SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(908) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,829,090 shares of common stock, $.50 par value, outstanding as of
September 30, 1996. In addition, at such date, the issuer held
1,885,750 shares of common stock, $.50 par value, in treasury.
Transitional Small Business Disclosure Format
(Check One): Yes No X
Page 1 of 37 pages
Exhibit index on page 36
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 3 - 4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1996 and 1995 5 - 6
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 and 1995 7 - 8
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 9 - 10
Notes to Consolidated Financial Statements 11 - 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17 - 31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 32 - 34
Item 6. Exhibits and Reports on Form 8-K 34
SIGNATURES 35
EXHIBIT INDEX 36
EXHIBITS 37
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
<TABLE>
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 619 $ 420
Marketable securities 3,888 2,044
Accounts and notes receivable
(net of allowance for doubtful
accounts of $11) 276 205
Deferred income taxes - 42
Prepaid expenses and other 430 352
Net assets of discontinued
operation - 4,517
Total current assets 5,213 7,580
PROPERTY, PLANT AND EQUIPMENT
Land 799 799
Buildings and improvements 339 327
Machinery and equipment 2,990 3,001
4,128 4,127
Less: accumulated depreciation 3,176 3,176
Net property, plant and equipment 952 951
OTHER ASSETS
Notes receivable 336 750
Investment in leveraged lease 80 128
Assets held for sale 2,398 2,406
Clay deposits 1,077 1,077
Escrowed funds from sale of
subsidiary 750 750
Deferred income taxes 481 -
Other 60 40
Total other assets 5,182 5,151
TOTAL ASSETS $11,347 $13,682
See Notes to Consolidated Financial Statements
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 17 $ 356
Accounts payable 323 357
Accrued income taxes 2,117 1,942
Accrued miscellaneous expenses 185 422
Total current liabilities 2,642 3,077
OTHER LIABILITIES
Long-term debt 53 66
Accrued remediation and closure
costs 12,832 12,851
Deferred income taxes 8 82
Total other liabilities 12,893 12,999
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 2,918 4,652
Net unrealized gains on marketable
securities 35 95
Subtotal 6,826 8,620
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (4,188) (2,394)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $11,347 $13,682
See Notes to Consolidated Financial Statements
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
REVENUES $ 259 $ 292
COST OF OPERATIONS
Direct operating costs 204 227
Selling, general and
administrative expenses 1,876 2,090
Total cost of operations 2,080 2,317
INCOME (LOSS) FROM OPERATIONS (1,821) (2,025)
OTHER INCOME (EXPENSE)
Investment income (loss) 240 202
Interest expense (29) (36)
Interest related to income taxes
payable 75 (222)
Gain (loss) from sale of securities 150 269
Income from (writedown of)
interest in leveraged lease (21) (279)
Remediation accrual reversal - 1,451
Miscellaneous income (expense) 130 227
Total other income (expense) 545 1,612
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
(CREDIT) AND EXTRAORDINARY ITEM (1,276) (413)
Income taxes (credit) (54) (76)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM (1,222) (337)
DISCONTINUED OPERATIONS (NOTE 3):
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $104 - 124
Loss on disposal of segment, net
of tax credits of $179 - (842)
Alkali Products Segment
Income from discontinued
operation, net of taxes of $18 - 35
Gain on disposal of segment, net
of taxes of $155 - 262
Total discontinued operations - (421)
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (1,222) (758)
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (1,222) (758)
EXTRAORDINARY CHARGE ON ELIMINATION
OF DEBT, NET OF TAXES (NOTE 3) (512) -
NET INCOME (LOSS) $(1,734) $ (758)
INCOME (LOSS) PER COMMON SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM $ (.43) $(.12)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations, net of taxes credits - .05
Gain (loss) on disposal of
discontinued operations - (.20)
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (.43) (.27)
EXTRAORDINARY CHARGE (.18) -
NET INCOME (LOSS) $(.61) $(.27)
NUMBER OF SHARES USED IN
CALCULATION 2,829,090 2,829,090
See Notes to Consolidated Financial Statements
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1996 1995
<S> <C> <C>
REVENUES $ 86 $ 80
COST OF OPERATIONS
Direct operating costs 46 79
Selling, general and
administrative expenses 537 803
Total cost of operations 583 882
INCOME (LOSS) FROM OPERATIONS (497) (802)
OTHER INCOME (EXPENSE)
Investment income (loss) 84 67
Interest expense (6) (10)
Interest related to income taxes
payable (52) (68)
Gain (loss) from sale of securities 88 -
Income from (writedown of)
interest in leveraged lease (12) (35)
Remediation accrual reversal - 1,451
Miscellaneous income (expense) 25 126
Total other income (expense) 127 1,531
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
(CREDIT) AND EXTRAORDINARY ITEM (370) 729
