SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,829,190 shares of common stock, $.50 par value, outstanding as of
June 30, 1999. In addition, at such date, the issuer held
1,885,750 shares of common stock, $.50 par value, in treasury.
Transitional Small Business Disclosure Format
(Check One): Yes No X
Page 1 of 31 pages
Exhibit index on page 30
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED June 30, 1999
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998 3 - 4
Consolidated Statements of Operations for the 5
Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Operations for the 6
Three Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 7 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
EXHIBIT INDEX 30
EXHIBITS 31
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,818 $ 605
Marketable securities 68 1,806
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 340 225
Notes receivable 112 108
Prepaid expenses and other 316 319
Total current assets 2,654 3,063
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,892 2,891
Less accumulated depreciation (2,816) (2,794)
Net property, plant and equipment 76 97
OTHER ASSETS
Notes receivable 131 137
Assets held for sale 1,312 1,312
Escrowed funds from sale of
subsidiary 879 859
Other 132 132
Total other assets 2,454 2,440
TOTAL ASSETS $ 5,184 $ 5,600
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 20 $ 24
Accounts payable 181 289
Accrued income taxes and related
interest 3,269 3,747
Deferred income taxes 4 3
Accrued miscellaneous expenses 149 163
Total current liabilities 3,623 4,226
OTHER LIABILITIES
Long-term debt 7 15
Accrued remediation and closure
costs 2,104 2,110
Total other liabilities 2,111 2,125
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,940 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 6,561 6,358
Net unrealized gains on marketable
securities 30 32
Subtotal 10,464 10,263
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (550) (751)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 5,184 $ 5,600
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
<S> <C> <C>
REVENUES $ 108 $ 405
COST OF OPERATIONS
Direct operating costs 94 320
Selling, general and
administrative expenses 730 824
Total cost of operations 824 1,144
INCOME (LOSS) FROM OPERATIONS (716) (739)
OTHER INCOME (EXPENSE)
Investment income (loss) 81 104
Interest expense (2) (3)
Interest expense (credit) related
to income taxes payable 258 (171)
Gain (loss) from sale of property 6 (1)
Miscellaneous income (expense) 356 35
Total other income (expense) 699 (36)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (17) (775)
Income taxes (credit) (220) (263)
NET INCOME (LOSS) $ 203 $ (512)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $ .07 $(.18)
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended
June 30,
1999 1998
<S> <C> <C>
REVENUES $ 24 $ 200
COST OF OPERATIONS
Direct operating costs 20 135
Selling, general and
administrative expenses 371 412
Total cost of operations 391 547
INCOME (LOSS) FROM OPERATIONS (367) (347)
OTHER INCOME (EXPENSE)
Investment income (loss) 42 51
Interest expense (1) (1)
Interest expense (credit) related
to income taxes payable 351 (83)
Gain (loss) from sale of property 3 (1)
Miscellaneous income (expense) 309 16
Total other income (expense) 704 (18)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) 337 (365)
Income taxes (credit) (220) (123)
NET INCOME (LOSS) $ 557 $ (242)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $ .20 $(.08)
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 91 $ 364
Cash paid to suppliers and employees (962) (1,175)
Interest and dividends received 73 91
Interest paid (2) (3)
Other income received 284 33
Income taxes paid (1) -
Net cash provided by (used in)
operating activities (516) (690)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 1,737 1,000
Purchase of marketable securities - -
Purchase of property, plant and
equipment (1) (4)
Proceeds from sale of property,
plant and equipment 3 267
Collections of notes receivable 9 6
Net cash provided by (used in)
investing activities 1,748 1,269
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (12) (11)
Payment of remediation and closure
costs (5) (5)
Net cash provided by (used in)
financing activities (17) (16)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,213 563
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 605 311
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $1,818 $ 874
</TABLE>
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 203 $ (512)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 22 29
(Gain) loss on sale of property,
plant and equipment (6) -
Increase (decrease) in deferred
income taxes 1 3
(Increase) decrease in assets:
Accounts and notes receivable,
-net (102) (41)
Prepaid expenses and other (13) (23)
Escrowed funds from sale of subsidiary (20) (21)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (123) (33)
Accrued income taxes and related
interest (478) (92)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (516) $ (690)
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
NOTE 1 - FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of
this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1998 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1998 financial statements in order to
conform to the presentation followed in preparing the 1999
financial statements. Quarterly financial information has not been
audited. In the opinion of management, the information presented
reflects all adjustments necessary for a fair statement of interim
results. All such adjustments are of a normal and recurring nature
except as disclosed herein.
