SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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
September 30, 2000. 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 32 pages
Exhibit index on page 31
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999 3 - 4
Consolidated Statements of Operations for the 5
Nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Operations for the 6
Three Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 7 - 8
Notes to Consolidated Financial Statements 9 - 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
EXHIBIT INDEX 31
EXHIBITS 32
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
September 30, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 148 $ 474
Marketable securities 575 1,228
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 719 214
Note receivable 121 115
Closure cost receivable 135 158
Escrowed proceeds from sale of
subsidiary 940 -
Prepaid expenses and other 164 128
Total current assets 2,802 2,317
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,910 2,894
Less accumulated depreciation (2,838) (2,816)
Net property, plant
and equipment 72 78
OTHER ASSETS
Assets held for sale 1,312 1,312
Escrowed proceeds from sale of
subsidiary - 900
Other 134 133
Total other assets 1,446 2,345
TOTAL ASSETS $ 4,320 $ 4,740
</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)
September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 3 $ 7
Accounts payable 217 144
Accrued income taxes and related
interest 3,705 3,430
Accrued miscellaneous expenses 198 167
Total current liabilities 4,123 3,748
OTHER LIABILITIES
Long-term debt 4 6
Accrued remediation and closure
costs 2,082 2,091
Total other liabilities 2,086 2,097
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 5,222 6,015
Net unrealized gains on marketable
securities 30 21
Subtotal 9,125 9,909
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (1,889) (1,105)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 4,320 $ 4,740
</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)
For the Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
NET REVENUES $ 504 $ 112
COST OF OPERATIONS
Direct operating costs 125 96
Selling, general and
administrative expenses 1,046 1,039
Total cost of operations 1,171 1,135
INCOME (LOSS) FROM OPERATIONS (667) (1,023)
OTHER INCOME (EXPENSE)
Investment income (loss) 90 119
Interest expense (1) (2)
Interest (expense) credit related
to income taxes payable (275) 178
Gain (loss) from sale of property - 6
Miscellaneous income (expense) 60 420
Total other income (expense) (126) 721
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (793) (302)
Income taxes (credit) - (220)
NET INCOME (LOSS) $ (793) $ (82)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.28) $(.03)
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)
For the Three Months Ended
September 30,
2000 1999
<S> <C> <C>
NET REVENUES $ 236 $ 4
COST OF OPERATIONS
Direct operating costs 59 2
Selling, general and
administrative expenses 347 309
Total cost of operations 406 311
INCOME (LOSS) FROM OPERATIONS (170) (307)
OTHER INCOME (EXPENSE)
Investment income (loss) 28 38
Interest expense - -
Interest (expense) credit related
to income taxes payable (98) (80)
Gain (loss) from sale of property - -
Miscellaneous income (expense) 20 64
Total other income (expense) (50) 22
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (220) (285)
Income taxes (credit) - -
NET INCOME (LOSS) $ (220) $ (285)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.08) $(.10)
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)
For the Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 4 $ 132
Cash paid to suppliers and employees (1,064) (1,282)
Interest and dividends received 45 100
Interest paid (1) (3)
Other income received 60 345
Income taxes paid - (1)
Net cash provided by (used in)
operating activities (956) (709)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 1,636 1,737
Purchase of marketable securities (974) (1,230)
Purchase of property, plant and
equipment (16) (25)
Proceeds from sale of property,
plant and equipment - 7
Collections of notes receivable - 13
Net cash provided by (used in)
investing activities 646 502
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (7) (21)
Payment of remediation and closure
costs (9) (11)
Net cash provided by (used in)
financing activities (16) (32)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (326) (239)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 474 605
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 148 $ 366
</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)
For the Nine Months Ended
September 30,
2000 1999
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME (LOSS) $ (793) $ (82)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 21 31
(Gain) loss on sale of property,
plant and equipment - (7)
Increase (decrease) in deferred
income taxes - -
(Increase) decrease in assets:
Accounts and notes receivable,
-net (511) (68)
Prepaid expenses and other (13) -
Escrowed proceeds from sale
of subsidiary (40) (30)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 105 (155)
Accrued income taxes and related
interest 275 (398)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (956) $ (709)
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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, 1999 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1999 financial statements in order to
conform to the presentation followed in preparing the 2000
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 September
30, 2000, available-for-sale debt securities consisted of $508,000
of U.S. Government Securities with maturities through December,
2000. 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 $37,000 and a
market value of $67,000 as of September 30, 2000. The aggregate
excess of market value over cost of such securities as of September
30, 2000 of $30,000 is presented as a separate component of
stockholders' equity. The excess of market value over cost
consisted of gross unrealized gains of $43,000 and gross unrealized
losses of $13,000 as of September 30, 2000. 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
nine months ended September 30, 2000 amounted to $1,636,000.