Income taxes (credit) 6 (210)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM (376) 939
DISCONTINUED OPERATIONS (NOTE 3):
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $24 - 35
Loss on disposal of segment
net of tax credits of $179 - (842)
Alkali Products Segment
Income from discontinued
operation, net of taxes of $15 - -
Gain on disposal of segment,
net of taxes of $155 - (262)
Total discontinued operations - (545)
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (376) 394
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1996 1995
<S> <C> <C>
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (376) 394
EXTRAORDINARY CHARGE ON ELIMINATION
OF DEBT, NET OF TAXES (NOTE 3) - -
NET INCOME (LOSS) $(376) $394
INCOME (LOSS) PER COMMON SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM $ (.13) $.33
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations, net of taxes - .01
Gain (loss) on disposal of
discontinued operations - (.20)
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (.13) .14
EXTRAORDINARY CHARGE - -
NET INCOME (LOSS) $(.13) $.14
NUMBER OF SHARES USED IN
CALCULATION 2,829,090 2,829,090
See Notes to Consolidated Financial Statements
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 272 $ 433
Cash paid to suppliers and employees (2,341) (2,153)
Interest and dividends received 191 152
Interest paid (48) (35)
Other income received 65 112
Income taxes paid (180) -
Cash received from discontinued
operations 67 553
Net cash provided by (used in)
operating activities (1,974) (935)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 3,152 2,851
Purchase of marketable securities (4,911) (2,604)
Purchase of property, plant and
equipment (65) (51)
Proceeds from sale of property,
plant and equipment 18 8
Collections of notes receivable 328 352
Rent sharing payments from
computer leases 27 325
(Increase) decrease in other assets - (2)
Cash proceeds from sale of
discontinued segments 4,005 600
Net cash provided by (used in)
investing activities 2,554 1,479
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (352) (94)
Proceeds from issuance of long-term
debt - 39
Payment of remediation and closure
costs (29) (130)
Net cash provided by (used in)
financing activities (381) (185)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 199 359
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 420 874
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 619 $1,233
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $(1,734) $ (758)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Loss on disposal of discontinued
segments - 603
Extraordinary charge on elimination
of debt 512 -
Depreciation and amortization 49 41
(Gain) loss on sale of marketable
securities (150) (269)
(Gain) loss on sale of property,
plant and equipment 3 (114)
Increase (decrease) in deferred
income taxes (484) 122
Leveraged lease (revenue) charge 21 279
(Increase) decrease in assets:
Accounts and notes receivable,
trade-net (38) 174
Prepaid expenses and other (25) (85)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (303) 216
Accrued taxes 175 307
Accrued remediation costs - (1,451)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(1,974) $ (935)
See Notes to Consolidated Financial Statements
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of
this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1995 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1995 financial statements in order to
conform to the presentation followed in preparing the 1996
financial statements. Quarterly financial information has not been
audited. In the opinion of management, the information presented
reflects all adjustments necessary for a fair statement of interim
results. All such adjustments are of a normal and recurring nature
except as disclosed herein.
NOTE 2 - MARKETABLE SECURITIES
The Company has adopted Financial Accounting Standards Board
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 September
30, 1996, of $56,000, less deferred income taxes of $21,000, is
included as a separate component of stockholders' equity.
NOTE 3 - DISCONTINUED OPERATIONS
The consolidated statements of operations have been restated to
report the net results of the Company's former alkali products and
valve manufacturing segments as discontinued operations. The net
assets of the discontinued valve manufacturing segment have been
classified as "Net assets of discontinued operation" in the
accompanying consolidated balance sheet as of December 31, 1995.
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, f/k/a Cal-Lime,
Inc. ("Cal-Lime"), to a competitor. 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 $354,000 and $362,000, under the
caption of "Assets held for sale" on the balance sheets as of
September 30, 1996 and December 31, 1995, respectively. Such value
approximates the estimated net realizable value of those assets.
The consolidated statement of operations for 1995 reports the net
results of Cal-Lime's operations as income from discontinued
operations.
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 given at a special meeting of the
shareholders held on February 29, 1996 and the sale was consummated
on March 1, 1996.
