SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6512
TRANSTECH INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (732) 981-0777
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.50 par value
(Title of Class)
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $97,000
At March 21, 2000 the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $336,462.
At March 21, 2000 the issuer had outstanding 2,829,190 shares of
Common Stock, $.50 par value. In addition, at such date, the registrant
held 1,885,750 shares of Common Stock, $.50 par value, in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Page 1 of 103 pages
Exhibit Index on page 36
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
________________
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
I N D E X
Page(s)
Part I, Item 1. Description of Business 3 - 13
" Item 2. Description of Properties 13 - 14
" Item 3. Legal Proceedings 14 - 23
" Item 4. Submission of Matters to a Vote
of Security Holders 23
Part II, Item 5. Market for Common Equity and
Related Stockholder Matters 24
" Item 6. Management's Discussion and
Analysis or Plan of Operation 24
" Item 7. Financial Statements 24
" Item 8. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 24
Part III, Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 25 - 26
" Item 10. Executive Compensation 26 - 28
" Item 11. Security Ownership of Certain
Beneficial Owners and Management 29 - 31
" Item 12. Certain Relationships and Related
Transactions 31 - 34
Part IV, Item 13. Exhibits and Reports on Form 8-K 34
Signatures 35
Exhibit Index 36 - 40
<PAGE>
Part I, 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.
Part I, Item 1. Description of Business.
General
Transtech Industries, Inc. ("Transtech") was incorporated
under the laws of the State of Delaware in 1965. Transtech,
directly and through its subsidiaries (Transtech and its
subsidiaries collectively referred to as the "Company"), generates
electricity utilizing methane gas, supervises and performs landfill
monitoring and closure procedures and manages methane gas recovery
operations (see "Continuing Operations" below).
During 1995 and 1996, the Company divested its interests in
two subsidiaries. In 1995, the Company sold the subsidiary which
marketed carbide lime and other high alkali products for use as
neutralization agents in municipal and industrial wastewater
treatment plants. In 1996, the Company completed the sale of the
subsidiary which manufactured and sold specialty directional and
flow control valves, fluid power components, hydraulic and
pneumatic cylinders, and complete valve systems for commercial and
military use (see "Discontinued Operations" below).
The Company and certain subsidiaries were previously involved
in the resource recovery and waste management industries. These
activities included the operation of three landfills and a solvents
recovery facility. Although these sites are now closed, the
Company continues to own and/or remediate them and has both
incurred and accrued for the substantial costs associated therewith
<PAGE>
(see "Prior Operations" below and Part I, Item 3, Legal
Proceedings).
At December 31, 1999, the Company employed 12 persons on a
full-time basis.
Continuing Operations
Electricity Generation. Revenues from operations which
generate electricity utilizing methane gas as fuel represented 60%
and 34% of consolidated net revenues in the years ended December
31, 1999 and 1998, respectively. 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 and located in Deptford, New Jersey.
Engineering studies indicate sufficient quantities of gas at the
landfill to continue the operation of the facility for
approximately twelve years. Electricity generated is sold pursuant
to a long term contract with a local utility. The contract has
five years remaining. Revenues are a function of the number of
kilowatt hours sold, the rate received per kilowatt hour and
capacity payments. The Company sold 2.3 million kwh during the
year ended December 31, 1999 compared to 8.7 million sold in the
prior year. The operation experienced an increase in equipment
failures and down-time for repairs in 1999 and 1998. Elements of
the landfill gas are more corrosive to the equipment than
traditional fuels, resulting in more hours dedicated to repair and
maintenance than with equipment utilizing traditional fuels. The
decline in quantity of kilowatt hours sold in 1999 is primarily due
to the Company electing not to repair the diesel/generating units
pending the outcome of negotiations of an offer to purchase the
electricity generating operations discussed below. The contract
with the local utility allows for continuous interruption in
electricity supply for a period of up to twelve months. The
Company temporarily curtailed the facility's operations during June
1999.
On June 30, 1998 the Company's subsidiary, Kinsley's Landfill,
Inc. ("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 the lessee 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.
<PAGE>
In addition, in connection with the above agreements, during
December 1998, Kinsley entered into separate agreements with
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
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. 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 future operation of the facility.
Environmental Services. The environmental services segment
supervises and performs landfill monitoring and closure procedures
and manages methane gas operations. Approximately 95% of the
environmental services segment's gross revenues for 1998, compared
to 56% for the prior year, were from other members of the
consolidated group, and therefore eliminated in consolidation. The
segment contributed 40% and 66% to net consolidated revenues in
each of the years ended December 31, 1999 and 1998, respectively,
after elimination of intercompany sales. Substantially all third
party sales during 1998 and 1997 were to three and seven
customer(s), respectively.
The Company is continuing its efforts to expand the customer
base of this segment to entities outside the consolidated group.
The segment continues to provide quotes on construction and
maintenance projects involving the closure and remediation of waste
sites and contaminated properties. The segment participates in a
competitive market on the basis of price and experience. In
particular, the Company has devoted significant time and has
incurred professional fees during 1998 and 1999 in pursuit of a
contract and state government approval to perform the closure of a
site in New Jersey. Recycled materials are to be utilized for
certain applications in the closure process. In the event the
Company is awarded the contract, the Company will seek
reimbursement of such professional fees, certain other contract
development expenses and construction costs from a trust to be
established to finance the closure. However, there are no
assurances sufficient funds will be available for reimbursement of
such expenditures.
The segment continues to perform closure activities on sites
previously operated by other subsidiaries of the Company. Work
performed on a landfill owned by the Company and located in
Deptford, New Jersey is submitted for reimbursement to a trust
account established to finance the closure activities at the site
(see Prior Operations - Landfill and Waste Handling Operations -
Kinsley's).
Other Businesses. The other subsidiaries of the Company hold
assets consisting of cash and marketable securities, real property
and contract rights.
Prior Operations
Landfill and Waste Handling Operations. In February 1987, the
landfill owned and operated by Kinsley's, the last of the three
solid waste landfills previously operated by subsidiaries of the
Company, reached permitted capacity and was closed. Previously, in
1976, the landfill owned and operated by Kin-Buc, Inc. ("Kin-Buc")
was closed and, in 1977, the landfill operated by Mac Sanitary Land
Fill, Inc. ("Mac") was closed. Pursuant to certain federal and
state environmental laws, these subsidiaries continue to be
responsible for maintenance and monitoring activities associated
with the closure procedures of these landfills. The closure
procedures typically include the final cover, testing and
monitoring of the landfill and associated wells. In addition, the
Company has incurred significant professional fees in lawsuits
regarding these activities and efforts to obtain contributions
towards the cost of closure procedures from waste generators and
other parties.
The Company's accruals for closure and remediation activities
equal the present value of the 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. The Company has accrued remediation and
closure costs for Kinsley's landfill and Mac landfill, and for the
Kin-Buc landfill prior to December 31, 1997. Amounts held in
certain trusts dedicated to post-closure activities of Kinsley's
are netted against the accrual for presentation in the Company's
balance sheet.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material changes in remediation and closure costs related
to the Company's past waste handling activities, possibly in excess
of the Company's available financial resources.
At December 31, 1999, the Company has accrued approximately
$11.1 million for the estimated closure and remediation costs of
these landfills. Of such amount, approximately $9.0 million is
held in trusts maintained by trustees for post-closure activities
at Kinsley's landfill (see Part I, Item 3, Legal Proceedings).