NOTE 3 - MARKETABLE SECURITIES
The Company classifies all equity securities and debt
securities as available-for-sale securities. Available-for-sale
debt securities are carried at amortized cost, which approximates
fair value because of their short term to maturity. At June 30,
1999, the Company did not hold any available-for-sale debt
securities. Available-for-sale equity securities are carried at
fair value as determined by quoted market prices. The portfolio of
available-for-sale equity securities had a cost of $38,000 and a
market value of $68,000 as of June 30, 1999. The aggregate excess
of market value over cost of such securities as of June 30, 1999 of
$30,000 is presented as a separate component of stockholders'
equity. The excess of fair value over cost consisted of gross
unrealized gains of $53,000 and gross unrealized losses of $23,000
as of June 30, 1999. 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 and
maturity of available-for-sale securities during the six months
ended June 30, 1999 amounted to $1,737,000. Dividend and interest
income is accrued as earned.
NOTE 4 - ASSETS HELD FOR SALE
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of June 30, 1999. The real
estate included in this category as of June 30, 1999 consists of
approximately 430 acres in Deptford, N.J., including approximately
100 acres upon which the landfill owned and previously operated by
the Company's subsidiary, Kinsley's Landfill, Inc., is situated.
The Company is pursuing the disposition of these properties.
However, based upon market conditions for real estate of this type,
the Company is unable to determine when such sale(s) will be
consummated.
During March 1998, the Company sold approximately two acres of
property in Readington Township, N.J., classified as assets held
for sale, for net proceeds after expenses of $267,000. No gain or
loss related to the sale has been reported since the proceeds
approximated the carrying value of the property.
NOTE 5 - INCOME TAXES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The Company filed a petition with the Tax Court contesting
many of the proposed adjustments asserted in the deficiency notice.
For a discussion of this matter, see "Taxes" contained in
Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-QSB.
NOTE 6 - LONG-TERM DEBT
At June 30, 1999, long-term debt consisted of the following (in
$000's):
10.5% mortgage payable in $ 10
installments through April 2000;
secured by land and buildings
Other (vehicle and equipment financing) 17
Total long-term debt 27
Less: current portion (20)
$ 7
NOTE 7 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries previously participated
in the resource recovery and waste management industries. These
activities included the hauling of waste, waste treatment and the
operation of three landfills. Although the sites are now closed,
the Company continues to own two sites and to remediate two sites,
and has both incurred, and accrued for, substantial costs
associated therewith.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste related activities, possibly in
excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of June 30, 1999, the Company has accruals totalling $11.3
million for its estimated share of remediation and closure costs in
regard to the Company's former landfill operations, $9.2 million of
which is held in trusts and maintained by trustees for financing of
the estimated $11.0 million required to fund the closure plan
related to the landfill in Deptford, New Jersey owned by the
Company's subsidiary, Kinsley's Landfill, Inc.
On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of
remediation of the landfill in Edison, New Jersey owned and
operated by Kin-Buc, Inc., a wholly-owned subsidiary of the
Company, and which substantially relieved the Company from future
obligation with respect to the site. The Kin-Buc Landfill 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 May 1997, EPA began an investigation of an area in the
vicinity of the Kin-Buc Landfill known as Mound B. In May 1998,
the final plan of this investigation was completed. In February
1999, the Company received a copy of a letter sent from EPA to SCA
informing SCA that EPA has concluded that hazardous materials were
disposed of in Mound B. The letter also instructed SCA to provide
EPA with work plans to address conditions at the mound.
