Cash Flows from Investing Activities:
Proceeds from sale of marketable
securities 3,802 3,468
Purchase of marketable securities (3,184) (2,959)
Collections on notes receivable 409 266
Proceeds from sale of property,
plant and equipment 9 40
Purchase of property, plant
and equipment (87) (760)
Rent sharing payments
from computer leases 452 277
Net (increase) decrease in other
assets - 11
Cash proceeds from sale of
discontinued segment-net of
transaction costs 310 -
Purchase of intangible assets - (86)
Net cash provided by (used in)
investing activities 1,711 257
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1995 1994
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments on
long-term debt $(98) $(652)
Proceeds from issuance of
long-term debt 39 77
Net borrowing (repayment) under
revolving credit facility - (296)
Payment of landfill closing
costs (118) (27)
Payment of debt issuance costs - (114)
Net cash provided by (used in)
financing activities (177) (1,012)
Net increase (decrease) in cash
and cash equivalents (454) (745)
Cash and cash equivalents at
beginning of year 874 1,625
Cash and cash equivalents at
end of year $420 $ 880
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<TABLE>
<PAGE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1995 1994
<S> <C> <C>
Reconciliation of Net Loss to Net
Cash Provided by (Used in)
Operating Activities:
Net loss $(768) $(2,370)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used
in) Operating Activities:
Depreciation and amortization 58 1,491
Actual gain on post-retirement
health care benefits - (1,427)
(Gain) loss on sale of marketable
securities (269) 52
(Gain) loss on sale of property,
plant and equipment (116) (44)
Writedown of investment in
leveraged lease 360 1,819
Remediation accrual reversal (1,451) -
Closure costs 131 -
Allowance for doubtful accruals 50 -
Increase (decrease) in
deferred income taxes 17 49
Increase (decrease) in
minority interest - 304
Extraordinary gain on elimination
of debt - (109)
(Increase) decrease in assets:
Accounts and notes receivable 178 (243)
Inventories - (983)
Prepaid expenses and other 54 67
Net assets of discontinued operations 412 -
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses (268) 332
Accrued income taxes (376) 1,073
Net Cash Provided by (Used in)
Operating Activities $(1,988) $ 10
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Transtech Industries, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies:
Principles of Consolidation:
The Consolidated Financial Statements include the accounts
of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments
purchased with an original maturity of three months or less
and funds deposited in money market accounts to be cash
equivalents. At December 31, 1995 and 1994, cash and cash
equivalents includes interest-bearing cash equivalents of
$104,000 and $498,000, respectively.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost.
Depreciation is provided on a straight-line basis over
estimated useful lives of 5-30 years for buildings and
improvements and 3-15 years for machinery and equipment.
Disclosure About Fair Value of Financial Instruments:
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued miscellaneous
expenses approximates fair value because of the short maturity
of these items. The carrying amount of notes receivable (net
of allowances for uncollectible amounts) and notes payable
(including current portion) approximates fair value since such
notes bear interest at current market rates.
Financial instruments which potentially subject the
Company to credit risk are cash and cash equivalents, and
accounts and notes receivable. Credit limits, ongoing credit
evaluations, and account monitoring procedures are utilized to
minimize the risk of loss with respect to accounts receivable.
Notes receivable are generally collateralized by real property
or other fixed assets.
Use of Estimates:
In preparing financial statements in accordance with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Reclassifications:
Certain reclassifications have been made to the 1994
financial statements in order to conform to the presentation
followed in preparing the 1995 financial statements.
Note 2 - Going Concern Uncertainty:
The Company's financial statements have been prepared on
a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in
the normal course of business. The Company has incurred
significant operating losses in each of the last five years
and it is anticipated that such operating losses will continue
as a result of the significant professional fees and
administrative expenses related to remediation of the Kin-Buc
Landfill (see Notes 10 and 14) and resolution of the Internal
Revenue Service examination (see Note 8). The Company intends
to continue its defense of such actions. The Company has also
been aggressively pursuing the sale of its assets to raise
cash to fund its future liabilities which include: (i)
federal and state taxes and interest resulting from the
partial settlements of the pending IRS examination, (ii)
future costs associated with its continuing defense of the
remediation cost litigation, and (iii) anticipated material
income tax liabilities for 1996 and 1997. To this end the
Company has successfully completed the sale of its alkali
products segment and the sale of its valve manufacturing
operations. The Company is currently unable to determine the
outcome of these matters, but the ultimate resolution, and the
timing of cash requirements associated therewith, could have
a material adverse effect upon the Company's financial
condition, results of operations or net cash flows. Further,
there can be no assurances that asset sales will raise
sufficient cash to satisfy any resultant liabilities.
Note 3 - Marketable Securities:
Effective January 1, 1994, the Company adopted FASB
Statement No. 115 ("Accounting for Certain Investments in Debt
and Equity Securities"). In accordance with the statement,
the Company classifies all debt securities purchased with
remaining maturities of less than one year as securities held
to maturity which are carried at amortized cost, which
approximates fair value because of their short term to
maturity. At December 31, 1995 and 1994, held-to-maturity
securities consisted of $1,850,000 and $1,993,000,
respectively, of U.S. Treasury Bills with maturities through
July 1996 and June 1995, respectively. All other debt and
equity securities are classified as securities available-for-
sale which are carried at fair value as determined by quoted
market prices.
As of December 31, 1995, the portfolio of available-for-
sale securities had a cost of $77,000 and a market value of
$221,000. The aggregate excess of fair value over cost of
such securities as of December 31, 1995 of $144,000
(consisting exclusively of gross unrealized gains) is
presented less deferred income taxes of $49,000, and included
as a separate component of stockholders' equity. As of
December 31, 1994, the portfolio of available-for-sale
securities had a cost of $167,000 and a market value of
$472,000. The aggregate excess of fair value over the cost
was $305,000, and is presented less deferred income taxes of
$104,000. The cost of marketable securities sold is
determined on the specific identification method and realized
gains and losses are reflected in income. Proceeds from sale
of available-for-sale securities during the year ended
December 31, 1995 and 1994 amounted to $359,000 and $14,000,
respectively. Dividend and interest income is accrued as
earned.
Investment income includes the following (in $000's):
<TABLE>
<CAPTION>
<S> <C> <C>
Interest and dividend
income (principally
from short-term
investments) $261 $279
Gross realized (gains) losses
from sale of available-
for-sale securities 269 (52)
$530 $227
</TABLE>
Note 4 - Discontinued Operations:
The consolidated statements of operations have been
restated to report the net results of the Company's alkali
products and valve manufacturing segments as discontinued
operations. The net assets of the discontinued segments have
been classified as "Net assets of discontinued operations" in
the accompanying restated consolidated balance sheets.
Alkali Products Segment
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to a subsidiary's name,
and gave a non-compete covenant, thereby effectively selling
the on-going operations of its wholly-owned subsidiary, Cal-
Lime, Inc. ("Cal-Lime"), for $600,000 in cash plus future
payments of up to an additional $25,000 which are contingent
upon the availability of lime slurry from a specified source
to the purchaser. The sale resulted in a gain of $262,000
after transaction costs and a provision for taxes of $155,000.