Kin-Buc. On December 23, 1997, the Company entered into four
agreements which settled lawsuits related to the allocation of
costs of remediation of the landfill owned and operated by Kin-Buc
(the "Kin-Buc Landfill") and substantially relieved the Company
from future obligation with respect to the site (see Part I, Item
3, Legal Proceedings).
The Kin-Buc Landfill, located in Edison, New Jersey, was
operated by Kin-Buc through August 1975. From September 1975 until
the landfill ceased operations in November 1977, the landfill was
managed by Earthline Company ("Earthline"), a partnership formed by
Wastequid, Inc. ("Wastequid"), then a wholly-owned subsidiary of
the Company, and Chemical Waste Management of New Jersey, Inc.
("CWMNJ"), a wholly-owned subsidiary of SCA Services, Inc. ("SCA")
and an affiliate of Waste Management, Inc. (formerly known as WMX
Technologies, Inc.) ("WMI"). The Company and others have been
remediating the Kin-Buc Landfill and certain neighboring areas
under orders (the "Orders") issued by the United States
Environmental Protection Agency ("EPA") in September 1990 and
November 1992 to 12 respondents: the Company, Kin-Buc, Earthline,
Wastequid, CWMNJ, SCA, Chemical Waste Management, Inc. (an
affiliate of WMI), Filcrest Realty, Inc. (a wholly-owned subsidiary
of the Company) ("Filcrest"), Inmar Associates, Inc. (a company
owned and controlled by Marvin H. Mahan, a former director, officer
and principal shareholder of the Company) ("Inmar"), Marvin H.
Mahan, Robert Meagher (a former director and officer of the Company
and Inmar) ("Meagher") and Anthony Gaess (a former director and
officer of SCA) ("Gaess"). Contractors have completed the
construction required by EPA pursuant to the Orders except for an
area known as Mound B as discussed below. Maintenance of remedial
systems installed at the site and operation of a fluid treatment
plant that was constructed to treat fluids at the site are required
for a 30-year period beginning in 1995. Operation of the treatment
plant and maintenance of the facilities is being conducted by an
affiliate of SCA. The total cost of the construction, operations
and maintenance of remedial systems over this period plus the cost
of past remedial activities was estimated at the time of the
December 1997 settlement to be in the range of $80 million to $100
million.
In January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around a one-acre parcel of
land adjacent to the Kin-Buc Landfill was presented to the EPA for
its review and approval. EPA approved the plan, construction began
in August 1996, and is now complete. The cost of such installation
was estimated at $1.3 million, and has been financed by SCA and its
affiliates.
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. The cost
of studies and remediation of this area is not included in the
above estimates of the total cost of the remediation.
Other areas within the vicinity of the site also may become
the subject of future studies due to the historic use of the area
for waste disposal operations. The cost of studies and remediation
of such areas is not included in the present estimates of the total
cost of the remediation of the Kin-Buc Landfill since such work is
outside the scope of the Orders.
The construction at Kin-Buc Landfill since July 1994 has been
financed in part with funds provided by SCA and in part with funds
provided from negotiated settlements with certain parties to a suit
that the Company initiated in June 1990 in the United States
District Court for the District of New Jersey against approximately
450 generators and transporters of waste disposed of at the site
for the purpose of obtaining contribution toward the cost of
remediation (the "1990 Action"). The Company's cause of action
against these parties arises under certain provisions of the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), which imposes joint and several
liability for the remediation of certain sites upon persons
responsible for the generation, transportation and disposal of
wastes at such sites.
Prior to the settlements reached on December 23, 1997 the
Company had contested the validity of a 1986 agreement among the
Company, on the one hand, and SCA and certain of its affiliates, on
the other hand (the "SCA Group"). That agreement allocated to the
Company 75% of the costs incurred by the parties for the
remediation of the Kin-Buc site. In 1993, the Company filed a
demand for arbitration (the "Transtech Arbitration") seeking
rescission or reformation of the agreement with the SCA Group. SCA
moved to enjoin the Transtech Arbitration on the grounds that the
Company's demand was barred by the statute of limitations. In
March 1995, the SCA Group filed its own demand for arbitration (the
"SCA Arbitration") seeking reimbursement from the Company of 75% of
the remediation expenses purportedly funded by the SCA Group
through that time. Certain issues raised by SCA's motion to enjoin
the Company Arbitration were referred to a referee. While final
discovery in the SCA Arbitration was being completed and
immediately prior to the commencement of hearings in the SCA
Arbitration and the rescheduling of the referee's hearing in the
Transtech Arbitration, the Company and the SCA Group agreed to
postpone proceedings in both arbitrations pending the outcome of
settlement discussions.
In addition, certain other potentially responsible parties ("PRPs")
contend the Company is liable for the payment of some or all of the
PRPs' shares of remediation costs pursuant to disposal agreements
with such PRPs which provided for indemnification of those PRPs
against certain liabilities. However, the enforceability of such
indemnification provisions was contested by the Company in the 1990
Action. Indemnification provisions in such agreements vary greatly
in scope and import, and the Company had contested them on various
grounds. The foregoing actions were resolved by the settlements
reached on December 23, 1997.
In conjunction with the remediation, 26 acres of undeveloped
land neighboring the site and owned by a wholly-owned subsidiary of
the Company were utilized for the construction of the containment
system, treatment plant and related facilities. The property had
been reflected at nominal value on the Company's financial
statements.
At December 31, 1996, the Company had accrued approximately
$10.6 million for its share of the costs of such remediation and
closure. The Company has reversed the balance of such accrual as
a result of the settlements described above, and recognized income
of $10.6 million in the year ended December 31, 1997 due to the
elimination of such accrual.
The substantial expense of the Company's prosecution and
defense of claims in the litigation, the prosecution of the
Transtech Arbitration, the defense of the SCA Arbitration, and the
prosecution and defense of the litigation related to the Transtech
Arbitration and the SCA Arbitration, as well as the substantial
expense of the Company's efforts in respect to the December 23,
1997 settlements referred to 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.
Kinsley's. Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-
owned subsidiary of the Company, ceased accepting solid waste at
its landfill in Deptford Township, New Jersey on February 6, 1987
and commenced closure of that facility at that time. At December
31, 1999, Kinsley's has accrued $11.1 million for remaining costs
of closure and post-closure care of this facility, of which $9.0
million is being held in interest-bearing trust accounts. Such
funds are presently anticipated to be adequate to finance post-
closure care at the site through the year 2016 based on current
costs and absent any unforeseen changes in the condition of the
site.
Mac. Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey that ceased operations in 1977. The costs of
maintaining and monitoring at the facility are being funded by the
Company and were approximately $19,000 and $26,000 for the years
ended December 31, 1999 and 1998, respectively. At December 31,
1999, Mac has accrued closing costs amounting to $87,000 for the
costs of continuing post-closure care and monitoring at the
facility. The Company increased its accrual for closure costs by
$11,000 during 1996 and $131,000 during 1995 due to unanticipated
engineering and testing costs incurred to respond to inquiries from
environmental agencies. The accrual as of December 31, 1999 is
based upon the present value of the estimated maintenance costs of
the site's containment systems through the year 2007.
