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, 1996
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: $363,000
At March 18, 1997 the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $55,000.
At March 18, 1997 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 109 pages
Exhibit Index on page 37
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
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 - 25
" Item 4. Submission of Matters to a Vote
of Security Holders 25
Part II, Item 5.Market for Common Equity and
Related Stockholder Matters 26
" Item 6. Management's Discussion and
Analysis or Plan of Operation 26
" Item 7. Financial Statements 26
" Item 8. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 26
Part III,Item 9.Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 27 - 28
" Item 10. Executive Compensation 28 - 30
" Item 11. Security Ownership of Certain
Beneficial Owners and Management 30 - 32
" Item 12. Certain Relationships and Related
Transactions 32 - 34
Part IV,Item 13.Exhibits and Reports on Form 8-K 35
Signatures 36
Exhibit Index 37 - 40
<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 and 1996, the Company divested its interests in
two subsidiaries. In 1995, the Company sold the subsidiary which
marketed carbide lime and other high alkali products for use as
neutralization agents in municipal and industrial wastewater
treatment plants. In 1996, the Company completed the sale of the
subsidiary which 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 (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, 1996, the Company employed 15 persons on a
full-time basis.
Continuing Operations
Electricity Generation. Revenues from operations which
generate electricity through the use of methane gas represented 73%
and 55% of consolidated revenues in the years ended December 31,
1996 and 1995, respectively. 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
increased 33% during the year ended December 31, 1996 compared to
the prior year. The operation experienced a series of unrelated
equipment failures in 1995 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.
<PAGE>
Environmental Services. The environmental services subsidiary
supervises and performs landfill monitoring and closure procedures
and manages methane gas operations. Approximately 65% of the
environmental services subsidiary's gross revenues for 1996,
compared to 61% 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 27% and
45% to consolidated revenues in each of the years ended December
31, 1996 and 1995, respectively, after elimination of intercompany
sales. Substantially all third party sales during 1996 and 1995
were to a single customer. The decline in sales (prior to the
elimination of intercompany activity) was primarily due to the
completion of the construction phase of its work for the third
party during the second half of 1995 and the substantial completion
of the construction phase of the remediation work at a closed
landfill owned by the Company in mid-year 1995.
The Company is continuing its efforts to expand the customer
base of this subsidiary to entities outside the consolidated group.
During the last three years, 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 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 had jointly evaluated five projects
and bid on two of those projects, but had not been awarded a
contract. The agreement terminated during December 1996, however
the Company continues to conduct business with the engineering
firm.
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.
<PAGE>
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, beginning in 1994 and continuing
through July 1997, the annual rental income exceeds 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, 1996 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 granted 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).
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.
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, 1996, the Company has accrued approximately
$22.1 million for its portion of the estimated closure and
remediation costs of these landfills. Of such amount,
approximately $9.3 million is held in trusts maintained by trustees
for post-closure activities at Kinsley's landfill (see Part I, Item
3, Legal Proceedings).
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
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 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.
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 substantially complete
and the Company is awaiting EPA acceptance of the work performed.
The cost of such installation has been estimated at $1.3 million
and has been financed by SCA and its affiliates. SCA may assert
that this cost is subject to the cost sharing agreement entered
into in 1986 (described below) 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 SCA. 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.
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. 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
liability for the remediation of certain sites upon persons
responsible for the generation, transportation and disposal of
wastes at such sites.
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. While final
discovery in the SCA Arbitration was being completed and
immediately prior to the commencement of hearings in the SCA
Arbitration and the rescheduling of the referee's hearing 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. The
recovery by SCA of a judgment against the Company in the SCA
Arbitration would have a material 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.
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 at least six months.
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 $10.7 million 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
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. At December
31, 1996, Kinsley's has accrued $11.3 million for remaining costs
of closure and post-closure care of this facility, of which $9.3
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 $34,000 and $69,000 for the years ended December
31, 1996 and 1995, respectively. At December 31, 1996, Mac has
accrued closing costs amounting to $142,000 for the costs of
continuing post-closure care and monitoring at the facility. The
Company increased its accrual for closure costs by $11,000 during
1996 and $131,000 during 1995 due to unanticipated engineering and
testing costs incurred to respond to inquiries from environmental
agencies. The accrual as of December 31, 1996 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
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.
In a related matter, 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. 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.
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 with respect to matters or events
preceding the 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 an interest bearing
escrow account 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
$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 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/or Hunt, namely, Robert V. Silva, David Huberfield, Andrew J.
Mayer, Jr. and Gerald Bogner, for $150,000. Such directors and
executive officers also obtained the right to acquire, for an
aggregate cost of $2.3 million, an additional 12.5% 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
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.
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement which resolved certain issues related to
the allocation of Hunt's 1995 income tax liability between the
Company and Hunt, and certain issues related to provisions of the
1991 tax sharing agreement between the Company and Hunt which
continues to bind both parties. The purpose of the letter
agreement was to rectify an unintended consequence of tax
regulations concerning the allocation of such tax liability. The
Company agreed to include $360,000 (equal to 87% of Hunt's 1995
income) of income in its federal tax return in respect of 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-consolidation net losses
(incurred during the period from January 1 through February 29,
1996) to periods in which Hunt was a member of the consolidation
group. Hunt also agreed to reimburse the Company for certain
professional fees incurred by the Company with respect to these
matters.
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 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 assets sold, and additional payments of
$4,785 which were 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 $38,000 as of
December 31, 1996. A subsidiary completed the sale of an 12 acre
parcel in March 1997.
<PAGE>
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.
7. The Company leases its principal executive offices in
Piscataway, New Jersey pursuant to a lease which commenced in
February 1992 and was to terminate 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 February
28, 1997. The area subject to lease was approximately 5,132 square
feet. The Company amended the expiring lease effective March 1,
1997. The amended lease reduced the area to 2,572 square feet at
a monthly rent of $2,893 and expires August 30, 2000.
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, March 7, 1996 and July 31, 1996, respectively, the
Company and the Service executed a stipulation of partial
settlement of issues in the Tax Court case and first, second and
third revised stipulations of partial settlement. These partial
settlements resolved all but two 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 $5.9
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. The
Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over that remaining
issue.
The Service has concluded an audit of the Company's 1989-91
federal income tax returns which resulted in the Service
challenging the deductions claimed by the Company in connection
with its investment in computer equipment under lease (see Note 9
to the Company's Consolidated Financial Statements). The Service
also asserted a number of smaller adjustments which have been
settled. Discussions with the Service on the computer equipment
issue are in progress. The Company cannot predict the outcome of
further settlement negotiations or litigation with the Service over
these remaining two issues.
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
"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.
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. While final discovery in the SCA Arbitration
was being completed and immediately prior to the commencement of
hearings in the SCA Arbitration and the re-scheduling of the
referee's hearing 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.
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 Clay Deposits
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for use
in the closure of the Kin-Buc Landfill for $1.2 million from Inmar.
Pursuant to the agreement for the purchase of the clay, Kin-Buc is
entitled to a refund of the purchase price of clay it is unable to
mine or can not use. In October 1996, the Company learned that
Inmar had contracted to sell a substantial portion of its land,
upon which a substantial amount of the clay is situated, to Edison
Expansion, Inc. ("Expansion") In November 1996, Kin-Buc brought
suit entitled Kin-Buc, Inc., v. Inmar Associates, Inc. and Edison
Expansion, Inc. in Superior Court, Morris County, New Jersey
("Superior Court") against Inmar and Expansion for, among other
things, a declaratory judgment that Kin-Buc's rights in the clay
would survive a sale of the land to Expansion and, alternatively,
a money judgment against Inmar. Kin-Buc also filed a lis pendens
against the Inmar property. In December 1996, Expansion sought and
obtained a discharge of the lis pendens and a closing of the sale
to Expansion took place in January 1997. In accordance with an
order of the Superior Court entered in another matter involving
Inmar, the net proceeds of the sale was paid into the Superior
Court. Kin-Buc is seeking an order from the Superior Court that,
subject to senior claims, such proceeds are to be paid to Kin-Buc
if it obtains a money judgment against Inmar in its action. These
proceeds are substantially less than Kin-Buc's claim against Inmar.
Upon entry of an order concerning the disposition of the proceeds,
Inmar and Expansion will be required to answer Kin-Buc's complaint.