The net assets of Cal-Lime which were sold, consisting
principally of fixed assets, have been classified as current
assets in the accompanying restated consolidated balance sheet
as of December 31, 1994. The Company intends to liquidate the
remaining assets of Cal-Lime and has included the property,
buildings and equipment excluded from this transaction, having
an aggregate book value of $362,000 and $374,000, under the
caption of assets held for sale on the balance sheets as of
December 31, 1995 and 1994, respectively. Such value
approximates the estimated net realizable value of those
assets. The consolidated statements of operations report the
net results of Cal-Lime's operations as income from
discontinued operations.
Summarized results of Cal-Lime's operations for the eight
months ended August 31, 1995 and the twelve months ended
December 31, 1994 are as follows (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues $582 $917
Income before income tax $ 53 $ 3
Income tax $(18) $ (1)
Net income $ 35 $ 2
</TABLE>
Valve Manufacturing Segment
On August 17, 1995, the Company executed a letter of
intent pursuant to which the Company's wholly-owned
subsidiary, THV Acquisition Corp. ("THV"), agreed to sell all
of the issued and outstanding stock of HVHC, Inc., a Delaware
corporation ("HVHC"), the then parent of Hunt Valve Company,
Inc., an Ohio corporation ("Old Hunt") to ValveCo Inc. On
October 24, 1995, the Company executed the definitive stock
purchase agreement. On December 26, 1995, Old Hunt was merged
into HVHC and HVHC adopted the name of Hunt Valve Company,
Inc. ("Hunt"). The net assets of Hunt represented
substantially all of the net assets of the Company; therefore,
the sale was subject to approval by the Company's
shareholders. Such approval was granted at a special meeting
of the shareholders held on February 29, 1996 and the sale was
consummated on March 1, 1996.
In September and October 1995, representatives of the
Company, Old Hunt's senior term lenders (the "Term Lenders")
and the purchaser conducted negotiations with respect to the
repurchase of the warrants for Old Hunt's stock (the "Lender
Warrants") and the refinancing of Hunt's senior term debt (the
"Term Debt"), and with respect to the amount payable to the
Term Lenders upon the prepayment of the Term Debt prior to
September 27, 2001 (the "Prepayment Premium"). The Prepayment
Premium was determined by the Term Lenders to be approximately
$1,800,000 measured as of December 31, 1995. On October 24,
1995 (the "Term Debt Assignment Date"), the Term Lenders
entered into an agreement to assign their entire interests in
the Term Debt and the Lender Warrants (the "Term Debt and
Warrant Assignment") to a designee of the purchaser (the "Term
Debt Purchaser"), in consideration for a total of $11,822,480
paid to the Term Lenders. Of this amount, (x) $10,822,480
represented principal plus accrued and unpaid interest on the
Term Debt through the Term Debt Assignment Date, (y) $500,000
represented payment for the Lender Warrants and (z) $500,000
was a transaction fee payable to the Term Lenders in lieu of
the Prepayment Premium. Such transaction fee was shared
equally by the Term Debt Purchaser and THV.
In connection with the Term Debt and Warrant Assignment,
the Company, THV, the Term Debt Purchaser and the purchaser
entered into an agreement on the Term Debt Assignment Date
pursuant to which the parties agreed that on or before the
earlier of (i) the closing of the proposed sale and (ii)
December 26, 1995, the Company would cause Old Hunt to merge
with and into HVHC. The agreement also provided that if a
closing of the proposed sale had not occurred by December 27,
1995, the Term Debt Purchaser would exercise the Lender
Warrants to purchase such number of shares of Hunt common
stock as represented an equivalent percentage of HVHC common
stock the Term Debt Purchaser would have acquired upon
exercise of the Lender Warrants to purchase shares of common
stock of Old Hunt. The Term Debt Purchaser also agreed to
purchase from THV a number of shares representing 2% of the
common stock of Hunt at a price of $50,000 concurrently with
the exercise of the Lender Warrant. As a result of the
exercise by the Term Debt Purchaser of the Lender Warrants and
the purchase by the Term Debt Purchaser of the foregoing
percentage of Hunt common stock, as of December 27, 1995 the
Company owned less than 80% of the outstanding Hunt common
stock, thereby relieving Hunt from joint and several liability
for the Company's taxes for periods beyond 1995.
At the closing, the purchaser purchased the Hunt common
stock from THV for $2,208,000, representing $18.0 million in
cash reduced by the sum of (i) $12,721,000, representing the
amount of Hunt's indebtedness for borrowed money as of the
closing of the sale, which had been fixed by the parties at
such amount solely for purposes of determination of the
purchase price, (ii) $500,000, representing the negotiated
amount required to redeem the minority equity position held
by Hunt's senior secured note holders, (iii) $2,000,000,
representing the amount required to be paid by Hunt to THV
upon the redemption by Hunt of its issued and outstanding 7%
preferred stock, without par value, all of which was owned by
THV, and (iv) $571,000, representing the amount to be paid by
Hunt to THV in repayment of the senior subordinated note
issued by Hunt to THV in the original principal amount of
$500,000. The net cash proceeds of the sale (i.e., the sum of
the purchase price plus (iii) and (iv) above less transaction
costs) were approximately $3,975,000. A portion of the net
cash proceeds ($750,000) was placed in escrow to secure the
Company's indemnification obligations to the purchaser under
the purchase agreement, including indemnification for any
payments made by Hunt after the closing in respect of income
taxes owed by the Company during the period that Hunt was a
member of the Company's consolidated tax group. The escrow
will terminate upon the earlier to occur of (i) the release of
all funds from escrow in accordance with the terms thereof or
(ii) the later to occur of (x) the expiration of the
applicable statute of limitations for the assessment of
federal income taxes for all taxable years with respect to
which Hunt was a member of the Company's consolidated tax
group and (y) the satisfaction by the Company of all
assessments or other claims by the Internal Revenue Service
for taxes of the consolidated tax group during such years.
The Company has reported a loss on the proposed sale of
approximately $772,000 for financial reporting purposes. The
loss has been calculated as of August 31, 1995, the
measurement date, and includes (i) estimates of costs to be
incurred in connection with the sale, (ii) operating losses
from the measurement date through the date of disposition,
(iii) a provision for taxes on earnings from the measurement
date through the date of disposition of $154,000, and (iv)
loss on sale at the disposal date. No tax benefit has been
recognized for the loss at disposition as losses from the sale
of a consolidated subsidiary are generally not deductible for
federal income tax purposes.
Upon consummation of the sale, a portion of Hunt's funded
debt was extinguished resulting in a write-off of
approximately $775,000 of unamortized debt issuance costs and
debt discounts. Pursuant to Securities and Exchange
Commission policy, $512,000 ($775,000 less income taxes of
$263,000) will be reported as an extraordinary loss in 1996
when such debt is deemed to have been extinguished.