The net cash proceeds of the sale, consisting of the sum of the
purchase price for Hunt's common stock plus the amount paid by Hunt
to THV upon the redemption by Hunt of its issued and outstanding 7%
preferred stock, all of which was owned by THV, and the amount paid
by Hunt to THV in repayment of the senior subordinated note issued
by Hunt to THV, 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 consolidated statement of operations for 1995 reports the
net results of Hunt's operations as income from discontinued
operations. The Company reported a loss on the sale in its results
for the year ended December 31, 1995.
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) was reported as an extraordinary loss in
the period ended March 31, 1996 when such debt was deemed to have
been extinguished.
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement to resolve certain issues related to the
allocation of Hunt's 1995 income tax liability between the Company and Hunt,
and certain provisions of the 1991 tax sharing agreement between the
Company and Hunt which continues
to bind both parties in order to rectify an unintended consequence of tax
regulations concerning the allocation of such tax liability. The Company
agreed to accept $360,000, equal to 87% of Hunt's 1995
income in the 360-day period of 1995 during which Hunt was a member of
the Company's consolidated tax group. Hunt agreed to waive
reimbursement for the Company's carryback of Hunt's post-deconsolidation net
losses through February 29, 1996 to pre-deconsolidation periods, and
to reimburse the Company for certain
professional fees incurred by the Company with respect to these
matters.
The net assets of Hunt as of December 31, 1995 consisted of:
<TABLE>
<CAPTION>
1995
<S> <C>
Current assets $ 8,725
Current liabilities (6,141)
Net fixed assets 6,078
Other non-current assets 10,697
Non-current liabilities (14,092)
Net assets $ 5,267
</TABLE>
The portion of the net asset value equal to the escrowed funds
has been classified as long-term in the accompanying consolidated
balance sheets.
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,
collectively 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 collectively up to an additional
15% of the common stock of ValveCo Inc. 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 4 - INCOME TAXES
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 Company filed a petition with the Tax Court contesting
many of the proposed adjustments asserted in the deficiency notice.
For a discussion of this matter, see "Taxes" contained in
Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-QSB.
NOTE 5 - LONG-TERM DEBT
At September 30, 1996, long-term debt consisted of the following
(in $000's):
<TABLE>
<S> <C>
10.5% mortgage payable in $41
installments through April 2000;
secured by land and buildings
Other 29
Total long-term debt 70
Less: current portion (17)
$53
</TABLE>
NOTE 6 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries were previously active in
the resource recovery and waste management industries. These
activities included the operation of three landfills. Although the
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.
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. 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.
As of September 30, 1996, the Company has accrued $22.1 million
for its estimated share of remediation and closure costs in regard
to the Company's former landfills, $9.3 million of which is held in
trusts and maintained by trustees for financing of the $11.0
million closure plan related to the landfill owned by the Company's
subsidiary, Kinsley's Landfill, Inc.
The most significant portion of the balance of the accrual
relates to remediation efforts at the landfill owned by the
Company's subsidiary, Kin-Buc, Inc. (the "Kin-Buc Landfill"). The
Company and other respondents have been remediating the Kin-Buc
Landfill under an Amended Unilateral Administrative Order issued by
the United States Environmental Protection Agency (the "EPA") in
September 1990. In November 1992, EPA issued an Administrative
Order for the remediation of certain areas neighboring the Kin-Buc
Landfill. For a discussion of this matter, see "Remediation and
Closure Costs" contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-QSB.
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
the Company's past waste handling activities, 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 7 - LEGAL PROCEEDINGS
See Item 1 of Part II of this Form 10-QSB for a discussion of
legal matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995
Consolidated revenues by business segment for the nine months
ended September 30, 1996 and 1995 were as follows (in $000):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Electricity Generation $188 $150
Environmental Services 214 380
Intercompany (143) (238)
Total $259 $292
</TABLE>
Consolidated revenues for the nine months ended September 30,
1996 were $259,000, a decrease of $33,000 or 11% compared to the
same period of 1995.