Kin-Buc, Inc. had accrued approximately $10.7 million for its
share of the costs of such remediation and closure. The Company
reversed the accrual as a result of the December 1997 settlements
and recognized income of $10.6 million in the year ended December
31, 1997 due to the elimination of such accrual.
During July 1999, counsel to the Company was contacted by the
EPA regarding a Piscataway, New Jersey site owned by Tang Realty,
Inc. ("Tang") and operated by Transtech for a limited period of
time. Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
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 had no
direct involvement with the EPA since October 1990 and had not been
the recipient of an EPA request for information. The recent
inquiry set forth the EPA's concern that the statute of limitations
on any claim EPA may have against the Company with respect to the
site would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. During this three month
period, EPA and the Company are to discuss any potential claims
EPA may be contemplating against the Company with respect to the
site. Pursuant to a December 1988 agreement with Tang, in 1988,
1989 and 1990 Transtech spent approximately $4.3 million for the
remediation of the site.
NOTE 8 - LEGAL PROCEEDINGS
See Item 1 of Part II of this Form 10-QSB for a discussion of
recent developments with respect to the Company's legal matters.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements
and related notes, which provide additional information concerning
the Company's financial activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
Results of Operations
The six months ended June 30, 1999 compared to the six months
ended June 30, 1998
Consolidated revenues by business segment for the six months
ended June 30, 1999 and 1998 were as follows (in $000):
1999 1998
Electricity Generation $ 56 $134
Environmental Services 401 506
Subtotal 457 640
Intercompany (349) (235)
Net $ 108 $405
Revenues from the operation which generates electricity using
methane gas as fuel were $56,000 for the six months ended June 30,
1999, a decrease of $78,000 or 58% compared to the same period of
the prior year. The electricity generating facility consists of
four diesel/generating units each capable of generating
approximately 48,000 kwh/day at full capacity. Methane gas is a
component of the landfill gas generated by a landfill site owned by
the Company. Engineering studies indicate sufficient quantities of
gas at the landfill to continue the operation of the facility for
approximately 13 years. Electricity generated is sold pursuant to
a long term contract with a local utility. Revenues are a function
of the number of kilowatt hours sold, the rate received per
kilowatt and capacity payments. The Company sold 2.2 million kwh
during the six months ended June 30, 1999 compared to 5.0 million
kwh sold in the same period of the prior year. The combined rate
received (per Kilowatt and capacity payment) decreased 7.1% in the
current period when compared to the comparable period last year.
The decline in quantity sold is primarily due to two of the four
diesel/generating units being out of service for major repair. See
the discussion of "Liquidity and Capital Resources" below for
information regarding the lease of the landfill gas generated at
this site and an offer to purchase the electricity generating
operations.
The environmental services segment reported $401,000 of gross
operating revenues for the six months ended June 30, 1999 (prior to
elimination of intercompany sales) compared to $506,000 for the
period in 1998, a decrease of 21%. Approximately $349,000 or 87%
of the environmental services segment's revenues for the period,
compared to $235,000 or 46% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. Third party sales during the period
in 1999 and 1998 were $52,000 and $271,000, respectively.
Consolidated net revenues for the six months ended June 30,
1999 were $88,000, a decrease of $317,000 or 78% compared to the
same period of 1998.
Consolidated direct operating costs for the six months ended
June 30, 1999 were $94,000, a decrease of $226,000 or 71% from
$320,000 reported for the same period in 1998. The costs of the
electricity generating operation decreased 35% for the six months
ended June 30, 1999 when compared to the same period in 1998 due to
a decrease in repair and maintenance costs incurred for the
electric generating equipment. Costs of the environmental services
segment decreased approximately 21% overall due to the decrease in
sales volume.
Consolidated selling, general and administrative expenses for
the six months ended June 30, 1999 were $730,000, a decrease of
$94,000 or 11% from $824,000 for the same period in 1998. The
decrease was primarily due to a decrease in personnel costs.