The results of Hunt's operations for the twelve months
ended December 31, 1995 and its consolidated results of
operations for the twelve months ended December 31, 1994 are
as follows (in $000):
<TABLE>
<CAPTION>
Eight Four
Months Months Year Year
ended ended ended ended
8/31/95 12/31/95 12/31/95 12/31/94
<S> <C> <C> <C> <C>
Net Revenues $12,021 $ 6,504 $18,525 $17,154
Cost of Operations 10,497 5,031 15,528 14,616
Income from operations 1,524 1,473 2,997 2,538
Other income (expense)
Interest expense (1,162) (573) (1,735) (1,699)
Other income (expense) (177) (556) (733) 1,363
Total Other (1,339) (1,129) (2,468) (336)
Income before taxes
and extraordinary item 185 $ 344 $ 529 2,202
Provision for taxes (104) (358)
Income before
extraordinary item 81 1,844
Extraordinary item (net of
income taxes of $37) - 72
Net income 81 1,916
Minority interest 43 (304)
Net income
after minority interest $ 124 $ 1,612
</TABLE>
The net income of Hunt reflected above has been adjusted
to provide for minority interest and to exclude intercompany
interest and management fees which have been eliminated in
consolidation. Net income after minority interest for the
eight months ended August 31, 1995 and the twelve months ended
December 31, 1994 has been reported as income from
discontinued operations on the accompanying consolidated
statements of operations of the Company for the twelve months
ended December 31, 1995 and 1994, respectively. Net income
for the four months ended December 31, 1995 has been included
in the amount reported as loss on disposal of segment.
The net assets of Hunt as of December 31, 1995 and
December 31, 1994 consisted of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current assets $ 8,725 $ 7,323
Current liabilities (6,141) (6,073)
Net fixed assets 6,078 6,504
Other non-current assets 10,697 11,327
Non-current liabilities (14,092) (13,575)
Net assets $ 5,267 $ 5,506
</TABLE>
The portion of the net asset value equal to the escrowed
funds has been classified as long term in the accompanying
consolidated balance sheet.
In connection with the sale, four individuals affiliated
with the Company, namely the Company's President and Chairman
of the Board of Directors, the Company's Vice President and
Chief Financial Officer, who is also a member of the board, a
director of Hunt and Hunt's President and Chief Operating
Officer acquired 15% of the equity of ValveCo Inc. for
$150,000. These four individuals, together with certain other
members of senior management of Hunt not yet identified, will
also have the opportunity to acquire up to an additional 15%
of the common stock of the purchaser pursuant to the exercise
of performance and value-based options at an aggregate cost to
such individuals of $2.75 million. In addition, the
aforementioned directors and executive officers of the Company
and Hunt have been employed in various capacities by ValveCo
Inc. and Hunt after the sale.
Note 5 - Notes Receivable:
Notes receivable consist of the following (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
9% Installment notes receivable
from sale of subsidiaries $ 436 $ 602
7.50% to 11.50% Installment notes
receivable from sales of
property and equipment (net of
allowance for uncollectible amounts
of $200,000 and $150,000,
respectively) 220 276
7.25% Installment note receivable
from sale of real property (net of
deferred income of $274,000 and
$386,000, respectively) (See Note 7) 239 338
_____ _____
Total notes receivable 895 1,216
Less: Current portion 172 248
Long-term portion $ 723 $ 968
</TABLE>
At December 31, 1995 notes receivable mature as follows:
1997 $328
1998 32
1999 178
2000 17
2001 and thereafter 168
$723
The Company holds notes in the aggregate amount of
$121,000 as of December 31, 1995 which were issued by a firm
which produces and distributes gases, and by a partnership
whose members include certain owners of the firm. The notes
are secured by a first mortgage on the real property on
which the firm's facility is located and are guaranteed by
certain owners of the firm and members of the partnership.
An explosion destroyed the firm's only facility on March 26,
1996. It is presently uncertain what operations of the firm
will continue and the extent the firm's insurance proceeds
will be available for payment of amounts due under the
notes.
Note 6 - Investment in Leveraged Lease:
The Company is the lessor of computer equipment pursuant
to a leveraged lease agreement entered into in July 1989.
This equipment was acquired at a cost of $35,864,000 and is
subject to a Master Lease with a term of 96 months and four
user sub-leases with remaining terms from one to 18 months.
The Company's equity investment, $2,596,000, represents 7.2%
of the purchase price; the remaining 92.8%, or $33,268,000,
was furnished by third-party financing in the form of long-
term debt that provides for no recourse against the Company
and is secured by a lien on the equipment. At the end of the
term of the Master Lease, the equipment is turned back to the
Company.
For federal income tax purposes, the Company has the
benefit of tax deductions for depreciation on the entire
leased asset and for interest on the long-term debt. Since,
during the early years of the lease, those deductions exceeded
the lease rental income, substantial excess deductions were
available to be applied against the Company's other income.
Beginning in 1994, rental income exceeded the deductions
resulting in taxable income. Deferred taxes are provided to
reflect this reversal.
The Master Lease also provides for the Company to share
in the rentals paid by the end-users of the equipment to the
Master Lessee beginning July 1994. Approximately $397,000 and
$332,000 was received by the Company during 1995 and 1994,
respectively, pursuant to such provision.
During 1994 and 1995, the Company determined that its
estimates of future rentals and residual values of the
computer equipment subject to this lease should be reduced to
reflect current market values and lease rates. Accordingly,
for the year ended December 31, 1995, the Company has recorded
a charge to earnings and reduced its investment in the lease
by $360,000 in recognition of a 16% reduction in estimated
future shared rentals under the user leases and a 82%
reduction in estimated residual values. For the year ended
December 31, 1994, the Company has recorded a charge to
earnings and reduced its investment in the lease by $1,819,000
to give effect to a 53% reduction in estimated future shared
rentals under the user leases and a 75% reduction in the
estimated residual value of the computer equipment at the
termination of the Master Lease. As a result of the write-
downs and the reversal of existing temporary differences,
deferred income taxes were reduced by $2,088,000 and
$1,630,000 in 1995 and 1994, respectively.
The Company's net investment in the leveraged lease at
December 31, 1995 and 1994 was comprised of the following
elements (in $000's):
1995 1994
Lease income (net of principal and
interest on non-recourse debt) $ 79 $ 613
Estimated residual value of leased
assets 49 272
Investment in leveraged lease 128 885
Less: Deferred taxes (3,294) (5,382)
Net investment in leveraged lease $(3,166) $(4,497)
The Internal Revenue Service has questioned the deductions
claimed by the Company in connection with its investment in
the computer equipment. See Note 8 - Income taxes for further
discussion of this matter.
Note 7 - Assets Held for Sale:
Assets held for sale consist of approximately 215 acres of
real estate which is carried at a cost of $2,395,000 and
$2,406,000 as of December 31, 1995 and 1994, respectively, and
certain equipment remaining from the alkali products segment.
Management believes the amounts reported approximate net
realizable value.
During the fourth quarter of 1992, two subsidiaries of the
Company sold property consisting of approximately 569 acres of
land, together with buildings and improvements and auxiliary
equipment, in exchange for consideration aggregating $916,000.
The consideration consisted of $66,000 in cash and $850,000 in
non-recourse seven-year notes which are secured by the
property purchased as well as other real estate owned by the
buyers. The notes bear interest at 7.25% per annum and
require principal payments of $50,000 on each of the first,
second, fourth, fifth and sixth anniversaries, $200,000
payable on the third anniversary and the balance payable on
the seventh anniversary. The buyer has the right to extend
the payment of the seventh installment over three additional
years. Deferred installments bear a higher rate of interest.
The Company recognized $112,000 and $33,000 of income from
this transaction for the years ended December 31, 1995 and
1994, respectively, and has deferred income of $274,000 and
$386,000 as of December 31, 1995 and 1994, respectively, which
will be recognized under the installment method. The deferred
income has been netted against the gross value of the notes
receivable for financial reporting purposes.