Kin-Buc may ultimately obtain a declaratory judgment, an award of
money damages against Inmar, or both. There is no assurance that
Kin-Buc will be able to mine and remove the clay on Expansion's
property or Inmar's remaining property even if Kin-Buc obtains a
declaratory judgment. In addition, there is no assurance that Kin-
Buc will be permitted to draw against the proceeds in the Superior
Court. Lastly, there is substantial uncertainty that Inmar will be
financially capable of paying damages to Kin-Buc.
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 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, 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 but shortly therafter agreed to sever claims
against the Company and proceed against other defendants. As a
result, the claims against the Company have again been 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.
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 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.
None during the quarter ended December 31, 1996.
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.
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 (53) - 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 served as Chairman and Chief Executive Officer of Hunt
Valve Company, Inc., a former subsidiary of the Company, from March
1, 1996 to his resignation effective January 1, 1997. Mr. Silva
also served as Vice President and a Director of ValveCo Inc., the
entity which acquired Hunt, from OCtober 10, 1995 to his
resignation effective January 1, 1997. From September 1996 to
February 14, 1997, Mr. Silva served as a Director of Hunt's
subsidiary, Hunt SECO Engineering, Ltd. and its subsidiaries. Mr.
Silva remains a Director of Hunt. Mr. Silva is also the principal
of Robert V. Silva and Company, Inc., an investment firm. 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 (49) - 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. Millington Quarry, Inc., is owned by members of the
Mahan family. Dallenbach Sand was previously owned by members of
the Mahan family.
Andrew J. Mayer, Jr. (41) - 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. Mr. Mayer served as Executive
Vice President of Hunt Valve Company, Inc., a former subsidiary of
the Company from March 1, 1996, the date the Company sold Hunt, to
his resignation effective January 1, 1997. Mr. Mayer also served
as Vice President - Chief Financial Officer of ValveCo Inc. from
April 3, 1996 through his resignation effective January 1, 1997.
From September 1996 to February 14, 1997, Mr. Mayer served as a
Director of Hunt's subsidiary, Hunt SECO Engineering, Ltd. and its
subsidiaries.
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, 1996 all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
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, 1996, 1995 and 1994 ("Fiscal 1996", "Fiscal
1995" and "Fiscal 1994", 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, 1996.
Annual Compensation
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation (a)
Robert V. Silva 1996 $176,804(b) $0 $90
President and Chief 1995 $278,688(c) $25,000(c) $1,964
Executive Officer 1994 $264,000(d) $48,000(d) $2,668
Andrew J. Mayer, Jr.1996 $136,000 $0 $1,360
Vice President- 1995 $136,000 $0 $1,435
Finance, Chief 1994 $126,000 $7,500 $1,270
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 sation
Robert V. Silva 1996 0 0 0 0
President and Chief 1995 0 0 0 0
Executive Officer 1994 0 0 0 0
Andrew J. Mayer, Jr.1996 0 0 0 0
Vice President- 1995 0 0 $10,000(e) 0
Finance, Chief 1994 5,000 0 $10,000(e) 0
Financial Officer
and Secretary
(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 1996, Fiscal 1995 and
Fiscal 1994. In each of Fiscal 1996, Fiscal 1995 and Fiscal 1994,
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 1996 annual compensation of $176,804
was allocated $160,000 to the Company and $16,804 to Hunt for the
period of 1996 Hunt was a subsidiary of the Company. Mr. Silva
served as Chairman of the Board of Directors and Chief Executive
Officer of Hunt.
(c) 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.
(d) 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 $48,000 were paid by Hunt.
(e) Represents Fiscal 1995 and Fiscal 1994 director fees paid
by Hunt.
Stock Option Plans
The following table sets forth, with respect to grants of
stock options and stock appreciation rights ("SARs") to the Chief
Executive Officer and the Named Executive Officer during Fiscal
1996: (a) the number of options granted; (b) the percent the grant
represents of total options granted to employees during Fiscal
1996; (c) the per-share exercise price of the options granted; and
(d) the expiration date of the options.
OPTION/SAR GRANTS IN FISCAL 1996
% Of Total
Options/SARs*
Options/ Granted to Exercise
SARs* Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/sh) Date
Robert V. Silva 0 N/A N/A N/A
Andrew J. Mayer, Jr. 0 N/A N/A N/A
*No SARs have been issued by the Company.
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 1996 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 1996; 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 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options/SARs* at Options/SARs* at
Acquired on Fiscal Year-End(#) Fiscal Year-End($)
Acquired Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
Robert V.
Silva 0 N/A 50,000/0 0/0
Andrew J.
Mayer, Jr. 0 N/A 5,000/0 0/0
* No SARs have been issued by the Company.
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 1996, Arthur C.
Holdsworth, III earned fees of $9,000.
Part III, Item 11. Security Ownership of Certain Beneficial Owners
and Management.
As of the close of business on March 18, 1997, 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 18, 1997, 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.
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.
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Beneficially Owned of Class
Herzog, Heine & Geduld 368,453 (a) 13.0%
525 Washington Blvd.
Jersey City, NJ 07310
Roger T. Mahan 325,435 (b),(e) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (b),(c),(e) 11.3%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (b),(d),(e) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Robert V. Silva 50,000 (f) 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 (g) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 55,000 (h) 2.0%
and directors as a group
(3 in group)
(a) Includes 41,200 shares owned by customers of this firm.
(b) 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.
(c) 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.
(d) Includes 8,600 shares owned by Gary A. Mahan's wife,
Elizabeth Mahan, and 8,600 shares owned by their minor child.
(e) 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.
(f) Represents incentive options to purchase 50,000 shares at
$.75 per share, all of which are presently exercisable.
(g) Represents incentive options to purchase 5,000 shares at
$0.438 per share, all of which are presently exercisable.
(h) Consists of incentive options to purchase 55,000 shares
held by two officers of the Company, all of which are presently
exercisable.
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 or use the clay. However,
there is substantial uncertainty that the Company will be able to
obtain a refund of the purchase price (see Part I, Item 3. Legal
Proceedings - "As to the Clay Deposits").
Since Mr. Mahan's retirement from the Company, it has provided
Mr. Mahan the use of an automobile and contributed to the expenses
of maintaining an office for his use including secretarial
services. Such expenses totalled approximately $14,000 and $21,000
in 1996 and 1995, respectively.
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 Chairman of the Board of the
Company. The advance was evidenced by an interest bearing note.
The note and accrued interest thereon was repaid in full during
1996. 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 as determined by the Board
of Directors. A total of $95,000 was outstanding with respect to
the loan, including interest, as of December 31, 1996. The Company
believes that the terms of 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 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/or 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 also obtained the right to
acquire, for an aggregate cost of $2.3 million, an additional 12.5%
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 I,
Item 1, Description of Business, Discontinued Operations). Mr.
Silva resigned from his employment with ValveCo and Hunt effective
January 1, 1997, but remains a director of Hunt. Mr. Mayer also
resigned from his employment with ValveCo and Hunt effective
January 1, 1997.
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 37 to 40.
Reports on Form 8-K
None were filed during the quarter ended December 31, 1996.
<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: March 27, 1997
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 March 27, 1997
Robert V. Silva, President and
Chief Executive Officer
and Director
/s/ Andrew J. Mayer, Jr. March 27, 1997
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
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,
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: See "I" below
11 Statement regarding computation of net loss
per share 41 - 42
13 Annual Report to Stockholders 43 - 108
22 Subsidiaries of the Registrant 109
"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
"I" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995
Exhibit 13. Annual Report to Stockholders
TRANSTECH INDUSTRIES, INC.
ANNUAL REPORT
1996
COMPANY PROFILE
Transtech Industries, Inc. and its subsidiaries
provide environmental services and generate
electricity utilizing methane gas. The Company's
headquarters are located in Piscataway, New Jersey.
TABLE OF CONTENTS
Page
President's Letter 2
Management's Discussion and Analysis of
Financial Condition 3
Consolidated Balance Sheets 18
Consolidated Statements of Operations 20
Consolidated Statements of Stockholders' Equity 22
(Deficit)
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 26
Report of Independent Certified Public Accountants 63
Market Prices of Common Stock 64
Directory 65
Transtech Industries, Inc.
President's Letter
To Our Stockholders:
During 1996, while attempting to monitor and minimize our
significant tax, environmental, legal and other expenses, we have
re-doubled our efforts to settle the environmental and other
litigation surrounding our former activities at the Kin-Buc
Landfill site. While we cannot predict the outcome of these
efforts, we are working hard to come to closure on these issues. It
is our present goal to settle the Company's environmental and
related litigation during 1997 and to continue to work on the tax
matters as detailed in this year's Annual Report.