Significant professional fees and administrative costs continue to
be incurred in support of the Company's ongoing litigation,
marketing and asset divestiture efforts (see "Liquidity and Capital
Resources - Liquidity").
The Company's consolidated operating loss for the six months
ended June 30, 1999 decreased to $716,000 from a loss of $739,000
for the same period in 1998.
Consolidated investment income decreased by $23,000 to $81,000
for the six months ended June 30, 1999 from $104,000 for the
comparable period last year.
Consolidated interest expense for the six months ended June
30, 1999 of $2,000 was substantially unchanged from the $3,000
reported for the same period last year.
Interest reported as "Interest expense (credit) related to
income taxes payable" represents the increase or decrease in the
amount of interest accrued on estimated income taxes payable as a
result of the Company's tax litigation referred to below. Such
interest credit for the six months ended June 30, 1999 was $258,000
versus an expense of $171,000 reported for the comparable period in
1998.
Consolidated miscellaneous income for the six months ended
June 30, 1999 increased $321,000 to $356,000 when compared to the
$35,000 reported for the same period of 1998. Miscellaneous income
for the period in 1999 includes income of $74,000 in recognition of
a payment due from the lessee of the landfill gas generated at a
landfill owned by the Company. Miscellaneous income for the period
in 1999 also includes income of $250,000 related to the settlement
of claims brought against one of the Company's excess insurance
carriers.
The consolidated loss before income tax credits was $17,000
for the six months ended June 30, 1999, compared to a loss of
$775,000 for the same period last year.
An income tax credit of $220,000 has been recognized for the
six months ended June 30, 1999. The income tax credit for same
period of 1998 equalled $263,000.
Consolidated net income for the six months ended June 30, 1999
was $203,000 or $.07 per share, compared to net loss of $512,000,
or $.18 per share, for the six months ended June 30, 1998.
The three months ended June 30, 1999 compared to the three
months ended June 30, 1998
Consolidated revenues by business segment for the three months
ended June 30, 1999 and 1998 were as follows (in $000):
1999 1998
Electricity Generation $ 25 $ 69
Environmental Services 212 262
Subtotal 237 331
Intercompany (213) (131)
Net $ 24 $200
Revenues from the operation which generates electricity using
methane gas as fuel were $25,000 for the three months ended June
30, 1999, a decrease of $34,000 or 50% compared to the same period
of the prior year. The Company sold 0.9 million kwh during the
three months ended June 30, 1999 compared to 2.4 million kwh sold
in the same period of the prior year. The combined rate received
(per Kilowatt and capacity payment) decreased 11.6% in the current
period when compared to the comparable period last year. The
decline in quantity sold is primarily due to two of the four
diesel/generating units being out of service for major repair. See
the discussion of "Liquidity and Capital Resources" below for
information regarding the lease of the landfill gas generated at
<PAGE>
this site and an offer to purchase the electricity generating
operations.
The environmental services segment reported $212,000 of gross
operating revenues for the three months ended June 30, 1999 (prior
to elimination of intercompany sales) compared to $262,000 for the
period in 1998, a decrease of 19%. Approximately $213,000 or 100%
of the environmental services segment's revenues for the period,
compared to $131,000 or 50% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. Third party sales during the period
in 1999 were $22,000 and credits issued for work performed in prior
periods equaled $23,000. Third party sales during the period in
1998 were approximately $131,000.
Consolidated net revenues for the three months ended June 30,
1999 were $24,000, a decrease of $176,000 or 88% compared to the
same period of 1998.
Consolidated direct operating costs for the three months ended
June 30, 1999 were $20,000, a decrease of $115,000 or 85% from
$135,000 reported for the same period in 1998. The costs of the
electricity generating operation decreased 38% for the three months
ended June 30, 1999 when compared to the same period in 1998 due to
a decrease in repair and maintenance costs incurred for the
electric generating equipment. Costs of the environmental services
segment decreased approximately 10% overall due to the decrease in
sales volume.