Carlstadt. In September 1995, the Court approved a settlement
of litigation regarding the allocation of the cost of remediation
of a site in Carlstadt, New Jersey, on which the Company had
operated a solvents recovery facility. The facility was last
operated by the Company in 1970. The settlement agreement relieves
the Company from future obligations to the group of responsible
parties which has been financing the remediation of the site in
exchange for a cash payment, proceeds of the settlement of certain
insurance claims and an assignment of Carlstadt-related claims that
had been filed against the Company's excess insurance carriers (see
Part I, Item 3. Legal Proceedings). Notwithstanding such
settlement, the Company may have liability in connection with the
site to the EPA for its costs of overseeing the remediation of the
site, and to parties who had not contributed to the cost of the
remediation at the time the settlement was approved but who later
do so. The Company has received no indication that the EPA intends
to assert a claim for oversight costs and the Company believes that
the EPA may not have the legal right to do so. Based on the
comprehensive discovery performed during the litigation, the
Company believes that substantially all responsible parties have
been identified, and that the share of remediation costs that is
attributable to parties who had not been contributing to those
costs is de minimis. Therefore, the Company's liability to those
parties, which would arise only if and when those parties actually
paid their share, would not be significant.
In a related matter, in October 1989, the Company, together
with owners and operators of industrial sites in the Hackensack,
New Jersey meadowlands, including a site in Wood-Ridge, were sued
in the United States District Court for the District of New Jersey
for contribution towards the cost of remediation of those sites,
adjacent lands and adjacent water courses, including Berry's Creek.
The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate
such industrial sites, adjacent lands and adjacent water courses,
seek contribution from the Company towards the cost of remediating
Berry's Creek, which, they allege, was contaminated, in part, by
the Company's operations at a nearby solvents recovery facility at
Carlstadt, New Jersey. Since the plaintiffs' negotiations
concerning the scope of the remediation of Berry's Creek are still
ongoing, and no discovery has taken place concerning allegations
against the Company, it is not possible to estimate the Company's
ultimate liability in this matter.
Computer Leasing. In July 1989, Transtech entered into a
purchase agreement (the "Computer Purchase Agreement") with The Tax
Strategy Group, Inc. ("TSG") pursuant to which Transtech purchased
certain high-end IBM mainframe computer equipment (the "Equipment")
subject to a master lease with Computer Leasing, Inc. for a term of
eight years (the "Master Lease") and user leases of varying terms.
The purchase price of the Equipment was $35.8 million, of which
$2.6 million was paid in cash at closing and the balance of $33.2
million payable in equal consecutive monthly installments of
$586,741 (representing principal and interest at the rate of 13.5%
per year) over an eight year period.
Pursuant to the Computer Purchase Agreement and the Master
Lease, the monthly base rental income under the Master Lease equals
the Company's monthly payments to TSG. Commencing in July 1994,
the Company began receiving additional rental income equal to 75%
of rents actually paid by users of the Equipment through the
expiration of the Master Lease. From 1989 to 1993, the Company's
deductions for accelerated depreciation and interest expense
exceeded rental income. However, beginning in 1994 and continuing
through July 1997, the annual rental income exceeded such annual
tax deductions, generating net taxable income.
The Master Lease terminated during July, 1997 and the
Equipment was sold by the Company to the end-users and the lessor
under the Master Lease. The Company reported income of $12,000 for
the year ended December 31, 1997 in recognition of proceeds from
the sale of Equipment in excess of book value.
The Internal Revenue Service questioned the deductions claimed
by the Company in connection with its investment in the Equipment.
This issue was settled in January 1998 (see Part I, Item 3, Legal
Proceedings).
Discontinued Operations
Valve Manufacturing Segment. On August 17, 1995, the Company
executed a letter of intent pursuant to which the Company's wholly-
owned subsidiary, THV Acquisition Corp. ("THV"), agreed to sell all
of the issued and outstanding stock of HVHC, Inc., a Delaware
corporation ("HVHC"), the then parent of Hunt Valve Company, Inc.,
an Ohio corporation ("Hunt") to ValveCo Inc. On October 24, 1995,
the Company executed the definitive stock purchase agreement. The
sale was subject to approval by the Company's shareholders. Such
approval was granted at a special meeting of the shareholders on
February 29, 1996 and the sale was consummated on March 1, 1996.
A portion of the net cash proceeds ($750,000) was placed in an
interest bearing escrow account to secure the Company's
indemnification obligations to the purchaser under the purchase
agreement, including indemnification for any payments made by Hunt
after the closing in respect of income taxes owed by the Company
for the period that Hunt was a member of the Company's consolidated
tax group. The escrow will terminate upon the earlier to occur of
(i) the release of all funds from escrow in accordance with the
terms thereof or (ii) the later to occur of (x) the expiration of
the applicable statute of limitations for the assessment of federal
income taxes for all taxable years in which Hunt was a member of
the Company's consolidated tax group and (y) the satisfaction by
the Company of all assessments or other claims by the Internal
Revenue Service for taxes of the consolidated tax group for such
years.
ValveCo Inc. ("ValveCo"), a Delaware corporation organized by
Three Cities Research, Inc. ("TCR"), a Delaware corporation
unaffiliated with the Company or any of its directors and officers,
purchased 100% of the Hunt common stock owned by THV, representing
79.05% of the issued and outstanding Hunt common stock. Fifteen
percent of the common stock issued by ValveCo was purchased by
certain directors and executive officers who are members of
management of the Company and/or Hunt (see Part III, Item 12,
Certain Relationships and Related Transactions).
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement which resolved certain issues related to
the allocation of Hunt's 1995 income tax liability between the
Company and Hunt, and certain issues related to provisions of the
1991 tax sharing agreement between the Company and Hunt which
continues to bind both parties. The purpose of the letter
agreement was to rectify an unintended consequence of tax
regulations concerning the allocation of such tax liability. The
Company agreed to include $360,000 (equal to 87% of Hunt's 1995
income) of income in its federal tax return in respect of the 360-
day period of 1995 during which Hunt was a member of the Company's
consolidated tax group. Hunt agreed to waive reimbursement for the
Company's carryback of Hunt's post-consolidation net losses
(incurred during the period from January 1 through February 29,
1996) to periods in which Hunt was a member of the consolidated
group. Hunt also agreed to reimburse the Company for certain
professional fees incurred by the Company with respect to these
matters.
Alkali Products. Harrison Returns, Inc. (f/k/a Cal-Lime,
Inc.) ("Cal-Lime") engaged in the marketing of high alkali
products, primarily lime slurry, to customers needing acid
neutralization agents, such as municipal and industrial wastewater
treatment plants. Sales from this business constituted 7% of the
Company's consolidated operating revenues in 1993, and 5% in 1994.
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to the Cal-Lime name, and
gave a non-compete covenant, thereby effectively selling the on-
going operations of Cal-Lime which markets alkali products to a
competitor. The Company received a cash payment of $600,000 in
consideration for the assets sold, and additional payments of
$4,785 which were contingent upon the availability of lime slurry
from a specified source to the purchaser. In March 1998, the
Company sold the 2 acres of property and buildings not part of this
transaction for $268,000.
Part I, Item 2. Description of Properties.