Dividend and interest income is accrued as earned.
Note 4 - ESCROWED PROCEEDS FROM SALE OF SUBSIDIARY:
On March 1, 1996, the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), sold all of the issued and outstanding
stock of Hunt Valve Company, Inc. ("Hunt") to ValveCo, Inc. A
portion of the net cash proceeds of the sale ($750,000) was placed
in an interest bearing escrow account to secure the Company's
indemnification obligations to the purchaser under the purchase
agreement. 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. No indemnification claims have been
asserted. The escrowed funds are presented in the accompanying
consolidated balance sheets with $190,000 and $150,000 of accrued
interest income through September 30, 2000 and December 31, 1999,
respectively.
NOTE 5 - 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 September 30, 2000. The real
estate included in this category as of September 30, 2000 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.
NOTE 6 - 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.
On June 5, 1995, August 14, 1995, March 7, 1996, July 31, 1996,
January 22, 1998 and December 21, 1998, the Company and the Service
executed partial settlement agreements which have resolved all of
the adjustments asserted in the deficiency notice. These
settlements were subject to review by the Congressional Joint
Committee on Taxation, which approved the settlements in April
2000.
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. For a discussion
of this matter, see "Taxes" contained in Part I, Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources of this
Form 10-QSB.
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 landfills are now
closed, the Company continues to own two landfills, and to
remediate one of the owned landfills and one landfill formerly
leased, 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 September 30, 2000, the Company has accruals totalling
$11.1 million for its estimated share of remediation and closure
costs in regard to the Company's former landfill operations,
approximately $9.0 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.
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
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
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. 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. On December 23, 1997, the Company entered into four
agreements which settled lawsuits related to the allocation of
costs of remediation. One of the December 23, 1997 agreements
provided SCA's commitment to defend and indemnify the Company from
all future liability for and in connection with the remediation of
the site, including an area in the vicinity of the Kin-Buc Landfill
known as Mound B. However, the Company remains a responsible party
under the aforementioned Administrative Orders issued by EPA.
In conjunction with the settlement of the litigation related
to the Kin-Buc Landfill discussed above, the Company committed a
portion of the proceeds, if any, net of certain adjustments,
arising from its litigation against its excess carriers be paid to
WMI.
In May 1997, EPA began an investigation of the area known as
Mound B. In May 1998, the final plan of this investigation was
completed, and 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. During February 2000, EPA sent the
Company a request for information to which the Company provided its
response during May, 2000.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director and officer, and former principal shareholder of
the Company. EPA is performing remediation at the site and had
requested information from approximately 100 potentially
responsible parties concerning their involvement with the Tang
site. The Company had no direct involvement with EPA since October
1990 and had not been the recipient of an EPA request for
information. The July 1999 inquiry set forth 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.
Subsequent to August 1999, EPA and the Company have entered into a
series of agreements to extend the statute of limitations. The
most recent of such extensions expires December 12, 2000. During
this period, EPA and the Company are to continue discussion of any
potential claims EPA may be contemplating against the Company with
respect to the site, and the amount of contribution EPA believes
such claims may warrant toward EPA's estimated $2.4 million of
unallocated remediation costs associated with the site. Pursuant
to a 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 nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999
Consolidated revenues by business segment for the nine months
ended September 30, 2000 and 1999 were as follows (in $000):
2000 1999
Electricity Generation $ 1 $ 58
Environmental Services 908 635
Subtotal 909 693
Intercompany (405) (581)
Net $ 504 $ 112
Consolidated net revenues for the nine months ended September
30, 2000 were $504,000 compared to $112,000 for the same period of
1999.
Revenues of $1,000 were reported from the operation which
generates electricity using methane gas as fuel for the nine months
ended September 30, 2000. Revenues of $58,000 were reported from
the operation for the same period of 1999. The electricity
generating facility consists of four diesel/generating units.