The Company continues to pursue asset sales as an additional
source of liquidity.
The sale of our Hunt Valve subsidiary was completed on March
1, 1996 and Transtech received significant funds as explained in
the detail of this year's Annual Report. We have recently sold one
parcel of real estate and are actively marketing several other
parcels for sale.
Our environmental services subsidiary continues its efforts to
generate increased revenue at closed landfill sites for maintenance
of these sites and related gas collection systems. While this
market remains extremely competitive, we are hopeful of expanding
this business during 1997.
Management is doing the very best we can to address these
complex and difficult issues. However, at this time the Company
cannot ascertain whether its remaining operations and funding
sources, including asset sales, will be adequate to satisfy its
future capital requirements, including its anticipated tax and
environmental liabilities.
Sincerely,
Robert V. Silva
Transtech Industries, Inc.
Management's Discussion and Analysis of Financial Condition
and Results 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 in 1996, completed the sale of
its valve manufacturing segment. Both transactions are discussed
below.
Operating Revenues
Consolidated operating revenues decreased 3%, or $11,000, for
the year ended December 31, 1996, compared to the year ended
December 31, 1995. Consolidated operating revenues by business
segment for the years ended December 31, 1996 and 1995 were as
follows (in $000):
<TABLE>
- Quarter - Total
1996 1st 2nd 3rd 4th Year
<S> <C> <C> <C> <C> <C>
Electric Generation $ 55 $ 65 $ 68 $ 77 $ 265
Environmental Svcs. 64 77 73 64 278
Intercompany (36) (52) (55) (37) (180)
Total revenues $ 83 $ 90 $ 86 $104 $ 363
1995
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
</TABLE>
Revenues from operations which generate electricity from methane
gas were $265,000, an increase of $59,000 or 29% compared to the
prior year. Such revenues are a function of the number of kilowatt
hours generated, the rate received per kilowatt and capacity
payments. The increase in revenues is primarily the result of a
33% increase in kilowatt hours generated which in turn is due in-
part to a 9% increase in operating hours of the Company's four
electric generating units. Approximately 15% of available machine
hours were dedicated to repairs and scheduled overhaul in 1996
versus 19% for such tasks during 1995.
The environmental services subsidiary reported $278,000 of
operating revenues for 1996 (prior to elimination of intercompany
sales) compared to $431,000 for 1995. Approximately $180,000 or
65% of the environmental services subsidiary's revenues for the
period, compared to $264,000 or 61% for 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.
Substantially all the third party sales during 1996 and 1995 were
to a single customer. 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 the 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
had jointly evaluated five projects and bid on two of those
projects, but had not been awarded a contract. The agreement
terminated during December 1996, however the Company continues to
conduct business with the engineering firm.
Cost of Operations
Consolidated direct operating costs for the year ended
December 31, 1996 were $299,000, a decrease of $78,000 or 21% when
compared to 1995. The costs of the electricity generating
operation declined 32% for the year ended December 31, 1996 when
compared to the prior year primarily due to a decrease in expenses
incurred for the repair and maintenance of certain electric
generating equipment. Costs of the environmental services segment
also declined 31% overall due primarily to the decrease in sales
volume.
Consolidated selling, general and administrative expenses for
the year ended December 31, 1996 were $2,349,000, a decrease of
$576,000 or 20% from the prior year. Decreases were reported in
insurance, bad debt and travel expenses, real estate taxes, and,
most significantly, professional fees relating to the Company's
ongoing environmental and tax litigation (see Note 15 to the
Company's Consolidated Financial Statements). Last year's expenses
included certain non-recurring expenses, specifically 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. 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 decline
in the near future. The operating costs of the non-operating
subsidiaries, consisting primarily of insurance and franchise,
income and real estate taxes, aggregated approximately $136,000 and
$226,000 for the years ended December 31, 1996 and 1995,
respectively. Such expenses are anticipated to decline if the
Company is successful in its efforts to divest certain real
property as discussed herein.
Operating Loss
The Company's consolidated operating loss for the year ended
December 31, 1996 decreased to $2,285,000 from a loss of $2,929,000
reported for the prior year.
Other Income (Expense)
Consolidated investment income increased by $84,000 for the
year ended December 31, 1996 to $345,000 due primarily to an
increase in the amount of funds available for investment.
Consolidated interest expense decreased $17,000 to $33,000 for
the year ended December 31, 1996 compared to last year due to a
decease in the amount of outstanding funded debt.
Interest expense or credit reported as "Interest (expense)
credit - 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 $76,000 for the
twelve months ended December 31, 1996 versus a credit of $240,000
for the comparable period of 1995. The credit reported for 1996 is
due to the reversal of approximately $240,000 of interest expense
that was previously accrued on estimated income taxes payable to a
state net of additional interest accrued on estimated federal
income tax liability. 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 credit reported for
1995 was primarily due to a reduction of the interest accrued for
estimated income taxes payable to a state and the effect of a March
1996 settlement of certain issues in the litigation.
The Company's income on the sale of marketable securities
decreased $86,000 in 1996 to $183,000 from $269,000 reported for
last year.
The Company charged $37,000 against income in 1996 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 19%
reduction in the estimate of the variable portion of future rentals
and a 43% reduction in the estimated residual value. The Company
recorded a charge of $360,000 related to this investment during
1995.
During the fourth quarter of 1996, the Company charged
$671,000 to operations to reduce the carrying value of real estate
held for sale to amounts which approximate current net realizable
values. The real estate is currently listed for sale with real
estate brokers and the Company is actively pursuing the disposition
of such properties. Estimates of net realizable values were based
upon current indications of value received from professional real
estate brokers and certain offers received from potential
purchasers of such property (see Note 7 to the Company's
Consolidated Financial Statements).
During the fourth quarter of 1996 the Company charged $500,000
to operations to reduce the carrying value of the clay deposits to
$577,000 representing managements' best estimate of the values it
may ultimately realize for this asset. 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 a former affiliate of
the Company. Approximately 8,600 cubic yards have been utilized
for the closure of the landfill through December 31, 1995. During
1996, the owner of the property on which the clay is located
entered into an agreement for the sale of the real property which
contained the clay purchased by the Company. In November 1996 the
Company brought suit against the former owner of the property and
the purchaser of such property seeking a declaratory judgement that
the Company's rights to the clay deposits would survive the sale of
the land, and, alternatively to compel the property's former owner
to refund the Company's purchase price. The revised carrying value
represents management's best estimate of the value the Company may
ultimately realize for this asset considering the amount of
proceeds currently being held by the Court in conjunction with
another matter involving Inmar, and assuming the Company will be
able to recover such proceeds (see Note 8 to the Company's
Consolidated Financial Statements).
The Company 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 15
to the Company's Consolidated Financial Statements).
The Company incurred charges of $11,000 and $131,000 for the
years ended December 31, 1996 and 1995, respectively, 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. 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 decreased by
$91,000 to $25,000 for the year ended December 31, 1996 due
primarily to a decrease in the amount of deferred income recognized
in 1996 associated with a 1992 installment sale of real property.
Consolidated miscellaneous income for the year ended December
31, 1996 decreased $119,000 to $151,000 when compared to 1995. The
amounts reported for 1996 and 1995 include income of $67,000 and
$133,000, respectively, related to management fees received from
discontinued operations subsequent to August 31, 1995 (see
Discontinued Operations).
The consolidated loss from continuing operations before income
tax credits and extraordinary item was $2,757,000 for the year
ended December 31, 1996, compared to a loss of $863,000 for last
year.
Income Taxes
Income tax credits from continuing operations for the year
ended December 31, 1996 equalled $2,000, a $444,000 decrease from
the $446,000 credit for 1995. As discussed below (see Liquidity
and Capital Resources - Taxes), the Company filed a petition with
the Tax Court to contest certain adjustments asserted 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. The Service
also conducted an audit of the Company's 1989-91 federal tax
returns, which resulted in the challenge of a number of deductions
claimed by the Company. Income tax expense for 1995 includes
credits of $91,000 for federal taxes and $127,000 for state taxes
which result from the acceptance of partial settlements of certain
adjustments asserted by the Service (see Note 9 to the Company's
Consolidated Financial Statements).