1. A subsidiary of the Company, Filcrest Realty, Inc., owns
parcels of land totalling approximately 125 acres in Edison
Township, Middlesex County, New Jersey, which are currently not
being used. This property is located in the vicinity of the Kin-
Buc, Inc. property (see Paragraph 5 below and Part I, Item 1 Prior
Operations). Approximately 26 acres of Filcrest's property has
been dedicated to the remediation of areas neighboring the Kin-Buc,
Inc. property. Approximately 37.5 acres of Filcrest's property are
leased to an unrelated party pursuant to a 99 year lease executed
in 1981. Such lessee operated a landfill on this property through
1987.
2. One of the Company's subsidiaries, Kinsley's Landfill,
Inc., owns approximately 320 acres in Deptford Township, Gloucester
County, New Jersey which are currently being held for sale. The
subsidiary operated a landfill on approximately 100 acres of this
site through February 1987. This landfill is now undergoing post-
closure procedures.
3. Another subsidiary and Transtech own approximately 108
acres in Deptford Township, Gloucester County, New Jersey, which
are currently being held for sale. Certain of these parcels are
subject to mortgages which total approximately $3,000 as of
December 31, 1999.
4. Another subsidiary of the Company, Mac Sanitary Land Fill,
Inc., leased approximately 88 acres in Deptford Township,
Gloucester County, New Jersey for use as a landfill site until
February 1977. At that time, the lease was terminated in
accordance with provisions of the lease which permitted termination
when and as the landfill reached the maximum height allowed under
New Jersey law. Mac currently conducts post-closure activities at
the site.
5. Another subsidiary of the Company, Kin-Buc, Inc., owns a
27 acre site in Edison Township, Middlesex County, New Jersey, upon
which it operated a landfill. At present, only remediation
activities are conducted on the site (see Part I, Item 1 Prior
Operations).
6. The Company leases its principal executive offices in
Piscataway, New Jersey pursuant to a lease initiated in February
1992. The amended lease effective November 1999 reduced the area
subject to lease from 5,132 square feet to 2,572 square feet and a
monthly rent and utility reimbursement totaling $2,811 for March,
2000 through February 2001, $3,228 for March 2001 to February 2002,
$3,332 for March 2002 to February 2003, $3,436 for March 2003 to
February 2004 and $3,540 for March 2004 to the lease expiration in
February 2005.
Part I, Item 3. Legal Proceedings.
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. In 1994, the Company filed a petition with the Tax Court
contesting many of the proposed adjustments asserted in the
deficiency notice. On June 5, 1995, August 14, 1995, March 7,
1996, 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 partial settlement. These settlements
resolved all of the adjustments asserted in the deficiency notice.
These settlements are currently under review by the Congressional
Joint Committee on Taxation.
The Company and the Service are currently discussing the
computation of the amount of tax and interest owed as a result of
the settlements. See Note 2 to the Company's Consolidated
Financial Statements for a discussion of the impact of the tax
litigation on the Company's cash resources, and Note 9 to the
Company's Consolidated Financial Statements for a discussion of the
Company's accrued liability.
As to the Kin-Buc Landfill
On December 23, 1997, the Company entered into four agreements
which settled lawsuits relating to the remediation of the Kin-Buc
Landfill.
In February 1979, EPA brought suit in the United States
District Court for the District of New Jersey against Transtech,
its subsidiaries Kin-Buc and Filcrest, certain former officers,
directors and shareholders of Transtech, and Inmar, in connection
with the ownership and operation of the Kin-Buc Landfill. This
suit was placed on administrative hold by the Court because the
Company and SCA agreed to undertake the remediation of the
Landfill.
In 1986, the Company sold the stock of its subsidiary
Wastequid, Inc. to SCA, and, simultaneously therewith, Transtech,
Kin-Buc and Filcrest (the "Transtech Group") entered into the 1986
Agreement with the SCA Group regarding the sharing of the costs of
remediating the Kin-Buc Landfill, pursuant to which the Transtech
Group agreed to pay 75% of such costs and the SCA Group the
remaining 25% (the "Sharing Formula").
In 1990, the Transtech Group commenced a suit in the United
States District Court for the District of New Jersey entitled
Transtech Industries, Inc. et al. v. A&Z Septic Clean et al.
against generators and transporters of hazardous waste disposed of
at the Kin-Buc Landfill (the "PRPs") for contribution towards the
cost of remediating the Kin-Buc Landfill. In 1991, 1992 and 1993,
the Transtech Group, the SCA Group and WMI presented settlement
proposals to the PRPs believed to have been responsible,
individually, for no more than 1% of the non-municipal waste
disposed of at the Kin-Buc Landfill (the "De Minimis PRPs"). These
settlements resulted in a contribution by certain De Minimis PRPs
of approximately $10 million towards the cost of remediating the
Kin-Buc Landfill. From 1993, the litigation proceeded against the
non-settling De Minimis and non-De Minimis PRPs, believed to have
been responsible, in the aggregate, for approximately 90% of the
non-municipal waste disposed of at the Kin-Buc Landfill, and in
1995, generators and transporters of municipal hazardous waste
disposed of at the Kin-Buc Landfill were joined in the litigation.
After 1995 and continuing through 1997, the SCA Group and WMI
entered into settlements with other non-municipal waste PRPs
without the participation of the Transtech Group. These
settlements resulted in substantial additional contributions
towards the cost of remediation. Discovery and other pre-trial
proceedings had taken place and a trial date had been tentatively
set as settlement discussions among the Transtech Group, the SCA
Group and WMI, on the one hand, and among a large group of non-
municipal waste PRPs (the "AFP Group"), the SCA Group and WMI, on
the other, were taking place.
In 1992, substantially all of the non-municipal waste PRPs,
including substantially all of the AFP Group, filed two pleadings
in the litigation involving the Company. The first was a
counterclaim against Transtech, Kin-Buc and Filcrest and a third-
party complaint against other owners or operators of the Kin-Buc
Landfill, including, among others, Inmar, Dock Watch Quarry Pit,
Inc. (a subsidiary of Inmar) ("Dock Watch"), Marvin H. Mahan,
Meagher, the SCA Group, WMI and Gaess (the "Owner-Operator
Counterclaim"). The second pleading involving the Company was a
counterclaim against Transtech and a third-party complaint against
parties to transactions with Transtech, including Inmar and Marvin
H. Mahan, which were alleged to have been fraudulent conveyances
(the "Fraudulent Conveyances Counterclaim"). In that pleading, the
PRPs sought to have the consideration paid by Transtech in the
conveyances returned and placed in the hands of a receiver.
Discovery on the issues presented in the Fraudulent Conveyances
Counterclaim and the Owner-Operator Counterclaim was proceeding,
and motions to join additional parties to the Fraudulent
Conveyances Counterclaim were pending at the time settlement
discussions between Transtech and the AFP Group were taking place.
In 1993, the Transtech Group served a demand for arbitration
(the "Transtech Arbitration") on the SCA Group and WMI seeking
either rescission of the 1986 Agreement or reformation of the
Sharing Formula. In response, the SCA Group and WMI brought an
action in the Supreme Court of the State of New York to enjoin the
Transtech Arbitration. Pending a decision by that Court, the
Transtech Arbitration was stayed. In 1995, during the stay, the
SCA Group filed a demand for arbitration (the "SCA Arbitration")
seeking reimbursement from the Transtech Group of 75% of
remediation expenses fully funded by the SCA Group to that point,
and the Transtech Group brought an action in the Supreme Court of
the State of New York to stay the SCA Arbitration pending a
decision on the motion to enjoin the Transtech Arbitration. On
motion brought by the SCA Group, the Court narrowed the issues to
be arbitrated in the SCA Arbitration and made any findings on such
issues subject to resolution of the issues in the Transtech
Arbitration. After discovery on these issues was completed, the
Transtech Group, the SCA Group and WMI agreed to postpone
proceedings in both the SCA Arbitration and the Transtech
Arbitration pending the outcome of settlement discussions.