Consolidated selling, general and administrative expenses for
the three months ended June 30, 1999 were $371,000, a decrease of
$41,000 or 10% from $412,000 for the same period in 1998. The
decrease was primarily due to a decrease in personnel costs.
Significant professional fees and administrative costs continue to
be incurred in support of the Company's ongoing litigation,
marketing and asset divestiture efforts (see "Liquidity and Capital
Resources - Liquidity").
The Company's consolidated operating loss for the three months
ended June 30, 1999 increased to $367,000 from a loss of $347,000
for the same period in 1998.
Consolidated investment income decreased by $9,000 to $42,000
for the three months ended June 30, 1999 from $51,000 for the
comparable period last year.
Consolidated interest expense of $1,000 for the three months
ended June 30, 1999 was unchanged from that reported for the same
period last year.
Interest expense reported as "Interest expense (credit)
related to income taxes payable" represents the increase or
decrease in the amount of interest accrued on estimated income
taxes payable as a result of the Company's tax litigation referred
to below. An interest credit of $351,000 was recognized for the
three months ended June 30, 1999 versus an expense of $83,000
reported for the comparable period in 1998.
Consolidated miscellaneous income for the three months ended
June 30, 1999 increased $293,000 to $309,000 when compared to the
same period of 1998. Miscellaneous income for the period in 1999
includes income of $39,000 in recognition of a payment due from the
lessee of the landfill gas generated at a landfill owned by the
Company. Miscellaneous income for the period in 1999 also includes
income of $250,000 related to the settlement of claims brought
against one of the Company's excess insurance carriers.
Consolidated income before income tax credits was $337,000 for
the three months ended June 30, 1999, compared to a loss of
$365,000 for the same period last year.
An income tax credit of $220,000 has been recognized for the
three months ended June 30, 1999. The income tax credit for same
period of 1998 equalled $123,000.
Consolidated net income for the three months ended June 30,
1999 was $557,000 or $.20 per share, compared to a net loss of
$242,000, or $.08 per share, for the three months ended June 30,
1998.
<PAGE>
Liquidity and Capital Resources
General
Net cash used in operating activities for the six months ended
June 30, 1999 decreased to a net use of $516,000 from a use of
$690,000 when compared to the same period of last year. Net cash
provided by investing activities increased this year to $1,748,000
from $1,269,000 due to the maturity of marketable debt securities.
The use of cash in financing activities for the period was $17,000
compared to $16,000 for last year. Funds held by the Company in
the form of cash and cash equivalents increased as of June 30, 1999
to $1,818,000 from $874,000. The sum of cash, cash equivalents and
marketable securities as of June 30, 1999 decreased to $1,886,000
from $2,472,000 when compared to last year.
Working capital deficit was $1.0 million and $1.2 million, and
the ratio of current assets to current liabilities was 0.7 to 1 as
of March 31, 1999 and December 31, 1998.
THE COMPANY FACES SIGNIFICANT SHORT-TERM AND LONG-TERM CASH
REQUIREMENTS FOR (I) FEDERAL AND STATE INCOME TAX OBLIGATIONS
DISCUSSED BELOW AND IN THE NOTES TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, MOST OF
WHICH WILL BECOME DUE FOLLOWING THE CONCLUSION OF THE TAX COURT
CASE WITH THE INTERNAL REVENUE SERVICE (THE "SERVICE") OF THE
COMPANY'S TAX LIABILITY FOR THE YEARS 1980 THROUGH 1991, (II)
FUNDING ITS PROFESSIONAL AND ADMINISTRATIVE COSTS, AND (III)
FUNDING REMEDIATION COSTS ASSOCIATED WITH SITES OF PAST OPERATIONS.
The Company has accrued $3.3 million through June 30, 1999
with respect to the federal and state income tax obligations. This
estimated amount exceeds the Company's currently liquid assets. In
addition, the Company's past participation in the waste handling
and disposal industries subjects the Company to future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, which could result in material increases in
remediation and closure costs, and other potential liabilities that
may ultimately result in costs and liabilities in excess of its
available financial resources.