Revenues from operations which generate electricity from methane
gas were $188,000, an increase of $38,000 or 25% compared to the
same period last year. The increase is primarily the result of a
12% increase in operating hours of the Company's four electric
generating units. Approximately 18% of available machine hours
were dedicated to repairs and scheduled overhaul for the nine month
period in 1996 versus 28% for such tasks during the comparable
period in 1995. The environmental services subsidiary reported
$214,000 of operating revenues (prior to elimination of
intercompany sales) compared to $380,000 for the same period last
year. Approximately $143,000 or 67% of the environmental services
subsidiary's revenues for the period, compared to $238,000 or 63%
for the same period last year, were for services provided either to
other members of the consolidated group or to third parties
providing services to another member of the consolidated group, and
were therefore eliminated in consolidation. The decline in sales
to third parties during 1996 was primarily due to the completion of
the construction phase of the subsidiary's work for a third party
during the second half of 1995. The reduction in intercompany
activity was due to the substantial completion in mid-1995 of the
construction phase of the remediation work at a closed landfill
owned by the Company. In August, 1995 the environmental services
subsidiary 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. Since entering into the agreement, the subsidiary and
engineering firm have jointly evaluated and bid on a number of
projects, but have not been awarded a contract. Anticipated
revenues to the subsidiary resulting from the joint marketing
agreement and through its individual efforts cannot presently be
ascertained.
Consolidated direct operating costs for the nine months ended
September 30, 1996 were $204,000, a decrease of $23,000 or 10% when
compared to the same period of 1995, due primarily to decreases in
labor costs and in the expenses incurred for the maintenance of
electric generating equipment.
Consolidated selling, general and administrative expenses for
the nine months ended September 30, 1996 decreased $214,000 or 10%
to $1,876,000 from $2,090,000 for the same period last year.
Decreases were reported in insurance, bad debt and travel expenses,
real estate taxes, as well as professional fees relating to the
Company's ongoing environmental and tax litigation. Professional
fees and administrative costs are incurred in support of the
Company's ongoing litigation, marketing and asset divestiture
efforts (see Liquidity and Capital Resources - Liquidity). The
Company cannot therefore be certain that such expenses will
continue to decline appreciably in the near future.
The Company's consolidated operating loss for the nine months
ended Septpember 30, 1996 decreased to $1,821,000 from a loss of
$2,025,000 in 1995.
Consolidated investment income increased by $38,000 to $240,000
for the nine months ended September 30, 1996 from the comparable
period last year.
Consolidated interest expense decreased $7,000 to $29,000 for
the nine months ended September 30, 1996 compared to the same
period last year.
Interest expense or credit reported as "Interest related to
income taxes payable" represents the increase or decrease,
respectively, in the amount of interest accrued on estimated income
taxes payable as a result of the Company's tax litigation discussed
below. The Company reported an interest credit of $75,000 for the
nine months ended September 30, 1996 versus an expense of $222,000
for the comparable period of 1995. The credit is due to the
reversal of approximately $240,000 of interest expense that was
previously accrued on estimated income taxes payable to a state.
The state sponsored a tax amnesty program pursuant to which all
interest and penalties for back taxes was waived upon payment of
the tax liability.
The Company recognized $150,000 of gain from the sale of
marketable securities during the nine months ended September 30,
1996 versus $269,000 of gain for the comparable period of 1995.
The Company charged $21,000 and $279,000 against income for the
nine months ended September 30, 1996 and 1995, respectively, to
reflect a reduction in the carrying value of its investment in
computer equipment. The charge reflects a decline in the current
market value for IBM mainframe computer equipment.
The remediation accrual reversal of $1,451,000 reported in 1995
relates to the reversal of the balance of amounts previously
accrued for future expenditures related to a site in Carlstadt, New
Jersey. In September 1995, the court approved a settlement of
litigation regarding the allocation of the cost of remediation of
the site on which the Company had operated a solvents recovery
facility. The settlement agreement substantially relieves the
Company from future obligations with respect to 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.
Consolidated miscellaneous income for the nine months ended
September 30, 1996 decreased $98,000 to $128,000 when compared to
the same period of 1995. Miscellaneous income reported for 1996
includes $67,000 in management fees paid by a former subsidiary of
the Company. The amount reported for 1995 includes $106,000 of
deferred gain related to the sale of real property in 1992.
The consolidated loss from continuing operations before income
tax credits and extraordinary item was $1,276,000 for the nine
months ended September 30, 1996, compared to a loss of $413,000 for
the same period last year.
Income tax credit for the nine months ended September 30, 1996
equalled $54,000, compared to a credit of $76,000 for the
comparable period in 1995.
Income (loss) from discontinued operations for the nine months
ended September 30, 1995 relates to two of the Company's former
subsidiaries, one of which manufactured commercial valves and
hydraulic systems, and the other which marketed alkali products.