Electricity generated is sold pursuant to a long term contract with
a local utility. The decline in revenue is due to the Company's
decision to postpone repairing the diesel/generating units. The
Company operated one unit during a portion of the quarter ended
September 30, 2000. Methane gas is a component of the landfill gas
generated by the landfill site owned by the Company where the
electricity generating facility is situated. Engineering studies
indicate sufficient quantities of gas at the landfill to continue
the operation of the facility for approximately 12 years. Revenues
are a function of the number of kilowatt hours sold, the rate
received per kilowatt and capacity payments. The Company sold 32
thousand and 2.3 million kwh during the nine months ended September
30, 2000 and 1999, respectively. See the discussion of "Liquidity
and Capital Resources" below for information regarding the lease of
the landfill gas generated at this site and the offer to purchase
the electricity generating operations.
The environmental services segment provides construction,
remedial and maintenance services at landfills, commercial and
industrial sites, and manages methane gas recovery operations. The
environmental services segment reported $908,000 of gross operating
revenues for the nine months ended September 30, 2000 (prior to
elimination of intercompany sales) compared to $635,000 for the
period in 1999, an increase of 43%. Approximately $405,000 or 45%
of the environmental services segment's revenues for the period,
compared to $581,000 or 91% for last year, were for services
provided to other members of the consolidated group and therefore
eliminated in consolidation. Third party sales were $503,000 for
the period in 2000, compared to $54,000 for the period in 1999.
The Company is continuing its efforts to expand the customer
base of the environmental services segment to additional entities
outside the consolidated group. In particular, the Company has
devoted significant time and has incurred professional fees during
1998, 1999 and 2000 in pursuit of a contract and state government
approval to perform the closure of the Southern Ocean Landfill
("SOLF") in New Jersey. On May 15, 2000 the Company's capping plan
for SOLF was approved by the New Jersey Department of Environmental
Protection (the "Capping Plan"). The Capping Plan has been limited
to the grading and capping of the 12 acre lined portion of SOLF and
grading and capping of a portion of the adjoining 44 acre unlined
landfill area, and grading and capping of a previously used access
road straddling the lined and unlined landfill areas at SOLF.
Approved activities also include leachate collection and pump
repair, slope stability analysis, stormwater management, gas vent
installation, groundwater monitoring and associated activities.
The Capping Plan calls for the use of recyclable materials where
possible in the implementation of the plan. Tipping fees generated
from the deposit of the recyclable materials will be paid into a
new escrow from which the costs incurred pursuant to the Capping
Plan will be paid. The Company shall perform all of the above
construction and managerial functions required under the Capping
Plan as well as act as SOLF's owner's agent to solicit the
recyclable materials. The Company has agreed to seek payment for
its services and reimbursement for its costs solely from the
escrowed funds generated from the delivery of recyclable materials.
In addition, the Company will seek reimbursement of the significant
professional fees and certain other contract development expenses
incurred during 1998, 1999 and 2000 in pursuit of the Capping Plan
from the escrowed funds. However, there can be no assurance that
the Company will be able to solicit sufficient quantities of
recyclable material to generate sufficient funds for reimbursement
of the above expenditures, or payment for the services of the
Company. The estimated time required to complete the Capping Plan
is approximately 10 months after site mobilization, which was
substantially completed by September 30, 2000. The Company's
estimate of the gross revenue associated with the Capping Plan is
approximately $1.9 million, of which an estimated $1.4 - 1.5
million would be paid to the Company for its work on the project.
The Company recognized revenue of $503,000 related to this site
during the nine months ended September 30, 2000. Such amount
includes billings for costs incurred and expensed in periods prior
to the current fiscal year.
Consolidated direct operating costs were $125,000 for the nine
months ended September 30, 2000 compared to $96,000 reported for
the same period in 1999, an increase of $29,000 or 30%. This
increase in direct operating costs is primarily due to the increase
in activities of the environmental services segment.
Consolidated selling, general and administrative expenses for
the nine months ended September 30, 2000 were $1,046,000, an
increase of $7,000 or 1% from $1,039,000 for the same period in
1999. The increase in selling, general and administrative expenses
is primarily due to an increase in expenditures related to the
Company's business development and asset divestiture efforts in
excess of a decrease in professional fees. Significant
professional fees and administrative costs continue to be incurred
in support of the Company's ongoing litigation, business
development and asset divestiture efforts (see "Liquidity and
Capital Resources - Liquidity").
The Company's consolidated operating loss for the nine months
ended September 30, 2000 decreased to $667,000 from a loss of
$1,023,000 for the same period in 1999.