Discontinued Operations
Income (loss) from discontinued operations relates to two of
the Company's former subsidiaries, one of which marketed alkali
products, and the other which manufactured commercial valves and
hydraulic systems.
On August 31, 1995, the Company sold to a competitor 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 its wholly-owned
subsidiary, f/k/a Cal-Lime, Inc., which marketed alkali products.
The Company received a cash payment of $600,000 for the assets sold
and additional payments totalling $4,785 which were 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. The Company reported a gain of $262,000 on the sale
which is net of taxes of $155,000 for the year ended December 31,
1995. The amount reported as income from discontinued operations
of $35,000 for the year ended December 31, 1995 is net of a
provision for income taxes of $18,000.
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. 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. Certain
directors and executive officers who are members of management of
the Company and/or Hunt acquired a 15% equity stake in ValveCo Inc.
and received options to acquire an additional 12.5% equity stake
from other stockholders in ValveCo Inc. for $2.3 million if certain
operating parameters are attained.
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 reported a loss on the sale of Hunt of
approximately $772,000 for the year ended December 31, 1995. No
tax benefit was recognized for the loss because losses from the
sale of a consolidated subsidiary generally are not deductible for
federal income tax purposes. The amount reported as income from
discontinued operations of $124,000 for the year ended December 31,
1995 is reported, less a provision for income taxes of $104,000.
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement which resolved certain issues related to
the allocation of Hunt's 1995 income tax liability between the
Company and Hunt, and certain issues related to provisions of the
1991 tax sharing agreement between the Company and Hunt which
continues to bind both parties. The purpose of the letter
agreement was to rectify an unintended consequence of tax
regulations concerning the allocation of such tax liability. The
Company agreed to include $360,000 (equal to 87% of Hunt's 1995
income) of income in its federal tax return in respect of 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-consolidation net losses
(incurred during the period from January 1 to February 29, 1996) to
periods in which Hunt was a member of the consolidated group. Hunt
also agreed to reimburse the Company for certain professional fees
incurred by the Company with respect to these matters.
Extraordinary Charge
Upon consummation of the sale of Hunt, 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.
Net Loss
Net loss for the year ended December 31, 1996 was $3,267,000,
or $1.15 per share, compared to a net loss of $768,000, or $.27 per
share, for the year ended December 31, 1995.
Liquidity and Capital Resources
General
Net cash used in operating activities for the year ended
December 31, 1996 increased to a net use of $2,501,000 from a use
of $1,988,000 when compared to last year due primarily to the
inclusion of $574,000 of receipts from the discontinued segments in
1995. Net cash provided by investing activities increased this
year to $2,751,000 from $1,711,000 due primarily to the inclusion
in 1996 of $4,005,000 in proceeds from the sale of the valve
manufacturing segment versus 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). The use of cash in financing activities increased from
$177,000 to $410,000 for the period compared to last year, due
primarily to the maturity of a long term debt instrument. Funds
held by the Company in the form of cash and cash equivalents
decreased as of December 31, 1996 to $260,000 from $420,000. The
sum of cash, cash equivalents and marketable securities as of
December 31, 1996 increased to $4,043,000 from $2,464,000 when
compared to last year.
Working capital was $2.4 million and the ratio of current
assets to current liabilities, was 2.0 to 1 as of December 31,
1996, compared to $4.5 million and a ratio of 2.5 to 1 at December
31, 1995.
The Company collected $121,000 during 1996 in full
satisfaction of notes which were issued by a firm which produced
and distributed gases, and by a partnership whose members include
certain owners of the firm. The Company had previously reported
that an explosion destroyed the firm's only facility on March 26,
1996 and of its uncertainty as to what extent the firm's insurance
proceeds would 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, 1996, 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 the conclusion of litigation or
a 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 ultimately be imposed in 1996 and 1997
on rental income from the Company's investment in computer
equipment (the Company expects to offset such income, which results
from the exhaustion of tax depreciation that had previously
sheltered the rental income from tax with loss carryforwards on its
1996 and 1997 tax returns; however, some or all of these loss
carryforwards subsequently will be reduced or absorbed by settled
or litigated adjustments in the Tax Court case) 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 be ascertained only when 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 of an unfavorable
resolution of the tax and environmental litigation, or 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 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
$127,000 of state income taxes and $9.6 million of federal
interest, calculated through December 31, 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 all of the penalties that it had asserted 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, March 7, 1996
and July 31, 1996, respectively, the Company and the Service
executed a stipulation of partial settlement of issues in the Tax
Court case and first, second and third revised stipulations of
partial settlement. 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. The Company cannot predict the
outcome of further settlement negotiations or litigation with the
Service over that issue.
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 $1,536,000, with interest through December 31, 1996
($143,000 of taxes and $1,393,000 of interest). The settlements
also will 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.
The accelerated utilization 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
taxable income that arises as the Company recognizes 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 computer 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.
However, rental income from leasing the computer equipment exceeded
the related depreciation and interest deductions by approximately
$6.2 million in 1996 and $5.8 million in 1995. This excess income
was largely offset by deductions from other sources. Rental income
will continue to exceed depreciation and interest deductions in
1997. The Company anticipates approximately $3.4 million of net
taxable income for the first seven months of 1997 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 1989-91
federal income tax returns, which resulted in the Service
challenging the deductions claimed by the Company in connection
with its investment in the computer equipment discussed in the
preceding paragraph. The Service also asserted a number of smaller
adjustments for that period which have been settled. 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
approximately $5.8 million of tax and $3.6 million of interest,
calculated through December 31, 1996. This would increase the
Company's aggregate liability for federal taxes and interest for
both the settled issues and the computer lease issue to $6.0
million and $5.0 million, respectively, calculated through December
31, 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 $8.2 million of interest, calculated
through December 31, 1996. (Such amounts are in addition to the
tax of $143,000 and interest of $1,393,000, discussed above, that
will be owed as a result of the partial settlements entered into to
date.) No state income tax or interest is anticipated on account
of the unsettled 1980-88 issue.
Remediation and Closure Costs
As of December 31, 1996, the Company has accrued $22.1 million
for its estimated share of remediation and closure costs related to
the Company's former landfill and waste handling operations.
Approximately $9.3 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 11 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
proposed by the Company and other respondents to the 1990 Order,
which resulted in an additional $3.0 million of contributions
being deposited into a new trust established in January 1995 for
the remediation effort. Substantially all of the funds held in
this new trust had been expended as of December 31, 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. 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 $23 million of remediation expenses purportedly funded
by WMX through June 30, 1995. The status of such arbitration
demands, as yet unresolved, is described in Note 15 to the
Company's Consolidated Financial Statements.
The contractors have completed the construction required under
the Orders, and the Company is awaiting EPA 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.
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 substantially complete
and the Company is awaiting EPA acceptance of the work performed.
The cost of such installation has been estimated at $1.3 million
and has been 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
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 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.
<TABLE>
Transtech Industries, Inc.
Consolidated Balance Sheets
(In $000's)
<CAPTION>
December 31, 1996 1995
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 260 $ 420
Marketable securities 3,783 2,044
Accounts and notes receivable
(net of allowance for doubtful
accounts of $16 and $11, respectively) 318 205
Deferred income taxes 44 42
Prepaid expenses and other 439 352
Net assets of discontinued operations - 4,517
Total current assets 4,844 7,580
Property, Plant and Equipment
Land 799 799
Buildings and improvements 339 327
Machinery and equipment 2,992 3,001
4,130 4,127
Less accumulated depreciation 3,190 3,176
Net property, plant and equipment 940 951
Other Assets
Notes receivable 284 750
Investment in leveraged lease 41 128
Assets held for sale 1,724 2,406
Clay deposits 577 1,077
Escrowed funds from sale of subsidiary 777 750
Deferred income taxes 320 -
Other 60 40
Total other assets 3,783 5,151
Total Assets $ 9,567 $ 13,682
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Balance Sheets, cont'd
(In $000's)
<CAPTION>
December 31, 1996 1995
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
<S> <C> <C>
Current portion of long-term debt $ 18 $ 356
Accounts payable 215 357
Accrued income taxes 2,048 1,942
Accrued miscellaneous expenses 164 422
Total current liabilities 2,445 3,077
Long-Term Debt 48 66
Accrued Remediation and Closure Costs 12,817 12,851
Deferred Income Taxes - 82
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 1,385 4,652
Net unrealized gains on marketable
securities 13 95
Sub-Total 5,271 8,620
Treasury stock, at cost - 1,885,750 shares (11,014) (11,014)
Total stockholders' equity (deficit) (5,743) (2,394)
Total Liabilities and
Stockholders' Equity (Deficit) $ 9,567 $13,682
See Accompanying Notes to Consolidated Financial Statements<PAGE>
Transtech Industries, Inc.