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 given
at a special meeting of the Company's shareholders held on February
29, 1996 and the sale was completed on March 1, 1996. The amount
reported as income from discontinued operations of $124,000 for the
nine months ended September 30, 1995 is reported less a provision
for income taxes of $104,000. The Company recognized a loss on the
sale in its consolidated statement of operations for the nine
months ended September 30, 1995. 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) was reported as an extraordinary loss in the period ended
March 31, 1996 when such debt was deemed to have been extinguished.
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement to resolve certain issues related to the
allocation of Hunt's 1995 income tax liability between the Company and
Hunt, and certain provisions of the 1991 tax sharing agreement between
the Company and Hunt which continues to bind both parties in order to rectify
an unintended consequence of tax regulations concerning the allocation
of such tax liability. The Company agreed to accept $360,000, equal to
87% of Hunt's 1995 income in
the 360-day period of 1995 during which Hunt was a member of
the Company's consolidated tax group. Hunt agreed to waive
reimbursement for the Company's carryback of Hunt's post-deconsolidation net
losses through February 29, 1996 to pre-deconsolidation periods, and
to reimburse the Company for certain professional
fees incurred by the Company with respect to these
matters.
On August 31, 1995, the Company sold to a competitor 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 the subsidiary which markets alkali
products. 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 amount reported as income (loss) from
discontinued operations of $35,000 for the nine months ended
September 30, 1995 is reported less a provision for income taxes of
$18,000. The Company recognized a gain from the sale in its
consolidated statement of operations for the nine months ended
September 30, 1995.
Consolidated net loss for the nine months ended September 30,
1996 was $1,734,000 or $.61 per share, compared to net loss of
$758,000, or $.27 per share, for the nine months ended September
30, 1995.
The three months ended September 30, 1996 compared to the three
months ended September 30, 1995
Consolidated revenues by business segment for the three months
ended September 30, 1996 and 1995 were as follows (in $000):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Electricity Generation $ 68 $ 36
Environmental Services 73 92
Intercompany (55) (48)
Total $ 86 $ 80
</TABLE>
Consolidated revenues for the three months ended September 30,
1996 were $86,000, an increase of $6,000 or 8% compared to the same
period of 1995.
Revenues from operations which generate electricity from methane
gas were $68,000, an increase of $32,000 or 88% compared to the
same period last year. The increase is primarily the result of a
41% increase in operating hours of the Company's four electric
generating units. Approximately 10% of available machine hours was
dedicated to repairs and scheduled overhaul for the three month
period in 1996 versus 37% for such tasks during the comparable
period in 1995. The environmental services subsidiary reported
$73,000 of operating revenues (prior to elimination of intercompany
sales) compared to $92,000 for the same period last year.
Approximately $55,000 or 75% of the environmental services
subsidiary's revenues for the period, compared to $48,000 or 52%
for the same period last year, were either to other members of the
consolidated group or to third parties providing services to
another member of the consolidated group, and were therefore
eliminated in consolidation. The decline in sales to third parties
during 1996 was primarily due to the completion of the construction
phase of the subsidiary's work for a third party during the second
half of 1995. The decline in intercompany activity was due to the
substantial completion in mid-1995 of the construction phase of the
remediation work at a closed landfill owned by the Company.
Consolidated direct operating costs for the three months ended
September 30, 1996 were $46,000, a decrease of $33,000 or 42% when
compared to the same period of 1995, due primarily to a decrease in
labor costs and expenses incurred during 1996 for the repair of
certain electric generating equipment.
Consolidated selling, general and administrative expenses for
the three months ended September 30, 1996 decreased $266,000 or 33%
to $537,000 from the same period last year. Decreases were
reported in insurance, real estate tax and bad debt expenses, and
professional fees relating to the Company's ongoing environmental
and tax litigation.
The Company's consolidated operating loss for the three months
ended September 30, 1996 decreased to $497,000 from a loss of
$802,000 in 1995.
Consolidated investment income increased by $17,000 to $84,000
for the three months ended September 30, 1996 from the comparable
period last year.
Consolidated interest expense decreased $4,000 to $6,000 for the
three months ended September 30, 1996 compared to the same period
last year.
Interest expense reported as "Interest related to income taxes
payable" represents the increase in the amount of interest accrued
on estimated income taxes payable as a result of the Company's tax
litigation discussed below. The Company reported a interest
expense of $52,000 for the three months ended September 30, 1996
versus an expense of $68,000 for the comparable period of 1995.
