SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported) January 22, 1998
TRANSTECH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-6512 22-1777533
(State or other (Commission I.R.S. Employer
jurisdiction of File Number) Identification
incorporation) Number)
200 Centennial Ave., Piscataway, New Jersey 08854
(Address of principal executive offices) (Zip Code)
(732) 981-0777
(Registrant's telephone number, including area code)
Former name or former address, if changed
since last report Not applicable
<PAGE>
Item 5. Other Events
On January 22, 1998 Transtech Industries, Inc. (the
"Company") executed a supplement to the Third Revised Stipulation
of Settled Issues with the Internal Revenue Service (the
"Service"), thereby agreeing to settle one of the two remaining
issues in the Company's ongoing litigation with the Service. The
financial results of the Company for the year ended December 31,
1997 will include charges to income totalling approximately $1.3
million to reflect the increase in its accrued income tax
liability resulting from such settlement.
The Company has previously disclosed that in 1991 the Service
asserted numerous adjustments to the tax liability of the Company
and its subsidiaries for tax years 1980-88, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million
and a corresponding deficiency in federal income taxes of
approximately $13.5 million, as well as penalties of $2.5 million
and interest on the asserted deficiency and penalties. In
addition, the Service challenged the carryback of losses incurred
by the Company in taxable years 1989-91, thereby bringing those
years, which had been the subject of an ongoing audit, into the
deficiency notice. In 1994, the Company filed a petition with the
Tax Court contesting many of the proposed adjustments asserted in
the deficiency notice. On June 5, 1995, August 14, 1995, March 7,
1996 and July 31, 1996, respectively, the Company and the Service
executed stipulations of settlement of issues in the Tax Court
case. These settlements had resolved all but two issues, one from
the 1980-88 period and one from the 1989-91 period.
The issue from the 1989-91 period involved the Service's
asserted disallowance of the significant net deductions the
Company had claimed in connection with its investment in computer
equipment. Specifically, the Company claimed tax deductions of
approximately $36 million for depreciation related to the computer
equipment and $22 million for interest on the non-recourse debt
incurred to finance the acquisition of the computer equipment.
Over the term of the lease, these deductions were offset by $53
million of income from the rentals of this equipment. From 1989
to 1995, the deductions exceeded the rental income from leasing
the equipment. The excess deductions offset the Company's income
from other sources. In 1996 and 1997, however, the rental income
exceeded the deductions related to the computer equipment. The
stipulation of settlement executed on January 22, 1998 resolved
the computer equipment issue by agreeing to the disallowance of
approximately $3.8 million of deductions for 1989 and by providing
that no other adjustment would be made to deductions and income in
respect of the computer equipment transaction for 1989 or
subsequent years.
The Company recently completed the recalculation of its
estimated tax liability to give effect to the January 22, 1998
settlement. The Company has net operating loss and tax credit
carryforwards that will partly offset the tax liability resulting
from all settled adjustments to taxable income. Taking into
account such carryforwards, the estimated federal income tax and
interest that will be due for all periods through and including
1997 (based on an estimate of taxable income for the year ended
December 31, 1997), reflecting the settlements reached to date,
totals approximately $4.9 million ($2.6 million of taxes and $2.3
million of interest through December 31, 1997), an increase of
$1.7 million over the estimates reported in the Company's report
on Form 10-QSB filed for the period ended September 30, 1997. The
settlement of the computer equipment issue will not result in any
state tax liability. The financial results of the Company for the
year ended December 31, 1997 will include a charge to income equal
to the above increase in the Company's accrued liability for
income tax and interest. Approximately $1.3 million of such
increase in the Company's accrued liability is attributed to the
January 22, 1998 settlement.
Payment of the federal and state tax liability from the
settlements reached to date and any additional liability arising
out of the settlement or litigation of the remaining issue will be
due at the conclusion of the Tax Court case. (All tax liability
estimates presented herein exclude penalties. The Service has
conceded federal penalties on all issues in the Tax Court
litigation. However, penalties could be asserted by the states.)
The remaining unresolved issue in the case involves several
taxable years from the 1980-88 period and relates to the timing of
significant deductions taken by the Company for certain landfill
closing costs. The unsuccessful defense of this issue would have a
material adverse impact on the financial position, results of
operations and net cash flow of the Company. The Company has not
recalculated the estimated tax liability that would result from
the disallowance of these deductions, but has provided estimates
of the incremental tax liability associated with similar scenarios
in its recent filings under Form 10-KSB and Form 10-QSB. The
Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over that issue.
The $4.9 million estimated tax liability is greater than the
Company's currently liquid assets (i.e., cash and marketable
securities). No assurance can be given that the timing and amount
of the cash proceeds from (i) the Company's operations (if any),
(ii) the sale of the Company's property held for sale, (iii) the
collection of amounts due the Company and (iv) outstanding
insurance claims for recovery of past remediation costs will be
sufficient to meet the capital requirements of the Company,
including its tax liability.
See the following press release dated February 13, 1998
announcing the January 22, 1998 settlement.
PISCATAWAY, N.J., February 13, 1998 - Robert V. Silva,
President and Chief Executive Officer of Transtech Industries,
Inc. (OTC BULLETIN BOARD:TRTI)(the "Company") announced today that
the Company executed a supplement to the Third Revised Stipulation
of Settled Issues with the Internal Revenue Service (the
"Service") thereby agreeing to settle one of the two remaining
issues in the Company's ongoing litigation with the Service.
The settlement, executed on January 22, 1998, resolved the
Service's challenge to net deductions the Company had claimed with
respect to its investment in computer equipment which was leased
to third parties.
The Company recently completed the recalculation of its
estimated tax liability to give effect to the settlement. The
estimated federal income tax and interest that will be due for all
periods through and including 1997 (based on an estimate of
taxable income for the year ended December 31, 1997), reflecting
the settlements reached to date, totals approximately $4.9 million
($2.6 million of taxes and $2.3 million of interest through
December 31, 1997), an increase of $1.7 million over the estimate
reported in the Company's report on Form 10-QSB filed for the
period ended September 30, 1997. The settlement of the computer
equipment issue will not result in any state tax liability. The
financial results of the Company for the year ended December 31,
1997 will include charges to income equal to the above increase in
the Company's accrued liability. Approximately $1.3 million of
such increase is attributable to the January 22, 1998 settlement.
Payment of the federal and state tax liability from the
settlements reached to date and any additional liability arising
out of the settlement or litigation of the remaining issue will be
due at the conclusion of the Tax Court case. (All tax liability
estimates presented herein exclude penalties. The Service has
conceded federal penalties on all issues in the Tax Court
litigation. However, penalties could be asserted by the states.)
The $4.9 million estimated tax liability is greater than the
Company's currently liquid assets (i.e., cash and marketable
securities). No assurance can be given that the timing and amount
of the cash proceeds from the Company's operations (if any), the
sale of the Company's property held for sale, the collection of
amounts due the Company and outstanding insurance claims for
recovery of past remediation costs will be sufficient to meet the
capital requirements of the Company, including its tax liability.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANSTECH INDUSTRIES,INC.
By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
Dated: February 18, 1998