</TABLE>
<TABLE>
Consolidated Statements of Operations
(In $000's)
<CAPTION>
Years ended December 31, 1996 1995
<S> <C> <C>
Operating Revenues $ 363 $ 373
Cost of Operations
Direct operating costs 299 377
Selling, general and
administrative expenses 2,349 2,925
Total cost of operations 2,648 3,302
Operating Income (Loss) (2,285) (2,929)
Other Income (Expense)
Investment income (loss) 345 261
Interest expense (33) (50)
Interest (expense) credit - income
taxes payable 76 240
Gain (loss) from sale of securities 183 269
Gain on sale of property and equipment 25 116
Writedown of investment in
computer equipment (37) (360)
Writedown of assets held for sale (671) -
Writedown of clay deposits (500) -
Remediation accrual reversal - 1,451
Closure costs (11) (131)
Miscellaneous income 151 270
Total other income (expense) (472) 2,066
Loss From Continuing Operations
Before Income Taxes (Credit) and
Extraordinary Item (2,757) (863)
Income Taxes (Credit) (2) (446)
Loss From Continuing Operations Before
Extraordinary Item (2,755) (417)
See Accompanying Notes to Consolidated Financial Statements<PAGE>
Transtech Industries, Inc.
</TABLE>
<TABLE>
Consolidated Statements of Operations, cont'd
(In $000's, except per share data)
<CAPTION>
Years ended December 31, 1996 1995
<S> <C> <C>
Discontinued Operations
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $104 $ - $ 124
Loss on disposal of segment,
net of taxes of $154 - (772)
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 - (351)
Net Loss Before Extraordinary Item (2,755) (768)
Extraordinary Charge on Elimination of Debt,
Net of Taxes (512) -
Net Loss $(3,267) $(768)
Net Loss Per Common Share:
Loss from continuing
operations before extraordinary item $ (.97) $(.15)
Discontinued Operations:
Income from discontinued
operations, net of taxes - .06
Loss on disposal of
discontinued operations,
net of taxes - (.18)
Loss before extraordinary item (.97) (.27)
Extraordinary charge (.18) -
Net loss per common share $(1.15) $(.27)
Weighted Average Shares
Outstanding 2,829,090 2,829,090
See Accompanying Notes to Consolidated Financial Statements<PAGE>
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statement of Stockholders' Equity (Deficit)
(In $000's)
<CAPTION>
Years ended December 31, 1996 1995
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 4,652 5,420
Net loss (3,267) (768)
Balance at December 31 1,385 4,652
Net Unrealized Gains on Marketable
Securities
Balance at January 1 95 201
Valuation adjustments (124) (161)
Provision for taxes 42 55
Balance at December 31 13 95
Treasury Stock
Balance at December 31 (11,014) (11,014)
Total Stockholders' Equity (Deficit) $ (5,743) $ (2,394)
See Accompanying Notes to Consolidated Financial Statements<PAGE>
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows
(In $000's)
<CAPTION>
Years ended December 31, 1996 1995
<S> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents
Cash Flows from Operating Activities:
Cash received from customers $ 349 $ 496
Cash paid to suppliers and
employees (3,037) (3,312)
Interest and dividends received 267 148
Other income received 152 135
Interest paid (51) (31)
Income tax paid (181) -
Cash received from discontinued
operations - 574
Net cash provided by (used in)
operating activities (2,501) (1,988)
Cash Flows from Investing Activities:
Proceeds from sale of marketable
securities 3,254 3,802
Purchase of marketable securities (4,911) (3,184)
Collections on notes receivable 402 409
Proceeds from sale of property,
plant and equipment 33 9
Purchase of property, plant
and equipment (68) (87)
Rent sharing payments
from computer leases 36 452
Cash proceeds from sale of
discontinued segment-net of
transaction costs 4,005 310
Net cash provided by (used in)
investing activities 2,751 1,711
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1996 1995
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments on
long-term debt $(356) $(98)
Proceeds from issuance of
long-term debt - 39
Payment of landfill closing
costs (54) (118)
Net cash provided by (used in)
financing activities (410) (177)
Net increase (decrease) in cash
and cash equivalents (160) (454)
Cash and cash equivalents at
beginning of year 420 874
Cash and cash equivalents at
end of year $ 260 $420
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1996 1995
<S> <C> <C>
Reconciliation of Net Loss to Net
Cash Provided by (Used in)
Operating Activities:
Net loss $(3,267) $ (768)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used
in) Operating Activities:
Extraordinary charge on elimination
of debt 512 -
Depreciation and amortization 66 58
(Gain) loss on sale of marketable
securities (183) (269)
(Gain) loss on sale of property,
plant and equipment (25) (116)
Writedown of investment in
leveraged lease 37 360
Writedown of assets held for sale 671 -
Writedown of clay deposits 500 -
Remediation accrual reversal - (1,451)
Closure costs 11 131
Allowance for doubtful accounts - 50
Increase (decrease) in
deferred income taxes (365) 17
(Increase) decrease in assets:
Accounts and notes receivable (52) 178
Prepaid expenses and other (84) 54
Net assets of discontinued operations (27) 412
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses (401) (268)
Accrued income taxes 106 (376)
Net Cash Provided by (Used in)
Operating Activities $(2,501) $(1,988)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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, 1996 and 1995, cash and cash
equivalents includes interest-bearing cash equivalents of
$48,000 and $104,000, 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 1995
financial statements in order to conform to the presentation
followed in preparing the 1996 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 11 and 15) and resolution of the Internal
Revenue Service examination (see Note 9). 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) additional material
income tax liabilities for 1996 and 1997 that will be payable
with the conclusion of the pending IRS examination. 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:
The Company has 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, 1996 and 1995, held-to-maturity
securities consisted of $3,725,000 and $1,823,000,
respectively, of U.S. Government Securities with maturities
through October 1997 and July 1996, 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.
The portfolio of available-for-sale securities had a cost
of $38,000 and a market value of $58,000 as of December 31,
1996 and a cost of $77,000 and a market value of $221,000 as
of December 31, 1995. The aggregate excess of fair value over
cost of such securities as of December 31, 1996 and 1995 of
$20,000 and $144,000, respectively, is presented less deferred
income taxes of $7,000 and $49,000, respectively, and included
as a separate component of stockholders' equity. The excess
of fair value over cost consisted of gross unrealized gains of
$36,000 and gross unrealized losses of $16,000 as of December
31, 1996 and gross unrealized gains of $144,000 as of December
31, 1995. 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, 1996 and 1995 amounted to $228,000 and $359,000,
respectively. Dividend and interest income is accrued as
earned.
Note 4 - Discontinued Operations:
The consolidated statements of operations report the net
results of the Company's alkali products and valve
manufacturing segments as discontinued operations. The net
assets of the valve manufacturing segment have been classified
as "Net assets of discontinued operations" in the accompanying
consolidated balance sheets as of December 31, 1995, as the
sale was not completed until March 1, 1996.
Alkali Products Segment
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 its wholly-
owned subsidiary, f/k/a Cal-Lime, Inc. ("Cal-Lime"), for
$600,000 in cash for the assets sold and additional payments
totalling $4,785 which were 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 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 $301,000 and $362,000, under the caption of
assets held for sale on the balance sheets as of December 31,
1996 and 1995, respectively. Such value approximates the
estimated net realizable value of those assets. The
consolidated statements of operation for the year ended
December 31, 1995 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 are as follows (in $000's):
1995
Revenues $582
Income before income tax 53
Income tax (18)
Net income 35
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. The payment of 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 an interest bearing
escrow account 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 reported a loss on the proposed sale of Hunt
of approximately $772,000 for financial reporting purposes in
the year ended December 31, 1995. No tax benefit was
recognized for the loss because losses from the sale of a
consolidated subsidiary generally are not deductible for
federal income tax purposes. The amount reported as income
from discontinued operations of $124,000 for the year ended
December 31, 1995 is reported, less a provision for income
taxes of $104,000.