The Company recognized $88,000 of gain from the sale of
marketable securities during the three months ended September 30,
1996. No sales of marketable securities occurred during the
comparable period in 1995.
The Company charged $12,000 and $35,000 against income for the
three months ended September 30, 1996 and 1995, respectively, to
reflect a reduction in the carrying value of its investment in
computer equipment. The charge reflects a decline in the current
market value for IBM mainframe computer equipment.
The remediation accrual reversal of $1,451,000 reported in
September 1995 relates to the reversal of the balance of amounts
previously accrued for future expenditures related to a site in
Carlstadt, New Jersey. In September 1995, the court approved a
settlement of litigation regarding the allocation of the cost of
remediation of the site on which the Company had operated a
solvents recovery facility. The settlement agreement substantially
relieves the Company from future obligations with respect to 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.
Consolidated miscellaneous income for the three months ended
September 30, 1996 decreased $101,000 to $25,000 when compared to
the same period of 1995. The amount reported for 1995 includes
$106,000 of deferred gain related to the sale of real property in
1992.
Consolidated loss from continuing operations before income tax
credits and extraordinary items was $370,000 for the three months
ended September 30, 1996, compared to income of $729,000 for the
same period last year.
Income tax expense for the three months ended September 30, 1996
equalled $6,000 versus a credit of $210,000 for the comparable
period in 1995.
Income (loss) from discontinued operations for the three months
ended September 30, 1995 relates to the aforementioned former
subsidiaries, one of which manufactured commercial valves and
hydraulic systems, and the other which marketed alkali products.
Consolidated net loss for the three months ended September 30,
1996 was $376,000 or $.13 per share, compared to net income of
$394,000, or $.14 per share, for the three months ended September
30, 1995.
Liquidity and Capital Resources
Liquidity
Net cash used in operating activities for the nine months ended
September 30, 1996 increased to $1,974,000 from $935,000 when
compared to the same period last year, due in part to the inclusion
of $553,000 of receipts from the discontinued segments in 1995. Net
cash provided by investing activities increased for the current
period to $2,554,000 from $1,479,000, due in part to $4,005,000 in
proceeds from the sale of a discontinued segment in 1996. The
amount of cash used in financing activities increased to $381,000
from $185,000 for the same period last year. Funds held by the
Company in the form of cash and cash equivalents decreased as of
September 30, 1996 to $619,000 from $1,233,000 as of September 30,
1995. The sum of cash, cash equivalents and marketable securities
as of September 30, 1996 increased $927,000 to $4,507,000 when
compared to last year.
Working capital was $2,571,000 and the ratio of current assets
to current liabilities was 2.0 to 1 as of September 30, 1996,
versus $4,503,000 and 2.5 to 1 as of December 31, 1995.
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 contained herein and in
the Company's filing on Form 10-KSB 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 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 Internal Revenue 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 July 31, 1996 regarding
certain of the adjustments asserted by the Service, and taking into
account available net operating losses and tax credits,
approximately $7.7 million of federal and $237,000 of state income
taxes and $9.1 million of federal interest, calculated through
September 30, 1996, would be owed if the Company were unsuccessful
in its defense of the two remaining unsettled issues in the Tax
Court litigation. (All tax liability estimates presented herein
exclude penalties. The Service has conceded federal 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-
88, 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 1989-91, 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, March 7, 1996 and July 31, 1996,
respectively, the Company and the Service executed stipulations of
partial settlement of issues in the Tax Court case. These partial
settlements resolved all but two of the adjustments asserted in the
deficiency notice.
Taking into account the partial settlements to date, the Company
has accepted approximately $5.9 million of the $33.3 million of
total adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to
issues on which the Service would likely have prevailed in Tax
Court. The Service has conceded adjustments totalling $26.7 million
of taxable income and $2.5 million of penalties, leaving only one
issue, involving several taxable years, unresolved from the 1980-88
period. In addition, one issue, discussed below, remains
outstanding with respect to the 1989-91 period. The Company cannot
predict the outcome of further settlement negotiations or
litigation with the Service over these remaining two 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 totals approximately
$1,510,000, with interest through September 30, 1996 ($116,000 of
taxes and $1,394,000 of interest). The settlements also result in
approximately $237,000 of state income tax (not including penalties
and penalty interest that may be assessed), $110,000 of which was
paid to one state during the second quarter of 1996. This state
had a tax amnesty program in effect pursuant to which all interest
and penalties for back taxes was waived upon payment of the tax
liability. In conjunction with the $110,000 payment, the Company
reversed approximately $240,000 of interest that was previously
accrued on the $110,000 tax liability. Payment of the federal and
remaining state tax liability resulting from both the settled
issues and any issues litigated before the Tax Court will be due
after the conclusion of the Tax Court case.