Note 8 - Income Taxes:
The Company has adopted FASB Statement No. 109
("Accounting for Income Taxes") which requires the use of an
asset and liability approach for financial accounting and
reporting of income taxes. Deferred income taxes are
provided for all temporary differences between the financial
reporting and tax basis of the Company's assets and
liabilities, and net operating loss and tax credit
carryforwards.
The provision (credit) for income taxes consists of the
following (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Provision for current operations
Currently payable:
Federal $ 347 $ 57
State 25 -
372 57
Deferred:
Federal (170) (868)
State 1 25
(169) (843)
Total income tax
provision (credit) 203 (786)
Less: Income tax provision for
discontinued operations 431 396
Total provision (credit) for
continuing operations (228) (1,182)
Provision (credit) for tax audits
Currently payable:
Federal (91) (34)
State (127) 364
(218) 330
Deferred:
Federal - 892
Total provision (credit) for
tax audits (218) 1,222
Total income tax provision
(credit) $(446) $ 40
</TABLE>
Deferred tax expense results from temporary differences as
follows (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Excess of book over tax
depreciation $ (43) $ (76)
Investment in leveraged lease (2,635) (1,626)
Change in valuation allowance 575 (167)
Non-deductible accruals 769 120
Net operating loss carryforwards 386 963
Capital loss carryforwards 90 (173)
Alternative minimum tax (credit) (243) (57)
Unrealized gain (loss) on
marketable securities - 157
Uniform capitalization -
inventory - (3)
Deferred gain - installment sale (23) (17)
Deferred state income taxes - 17
Remediation and closure costs 645 -
General business tax credits 305 -
Other 5 19
$ (169) $ (843)
</TABLE>
Deferred tax liabilities and assets at December 31, 1995
and 1994 were comprised of the following (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets
Remediation and closure costs $ 4,652 $ 5,297
Post-retirement employee benefits - -
Inventories - -
Non-deductible accruals 87 856
Allowance for doubtful accounts 6 11
Federal net operating/capital
loss carryforwards 83 222
State net operating loss
carryforwards 3,677 4,013
Tax credit carryforwards 1,681 1,743
Subtotal 10,186 12,142
Valuation allowance for deferred
tax assets (5,949) (5,188)
Total 4,237 6,954
Deferred tax liabilities
Leveraged lease (4,173) (6,807)
Depreciation (8) (50)
Unrealized appreciation of
equity securities (48) (103)
Installment sales (48) (72)
Other - -
Total (4,277) (7,032)
Net deferred tax liability $ (40) $ (78)
Included in the accompanying balance sheet as:
Current deferred tax asset $ 42 $ 587
Non-current deferred tax liability (82) (665)
$ (40) $ (78)
</TABLE>
The Company has recorded a valuation allowance of
$5,949,000 as of December 31, 1995 to reflect the estimated
amount of deferred tax assets which are not currently
realizable. Recognition of these deferred tax assets is
dependent upon both the sufficiency and timing of future
taxable income.
The following is a reconciliation between the amount of
reported total income tax (credit) from continuing operations
and the amount computed by multiplying the income (loss)
before tax by the applicable statutory U.S. federal income tax
rate (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Tax expense (credit) computed
by applying U.S. federal
income tax rate to loss
from continuing operations
before income taxes (credits) $(293) $(1,341)
Increases (reductions) in
taxes resulting from:
State income taxes (credit) net
of federal income tax benefit 17 17
Change in federal deferred
tax valuation allowance,
applicable to continuing
operations - 213
Corporate dividends
received deduction (2) (2)
Other 50 (69)
$(228) $(1,182)
</TABLE>
At December 31, 1995, the Company had a capital loss
carryforward for federal income tax purposes of approximately
$83,000 which expires in 2009. The Company also has
approximately $1,681,000 of alternative minimum tax credits
which may be carried forward indefinitely.
In 1991, the Internal Revenue Service (the "Service")
asserted numerous adjustments to the tax liability of the
Company and its subsidiaries for tax years 1980 through 1988,
along with interest and penalties thereon. In 1993, after the
conclusion of administrative proceedings, the Service issued
a deficiency notice to the Company asserting adjustments to
income of $33.3 million and a corresponding deficiency in
federal income taxes of approximately $13.5 million, as well
as penalties of $2.5 million and interest on the asserted
deficiency and penalties. In addition, the Service challenged
the carryback of losses incurred by the Company in taxable
years 1989 through 1991, thereby bringing those years, which
had been the subject of an ongoing audit, into the deficiency
notice. The 1989-91 tax audit is discussed below. The
Company filed a petition with the Tax Court contesting many of
the proposed adjustments asserted in the deficiency notice.
On June 5, 1995, August 14, 1995 and March 7, 1996,
respectively, the Company and the Service executed a
stipulation of partial settlement of issues in the Tax Court
case and first and second revised stipulations of partial
settlement. These partial settlements have resolved most of
the adjustments asserted in the deficiency notice.
Taking into account the partial settlements to date, the
Company has accepted approximately $5.2 million of the $33.3
million of total adjustments to income asserted by the
Service. Many of the adjustments accepted by the Company
relate to issues on which the Service would likely have
prevailed in court. The Service has conceded adjustments
totalling $27.4 million of taxable income and penalties,
leaving only one issue, involving several taxable years,
unresolved from the 1980-88 period. The Company will either
settle or litigate the remaining adjustments for the 1980-88
period. Also unresolved are the adjustments, discussed below,
asserted by the Service for the 1989-91 period. The Company
cannot predict the outcome of further settlement negotiations
or litigation with the Service over these issues.
The Company has net operating loss and tax credit
carryforwards that will partly offset the tax liability
resulting from the settled adjustments to taxable income.
Taking into account such carryforwards, the federal income tax
and interest that will be due on account of the settlements
reached to date is approximately $1,323,000, with interest
through December 31, 1995 ($93,000 of taxes and $1,230,000 of
interest). The settlements also will result in approximately
$477,000 of state tax liabilities ($237,000 of state income
tax and $240,000 of interest as of December 31, 1995), not
including penalties and penalty interest that may be assessed
by the states involved. Payment of the federal tax liability
resulting from both settled issues and any issues litigated
before the Tax Court will be due after the conclusion of the
Tax Court case. The date for payment of the state tax
liabilities varies by state. The first of such payments, in
the amount of approximately $349,000, consisting of state tax
of $109,000 and interest of $240,000 through December 31,
1995, is expected to be paid during 1996. This state
currently has a tax amnesty program in effect pursuant to
which all interest and penalties for back taxes will be waived
upon payment of the tax liability. The Company is currently
investigating whether it qualifies under this amnesty program.
Use of the Company's net operating loss and tax credit
carryforwards to offset the settled adjustments will reduce
the net operating loss and tax credit carryforwards that
otherwise would have been available to partially offset the
future tax liabilities that will arise when the Company
recognizes an estimated $9.7 million of net taxable income
from its investment in computer equipment. For federal income
tax purposes, the Company has had the benefit of tax
deductions for depreciation of the equipment and for interest
on the long-term non-recourse debt that the Company incurred
to finance the acquisition of the computer equipment. In
prior years, those deductions exceeded the rental income that
the Company earned from leasing out the equipment. Those
excess deductions offset the Company's income from other
sources. Rental income from leasing the computer equipment
exceeded the related depreciation and interest deductions by
approximately $5.8 million in 1995 and $3.0 million in 1994.