In September 1996, the Company, Hunt and ValveCo Inc.
entered into a letter agreement which resolved certain issues
related to the allocation of Hunt's 1995 income tax liability
between the Company and Hunt, and certain issues related to
provisions of the 1991 tax sharing agreement between the
Company and Hunt which continues to bind both parties. The
purpose of the letter agreement was to rectify an unintended
consequence of tax regulations concerning the allocation of
such tax liability. The Company agreed to include $360,000
(equal to 87% of Hunt's 1995 income) of income in its federal
tax return in respect of 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-consolidation net losses (incurred
during the period from January 1 through February 29, 1996) to
periods in which Hunt was a member of the consolidated group.
Hunt also agreed to reimburse the Company for certain
professional fees incurred by the Company with respect to
these matters.
Upon consummation of the sale of Hunt, 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.
The net assets of Hunt as of December 31, 1995 consisted
of:
1995
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
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 acquired 15% of the equity of ValveCo Inc. for
$150,000. These four individuals also obtained options to
acquire up to an additional 12.5% of the common stock of the
ValveCo Inc. pursuant to the exercise of performance and
value-based options at an aggregate cost to such individuals
of $2.3 million. In addition, the aforementioned directors
and executive officers of the Company and/or Hunt were
employed in various capacities by ValveCo Inc. and Hunt after
the sale. The Company's President and Chairman of the Board
of Directors resigned from his employment with ValveCo Inc.
and Hunt effective January 1, 1997, but remains a director of
Hunt. The Company's Vice President and Chief Financial
Officer also resigned from his employment with ValveCo Inc.
and Hunt effective January 1, 1997.
Note 5 - Notes Receivable:
Notes receivable consist of the following (in $000's):
1996 1995
9% Installment notes receivable
from sale of subsidiaries $249 $436
7.50% to 11.50% Installment notes
receivable from sales of
property and equipment (net of
allowance for uncollectible amounts
of $200,000) 99 220
7.25% Installment note receivable
from sale of real property (net of
deferred income of $242,000 and
$274,000, respectively) (See Note 7) 210 239
___ ___
Total notes receivable 558 895
Less: Current portion 274 145
Long-term portion $284 $750
At December 31, 1996 notes receivable mature as follows:
1998 $ 23
1999 163
2000 and thereafter 98
$284
As reported last year, the Company held 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. An explosion destroyed the firm's only facility on
March 26, 1996. These notes were paid in full from proceeds
from the firm's insurers.
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 an original term of 96 months and four
user sub-leases with remaining terms of from one to seven
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 had 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 depreciation and
interest 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 $36,000 and
$397,000 was received by the Company during 1996 and 1995,
respectively, pursuant to such provision.
During 1995 and 1996, 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, 1996, the Company has recorded
a charge to earnings and reduced its investment in the lease
by $37,000 in recognition of a 19% reduction in estimated
future shared rentals under the user leases and a 43%
reduction in estimated residual values. 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
to give effect to a 16% reduction in estimated future shared
rentals under the user leases and a 82% 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 federal income taxes relating to this leveraged lease
were reduced by $2,123,000 and $2,088,000 in 1996 and 1995,
respectively.
The Company's net investment in the leveraged lease at
December 31, 1996 and 1995 was comprised of the following
elements (in $000's):
1996 1995
Lease income (net of principal and
interest on non-recourse debt) $ 13 $ 79
Estimated residual value of leased
assets 28 49
Investment in leveraged lease 41 128
Less: Deferred taxes (1,171) (3,294)
Net investment in leveraged lease $(1,130) $(3,166)
The Internal Revenue Service has questioned the deductions
claimed by the Company in connection with its investment in
the computer equipment. See Note 9 - 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 are carried at a cost of $1,716,000 and
$2,395,000 as of December 31, 1996 and 1995, respectively, and
certain equipment remaining from the alkali products segment.
The real estate is currently listed for sale with real estate
brokers and the Company is actively pursuing the disposition
of such properties. However, based upon market conditions for
real estate of this type the Company is unable to determine
when such sales will ultimately be consummated. During the
fourth quarter of 1996, the Company charged $671,000 to
operations to reduce the carrying value of this real estate to
amounts which approximate current net realizable values.
Estimates of net realizable values were based upon current
indications of value received from professional real estate
brokers and certain offers received from potential purchasers
of such property.
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 $32,000 and $112,000 of income from
this transaction for the years ended December 31, 1996 and
1995, respectively, and has deferred income of $242,000 and
$274,000 as of December 31, 1996 and 1995, 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.
During March 1997 the Company sold approximately 12 acres
of property classified as assets held for sale for gross
proceeds totalling $157,000.
Note 8 - Clay Deposits:
In 1988, Kin-Buc, Inc., a wholly-owned subsidiary of the
Company ("Kin-Buc") purchased 150,000 cubic yards of clay for
use in 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 of this
accrual, representing the cost of the clay not required for
such closure, to other long-term assets, recognizing the
Company's plan to market the clay to third parties. Pursuant
to the agreement for the purchase of the clay, Kin-Buc is
entitled to a refund of the purchase price of clay it is
unable to mine or can not use. In August 1996, the Company
learned that Inmar intended to obtain relief from a 1983 order
of the Superior Court, Morris County, New Jersey ("Superior
Court") prohibiting the sale of its land, and in October 1996,
the Company learned that Inmar had contracted to sell a
substantial portion of its land, upon which a substantial
amount of the clay is situated, to Edison Expansion, Inc.
("Expansion"). In November 1996, Kin-Buc brought suit
entitled Kin-Buc, Inc., v. Inmar Associates, Inc. and Edison
Expansion, Inc. in Superior Court against Inmar and Expansion
for, among other things, a declaratory judgment that Kin-Buc's
rights in the clay would survive a sale of the land to
Expansion and, alternatively, a money judgment against Inmar.
Kin-Buc also filed a lis pendens against the Inmar property.
In December 1996, Expansion sought and obtained a discharge of
the lis pendens and a closing of the sale to Expansion took
place in January 1997. In accordance with the Superior
Court's order, the net proceeds of the sale were paid into the
Superior Court. Kin-Buc is seeking an order from the Superior
Court that, subject to senior claims, such proceeds are to be
paid to Kin-Buc if it obtains a money judgment against Inmar
in its action. These proceeds are substantially less than Kin-
Buc's claim against Inmar. Kin-Buc may ultimately obtain a
declaratory judgment, an award of money damages against Inmar,
or both. During the fourth quarter of 1996, the Company
charged $500,000 to operations to reduce the carrying value of
the clay to $577,000, representing management's best estimate
of the values it may ultimately realize from resolution of
these matters, considering the amount of the proceeds held by
the Superior Court and assuming the Company will be able to
recover such proceeds. There is no assurance that Kin-Buc
will be able to mine and remove the clay on Expansion's
property or Inmar's remaining property even if Kin-Buc obtains
a declaratory judgment. In addition, there is no assurance
that Kin-Buc will be permitted to draw against the proceeds in
the Superior Court. Lastly, there is substantial uncertainty
that Inmar will be financially capable of paying damages to
Kin-Buc.