Consolidated investment income was $90,000 for the nine months
ended September 30, 2000, a decrease of $29,000 from $119,000 for
the comparable period in 1999.
Consolidated interest expense for the nine months ended
September 30, 2000 was $1,000 versus $2,000 reported for the same
period in 1999.
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. Interest
expense for the nine months ended September 30, 2000 equaled
$275,000 versus an interest credit of $178,000 reported for the
comparable period in 1999.
Consolidated miscellaneous income for the nine months ended
September 30, 2000 was $60,000, a decrease of $360,000 when
compared to the $420,000 reported for the same period of 1999.
Miscellaneous income for the period in 2000 and 1999 includes
income of $7,500 in recognition of royalty payments received from
the lessee of certain of the Company's real property situated
beneath the lessee's landfill. The payments are reported net of a
fee payable pursuant to a consulting agreement executed in 1982.
Miscellaneous income for the period in 1999 includes income of
$250,000 related to the settlement of claims brought against one of
the Company's excess insurance carriers, and $35,000 received from
the estate of an insolvent insurance carrier. Miscellaneous income
for the period in 1999 also includes income of $74,000 in
recognition of a payment due from the former lessee of the landfill
gas generated at a landfill owned by the Company.
An income tax credit of $220,000 had been recognized for the
nine months ended September 30, 1999.
Consolidated net loss for the nine months ended September 30,
2000 was $793,000 or $(.28) per share, compared to a net loss of
$82,000 or $(.03) per share, for the nine months ended September
30, 1999.
The three months ended September 30, 2000 compared to the
three months ended September 30, 1999
Consolidated revenues by business segment for the three months
ended September 30, 2000 and 1999 were as follows (in $000):
2000 1999
Electricity Generation $ 1 $ 2
Environmental Services 523 234
Subtotal 524 236
Intercompany (288) (232)
Net $ 236 $ 4
Consolidated net revenues for the three months ended September
30, 2000 were $236,000 compared to $4,000 for the same period of
1999.
Revenues of $1,000 were reported from the operation which
generates electricity using methane gas as fuel for the three
months ended September 30, 2000. Revenues of $2,000 were reported
from the operation for the same period of 1999. The low revenue
reflects the limited operation of the diesel/generating units due
to the Company's decision to postpone repairs on the equipment.
The environmental services segment reported $523,000 of gross
operating revenues for the three months ended September 30, 2000
(prior to elimination of intercompany sales) compared to $234,000
for the period in 1999, an increase of 124%. Approximately
$288,000 or 55% of the environmental services segment's revenues
for the period, compared to $232,000 or 99% for last year, were for
services provided to other members of the consolidated group and
therefore eliminated in consolidation. The Company recognized
revenue of $235,000 related to the Southern Ocean Landfill project
during the three months ended September 30, 2000.
Consolidated direct operating costs were $59,000 for the three
months ended September 30, 2000 compared to $2,000 reported for the
same period in 1999, an increase of $57,000. This increase in
direct operating costs is primarily due to the increase in
activities of the environmental services segment.
Consolidated selling, general and administrative expenses for
the three months ended September 30, 2000 were $347,000, an
increase of $38,000 from $309,000 for the same period in 1999 due
primarily to an increase in expenditures related to the Company's
business development and asset divestiture efforts.
The Company's consolidated operating loss for the three months
ended September 30, 2000 decreased to $170,000 from a loss of
$307,000 for the same period in 1999.
Consolidated investment income was $28,000, a decrease of
$10,000 for the three months ended September 30, 2000 from $38,000
for the comparable period in 1999.
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. Interest
expense for the three months ended September 30, 2000 equaled
$98,000 versus $80,000 reported for the comparable period in 1999.
Consolidated miscellaneous income for the three months ended
September 30, 2000 was $20,000 a decrease of $44,000 when compared
to the $64,000 reported for the same period of 1999. Miscellaneous
income for the period in 2000 and 1999 includes income of $2,500 in
recognition of net royalty payments received from the lessee of
certain of the Company's real property situated beneath the
lessee's landfill. Miscellaneous income for the period in 1999
includes income of $35,000 received from the estate of an insolvent
excess insurance carrier.
No provisions for income taxes had been recognized for the
three months ended September 30, 1999.