This excess income was largely offset by deductions from other
sources. Rental income will continue to exceed depreciation
and interest deductions in 1996 and 1997. The Company
anticipates approximately $6.2 and $3.5 million of net taxable
income for 1996 and the first seven months of 1997,
respectively, on account of its computer equipment investment.
The Company does not expect to have sufficient deductions from
other sources in 1996 and 1997 to fully offset this taxable
income.
The Service has concluded an audit of the Company's
federal income tax returns for 1989 through 1991, and has
questioned the deductions claimed by the Company in connection
with its investment in the computer equipment discussed in the
preceding paragraph. If the Service prevails in disallowing
the computer equipment deductions, the Company's taxable
income for 1989 through 1992 would be materially increased.
However, in that case, its taxable income from the computer
equipment for 1994 through 1997 would be reduced by a
corresponding amount. Specifically, if the Company prevails
on all remaining issues in the Tax Court case other than those
related to the computer equipment, the incremental federal
income tax liability attributable to disallowance of the
computer equipment deductions will not exceed $5.9 million of
tax and $2.7 million of interest, calculated through December
31, 1995. This would increase the Company's aggregate
liability for federal taxes and interest attributable to both
the settled issues and the computer lease to $6.0 million and
$3.9 million, respectively, calculated through December
31,1995. If the Company does not prevail on the computer
issue, the Company's net deferred tax liability of $40,000 as
of December 31, 1995 would be eliminated, as would most of the
$6.2 million and $3.5 million of taxable income that the
Company expects to realize from the computer equipment in 1996
and 1997, respectively, as discussed in the preceding
paragraph. Disallowance of the computer equipment deductions
would not result in any state tax liability. For the 1989-91
period, the Service also challenged certain real property
deductions and certain expenses that were deducted by the
Company, but that the Service believes should have been
capitalized. These deductions will be addressed in the
pending Tax Court case because losses in 1989-91 were carried
back and deducted in years covered by the Tax Court case.
Discussions with the Service on the 1989-91 issues, including
the computer equipment issue, are in progress.
Certain state income tax returns and sales and use tax
returns filed by the Company and a subsidiary were examined.
The state issued a final determination asserting a deficiency
for sales taxes, interest and penalties totalling $598,000 on
certain services provided by affiliates of the Company to
other affiliates. Although the Company believes that most of
the services in question were exempt from sales tax, the
Company paid $110,000 in June 1994 in final settlement of all
issues for the period under examination rather than incur the
costs of litigating the issues in court.
Note 9 - Long-term Debt:
Long-term debt consists of the following (in $000's):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
10% to 11% mortgage notes, due
in monthly installments, through
December 2004, secured by certain
land and buildings held for sale,
carried at a cost of $1,752,000 $387 $446
Other obligations 35 35
Total debt 422 481
Less: Current portion 356 93
Long-term portion $ 66 $388
</TABLE>
Maturities
At December 31, 1995, long-term debt matures as follows
(in $000's):
1997 $18
1998 20
1999 22
2000 6
$66
Note 10 - 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>
1995 1994
<S> <C> <C>
Kin-Buc landfill $10,692 $10,692
Kinsley's landfill 2,004 2,043
Mac Sanitary landfill 151 88
Carlstadt facility - 1,532
Total $12,847 $14,355
</TABLE>
Cash and securities held in certain trusts for post
closure activities at Kinsley's landfill 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 (the "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"). Each respondent to these Orders is jointly and
severally liable thereunder.
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 were
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 14).
Terms of the settlements allowed for the reimbursement of up
to $1.3 million of past litigation costs incurred by SCA and
the Company. The Company recovered litigation costs of
$15,000 and $960,000 in 1993 and 1992, respectively. 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, 1995. All of the funds deposited into the
1986 Trust and 1993 Trust had been expended for costs of
remediation as of December 31, 1995. During June 1994,
approximately 36 additional de minimis PRPs accepted a revised
settlement proposed by the Company and other respondents to
the 1990 Order, which resulted in an additional $3.0 million
of contributions available for the remediation effort which
had been deposited in a trust established in January 1995.
Approximately $20,000 remained in the new trust as of December
31, 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 with funds from 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 and thereafter, contracts were awarded by SCA for
certain activities mandated by the 1992 Order.
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. In
August 1993, the Company filed a demand for arbitration
seeking rescission or reformation of the 1986 Agreement and
reimbursement of overpayments. In March 1995, the SCA Group
filed a demand for arbitration seeking reimbursement from the
Company of $17 million, representing 75% of the $23 million of
remediation expenses purportedly funded by the SCA Group
through March 31, 1995. The status of such arbitration
demand, as yet unresolved, is described in Note 14 to the
Company's Consolidated Financial Statements.
The contractors have essentially completed the
construction required under the Orders, and the Company is
awaiting EPA review and acceptance of the work performed.
Operation of the treatment plant and maintenance of the
facilities is being conducted by an affiliate of SCA. The
total cost of the construction, operation and maintenance of
remedial systems for a 30-year period, plus the cost of past
remedial activities, is estimated to be in the range of
approximately $80 million to $100 million.
A study to determine the nature and extent of
contamination, and sources thereof, on approximately one-acre
of land adjacent to the Kin-Buc Landfill has been
substantially completed. On the basis of such study, in
January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around this one acre
parcel was presented to the EPA for its review and approval.
The cost of such installation may range from $1 million to $2
million. It is not possible to predict, at this point,
whether EPA will require additional remedial measures to be
taken or will mandate long-term maintenance of the slurry
wall. Other areas within the vicinity of the site may become
the subject of future studies due to the historic use of the
area for waste disposal. The cost of studies and remediation
of such areas is not included in the present estimates of the
total cost of the remediation since such work is outside the
scope of the Orders. The Company believes that the cost of
the work addressed by the Orders will not result in a
significant increase in such estimates, and that the remainder
of such work is outside the scope of the Orders. An
obligation to undertake significant remediation of areas
outside the scope of the Orders would have a material adverse
effect on the financial condition, results of operations and
net cash flows of the Company.
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 the closure of the landfill through December 31,
1995. Under the agreement for the purchase of the clay, the
Company has a right to a refund if the clay is not used for
the closure. The Company has made no demand for a refund, and
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, 1995 and 1994, Kin-Buc had accrued $10.7
million for its share of the costs of such remediation and
closure. The accrual is based upon the present value of the
Company's share of remaining closure costs for the Kin-Buc
Landfill and operation and maintenance costs related to the
site's containment systems and treatment plant.
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 PRPs.
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, 1995
and 1994, Kinsley's has accrued $11,479,000 and $11,371,000,
respectively, for the remaining costs of closure and post-
closure care of this facility, of which $9,475,000 and
$9,328,000, respectively, is being held in interest-bearing
trust accounts. The accrual as of December 31, 1995 is 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, 1995 and 1994, Mac has accrued closing costs
amounting to $151,000 and $88,000, respectively, for the costs
of continuing post-closure care and monitoring at the
facility. The Company increased its accrual during 1995 due
to unanticipated engineering and testing costs incurred to
respond to inquiries from environmental agencies. The accrual
as of December 31, 1995 is 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 14). 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 damages
and 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 14). 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 the Company had
accrued approximately $1,532,000 for its portion of the
estimated remediation costs at this site. In September 1995,
the court approved a settlement agreement which allocated
remediation costs for the site among the Company and
substantially all of the waste generators who had been
remediating the site. This agreement substantially relieves
the Company from future obligations for the site in exchange
for a cash payment, proceeds from the settlement of certain
insurance claims and an assignment of Carlstadt-related claims
filed against the Company's excess insurance carriers. The
Company has reversed the balance of the accrual for future
expenditures related to this site, and recognized income of
$1,451,000 associated with such adjustment in the period ended
September 30, 1995 (see Note 14).