Note 9 - 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>
1996 1995
Provision for current operations
Currently payable:
<S> <C> <C>
Federal $ 357 $ 347
State 3 25
360 372
Deferred:
Federal (361) (170)
State (1) 1
(362) (169)
Total income tax
provision (credit) (2) 203
Less: Income tax provision for
discontinued operations - 431
Total provision (credit) for
continuing operations (2) (228)
1996 1995
Provision (credit) for tax audits
Currently payable:
Federal - (91)
State - (127)
- (218)
Deferred:
Federal - -
Total provision (credit) for
tax audits - (218)
Total income tax provision
(credit) $ (2) $(446)
</TABLE>
Deferred tax expense results from temporary differences as
follows (in $000's):
<TABLE>
1996 1995
<S> <C> <C>
Excess of tax over book
(book over tax) depreciation $ 3 $ (43)
Investment in leveraged lease (2,692) (2,635)
Change in valuation allowance 1,245 575
Non-deductible accruals 38 769
Net operating loss carryforwards 387 386
Capital loss carryforwards - 90
Alternative minimum tax (credit) 1,147 (243)
Non-deductible impairment losses (504) -
Deferred gain - installment sale (8) (23)
Remediation and closure costs 22 645
General business tax credits - 305
Other - 5
$ (362) $ (169)
</TABLE>
Deferred tax assets and liabilities at December 31, 1996
and 1995 were comprised of the following (in $000's):
<TABLE>
1996 1995
<S> <C> <C>
Deferred tax assets
Remediation and closure costs $ 4,579 $ 4,652
Non-deductible impairment losses 504 -
Non-deductible accruals 46 87
Allowance for doubtful accounts 9 6
Federal net operating/capital
loss carryforwards - 83
State net operating loss
carryforwards 2,349 3,677
Tax credit carryforwards - 1,681
Subtotal 7,487 10,186
Valuation allowance for deferred
tax assets (5,581) (5,949)
Total 1,906 4,237
Deferred tax liabilities
Leveraged lease (1,481) (4,173)
Depreciation (11) (8)
Unrealized appreciation of
equity securities (9) (48)
Installment sales (41) (48)
Total (1,542) (4,277)
Net deferred tax asset (liability) $ 364 $ (40)
Included in the accompanying balance sheet as:
Current deferred tax asset $ 44 $ 42
Non-current deferred tax
asset (liability) 320 (82)
$ 364 $ (40)
</TABLE>
The Company has recorded valuation allowances of
$5,581,000 and $5,949,000 as of December 31, 1996 and 1995,
respectively, 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>
1996 1995
<S> <C> <C>
Tax expense (credit) computed
by applying U.S. federal
income tax rate to loss
from continuing operations
before income taxes (credits) $(938) $(293)
Increases (reductions) in
taxes resulting from:
State income taxes (credit) net
of federal income tax benefit 1 17
Change in federal deferred
tax valuation allowance 936 -
1996 1995
Corporate dividends
received deduction (1) (2)
Other - 50
$ (2) $(228)
</TABLE>
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, March 7, 1996 and July 31,
1996, respectively, the Company and the Service executed a
stipulation of partial settlement of issues in the Tax Court
case and first, second and third revised stipulations of
partial settlement. 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.
The Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over that issue.
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 $1,536,000, with interest
through December 31, 1996 ($143,000 of taxes and $1,393,000 of
interest). The settlements also will 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.
The accelerated utilization 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 taxable income that arises as the Company
recognizes 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
computer 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. However,
rental income from leasing the computer equipment exceeded the
related depreciation and interest deductions by approximately
$6.2 million in 1996 and $5.8 million in 1995. This excess
income was largely offset by deductions from other sources.
Rental income will continue to exceed depreciation and
interest deductions in 1997. The Company anticipates
approximately $3.4 million of net taxable income for the first
seven months of 1997, 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 1989-
91 federal income tax returns, which resulted in the Service
challenging the deductions claimed by the Company in
connection with its investment in the computer equipment
discussed in the preceding paragraph. The Service also
asserted a number of smaller adjustments for that period which
have been settled. 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
approximately $5.8 million of tax and $3.6 million of
interest, calculated through December 31, 1996. This would
increase the Company's aggregate liability for federal taxes
and interest for both the settled issues and the computer
lease issue to $6.0 million and $5.0 million, respectively,
calculated through December 31, 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 $8.2 million of interest,
calculated through December 31, 1996. (Such amounts are in
addition to the tax of $143,000 and interest of $1,393,000,
discussed above, that will be owed as a result of the partial
settlements entered into to date.) No state income tax or
interest is anticipated on account of the unsettled 1980-88
issue.
Note 10 - Long-term Debt:
Long-term debt consists of the following (in $000's):
<TABLE>
1996 1995
<S> <C> <C>
10.5% mortgage note, due
in monthly installments, through
April 2000, secured by certain
land and buildings held for sale,
carried at a cost of $358,000 $ 38 $ 47
Mortgage note - 340
Other obligations 28 35
Total debt 66 422
Less: Current portion 18 356
Long-term portion $ 48 $ 66
</TABLE>
Maturities
At December 31, 1996, long-term debt matures as follows
(in $000's):
1998 $ 20
1999 22
2000 6
$ 48
Note 11 - 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):
1996 1995
Kin-Buc landfill $10,672 $10,692
Kinsley's landfill 2,003 2,004
Mac Sanitary landfill 142 155
Total $12,817 $12,851
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.
In January 1993, a new trust (the "1993 Trust") was
established to fund the remediation of the Kin-Buc Landfill
and neighboring areas out of proceeds provided from negotiated
settlements with certain of the PRPs named in a suit the
Company initiated in 1990 with the intent of obtaining
contribution to the cost of remediation (see Note 15). 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 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. Substantially all of
<PAGE>
the funds held in the new trust had been expended as of
December 31, 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 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 to the
contractor and other parties by SCA for certain activities
mandated by the 1992 Order.
The execution of the contracts between SCA and the
contractors has 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. During 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 June 30, 1995. The status of such arbitration
demand, as yet unresolved, is described in Note 15 to the
Company's Consolidated Financial Statements.
The contractors have completed the construction required
under the Orders, and the Company is awaiting EPA 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.
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 substantially complete and the Company is awaiting EPA
acceptance of the work performed in December 1996. The cost
of such installation has been estimated at $1.3 million and
has been 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 Orders could
materially increase the total estimated costs of remediation.
At December 31, 1996 and 1995, Kin-Buc had accrued
approximately $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 estimated allocable 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. Such estimates require a number
of assumptions and therefore may differ from the ultimate
outcome.
Additional material adjustments to the Company's current
accrual may become necessary as the related implementation
costs are realized and weighed against revised allocations to
other respondents and PRPs.
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.
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, 1996
and 1995, Kinsley's has accrued $11,255,000 and $11,479,000,
respectively, for the remaining costs of closure and post-
closure care of this facility, of which $9,252,000 and
$9,475,000, respectively, is being held in interest-bearing
trust accounts. The accrual as of December 31, 1996 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, 1996 and 1995, Mac has accrued $142,000 and
$155,000, respectively, for the costs of continuing post-
closure care and monitoring at the facility. The Company
increased its accrual for closure costs by $11,000 during 1996
and $131,000 during 1995 due to unanticipated engineering and
testing costs incurred to respond to inquiries from
environmental agencies. The accrual as of December 31, 1996
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 15). 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 15). 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 quarter
ended September 30, 1995 (see Note 15).
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 12 - Stockholders' Equity:
Stock Option Plans
At December 31, 1996, 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. Options for 55,000 and 58,800 shares were
outstanding at December 31, 1996 and 1995, respectively, all
of which are exercisable.
A summary of stock option transactions for 1996 and 1995
follows:
<TABLE>
1996 1995
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 58,800 $1.00 105,600 $2.13
Granted - - - -
Exercised - - - -
Expired (3,800) 5.00 (46,800) 3.56
Outstanding,
end of year 55,000 $0.72 58,800 $1.00
Options exercisable
at year end 55,000 58,800
</TABLE>
The following information applies to stock options
outstanding at December 31, 1996:
Options outstanding 55,000
Range of exercise prices $0.44 to $0.75
Weighted average exercise price $0.72
Weighted average remaining life in years 4.50
Note 13 - 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. 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 1996 and 1995. 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, 1996 and 1995 were
$10,000 and $8,000, respectively.
Employee Health Plans
The Company maintains an employee benefit program which
provides health care benefits to substantially all full-time
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 14 - 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 $71,000 and $97,000 in 1996 and 1995, respectively.
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):
1997 $52
1998 42
1999 41
2000 25
Note 15 - 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, March 7, 1996 and July 31,
1996, respectively, the Company and the Service executed a
stipulation of partial settlement of issues in the Tax Court
case and first, second and third revised stipulations of
partial settlement. These partial settlements resolved all but
two 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 $5.9
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. The Company cannot predict the outcome of
further settlement negotiations or litigation with the Service
over that remaining issue.
The Service has concluded an audit of the Company's 1989-
91 federal income tax returns, which resulted in the Service
challenging the deductions claimed by the Company in
connection with its investment in computer equipment under
lease (see Note 9 to the Company's Consolidated Financial
Statements). The Service also asserted a number of smaller
adjustments which have been settled. Discussions with the
Service on the computer equipment issue are in progress. The
Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over these
remaining two issues.
The financial condition, results of operations and net
cash flows of the Company could be materially and adversely
affected if the Company either is unsuccessful in the defense
of the remaining issues in the Tax Court case or is 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 11).
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. While final discovery in the SCA Arbitration was
being completed and immediately prior to the commencement of
hearings in the SCA Arbitration and the re-scheduling of the
referee's hearing 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.