On December 23, 1997, settlements of the litigation, including
claims for contribution toward the cost of remediating the Kin-Buc
Landfill, the Owner-Operator Counterclaim and the Fraudulent
Conveyances Counterclaim, and settlements of the Transtech
Arbitration, the SCA Arbitration and litigation relating thereto,
resulting from discussions among the Transtech Group, the SCA Group
and WMI, on the one hand, and among the AFP Group, the SCA Group
and WMI, on the other, were reached, and four agreements effecting
these settlements were executed and delivered.
The first of these four settlement agreements was among
Transtech, Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, the SCA
Group and the AFP Group (consisting of all but 29 non-municipal
waste PRPs). In this agreement, among other things, all members of
the AFP Group released all their claims against Transtech, Kin-Buc,
Filcrest, Marvin H. Mahan, Meagher, Inmar and Dock Watch, among
others, arising from or relating to claims for contribution and the
Owner-Operator Counterclaim.
<PAGE>
The second settlement agreement was among Transtech, Kin-Buc,
Filcrest, Marvin H. Mahan, Meagher, Inmar, Dock Watch, the SCA
Group, WMI and Gaess. In this agreement, among other things, the
parties agreed to terminate the 1986 Agreement and all the other
agreements between or among any of them relating to the Kin-Buc
Landfill, to dismiss the Transtech Arbitration and the SCA
Arbitration and the related litigation, and to dismiss all their
claims against the other parties arising from or relating to the
Kin-Buc Landfill, including claims for contribution and the Owner-
Operator Counterclaim. Transtech, Kin-Buc and Filcrest agreed to
continue to prosecute their pending suit against former excess
insurance carriers and to pay SCA 75% of the net recoveries of such
suit, after allowances for related legal fees and federal and state
income tax obligations resulting from the audit of the Company's
income tax returns for the years 1982 through 1992, up to a maximum
of $3.5 million (see discussion under the heading "Insurance"
below). Transtech also agreed to turn over the work products of
its expert witness and its attorney in the litigation to SCA, who
will defend and indemnify Transtech, Kin-Buc, Filcrest, Marvin H.
Mahan, Meagher, Inmar and Dock Watch from continuing claims by non-
settling non-municipal waste and municipal waste PRPs in the
litigation. SCA will also defend and indemnify the Company from
all future liability for or in connection with the remediation of
the Kin-Buc Landfill.
The third settlement agreement was among the AFP Group and
certain other PRPs, Transtech, all the third-party defendants to
the Fraudulent Conveyances Counterclaim, and other parties sought
to be joined in the Fraudulent Conveyances Counterclaim. In this
agreement, the AFP Group and the other settling PRPs dismissed all
their claims in the Fraudulent Conveyances Counterclaim in exchange
for a payment $1.5 million. Of this amount, $480,000 was paid by
Transtech and the balance was paid by the third-party defendants
and such other parties.
The fourth settlement agreement was among the SCA Group, WMI,
Transtech, all the third-party defendants to the Fraudulent
Conveyances Counterclaim, and the other parties sought to be joined
in the Fraudulent Conveyances Counterclaim. In this agreement, the
SCA Group and WMI dismissed all their claims in the Fraudulent
Conveyances Counterclaim and agreed to defend and indemnify
Transtech, the third-party defendants and such other parties
against continuing claims by non-settling PRPs (consisting of a
group of four non-municipal waste PRPs). In addition, the third-
party defendants and such other parties released Transtech from all
liability to them arising from the settlement of the Fraudulent
Conveyances Counterclaim.
In April 1991, Inmar demanded that, in accordance with certain
provisions of the lease from Inmar to Kin-Buc of 50 acres upon
which a portion of the Kin-Buc Landfill is located, Transtech
indemnify Inmar and Marvin H. Mahan against liability for
remediation of such property and pay Inmar $6.6 million in damages
for loss of value of its adjoining property. These demands are the
subject of an October 1998 settlement agreement with Inmar
discussed below.
Insurance
In 1995, Transtech, Kin-Buc and Filcrest commenced suit 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., a
corporation controlled by Marvin H. Mahan ("Tang") and for the
defense of litigation related thereto. The defendant insurers
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. 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, arising from this
excess carrier litigation be paid to WMI in conjunction with the
settlement of the litigation related to the Kin-Buc Landfill as
discussed above, and to legal counsel representing the Company in
the suit. 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.
They also cover Inmar and other companies presently or formerly
owned, controlled by or affiliated with Marvin H. Mahan.
Mr. Mahan and such affiliated entities assigned to the Company
their rights as insureds and claimants under such policies pursuant
to the October 1998 settlement agreement discussed below.
As to the Clay Deposits
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for use
in the closure of the Kin-Buc Landfill for $1.2 million from Inmar.
The agreement for the purchase of the clay provided that Kin-Buc
would be entitled to a refund of the purchase price of clay it was
unable to use. The Company used a small portion of the clay and
was planning to sell the remainder to third parties.
In May 1996 Inmar applied to the Superior Court, Essex County,
New Jersey for an order vacating a 1983 order of that Court in a
suit entitled State of New Jersey, Department of Environmental
Protection v. Inmar Associates et al., Docket No. C-1852-83E. That
order prohibited Inmar from selling its real property until all of
Inmar's and Marvin H. Mahan's obligations for the environmental
cleanup of a site in Carlstadt, New Jersey are fulfilled. In
August 1996 the Superior Court denied Inmar's application for
relief from the 1983 order, but permitted it to reapply if a sale
of a specific piece of real property was upcoming.
In October 1996 Kin-Buc learned that Inmar had contracted to
sell a substantial portion of its land in Edison, New Jersey, upon
which a substantial amount of the clay is situated, to Edison
Expansion, Inc. ("Expansion"), an unrelated company. In November
1996 Inmar reapplied to the Superior Court for permission to
complete this sale and Kin-Buc brought suit entitled Kin-Buc, Inc.
v. Inmar Associates, Inc. and Edison Expansion, Inc., Docket No.
MRS-C-249-96, in Superior Court, Morris County, New Jersey against
Inmar and Expansion for, among other things, a declaratory judgment
that Kin-Buc's rights in the clay would survive a sale of the land
to Expansion, and, alternatively, a money judgment against Inmar.
Inmar's reapplication for relief from the 1983 order had been
moved, on the Court's motion, to the Superior Court, Morris County,
where Kin-Buc's action was pending.
In December 1996 the Superior Court permitted Inmar to sell
the land to Expansion, but ordered that the net proceeds of the
sale be paid into the Court to secure the fulfillment of any
Carlstadt cleanup obligations which Inmar or Marvin H. Mahan may be
held liable to perform. Inmar appealed this order to the Appellate
Division of the Superior Court. A closing of the sale of the land
to Expansion took place in January 1997, and the net proceeds of
the sale, totalling approximately $530,000, were paid into the
Superior Court pending the outcome of Inmar's appeal.