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 tax liabilities that
will arise as 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 after
taking into account the net operating loss carryforwards and
credits that will be utilized to offset the tax liabilities resulting
from the settled adjustments.
The Service has concluded an audit of the Company's federal
income tax returns for 1989-91, 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 the one remaining unsettled issue from the 1980-1988 period but
is unsuccessful in its defense of the computer equipment issue, the
incremental federal income tax liability attributable to
disallowance of the computer equipment deductions would be
aproximately $5.9 million of tax and $3.3 million of interest,
calculated through September 30, 1996. 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 $4.7 million, respectively, calculated through
September 30, 1996. Disallowance of the computer equipment
deductions would not result in any state tax liability.
The incremental amount of federal taxes and interest that the
Company would owe if the Company were unsuccessful in its defense
of both the remaining unsettled issue from the 1980-88 period and
the computer equipment issue is approximately $7.6 million of
federal income taxes and $7.7 million of interest, calculated
through September 30, 1996. (Such amounts are in addition to the
tax of $116,000 and interest of $1,394,000, 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 the
unsettled 1980-88 issues.
Remediation and Closure Costs
As of September 30, 1996, the Company has accrued $22.1 million
for its estimated share of remediation and closure costs related to
the Company's former landfill operations. Approximately $9.3
million is held in trust and maintained by trustees for the
post-closure activities of one site located in Deptford, New
Jersey.
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 by
the Company and other respondents to the Orders, which resulted in
an additional $3.0 million of contributions being deposited into a
new trust established in January 1995 for the remediation effort.
Approximately $2,000 remained in the new trust as of June 30, 1996.
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. Starting in
August 1994, other contracts were awarded by SCA for certain other
remedial 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 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 it through June 30, 1995. The
status of such arbitration demands, as yet unresolved, is described
in Item 1 of Part II of this Form 10-QSB.
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 cost of the construction, and of the
operation and maintenance of remedial systems for a 30-year period,
plus past remedial activities, has been estimated to be in the
range of approximately $80 million to $100 million.
In January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around a one-acre parcel of
land adjacent to the Kin-Buc Landfill was presented to the EPA for
its review and approval. EPA approved the plan, and construction
began in August 1996. The construction is expected to be
substantially completed in December 1996. The cost of such
installation has been estimated at $1.3 million and is being
financed by the SCA Group. SCA may assert that this cost is
subject to the cost sharing agreement and seek reimbursement of 75%
of amounts expended from the Company.
The EPA has notified the Company that it will conduct a limited
investigation of an area in the vicinity of the Kin-Buc Landfill,
known as Mound B, and that it may seek to recover its costs in
connection therewith from the Company and the SCA Group. The cost
of studies and remediation of this area 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
<PAGE>
Orders could materially increase the total estimated costs of
remediation.
The Company has currently accrued $10.7 million 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 the Orders 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 and joined in the Company's pending cost recovery action,
(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.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is currently litigating with the Internal Revenue
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
July 31, 1996 regarding certain of the adjustments asserted by the
Service, and taking into account available net operating losses and
tax credits, approximately $7.7 million of federal and $237,000 of
state income taxes and $9.1 million of federal interest, calculated
through September 30, 1996, would be owed if the Company were
unsuccessful in its defense of the two remaining unsettled issues
in the Tax Court litigation. (All tax liability estimates exclude
penalties. The Service has conceded federal 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-
88, 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 1989-91, thereby bringing those
years, which had been the subject of an ongoing audit, into the
deficiency notice. 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, March 7, 1996
and July 31, 1996, respectively, the Company and the Service
executed stipulations of partial settlement of issues in the Tax
Court case. These partial settlements resolved all but one of the
adjustments asserted in the deficiency notice.
Taking into account the partial settlements to date, the Company
has accepted approximately $5.9 million of the $33.3 million of
total adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to
issues on which the Service would likely have prevailed in Tax
Court. The Service has conceded adjustments totalling $26.7 million
of taxable income and $2.5 million of penalties, leaving only one
issue, involving several taxable years, unresolved from the 1980-88
period. In addition, one issue remains outstanding with respect
to the 1989-91 period. The Company cannot predict the outcome of
further settlement negotiations or litigation with the Service over
these remaining two issues. (See Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Taxes, for further information about this matter.)