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 Clay Deposits
As discussed in Note 8, in 1988, Kin-Buc purchased 150,000
cubic yards of clay for use in the closure of the Kin-Buc
Landfill for $1.2 million from Inmar. Pursuant to the
agreement for the purchase of the clay, Kin-Buc is entitled to
a refund of the purchase price of clay it is unable to mine or
can not use. In October 1996, the Company learned that Inmar
had contracted to sell a substantial portion of its land, upon
which a substantial amount of the clay is situated, to Edison
Expansion, Inc. ("Expansion"). In November 1996, Kin-Buc
brought suit entitled Kin-Buc, Inc., v. Inmar Associates, Inc.
and Edison Expansion, Inc. in Superior Court, Morris County,
New Jersey ("Superior Court") against Inmar and Expansion for,
among other things, a declaratory judgment that Kin-Buc's
rights in the clay would survive a sale of the land to
Expansion and, alternatively, a money judgment against Inmar.
Kin-Buc also filed a lis pendens against the Inmar property.
In December 1996, Expansion sought and obtained a discharge of
the lis pendens and a closing of the sale to Expansion took
place in January 1997. In accordance with an order of the
Superior Court entered in another matter involving Inmar, the
net proceeds of the sale was paid into the Superior Court.
Kin-Buc is seeking an order from the Superior Court that,
subject to senior claims, such proceeds are to be paid to Kin-
Buc if it obtains a money judgment against Inmar in its
action. These proceeds are substantially less than Kin-Buc's
claim against Inmar. Upon entry of an order concerning the
disposition of the proceeds, Inmar and Expansion will be
required to answer Kin-Buc's complaint. Kin-Buc may
ultimately obtain a declaratory judgment, an award of money
damages against Inmar, or both. There is no assurance that
Kin-Buc will be able to mine and remove the clay on
Expansion's property or Inmar's remaining property even if
Kin-Buc obtains a declaratory judgment. In addition, there is
no assurance that Kin-Buc will be permitted to draw against
the proceeds in the Superior Court. Lastly, there is
substantial uncertainty that Inmar will be financially capable
of paying damages to Kin-Buc.
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, 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 but shortly thereafter agreed
to sever claims against the Company and proceed against other
defendants. As a result, the claims against the Company have
again been 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.
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 16 - 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
1996
<S> <C> <C> <C> <C>
Operating revenues $ 264 $ 99 $ - $ -
Intercompany revenues $ - $ 180 $ - $ -
Income (loss)
from operations $ 9 $ (204) $ - $(2,090)
Identifiable assets $ 44(a) $ 119 $ 41 $ 9,363
Depreciation expense $ 17 $ 24 $ - $ 26
Capital expenditures $ 34 $ 13 $ - $ 21
1995
Operating revenues $ 206 $ 167 $ - $ -
Intercompany revenues $ - $ 264 $ - $ -
Income (loss)
from operations $ (165) $ (101) $ - $(2,663)
Identifiable assets $ 27(a) $ 410 $ 128 $ 7,849
Depreciation expense $ 1 $ 24 $ - $ 33
Capital expenditures $ 28 $ 56 $ - $ 2
<FN>
(a) Substantially all of the assets of the electricity generation
segment are fully depreciated.
</FN>
</TABLE>
During the year ended December 31, 1996 and 1995, three
and two, respectively, customers of the Company accounted for
100% of the Company's consolidated operating revenues.
Note 17 - 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 18 - 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 15). Since Mr. Mahan's
retirement from the Company, it has provided Mr. Mahan the use
of an automobile and contributed to the expenses of
maintaining an office for his use including secretarial
services. Such expenses totalled approximately $14,000 and
$21,000 in 1996 and 1995, respectively.
On August 28, 1992, the Company made an advance of $10,000
to the Company's President and Chairman of the Board of
Directors. The advance was evidenced by an interest bearing
note. The note and accrued interest thereon was repaid in
full during 1996. On April 22, 1994, the Company made a loan
of $75,000 to the President and Chairman of the Board of
Directors of the Company, evidenced by a note which bears
interest at a floating prime rate plus 1% and is due and
payable as determined by the Board of Directors.
Approximately $95,000 was outstanding with respect to the
loan, including interest, as of December 31, 1996. The
Company believes that the terms of 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 also obtained the right to
acquire, for an aggregate cost of $2.3 million, an additional
12.5% 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/or Hunt were employed in various capacities by ValveCo and
Hunt after the sale. The Company's President and Chairman of
the Board of Directors resigned from his employment with
ValveCo Inc. and Hunt effective January 1, 1997, but remains
a director of Hunt. The Company's Vice President and Chief
Financial Officer also resigned from his employment with
ValveCo Inc. and Hunt effective January 1, 1997.
Transtech Industries, Inc.
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,
1996 and 1995, 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, 1996
and 1995, 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, 9, 11 and 15 to the
consolidated financial statements, the Company has experienced
recurring operating losses and is currently involved in material
litigation concerning environmental remediation costs, its rights
with respect to clay deposits, and an 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 20, 1997
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, 1995 through December 31, 1996. The high and
low bid price information for 1996 has been obtained from The
Nasdaq Stock Market, Inc. The high and low bid price information
for 1995 was obtained from market makers in the Company's common
stock.
<TABLE>
<CAPTION>
1996 High Low 1995 High Low
<C> <C> <C> <C> <C> <C>
1st quarter $.0300 $.0300 1st quarter $.1500 $.0500
2nd quarter .0325 .0300 2nd quarter .1200 .0500
3rd quarter .0300 .0300 3rd quarter .0500 .0312
4th quarter .0700 .0300 4th quarter .0312 .0312
</TABLE>
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 December 31, 1996 was 291.
The Company paid no dividends in either stock or cash in 1996
or 1995 and does not presently anticipate paying dividends in the
foreseeable future.
Transtech Industries, Inc.
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 11. Computation of Net Loss Per Share.
<TABLE>
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<CAPTION>
Years Ended
December 31,
PRIMARY: 1996 1995
<S> <C> <C>
Weighted Average Shares
Outstanding 2,829,000 2,829,090
Dilutive Stock Options Based
Upon the Treasury Stock
Method Using the Average
Market Price - -
2,829,000 2,829,090
Net Loss from Continuing
Operations $(2,725,000) $ (417,000)
Discontinued Operations:
Income from discontinued
operations, net of taxes - 159,000
Loss on disposal of discontinued
operation, net of taxes - (510,000)
Extraordinary charge (512,000) -
Net Loss $(3,267,000) $ (768,000)
Net Loss Per Common Share
Loss from Continuing
Operations $ (.97) $ (.15)
Discontinued Operations:
Income from discontinued
operations, net of taxes - .06
Loss on disposal of
discontinued operation, net of taxes - (.18)
Extraordinary charge ( .18) -
Loss per share $(1.15) $ (.27)
FULLY DILUTED:
Weighted Average Common
Shares - Outstanding 2,829,000 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 - -
2,829,000 2,829,090
Net Loss from Continuing
Operations $(2,755,000) $ (417,000)
Discontinued Operations:
Income from discontinued
operations, net of taxes (credit) - 159,000
Loss on disposal of discontinued
operation, net of taxes - (510,000)
Extraordinary charge (512,000) -
Net Loss $(3,267,000) $ (768,000)
Net Loss Per Common Share $ (.97) $ (.15)
Loss from Continuing
Operations
Discontinued Operations:
Income from discontinued
operations, net of taxes - .06
Loss on disposal of
discontinued operation, net of taxes - (.18)
Extraordinary charge ( .18) -
Loss Per Share $(1.15) $ (.27)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 260
<SECURITIES> 3,783
<RECEIVABLES> 324
<ALLOWANCES> 16
<INVENTORY> 0
<CURRENT-ASSETS> 4,844
<PP&E> 4,130
<DEPRECIATION> 3,190
<TOTAL-ASSETS> 9,567
<CURRENT-LIABILITIES> 2,445
<BONDS> 0
0
0
<COMMON> 2,357
<OTHER-SE> (8,100)
<TOTAL-LIABILITY-AND-EQUITY> 9,567
<SALES> 363
<TOTAL-REVENUES> 363
<CGS> 299
<TOTAL-COSTS> 2,648
<OTHER-EXPENSES> 515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (43)
<INCOME-PRETAX> (2,757)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (2,755)
<DISCONTINUED> 0
<EXTRAORDINARY> (512)
<CHANGES> 0
<NET-INCOME> (3,267)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
Exhibit 22. 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. 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)