<PAGE>
Although the Company continues to pursue the sale of assets
held for sale and claims against insurance carriers for recoveries
of past remediation costs, no assurance can be given that the
timing and amount of the proceeds from such sources will be
sufficient to meet the cash requirements of the Company as they
come due. In addition, the Company cannot ascertain whether its
remaining operations and funding sources will be adequate to
satisfy its future cash requirements, including its anticipated tax
liabilities. In the event of an unfavorable resolution of the
insurance litigation, or should the proceeds of asset sales be
insufficient to meet the Company's future cash requirements,
including its tax 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 has been
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 has reached agreement
with the Service as to all issues in the Tax Court litigation. The
Company estimates that, taking into account available net operating
losses and tax credits as of June 30, 1999, approximately $905,000
of federal income tax and $127,000 of state income tax, $2,237,000
of federal interest (plus additional interest from June 30, 1999
forward), will be owed when a judgment is entered at the conclusion
of Tax Court litigation. (The tax liability estimates presented
herein exclude penalties. The Service has conceded all of the
penalties that it had asserted in the Tax Court litigation, but
state tax authorities may assert that penalties are due.)
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. In 1994, the Company
filed a petition with the Tax Court contesting many of the
adjustments asserted in the deficiency notice. On June 5, 1995,
August 14, 1995, March 7, 1996, July 31, 1996, January 22, 1998 and
December 21, 1998, respectively, the Company and the Service
executed a stipulation of partial settlement, first, second and
third revised stipulations of partial settlement and a supplement
and second supplement to the third revised stipulation of
settlement. These settlements resolved all of the adjustments
asserted in the deficiency notice.
As a result of the settlements, 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 $27.4 million
of taxable income and $2.5 million of penalties.
The Company has net operating losses and tax credits that will
partly offset the tax liability resulting from the settled
adjustments to taxable income. Taking into account such losses and
credits, the estimated federal income tax and interest that is owed
on account of the settlements is approximately $3,142,000, with
interest through June 30, 1999 ($905,000 of taxes and $2,237,000 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. Payment of the federal
tax liability and the remaining state tax liability will be due
after the conclusion of the Tax Court case. The $3.3 million of
taxes and interest through June 30, 1999 that is estimated to be
owed by the Company (plus additional interest accruing from June
30, 1999 until the obligations are settled) exceeds the Company's
current liquid assets (i.e., cash and marketable securities). The
Company and the Service are currently discussing the computation of
the amount of tax and interest owed as a result of the settlements.
<PAGE>
Remediation and Closure Costs
As of June 30, 1999, the Company has accrued $11.3 million for
its estimated share of remediation and closure costs related to the
Company's former landfill and waste handling operations.
Approximately $9.2 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 7 to the Company's Consolidated
Financial Statements).
On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of
remediation of the Kin-Buc Landfill and substantially relieved the
Company from future obligation with respect to the site (see Note
7 to the Company's Consolidated Financial Statements). The Company
initiated a suit in 1990 against generators and transporters of
waste deposited at a site with the intent of obtaining contribution
toward the cost of remediation. The substantial expense of the
Company's prosecution and defense of claims in the litigation
relating to the Kin-Buc Landfill as well as the substantial expense
of the Company's efforts in respect to the settlements described
above, which the Company has incurred through 1997, will no longer
be borne by the Company. There may be some continuing expenses in
respect of the Kin-Buc Landfill, but not of the magnitude
experienced in the past.
During July 1999, counsel to the Company was contacted by the
EPA regarding a Piscataway, New Jersey site owned by Tang Realty,
Inc. ("Tang") and operated by Transtech for a limited period of
time. Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
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 had no
direct involvement with the EPA since October 1990 and had not been
the recipient of an EPA request for information. The recent
inquiry set forth the EPA's concern that the statute of limitations
on any claim EPA may have against the Company with respect to the
site would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. During this three month
period, EPA and the Company are to discuss any potential claims
EPA may be contemplating against the Company with respect to the
site. Pursuant to a December 1988 agreement with Tang, in 1988,
1989 and 1990 Transtech spent approximately $4.3 million for the
remediation of the site.