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 - Stockholders' Equity:
Stock Option Plans
At December 31, 1995, 797,000 shares of Transtech's common
stock were reserved for issuance under incentive stock option
plans that provide for the granting of options to employees at
prices equal to the market value of Transtech's common stock
on the date of grant, which options are exercisable for a
period not to exceed ten years from the date of grant. Non-
qualified stock options are available for grant to officers,
directors, certain eligible employees and consultants at
prices ranging from 50% to 100% of market value at the date of
grant and these are also exercisable for a period not to
exceed ten years. All outstanding non-qualified stock options
have an exercise price which was equal to 100% of the market
value on the date of grant. Options for 58,800 and 105,500
shares were outstanding at December 31, 1995 and 1994,
respectively, all of which are exercisable. These options
were granted at exercise prices ranging from $.44 to $5.00 per
share.
A summary of stock option transactions for 1994 and 1995
follows:
Range of
Option Prices
Shares Per Share
Outstanding, January 1, 1994 114,100 $ .44 - $5.00
Expired (8,500) $3.25 - $5.00
Outstanding, December 31, 1994 105,600 $ .44 - $5.00
Expired (46,800) $3.25 - $5.00
Outstanding, December 31, 1995 58,800 $ .44 - $5.00
Stock Purchase Warrants and Rights Agreement
The detachable common stock purchase warrants (the
"warrants") issued in connection with Old Hunt's senior
secured notes (the "Notes") entitled the holders to acquire up
to an aggregate 19.34% interest in Old Hunt's common stock at
an exercise price of $.01 per share prior to expiration at
September 30, 2001. Such warrants were exercised on December
27, 1995 (see Note 4).
In connection with the acquisition of Old Hunt, the
Company's president was granted a ten-year warrant to
purchase, for $165,279, a 6.2% interest in Old Hunt's parent
company representing a 5% indirect interest in Old Hunt. The
exercise price was equal to market value on the date of grant.
In addition, the Company granted Old Hunt's chief executive
officer the right to participate in the proceeds from the sale
of Old Hunt as if he held an aggregate up to 2% of the equity.
Both individuals forfeited such rights in conjunction with the
consummation of the sale of Old Hunt (see Note 4).
Note 12 - Employee Benefit Plans:
Retirement Savings and Profit Sharing Plans
The Company and its subsidiaries have a 401(k) Retirement
Savings and Profit Sharing Plan which covers substantially all
full-time non-union employees. During 1994, the 401(k) plans
offered by Hunt and the other members of the consolidated
group were merged with an effective date of January 1, 1993.
Employees may contribute up to 15% of their eligible
compensation, but not in excess of amounts allowable under the
Internal Revenue Code. The Company matches employees'
contributions in amounts or percentages determined by the
Company's board of directors. The Company may also make
profit sharing contributions to the plan in amounts determined
annually by the Company. The Company's matching contribution
was 50% of employees' contributions not in excess of 2% of
their eligible compensation during 1995 and 1994. The plan
provides that the Company's matching and profit sharing
contributions may be made in cash, in shares of Company stock,
or in cash and invested in shares of Company stock.
Contributions to the plan for the years ended December 31,
1995 and 1994 were $8,000 and $17,000, respectively.
Employee Health Plans
The Company maintains an employee benefit program which
provides health care benefits to substantially all employees,
and eligible dependents. The Company's health care plan
utilizes a program provided by a leading health maintenance
organization and, provides medical benefits, including
hospital, physicians' services and major medical benefits.
The employees contribute to the expense for enrolled
dependents.
Note 13 - Lease Commitments:
The Company leases land, office facilities, vehicles and
equipment under operating leases which expire through 1999.
Total rent expense charged to operations for all operating
leases was $97,000 in 1995 and $105,000 in 1994.
Future minimum lease commitments under non-cancelable
operating leases with initial or remaining terms in excess of
one year are as follows (in $000's):
1996 $67
1997 $22
1998 $ 5
1999 $ 5
2000 $ 1
Note 14 - Legal Proceedings:
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service")
asserted numerous adjustments to the tax liability of the
Company and its subsidiaries for tax years 1980 through 1988,
along with interest and penalties thereon. In 1993, after the
conclusion of administrative proceedings, the Service issued
a deficiency notice to the Company asserting adjustments to
income of $33.3 million and a corresponding deficiency in
federal income taxes of approximately $13.5 million, as well
as penalties of $2.5 million and interest on the asserted
deficiency and penalties. In addition, the Service challenged
the carryback of losses incurred by the Company in taxable
years 1989 through 1991, thereby bringing those years, which
had been the subject of an ongoing audit, into the deficiency
notice. The 1989-91 tax audit is discussed below. The
Company filed a petition with the Tax Court contesting many of
the proposed adjustments asserted in the deficiency notice.
On June 5, 1995, August 14, 1995 and March 7, 1996,
respectively, the Company and the Service executed a
stipulation of partial settlement of issues in the Tax Court
case and first and second revised stipulations of partial
settlement. These partial settlements have resolved most of
the adjustments asserted in the deficiency notice.
Taking into account the partial settlements that have been
concluded to date, the Company has accepted approximately $5.2
million of the $33.3 million of total adjustments to income
asserted by the Service. Many of the adjustments accepted by
the Company relate to issues on which the Service would likely
have prevailed in court. The Service has conceded adjustments
totalling $27.4 million of taxable income and penalties,
leaving only one issue, involving several taxable years,
unresolved from the 1980-88 period. Also unresolved are the
adjustments, discussed below, asserted by the Service for the
1989-91 period. The Company cannot predict the outcome of
further settlement negotiations or litigation with the Service
over these issues.
The Service has concluded an audit of the Company's
federal income tax returns for 1989 through 1991, and has
questioned the deductions claimed by the Company in connection
with its investment in computer equipment under lease (see
Note 8 to the Company's Consolidated Financial Statements).
The Service also challenged certain real property deductions
and certain expenses that were deducted by the Company, but
that the Service believes should have been capitalized. These
deductions will be addressed in the pending Tax Court case
because losses in 1989-91 were carried back and deducted in
years covered by the Tax Court case. Discussions with the
Service on the 1989-91 issues, including the computer
equipment issue are in progress.
The financial condition, results of operations and net
cash flows of the Company could be materially and adversely
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.
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 10).
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
conclusion of settlements, 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, remained 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 November 1995, an additional 145 PRPs were joined in
the litigation. Of these, 88 are municipalities whose waste
was disposed of at the Kin-Buc Landfill and 57 are companies
which transported such municipal waste to the Landfill.
In December 1992, substantially all of the non-municipal
waste 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.