In August 1997 Kin-Buc obtained a default judgment against
Inmar in the amount of approximately $1.1 million, representing a
refund of the purchase price of the clay Kin-Buc did not use. In
October 1997 the Superior Court dismissed Kin-Buc's suit against
Expansion, recognizing that Kin-Buc had already obtained a remedy
in the form of a money judgment against Inmar.
In April 1998 the Appellate Division ruled on Inmar's appeal
of the December 1996 order which provided, among other things, for
payment into the Superior Court of the proceeds of the sale of
Inmar's land. Referring to a specific section of the State's
environmental laws, the Appellate Division remanded Inmar's
application for relief from the 1983 order for consideration of
whether four specific methods of securing the fulfillment of
cleanup obligations set forth in that section are the only
permissible methods of securing such obligations. In June 1998
Inmar applied to the Superior Court, on remand, for an order
vacating the December 1996 order, releasing the proceeds of the
sale of Inmar's land and removing the prohibition on the sale of
Inmar's other real property imposed by the 1983 order.
On August 3, 1998 the Superior Court granted Inmar's
application and vacated its December 1996 order, released the
proceeds and removed the prohibition on the sale of Inmar's other
real property. In December 1998, the Company received $480,000 in
accordance with the terms of an October 1998 settlement agreement
with Inmar, as discussed below.
As to the Carlstadt Site
Transtech is one of 43 respondents to a September 1990
Administrative Order of EPA concerning the implementation of
interim environmental remediation measures at a site in Carlstadt,
New Jersey owned by Inmar and operated by Transtech as a solvents
recovery plant for approximately five years ending in 1970.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in a
civil action in the United States District Court for the District
of New Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the
"AT&T Suit") by a group of generators of waste (the "AT&T Group")
alleging, among other things, that the primary responsibility for
the clean-up and remediation of the Carlstadt site rests with
Transtech, Inmar and Marvin H. Mahan.
In September 1995, the Court approved a settlement of the AT&T
Suit among Transtech, Inmar, Marvin H. Mahan, the AT&T Group and
other generators and transporters of waste handled at the Carlstadt
site who had contributed to the costs of the remediation of the
site. Pursuant to such settlement, Transtech, Inmar and Marvin H.
Mahan agreed to (i) pay $4.1 million of proceeds from settlements
with primary insurers of a coverage action brought by the Company
and Inmar against their primary and excess insurers, (ii) pay an
additional $145,000 ($72,500 from Transtech and $72,500 from Inmar
and Marvin H. Mahan), and (iii) assign their Carlstadt site-related
insurance claims against an excess insurer in exchange for a
complete release from these parties of all liability arising from
or on account of environmental contamination at the Carlstadt site
and the parties' remediation of the same. Notwithstanding such
settlement, the Company may have liability in connection with the
site to EPA for its costs of overseeing the remediation of the
site, and to parties who had not contributed to the remediation at
the time the settlement was approved but who may later do so. The
Company has received no indication that EPA intends to assert a
claim for oversight costs.
In a related matter, in October 1989, the Company, together
with owners and operators of industrial sites in the Hackensack,
New Jersey meadowlands, including a site in Wood-Ridge, were sued
in the United States District Court for the District of New Jersey
for contribution toward the cost of remediation of those sites,
adjacent lands and adjacent water courses, including Berry's Creek.
The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate
such industrial sites, adjacent lands and adjacent water courses,
seek contribution from the Company toward the cost of remediating
Berry's Creek, which, they allege, was contaminated, in part, by
the Company's operations at a nearby solvents recovery facility at
Carlstadt, New Jersey. Shortly after the institution of suit, the
plaintiffs began negotiating with the governmental entities which
ordered the remediation of the sites, adjacent land and adjacent
water courses, as to the scope of remediation and, pending those
negotiations, had stayed the suit. In August 1996, the plaintiffs
reinstituted the suit but shortly thereafter agreed to sever claims
against the Company and proceed against other defendants. As a
result, the claims against the Company have again been stayed.
Since the plaintiffs' negotiations concerning the scope of the
remediation of Berry's Creek are still ongoing, and no discovery
has taken place concerning allegations against the Company, it is
not possible to estimate the Company's ultimate liability in this
matter.
In December 1989, Inmar and Transtech agreed to share equally
certain costs in connection with the AT&T Suit. As of December 31,
1992, Transtech paid $514,000 towards such costs. Inmar has
disputed which expenses are to be shared. Further, in April 1991,
Marvin H. Mahan made a demand upon Transtech for reimbursement of
approximately $300,000 in costs which he incurred in connection
with the AT&T Suit. The dispute concerning the shared expenses and
Marvin H. Mahan's demand for reimbursement are subjects of the
October 1998 settlement agreement with Inmar discussed below.
As to the Tang Site
Pursuant to a December 1988 agreement with Tang, in 1988, 1989
and 1990 Transtech spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by Transtech for a limited period of time. In October
1990, Transtech determined that it would no longer continue to
contribute to the remediation of that site. During July 1999,
counsel to the Company was contacted by the EPA regarding the Tang
site. 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 has had
no direct involvement with EPA since October 1990 and has 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. In November 1999 and
again in February 2000, EPA and the Company agreed to extend the
statute an additional three months. 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.
In connection with its determination not to continue to
contribute to the remediation of the Tang site, in March 1991
Transtech made a demand upon Tang for reimbursement of the amounts
it had expended in connection with such remediation. In April
1991, Tang rejected the demand for reimbursement and demanded
Transtech resume the remediation. These demands are the subject of
the October 1998 settlement agreement with Tang discussed below.
As to Negotiations with Inmar, Tang and Marvin H. Mahan
The Company had been negotiating with Inmar, Marvin H. Mahan
and Tang (collectively, the "Mahan Interests") toward a settlement
of disputes with the Company, namely, Inmar's demand for damages
for loss of value of property adjoining the Kin-Buc Landfill, the
sharing of legal expenses of the suit settled in 1995 pertaining to
a site in Carlstadt, New Jersey, and the reimbursement of
remediation costs and damages for loss of value at the Piscataway,
New Jersey site owned by Tang. Negotiations broadened to include
the Mahan Interests' joining in the December 1997 settlement of a
derivative suit stemming from litigation regarding the remediation
of the Kin-Buc landfill, the satisfaction of Kin-Buc's $1.1 million
judgment against Inmar and the Mahan Interests' cooperation in the
prosecution of the suit against Transtech's excess insurers. In
October, 1998 the Company entered into an agreement with the Mahan
Interests which resolved such disputes and assigned to the Company
all rights of the Mahan Interests, and certain other insured
entities affiliated with the Mahan Interests, as insureds and
claimants under the excess insurance policies now the subject of
litigation initiated by the Company. The Company agreed to vacate
Kin-Buc's judgment against Inmar in exchange for $480,000 which was
paid to the Company from funds deposited with the Superior Court of
New Jersey, and to pay $200,000 for the aforementioned assignment
of rights under the insurance policies to be paid in two equal
installments. The first installment was paid when the Company
received the $480,000 from the Superior Court and the second
installment is payable when the Company receives payment for claims
made against the insurance carriers. An amount equal to the second
installment was placed in escrow when the funds were received from
the Superior Court and is included in "Other" assets in the
accompanying December 31, 1999 and 1998 balance sheets. The
Company also agreed to indemnify Marvin H. Mahan for claims that
may be made on account of past actions he took in his role as an
officer and director of the Company and reimbursed Marvin H. Mahan
$68,000 for a portion of the Mahan Interests' legal fees related to
the Kin-Buc litigation and their efforts to release the funds held
by the Superior Court. The Mahan Interests and the Company
exchanged releases from all other claims each has made against the
other.