Assets Held for Sale/Claims for Past Remediation Costs
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of June 30, 1999. The real
estate included in this category consists of approximately 430
acres located in Deptford, N.J. (including approximately 100 acres
upon which the landfill owned and operated by the Company's
subsidiary Kinsley's Landfill, Inc. ("Kinsley's") is situated).
The Company is actively pursuing the disposition of such property.
However, based upon market conditions for real estate of this type
the Company is unable to determine when such sale(s) will
ultimately be consummated.
During the fourth quarter of 1997 the Company charged $33,000
to operations to reduce the carrying value of 2 acres located in
Readington Township, N.J. to $267,000, which represents proceeds
received by the Company from the March 1998 sale of such property.
In 1995, the Company commenced suit against its excess
insurers during the period 1965 through 1986 to obtain a recovery
of past costs and indemnification for future costs incurred in
connection with the remediation of the Kin-Buc Landfill, a site
located in Piscataway, N.J., and for the defense of litigation
related thereto. The defendant insurers, which include various
London and London Market insurance companies, First State Insurance
Company ("First State") and International Insurance Company, have
answered the complaint against them and discovery is proceeding.
All of the policies of excess insurance issued by the defendant
insurers cover Transtech, its present subsidiaries and former
subsidiaries, some of which Transtech no longer controls. Certain
companies presently or formerly owned or controlled by Marvin H.
Mahan, which are also covered, assigned their rights as holders and
claimants under these policies to the Company in October 1998.
During June 1999, the Company and First State entered into an
agreement pursuant to which the Company agreed to accept $250,000
in satisfaction of its current and potential future claims with
respect to environmental contamination as defined in such
agreement. Claims against the remaining carriers have yet to be
resolved.
The Company can not assure that the timing and amount of the
net proceeds from the sale of such assets held for sale and the
successful litigation or settlement of the insurance claims will be
sufficient to meet the cash requirements of the Company discussed
above.
Gas Lease and Electricity Generating Equipment
To increase the Company's liquidity, on June 30, 1998
Kinsley's entered into two agreements with respect to its
electricity generation operations. Pursuant to a Gas Lease and
Easement Agreement (the "Gas Lease"), Kinsley granted to the lessee
the exclusive right to extract and utilize all gas produced at the
landfill site for an initial lease term of 12 years with provisions
for two 5 year extensions. The Gas Lease, as amended, requires the
lessee to make an initial payment of $10,000 and additional
quarterly payments of $100,000 for the period beginning January 1,
1999 through December 31, 2007. Such payment is subject to an
upward or downward adjustment depending on the quantities of gas
produced pursuant to an operation and maintenance agreement
discussed below. Pursuant to a landfill gas sale agreement (the
"Gas Sale Agreement") Kinsley has agreed to purchase gas from the
lessee for $.10 per million BTU's of gas. This Gas Sale Agreement
will terminate upon the expiration of the Gas Lease or Kinsley's
sale of its electric generators.
In addition, in connection with the above agreements, during
December 1998, Kinsley entered into separate agreements with
entities affiliated with the lessee under the Gas Lease for (i) the
operation and maintenance by Kinsley's of the gas collection system
for the benefit of the lessee, (ii) the sale by Kinsley's of its
electricity generating operation (which has been marginally
profitable in recent years) for approximately $490,000, (iii) the
operation and maintenance by Kinsley's of the electricity
generating equipment, (iv) processing of Kinsley's leachate and (v)
the operation and maintenance by Kinsley's of the leachate
processing equipment. The agreements relating to the sale and
operation and maintenance of the electricity generating equipment
are contingent upon, among other things, the buyer obtaining
financing. The agreement regarding the sale of the electricity
generating equipment expired May 28, 1999, in accordance with its
terms. However, the Company and buyer are continuing discussions
regarding a transaction similar to that contemplated by the
agreement. The leachate processing transactions are contingent
upon, among other things, financing and acquisition of the
necessary equipment by the other party to the agreement.