In October 1995, a referee appointed by the Court to
determine when the Company knew or should have known facts
giving rise to its legal right to challenge the 1986 agreement
(that is, what the cost to remediate the Kin-Buc Landfill
would be), found that the Company knew or should have known
such facts as early as 1986. In November 1995, the SCA Group
moved to confirm the referee's report and the Company moved to
reject it. In January 1996, the Court ruled that the referee
had not considered the appropriate issues and remanded the
referral to the same referee for another hearing, which has
not yet been scheduled.
In March 1995, while the Court's referral on the Company's
arbitration was pending, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from
the Company of 75% of remediation expenses purportedly funded
by WMX through that time. 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. In April 1995, the Court narrowed the issues to
be arbitrated to the amount of funds expended on the
remediation and the reasonableness of such expenditures and
made any findings on such issues subject to resolution of the
Company's arbitration as to the enforceability of the 1986
agreement. Discovery as to such expenditures is ongoing, and
a hearing is tentatively set for May 1996.
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, results of
operations and net cash flows 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.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in
a civil action in the United States District Court for the
District of New Jersey entitled AT&T Technologies, Inc. et al.
v. Transtech Industries, Inc. et al. v. Allstate Insurance
Company et al. (the "AT&T Suit") by a group of generators of
waste (the "AT&T Group") alleging, among other things, that
the primary responsibility for the clean-up and remediation of
the Carlstadt site rests with Transtech, Inmar and Marvin H.
Mahan.
In September 1995, the Court approved a settlement of the
AT&T Suit among Transtech, Inmar, Mr. Mahan, the AT&T Group
and other generators and transporters of waste handled at the
Carlstadt site who had contributed to the costs of the
remediation of the site. Pursuant to such settlement,
Transtech, Inmar and Mr. Mahan agreed to (i) pay $4.1 million
of proceeds from settlements with primary insurers of a
coverage action brought by the Company and Inmar against their
primary and excess insurers, (ii) pay an additional $145,000
($72,500 from Transtech and $72,500 from Inmar and Mr. Mahan),
and (iii) assign their Carlstadt site-related insurance claims
against an excess insurer in exchange for a complete release
from these parties of all liability arising from or on account
of environmental contamination at the Carlstadt site and the
parties' remediation of the same. Notwithstanding such
settlement, the Company may have liability in connection with
the site to the EPA for its costs of overseeing the
remediation of the site, and to parties who had not
contributed to the remediation at the time the settlement was
approved but who may later do so. The Company has received no
indication that the EPA intends to assert a claim for
oversight costs and the Company believes that the EPA may not
have the legal right to do so.
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.
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.
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 is performing 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. No such demand for
reimbursement has been made by the plaintiffs.
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
litigation 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 15 - Segment Information:
The Company's continuing operations can be grouped into four
segments: operations which generate electricity from
recovered methane gas, operations which perform maintenance,
remediation and related services on landfill sites, computer
leasing (see Note 6), and corporate and other. Corporate and
other includes: (i) selling, general and administrative
expenses not specifically allocable to the other segments: and
(ii) 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) Electricity Environmental Computer Corporate
Generation Services Leasing and Other
1995
<S> <C> <C> <C> <C>
Operating revenues $ 206 $ 167 $ - $ -
Intercompany revenues $ - $ 264 $ - $ -
Income (loss)
from operations $ (65) $ (174) $ - $(2,690)
Identifiable assets $ 27(a) $ 410 $ 128 $ 7,849
Depreciation expense $ 1 $ 24 $ - $ 33
Capital expenditures $ 28 $ 56 $ - $ 2
1994
Operating revenues $ 316 $ 263 $ - $ -
Intercompany revenues $ - $ 273 $ - $ -
Income (loss)
from operations $ 60 $ (21) $ - $(2,165)
Identifiable assets $ -(a) $ 503 $ 885 $ 9,774
Depreciation expense $ - $ 20 $ - $ 40
Capital expenditures $ - $ 14 $ - $ 10
<FN>
(a) Substantially all of the assets of the electricity generation
segment are fully depreciated.
</FN>
</TABLE>
During the year ended December 31, 1995 and 1994, two
customers of the Company accounted for 100% of the Company's
consolidated operating revenues.
Note 16 - Loss Per Share:
Net income (loss) per share is based upon the weighted
average number of common and common equivalent shares
outstanding during each year. Common stock equivalents, when
dilutive, include shares issued under the assumed exercise of
stock options reflected, using the treasury stock method, at
the average market price of the Company's shares during the
year. Fully diluted earnings per share have not been
presented since the calculations are anti-dilutive.
Note 17 - Related Party Transactions:
The Company and its subsidiaries have had transactions
with businesses owned or controlled by the Company's principal
shareholders or members of their immediate family.
Until July 1995, the Company leased certain real property
from Inmar Associates, Inc., a corporation controlled by
Marvin H. Mahan, a former officer, director and principal
shareholder of the Company, and the father of three of the
Company's principal shareholders. No rental payments have
been made since 1990 (see Note 14).
On August 28, 1992, the Company made an advance of $10,000
to the 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 in May
1997. On April 22, 1994 the Company made a loan of $75,000 to
such officer, evidenced by a note which bears interest at a
floating prime rate plus 1% and is due and payable in May
1997. A total of $93,000 was outstanding with respect to the
advance and loan, including interest, as of December 31, 1995.
The Company believes that the terms of the advance and the
loan to the officer are no less favorable to the Company than
could be obtained with non-affiliated parties.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a newly-formed
Delaware corporation organized by Three Cities Research, Inc.
("TCR"), a Delaware corporation unaffiliated with the Company
or any of its directors and officers, purchased 100% of the
Hunt Valve Company, Inc. common stock owned by THV Acquisition
Corp., a wholly owned subsidiary of the Company, representing
79.05% of the issued and outstanding Hunt common stock.
Eighty-five percent of the common stock issued by ValveCo was
purchased by the TCR investors and 15% was purchased by four
individuals affiliated with the Company, namely the Company's
President and Chairman of the Board of Directors (7.5%), the
Company's Vice President and Chief Financial Officer, who is
also a member of the board (2%), a director of Hunt (1.5%) and
Hunt's President and Chief Operating Officer (4%) for
$150,000. These four individuals, together with certain
other members of senior management of Hunt yet to be
determined, also obtained the right to acquire, for an
aggregate cost of $2.75 million, an additional 15% of
ValveCo's common stock pursuant to the exercise of performance
and value-based options. In addition, the aforementioned
directors and executive officers of the Company and Hunt have
been employed in various capacities by ValveCo and Hunt after
the sale (see Note 4).
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,
1995 and 1994, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then
ended. 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, 1995
and 1994, and the results of their operations and their cash flows
for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Notes 2, 8, 10 and 14 to the consolidated
financial statements, the Company has experienced recurring
operating losses and is currently involved in material litigation
concerning environmental remediation costs and a pending Internal
Revenue Service examination, the outcome of which cannot presently
be determined. These factors raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
March 28, 1996
<PAGE>
Transtech Industries, Inc.
Market Prices of Common Stock
The Company's Common Stock is traded under the symbol TRTI on
the OTC Bulletin Board. The following table sets forth by quarter
the high and low bid price for the Company's common stock during
the period January 1, 1994 through December 31, 1995. The high and
low bid price information has been obtained from market makers in
the Company's common stock.