During August 1993, the Company served a demand for arbitration
(the "Transtech Arbitration") on WMX Technologies, Inc., its
indirect subsidiary, SCA Services, Inc. and certain SCA
subsidiaries and affiliates (the "SCA Group") seeking, among other
things, the rescission or reformation of a 1986 agreement among the
Company, the SCA Group and others which established a formula for
sharing the cost of the remediation of the Kin-Buc Landfill. In
March 1995, while proceedings on procedural issues in the Transtech
Arbitration were ongoing, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company and others of 75% of remediation costs purportedly funded
by the SCA Group to that time. While final discovery in the SCA
Arbitration was being completed and immediately prior to the commencement
of hearings in the SCA Arbitration and the scheduling of a hearing on
procedural issues in the Transtech Arbitration, the Company and the SCA
Group agreed to postpone proceedings in both arbitrations pending
the outcome of settlement discussions. These discussions are
ongoing, and no prediction as to the outcome thereof can be made at
this time.
In October 1989, the Company, together with owners and operators
of industrial sites in the Hackensack, New Jersey meadowlands,
including a site in Wood-Ridge, were sued in the United States
District Court for the District of New Jersey for contribution
towards the cost of remediation of those sites, adjacent lands and
adjacent water courses, including Berry's creek. The plaintiffs in
this suit, Morton International, Inc., Velsicol Chemical Corp. and
other parties who have been ordered to remediate such industrial
sites, adjacent lands and adjacent water courses, seek contribution
from the Company towards the cost of remediating Berry's Creek,
which, they allege, was contaminated, in part, by the Company's
operations at a nearby solvents recovery facility at Carlstadt, New
Jersey. Shortly after the institution of suit, the plaintiffs
began negotiating with the governmental entities which ordered the
remediation of the sites, adjacent land and adjacent water courses,
as to the scope of remediation and, pending those negotiations, had
stayed the suit. In August 1996, the plaintiffs reinstituted the
suit by serving complaints against all defendants, including the
Company. For procedural reasons, the plaintiffs were required to
proceed against all defendants as to all sites, adjacent lands and
adjacent water courses which were the subject of the 1989
complaint, but the stated purpose for reinstitution of suit is to
resolve issues concerning the Wood-Ridge site, as to which the
Company is not alleged to be liable. The Company has been informed
that the plaintiffs are willing to sever claims against defendants
whose alleged liability arises from sites other than Wood-Ridge.
If severance is obtained, the matter will proceed without the
involvement of the Company, and the claims against the Company will
again be stayed. Since the plaintiffs' negotiations concerning the
scope of the remediation of Berry's Creek are still ongoing, and no
discovery has taken place concerning allegations against the
Company, it is not possible to estimate the Company's ultimate
liability in this matter.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: November 14, 1996 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: November 14, 1996 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 37
27 Financial Data Schedule N/A
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
PRIMARY:
<S> <C> <C>
Weighted average common shares
outstanding 2,829,090 2,829,090
Dilutive effect of common stock
equivalents - -
2,829,090 2,829,090
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM $(.13) $ .33
DISCONTINUED OPERATIONS:
Income (loss) from operations, net
of taxes - .01
Loss on disposal of
disconinued operations - (.20)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (.13) (.14)
EXTRAORDINARY CHARGE -
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $(.13) $(.14)
FULLY DILUTED*
* For the nine months ended September 30, 1996 and 1995, fully
diluted earnings per share did not differ significantly from
primary earnings per share and therefore is not presented.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 619
<SECURITIES> 3,888
<RECEIVABLES> 287
<ALLOWANCES> 11
<INVENTORY> 0
<CURRENT-ASSETS> 430
<PP&E> 4,128
<DEPRECIATION> 3,176
<TOTAL-ASSETS> 11,347
<CURRENT-LIABILITIES> 2,642
<BONDS> 53
0
0
<COMMON> 2,357
<OTHER-SE> (6,545)
<TOTAL-LIABILITY-AND-EQUITY> 11,347
<SALES> 259
<TOTAL-REVENUES> 259
<CGS> 204
<TOTAL-COSTS> 1,876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> (1,279)
<INCOME-TAX> (54)
<INCOME-CONTINUING> (1,222)
<DISCONTINUED> 0
<EXTRAORDINARY> (512)
<CHANGES> 0
<NET-INCOME> (1,734)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