General
In the ordinary course of conducting its business, the Company
becomes involved in certain lawsuits and administrative proceedings
(other than those described herein), some of which may result in
fines, penalties or judgments being assessed against the Company.
The management of the Company is of the opinion that these
proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated
financial position.
The uncertainty of the outcome of the aforementioned tax
litigation and insurance litigation and the impact of future events
or changes in environmental laws or regulations, which cannot be
predicted at this time, could result in increased remediation and
closure costs, and increased tax and other potential liabilities.
A significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows. The Company may ultimately incur costs and
liabilities in excess of its available financial resources.
Part I, Item 4. Submission of Matters to a Vote of
Security Holders.
None during the quarter ended December 31, 1999.
<PAGE>
PART II
Part II, Item 5. Market for Common Equity and Related
Stockholder Matters.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 6. Management's Discussion and Analysis or Plan
of Operation.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 7. Financial Statements.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Part III, Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Securities Exchange Act.
Directors and Executive Officers of the Company
Robert V. Silva (56) - President and Chief Executive Officer
and a director of the Company from April 1991 and Chairman of the
Board of Directors from November 1991. Mr. Silva served as a
consultant to the Company from December 1990 until his appointment
in April 1991 as an officer of the Company. Mr. Silva was employed
from September 1987 to December 1990 as Executive Vice President of
Kenmare Capital Corp. ("Kenmare"), an investment firm, and provided
financial and management consulting services to companies acquired
by Kenmare's affiliates. In connection with such financial and
management services, Mr. Silva served as Vice President and a
Director of Old American Holdings, Inc. and its subsidiary from
1988 to 1990, and Vice President and a Director of Compact Video
Group, Inc. and its subsidiaries from 1988 to 1991 and of Manhattan
Transfer/Edit, Inc. from 1989 to 1991. Mr. Silva also served as a
Director of General Textiles from 1989 to 1991. From June 1985 to
September 1987, Mr. Silva served as Vice President of, and provided
management consulting services to, The Thompson Company, a private
investment firm controlled by the Thompson family of Dallas, Texas.
Mr. Silva served as Chairman and Chief Executive Officer of Hunt
Valve Company, Inc., a former subsidiary of the Company, from March
1, 1996 to his resignation effective January 1, 1997, and as a
Director of Hunt from March 1996 to August 1998. Mr. Silva also
served as Vice President and a Director of ValveCo Inc., the entity
which acquired Hunt, from October 10, 1995 to his resignation
effective January 1, 1997, and was a stockholder in ValveCo Inc.
from March 1, 1996 through August 1998. From September 1996 to
February 14, 1997, Mr. Silva served as a Director of Hunt's
subsidiary, Hunt SECO Engineering, Ltd. and its subsidiaries. Mr.
Silva is also the principal of Robert V. Silva and Company, LLC.,
a private investment firm. Mr. Silva also serves as Chairman and
Chief Executive Officer of Fab-Tech Industries of Brevard, Inc.
since September 1998. Mr. Silva's wife is the sister-in-law of
Gary Mahan, the son of Marvin H. Mahan and Ingrid T. Mahan.
Arthur C. Holdsworth, III (52) - A director of the Company
since 1988. Since June 1999, Mr. Holdsworth has been General Sales
Manager at the Tilcon NJ Division of Tilcon NY, Inc. From August
1991 through June 1999 Mr. Holdsworth was Vice President of Sales
at Millington Quarry, Inc. Prior to that and from 1977, Mr.
Holdsworth was General Manager of Dallenbach Sand Co., Inc.
Members of the Mahan family own Millington Quarry, Inc. and
previously owned Dallenbach Sand Co, Inc.
<PAGE>
Andrew J. Mayer, Jr. (44) - Vice President-Finance and Chief
Financial Officer of the Company from November 1991 and a director
of the Company from December 1991 and, from April 1992, Secretary
of the Company. From 1988 to November 1991, Mr. Mayer served as
Vice President, Secretary and Treasurer of Kenmare. In connection
with management and financial services provided by Kenmare, Mr.
Mayer served in a variety of capacities for the following
companies: Old American Holdings, Inc. and its subsidiary from
1988 to 1991; The Shannon Group, Inc. and its subsidiaries from
1988 to 1990; Detroit Tool Group, Inc. and its subsidiaries from
1989 to 1990; Compact Video Group, Inc. from 1988 to 1991;
Manhattan Transfer/Edit, Inc. from 1989 to 1991; and General
Textiles from 1989 to 1990. Mr. Mayer served as Executive Vice
President of Hunt Valve Company, Inc., a former subsidiary of the
Company from March 1, 1996, the date the Company sold Hunt, to his
resignation effective January 1, 1997. Mr. Mayer also served as
Vice President - Chief Financial Officer of ValveCo Inc. from April
3, 1996 through his resignation effective January 1, 1997, and was
a stockholder in ValveCo Inc. from March 1, 1996 through August,
1998. From September 1996 to February 14, 1997, Mr. Mayer served
as a Director of Hunt's subsidiary, Hunt SECO Engineering, Ltd. and
its subsidiaries. Mr. Mayer is an investor, and serves in a
variety of capacities, in certain entities established by Robert V.
Silva & Company, LLC for private investment purposes. Mr Mayer
also serves as a Director, Chief Financial Officer and Secretary of
Fab-Tech Industries of Brevard, Inc.
Compliance with Section 16(a) of Securities
Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors
and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such
forms furnished to the Company, or written representations that no
Forms 5 were required, the Company believes that during the
Company's fiscal year ending December 31, 1999 all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with,
except for the late filing of a report on Form 4 as to one
transaction completed by Robert V. Silva.
Part III, Item 10. Executive Compensation.
Summary Compensation Table
The following table summarizes the compensation paid to or
earned by the President and Chief Executive Officer (the "Chief
Executive Officer") and the Vice President-Finance, Chief Financial
Officer and Secretary (the "Named Executive Officer") in the years
ending December 31, 1999, 1998 and 1997 ("Fiscal 1999", "Fiscal
1998" and "Fiscal 1997", respectively) for services rendered by
them to the Company in all capacities during such years. Both the
Chief Executive Officer and the Named Executive Officer were the
only executive officers of the Company whose total annual salary
and bonus exceeds $100,000 and were serving as executive officers
of the Company at December 31, 1999.