1995 High Low 1994 High Low
1st quarter 3/20 1/20 1st quarter 5/32 1/8
2nd quarter 3/25 1/20 2nd quarter 1/10 1/16
3rd quarter 1/20 1/32 3rd quarter 1/10 1/10
4th quarter 1/32 1/32 4th quarter 1/10 1/10
The above quotations represent prices between dealers and do
not include retail markups, markdowns or commissions. They do not
represent actual transactions.
The number of holders of record of the Common Stock of the
Company at January 2, 1996 was 291.
The Company paid no dividends in either stock or cash in 1995
or 1994 and does not presently anticipate paying dividends in the
foreseeable future.
Directory
Executive Offices: Directors: Independent Certified
Public Accountants:
200 Centennial Avenue Robert V. Silva
Suite 202 Chairman of the Board, Tait, Weller and Baker
Piscataway, NJ 08854 President and Chief Two Penn Center Plaza
Phone: (908) 981-0777 Executive Officer Suite 700
Fax: (908) 981-1856 Transtech Industries, Inc. Philadelphia, PA 19102
Arthur C. Holdsworth, III
Vice President of Sales Transfer Agent:
Millington Quarry, Inc.
Millington, New Jersey Continental Stock
Transfer & Trust Co.
Andrew J. Mayer, Jr. 2 Broadway
Vice President-Finance New York, NY 10004
Chief Financial Officer 212-509-4000
and Secretary
Transtech Industries, Inc. OTC Bulletin Board
Symbol:
Officers:
TRTI
Robert V. Silva
President and Chief
Executive Officer
Andrew J. Mayer, Jr.
Vice President-Finance,
Chief Financial Officer
and Secretary
Form 10-KSB
The Company will provide without charge to any stockholder a copy of its most
recent Form 10-KSB filed with the Securities and Exchange Commission including
the financial statements and schedules thereto. Requests by stockholders for
a copy of the Form 10-KSB must be made in writing to: Transtech Industries,
Inc., 200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854,
Attention: Secretary.
Exhibit 21. Subsidiaries of the Registrant.
The registrant, Transtech Industries, Inc. (incorporated in
the State of Delaware), is the sole stockholder of the following
corporations, except for (g), (h) and (i), in which Sandcrest, Inc.
is the sole stockholder; (k) and (q), in which Methane Energy
Recycling, Inc. is the sole stockholder; (p), in which Smithtown
Energy Recycling, Inc. holds a 75% interest and Energy Recycling,
Inc. holds a 25% interest; (r), in which Riverhead Energy
Recycling, Inc. holds a 75% interest and Energy Recycling, Inc.
holds a 25% interest; (u), in which ACC Investment Co., Inc. is the
sole stockholder; (v), in which Chambers Brook, Inc. is the sole
stockholder; (w), in which Transtown, Inc. is the sole stockholder;
and (z) in which THV held a 79.05% interest on a fully diluted
basis (such interest was sold on March 1, 1996). The operations of
all of the listed corporations and partnerships are included in the
consolidated financial statements which are incorporated herein by
reference from the registrant's Annual Report to Stockholders filed
as an exhibit hereto.
(a) Kinsley's Landfill, Inc. (a New Jersey corporation)
(b) Filcrest Realty, Inc. (a New Jersey corporation)
(c) Sandcrest, Inc. (a New Jersey corporation)
(d) Kin-Buc, Inc. (a New Jersey corporation)
(e) Mac Sanitary Land Fill, Inc. (a New Jersey corporation)
(f) Birchcrest, Inc. (a New Jersey corporation)
(g) Del Valley Farms, Inc. (a New Jersey corporation)
(h) Genetic Farms, Inc. (a New Jersey corporation)
(i) Red Robin Realty, Inc. (a New Jersey corporation)
(j) United Environmental Services, Inc. (a New Jersey corporation)
(k) Smithtown Energy Recycling, Inc. (a New York corporation)
(l) Energy Recycling, Inc. (a New Jersey corporation)
(m) Methane Energy Recycling, Inc. (a New Jersey corporation)
(n) Pennsylvania Continental Feed, Inc. (a Pennsylvania corporation)
(o) Harrison Returns, Inc. (a New Jersey corporation)
(p) Smithtown Land Gas Company (a New York partnership)
(q) Riverhead Energy Recycling, Inc. (a New York corporation)
(r) Riverhead Land Gas Company (a New York partnership)
(s) Delsea Realty, Inc. (a New Jersey corporation)
(t) ACC Investment Co., Inc. (a Delaware corporation)
(u) Transtown, Inc. (a Delaware corporation)
(v) Camden Energy Recycling, Inc. (a New Jersey corporation)
(w) Chambers Brook, Inc. (a Delaware corporation)
(x) Arrow Realty, Inc. (a Pennsylvania corporation)
(y) THV Acquisition Corp. (a Delaware corporation)
(z) Hunt Valve Company, Inc. (a Delaware corporation)
Exhibit 11. Computation of Net Loss Per Share.
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
PRIMARY:
<S> <C> <C>
Weighted Average Shares
Outstanding 2,829,090 2,829,000
Dilutive Stock Options Based
Upon the Treasury Stock
Method Using the Average
Market Price - -
2,829,090 2,829,090
Net Loss from Continuing
Operations $ (417,000) $(3,984,000)
Discontinued Operations:
Income from discontinued
operations, net of taxes 159,000 1,614,000
Loss on disposal of discontinued
operation, net of taxes $ (510,000) -
Net Loss $ (768,000) $(2,370,000)
Net Loss Per Common Share
Loss from Continuing
Operations $ (.15) $(1.41)
Discontinued Operations:
Income from discontinued
operations, net of taxes .06 .57
Loss on disposal of
discontinued operation, net of taxes (.18) -
Loss per share $ (.27) $ (.84)
FULLY DILUTED:
Weighted Average Common
Shares - Outstanding 2,829,090 2,829,090
Dilutive Stock Options Based
Upon the Treasury Stock
Method Using the Year-End
Market Price, If Higher Than
the Average Market Price - -
2,829,090 2,829,090
Net Loss from Continuing
Operations $ (417,000) $(3,984,000)
Discontinued Operations:
Income from discontinued
operations, net of taxes (credit) 159,000 1,614,000
Loss on disposal of discontinued
operation, net of taxes (510,000) -
Net Loss $ (768,000) $(2,370,000)
</TABLE>
COMPUTATION OF NET LOSS PER COMMON SHARE, CONT'D
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
<S> <C> <C>
Net Loss Per Common Share $ (.15) $(1.41)
Loss from Continuing
Operations
Discontinued Operations:
Income from discontinued
operations, net of taxes .06 .57
Loss on disposal of
discontinued operation, net of taxes (.18) -
Loss Per Share $ (.27) $ (.84)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 420
<SECURITIES> 2,044
<RECEIVABLES> 216
<ALLOWANCES> 11
<INVENTORY> 0
<CURRENT-ASSETS> 7,580
<PP&E> 4,127
<DEPRECIATION> 3,176
<TOTAL-ASSETS> 13,682
<CURRENT-LIABILITIES> 3,077
<BONDS> 66
0
0
<COMMON> 2,357
<OTHER-SE> (4,751)
<TOTAL-LIABILITY-AND-EQUITY> 13,682
<SALES> 373
<TOTAL-REVENUES> 373
<CGS> 377
<TOTAL-COSTS> 3,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (863)
<INCOME-TAX> (446)
<INCOME-CONTINUING> (417)
<DISCONTINUED> (351)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (768)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