Year 2000 Data Conversion
The Company does not anticipate any significant disruption to
business operations due to Year 2000 software failures. The
Company does not know the extent to which its customers may be
affected by such failures.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously reported, the Company commenced suit in 1995 in
the Superior Court of New Jersey, Middlesex County, entitled
Transtech Industries, Inc. et. al v. Certain Underwriters at Lloyds
et al., Docket No. MSX-L-10827-95, to obtain indemnification from
its excess insurers during the period 1965 through 1986 against
costs incurred in connection with the remediation of the Kin-Buc
Landfill and the Piscataway, New Jersey site owned by Tang Realty,
Inc. ("Tang"), a corporation controlled by Marvin H. Mahan (a
former director and officer and principal shareholder of the
Company) and for the defense of litigation related thereto. The
defendant insurers, which include various London and London Market
insurance companies, First State Insurance Company and
International Insurance Company, have answered the complaint
against them and discovery is proceeding. All of the policies of
excess insurance issued by the defendant insurers cover Transtech,
its present subsidiaries and former subsidiaries, some of which
Transtech no longer controls. Certain companies presently or
formerly owned, controlled by or affiliated with Marvin H. Mahan,
which are also covered, assigned their rights as insureds and
claimants under such policies to the Company in October 1998.
During June 1999, the Company and First State entered into an
agreement pursuant to which the Company agreed to accept $250,000
in satisfaction of its current and potential future claims with
respect to environmental contamination as defined in such
agreement. Claims against the remaining carriers have yet to be
resolved.
The Company is a party to other pending legal proceedings, all
of which have been reported in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998. Reference is
made thereto for a description of such litigation.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
NONE
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: August 13, 1999 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: August 13, 1999 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 30
27 Financial Data Schedule N/A
Exhibit 11. Computation of Net Income (Loss) Per Share.
<TABLE>
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<CAPTION>
For the Six Months Ended
June 30,
BASIC: 1999 1998
<S> <C> <C>
Weighted Average Common Shares
Outstanding 2,829,190 2,829,190
Net Income (Loss) $ 203,000 $ (512,000)
Basic Net Income (Loss)
Per Common Share:
Net Income (Loss) per share $ .07 $(.18)
DILUTED:
Weighted Average Common
Shares Outstanding 2,829,190 2,829,190
Dilutive Stock Options Based
Upon the Treasury Stock
Method - -
2,829,190 2,829,190
Net Income (Loss) $ 203,000 $ (512,000)
Diluted Net Income (Loss)
Per Common Share:
Net Income (Loss) Per Share $ .07 $(.18)
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
BASIC: 1999 1998
<S> <C> <C>
Weighted Average Common Shares
Outstanding 2,829,190 2,829,190
Net Income (Loss) $ 557,000 $ (242,000)
Basic Net Income (Loss)
Per Common Share:
Net Income (Loss) per share $ .20 $(.08)
DILUTED:
Weighted Average Common
Shares Outstanding 2,829,190 2,829,190
Dilutive Stock Options Based
Upon the Treasury Stock
Method - -
2,829,190 2,829,190
Net Income (Loss) $ 557,000 $ (242,000)
Diluted Net Income (Loss)
Per Common Share:
Net Income (Loss) Per Share $ .20 $(.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1818
<SECURITIES> 68
<RECEIVABLES> 342
<ALLOWANCES> 2
<INVENTORY> 0
<CURRENT-ASSETS> 2654
<PP&E> 2892
<DEPRECIATION> 2816
<TOTAL-ASSETS> 5184
<CURRENT-LIABILITIES> 3623
<BONDS> 0
0
0
<COMMON> 2357
<OTHER-SE> (2907)
<TOTAL-LIABILITY-AND-EQUITY> 5184
<SALES> 108
<TOTAL-REVENUES> 108
<CGS> 94
<TOTAL-COSTS> 824
<OTHER-EXPENSES> (699)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (17)
<INCOME-TAX> (220)
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