Consolidated net loss for the three months ended September 30,
2000 was $220,000 or $(.08) per share, compared to a net loss of
$285,000 or $(.10) per share, for the three months ended September
30, 1999.
Liquidity and Capital Resources
Net cash used in operating activities for the nine months
ended September 30, 2000 increased to a net use of $956,000
compared to a use of $709,000 in the same period of 1999, due
primarily to the decrease in cash received from customers and other
income sources, including insurance claim proceeds. Net cash
provided by investing activities increased for the nine months
ended September 30, 2000 to $646,000 from $502,000 due in part to
the timing of the maturity and re-investment of securities, and the
funding of the cash used in operating activities. The use of cash
in financing activities decreased to $16,000 from $32,000 for the
period last year. Funds held by the Company in the form of cash
and cash equivalents decreased as of September 30, 2000 to $148,000
from $366,000 as of September 30, 1999. The sum of cash, cash
equivalents and marketable securities as of September 30, 2000
decreased to $723,000 from $1,650,000 when compared to September
30,1999.
Working capital deficit was $(1.3) million as of September 30,
2000 and $(1.4) million as of December 31, 1999, and the ratio of
current assets to current liabilities was .7 to 1 as of September
30, 2000 and 0.6 to 1 as of December 31, 1999.
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, 1999,
RESULTING FROM THE SETTLEMENT 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 $3.7 million through September 30,
2000 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.
ALTHOUGH THE COMPANY CONTINUES TO PURSUE THE SALE OF ASSETS
HELD FOR SALE, CLAIMS AGAINST INSURANCE CARRIERS FOR RECOVERIES OF
PAST REMEDIATION COSTS AND THE RELEASE OF ESCROWED PROCEEDS FROM
THE SALE OF A SUBSIDIARY, 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
The Company has concluded its litigation with the Service in
Tax Court over the Company's tax liability for taxable years 1980-
88 and certain issues from taxable years 1989-91 that were part of
the Tax Court litigation because they affected loss carrybacks from
1989-91. The Company settled all of the issue before the Tax Court
and has reached agreement with the Service on its tax liability for
all of the subsequent taxable years through 1996. The Company
estimates that, taking into account available net operating losses
and tax credits, as of September 30, 2000, Federal and state income
tax obligations totalling approximately $3.7 million (consisting of
$904,000 of federal income tax, $127,000 of state income tax and
$2,674,000 of federal interest) are owed as a result of the
Company's settlement with the Service of the Tax Court litigation
and subsequent taxable years. In addition, state tax authorities
may assert that penalties are owed in connection with the state tax
liability arising from these settlements. The Company will decide
whether to challenge any such state tax penalties if and when they
are asserted.
To date, the Company has not received notice of assessment of
the federal tax liability and interest owed as a result of the Tax
Court settlement or the settlement of the subsequent taxable years.
Payment of the federal tax liability and interest will be due when
the tax is assessed. Payment of the state tax liability and
interest will be due when state tax returns are filed that report
the additional taxes that are owned by reason of these settlements.
The $3.7 million of taxes and estimated interest calculated through
September 30, 2000 that is owed by the Company (plus additional
interest accruing from September 30, 2000 until the obligations are
settled) exceeds the Company's current liquid assets (i.e. cash and
marketable securities).
Remediation and Closure Costs
As of September 30, 2000, the Company has accrued $11.1
million for its estimated share of remediation and closure costs
related to the Company's former landfill and waste handling
operations. Approximately $9.0 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).
The Company and other responsible parties including SCA
Services, Inc. ("SCA"), which is an affiliate of Waste Management,
Inc. ("WMI"), have provided funding for the on-going remediation of
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
Kin-Buc Landfill is owned and was operated by the Company's
subsidiary, Kin-Buc, Inc. ("Kin-Buc"). In November 1992, EPA
issued an Administrative Order for the remediation of certain areas
neighboring the Kin-Buc Landfill. 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. On December 23, 1997, the Company entered into four
agreements which settled lawsuits related to the allocation of
costs of remediation. One of the December 23, 1997 agreements
provided SCA's commitment to defend and indemnify the Company from
all future liability for and in connection with the remediation of
the site, including an area in the vicinity of the Kin-Buc Landfill
known as Mound B. However, the Company remains a responsible party
under the aforementioned Administrative Orders issued by EPA, and
may incur administrative and legal costs complying with such
Administrative Orders.
In May 1997, EPA began an investigation of the area known as
Mound B. In May 1998, the final plan of this investigation was
completed, and 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. During February, 2000 EPA sent the
Company a request for information to which the Company provided its
response during May, 2000.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director and officer, and former principal shareholder of
the Company. EPA is performing remediation at the site and had
requested information from approximately 100 potentially
responsible parties concerning their involvement with the Tang
site. Transtech had no direct involvement with EPA since October
1990 and had not been the recipient of an EPA request for
information. The July 1999 inquiry set forth 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.
Subsequent to August 1999, EPA and the Company have entered into a
series of agreements to extend the statute of limitations. The
most recent of such extensions expires December 12, 2000. During
this period, EPA and the Company are to continue discussions of any
potential claims EPA may be contemplating against the Company with
respect to the site, and the amount of contribution EPA believes
such claims may warrant toward EPA's estimated $2.4 million of
unallocated remediation costs associated with the site. Pursuant
to a 1988 agreement with Tang, in 1988, 1989 and 1990 Transtech
spent approximately $4.3 million toward the remediation of the
site.
Assets Held for Sale/Claims for Past Remediation Costs/Escrowed
Proceeds from Sale of Subsidiaries
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of September 30, 2000. 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.
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 Tang site, the Kin-Buc
Landfill, 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. 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. During July 2000, the Company and
International Insurance Company entered into an agreement pursuant
to which the Company agreed to accept $17,500 in satisfaction of
its current and future environmental contamination claims. The
remaining defendants have answered the complaint against them and
discovery has substantially concluded. Further proceedings have
been stayed pending the outcome of settlement negotiations. Some
of the London and London Market insurance companies that
participated in the policies held by the Company are insolvent.
The estates of some of these insolvent companies have sufficient
assets to make a partial contribution toward claims filed by the
Company. During August 1999 the Company received approximately
$35,000 in satisfaction of its claims against the estate of an
insolvent excess insurance carrier. In September 1995, the Company
assigned its claims related to a site located in Carlstadt, New
Jersey in conjunction with a settlement of the litigation regarding
such site as discussed below. The Company also committed a portion
of the proceeds, if any, net of certain adjustments, arising from
this excess carrier litigation be paid to legal counsel
representing the Company in the suit and to WMI in conjunction with
the settlement of the litigation related to the Kin-Buc Landfill as
discussed above. 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 a former principal shareholder, director and officer
of the Company are also covered, however such parties assigned
their rights as holders and claimants under these policies to the
Company in October 1998.
A portion of the net cash proceeds from the 1996 sale of a
subsidiary was placed in an interest bearing escrow account to
secure the Company's indemnification obligations to the purchaser
under the purchase agreement. 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 the subsidiary 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. No
indemnification claims have been asserted. The escrowed funds with
accrued interest income equal $940,000 as of September 30, 2000.
THE COMPANY CAN NOT ASSURE THAT THE TIMING AND AMOUNT OF THE
NET PROCEEDS FROM THE SALE OF SUCH ASSETS HELD FOR SALE, THE
SUCCESSFUL LITIGATION OR SETTLEMENT OF THE INSURANCE CLAIMS AND THE
ESCROWED PROCEEDS FROM THE SALE OF A SUBSIDIARY WILL BE SUFFICIENT
TO MEET THE CASH REQUIREMENTS OF THE COMPANY DISCUSSED ABOVE.
Gas Lease and Electricity Generating Equipment
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 Deptford Gas Company, LLC ("DGC") 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.
Pursuant to a landfill gas sale agreement (the "Gas Sale
Agreement") Kinsley had agreed to purchase gas from DGC for $.10
per million BTU's of gas. This Gas Sale Agreement was to 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 DGC, or entities affiliated with DGC for (i) the
operation and maintenance by Kinsley's of the gas collection system
for the benefit of DGC, (ii) the sale by Kinsley's of its
electricity generating operation, (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 were 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. The Company and buyer
continued discussions beyond May 1999, but failed to reach
agreement on a transaction similar to that originally contemplated,
therefore during January, 2000 the Company voided all agreements
with DGC and its affiliates including the Gas Lease. The Company
is evaluating several options with respect to the future operation
of the facility.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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, 1999. Reference is
made thereto for a description of such litigation, and to the
discussion contained in Part I, Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources of this Form 10QSB.
<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: November 14, 2000 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: November 14, 2000 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 September 30, 2000
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 32
27 Financial Data Schedule N/A