<TABLE>
Annual Compensation
<CAPTION>
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation (a)
<S> <C> <C> <C> <C>
Robert V. Silva 1999 $157,332 $0 $1,573
President and Chief 1998 $157,332 $0 $1,570
Executive Officer 1997 $159,898 $77,500 $0
Andrew J. Mayer, Jr 1999 $136,000 $0 $1,360
Vice President- 1998 $136,000 $0 $1,360
Finance, Chief 1997 $135,792 $20,000 $994
Financial Officer
and Secretary
Long Term Compensation
Awards Payouts
Options/ Long-Term All
Name and Restricted Stock App- Incentive Other
Principal Fiscal Stock reciation Plan Compens-
Position Year Awards Rights Payouts ation(b)
Robert V. Silva 1999 0 0 0 0
President and Chief 1998 0 0 0 0
Executive Officer 1997 0 0 0 0
Andrew J. Mayer, Jr 1999 0 0 0 0
Vice President- 1998 0 0 0 0
Finance, Chief 1997 0 0 0 0
Financial Officer
and Secretary
</TABLE>
(a) In each case, the amount shown as other annual
compensation is the Company's matching contributions to its 401(k)
Plan on behalf of the Chief Executive Officer and the Named
Executive Officer during each of Fiscal 1999, Fiscal 1998 and
Fiscal 1997. In each of Fiscal 1999, Fiscal 1998 and Fiscal 1997,
the Company's 401(k) Plan provided for a match equal to 50% of a
participant's contribution to the plan in that year, subject to a
maximum of (i) 2% of compensation in that year or (ii) applicable
Internal Revenue Service limits.
(b) The aggregate value of all other perquisites granted the
Chief Executive Officer and the Named Execution Officer is less
than 10% of their respective salaries.
Stock Option Plans
The following table sets forth, with respect to grants of
stock options and stock appreciation rights ("SARs") to the Chief
Executive Officer and the Named Executive Officer during Fiscal
1999: (a) the number of options granted; (b) the percent the grant
represents of total options granted to employees during Fiscal
1999; (c) the per-share exercise price of the options granted; and
(d) the expiration date of the options.
<TABLE>
OPTION/SAR GRANTS IN FISCAL 1999
<CAPTION>
% Of Total
Options/SARs*
Options/ Granted to Exercise Expir-
SARs* Employees in or Base ation
Name Granted (#) Fiscal Year Price ($/sh) Date
<S> <C> <C> <C> <C>
Robert V. Silva 0 N/A N/A N/A
Andrew J.Mayer, Jr 0 N/A N/A N/A
*No SARs have been issued by the Company.
</TABLE>
The following table sets forth: (a) the number of shares
received and the aggregate dollar value realized in connection with
each exercise of outstanding stock options during Fiscal 1999 by
the Chief Executive Officer and the Named Executive Officer; (b)
the total number of all outstanding, unexercised options
(separately identifying exercisable and unexercisable options) held
by such executive officers as of the end of Fiscal 1999; and (c)
the aggregate dollar value of all such unexercised options that are
in-the-money (i.e., options as to which the fair market value of
the underlying common stock of the Company that is subject to the
option exceeds the exercise price of the option), as of the end of
Fiscal 1999.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Unexercised
Options/SARs* at
Fiscal Year-End(#)
Shares Acquired Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable
<S> <C> <C> <C>
Robert V. Silva 0 N/A 50,000/0
Andrew J. Mayer, Jr. 0 N/A 5,000/0
Value of Unexercised
In-the-Money
Options/SARs* at
Fiscal Year-End($)
Exercisable/
Unexercisable
Robert V. Silva 0/0
Andrew J. Mayer, Jr. 0/0
* No SARs have been issued by the Company.
</TABLE>
Compensation of Directors
Directors of the Company who are not also employees are paid
annual directors' fees of $1,875 per calendar quarter, plus $500
for attending each meeting of the board. In Fiscal 1999, Arthur C.
Holdsworth, III earned fees of $8,000.
<PAGE>
Part III, Item 11. Security Ownership of Certain Beneficial Owners
and Management.
As of the close of business on March 21, 2000, the Company has
issued and outstanding 2,829,190 shares of Common Stock, which
figure excludes 1,885,750 shares owned by the Company which are not
outstanding and are not eligible to vote.
Set forth below is a table showing, as of March 21 2000, the
number of shares of Common Stock owned beneficially by:
(1) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of such
Common Stock;
(2) each director of the Company;
(3) the chief executive officer of the Company (the
"Chief Executive Officer");
(4) the most highly compensated executive officers of
the Company (other than the Chief Executive Officer) whose total
annual salary and bonus exceeds $100,000 (the "Named Executive
Officer"); and
(5) all officers and directors of the Company as a
group.
Unless otherwise specified, the persons named in the table
below and footnotes thereto have the sole right to vote and dispose
of their respective shares.
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Beneficially Owned of Class
Herzog, Heine & Geduld 340,150 (a) 12.0%
525 Washington Blvd.
Jersey City, NJ 07310
Roger T. Mahan 325,435 (b),(e) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (b),(c),(e) 11.4%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (b),(d),(e) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Robert V. Silva 79,966 (f) 2.8%
200 Centennial Avenue
Piscataway, NJ 08854
Arthur C. Holdsworth, III 3,200 .1%
200 Centennial Avenue
Piscataway, NJ 08854
Andrew J. Mayer, Jr. 5,900 (g) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 89,066 (h) 3.1%
and directors as a group
(3 in group)
(a) Includes 28,200 shares owned by customers of this firm.
(b) Roger T. Mahan, Nancy M. Ernst and Gary A. Mahan are the
children of Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, and his wife, Ingrid T.
Mahan. Marvin H. and Ingrid T. Mahan disclaim beneficial ownership
of the shares owned by their children.
(c) Includes 8,600 shares owned by Nancy M. Ernst's husband,
Kenneth A. Ernst, and 18,200 shares owned by their minor children.
Mr. Ernst was a director of the Company from June 1987 through
April 29, 1994.
(d) Includes 8,600 shares owned by Gary A. Mahan's wife,
Elizabeth Mahan, and 8,600 shares owned by their minor child.
(e) Members of the Mahan family, consisting of Roger T. Mahan,
Nancy M. Ernst and Gary A. Mahan, their spouses and children and
their parents, Marvin H. Mahan and Ingrid T. Mahan, own 967,911
shares of Common Stock, which represent approximately 34% of the
shares outstanding. In addition, Ingrid T. Mahan is executrix of
the estate of Arthur Tang, which owns an additional 32,750 shares
of such common stock.
<PAGE>
(f) Includes incentive options to purchase 50,000 shares at
$.75 per share, all of which are presently exercisable, and 6,822
shares held in the Company's 401K Plan.
(g) Represents incentive options to purchase 5,000 shares at
$0.438 per share, all of which are presently exercisable.
(h) Includes incentive options to purchase 55,000 shares held
by two officers of the Company, all of which are presently
exercisable.
Part III, Item 12. Certain Relationships and Related Transactions.
In 1988, Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, Inmar Associates, Inc.
("Inmar"), a New Jersey corporation controlled by Marvin H. Mahan,
and Transtech were sued in a civil action in the United States
District Court for the District of New Jersey entitled AT&T
Technologies, Inc. et al. v. Transtech Industries, Inc. et al. v.
Allstate Insurance Company et al. (the "AT&T Suit") by a group of
generators of waste (the "AT&T Group") alleging, among other
things, that the primary responsibility for the clean-up and
remediation of a Carlstadt, New Jersey site operated by the Company
as a solvents recovery plant for a five year period ended in 1970
rests with the Company, Inmar and Marvin H. Mahan. Thereafter,
the Company and Inmar brought third-party actions against, among
others, the insurance companies which issued policies of
comprehensive general liability insurance to them and to another
operator of the site now in dissolution. Settlements with these
insurers in 1995 resulted in payments to Transtech, Inmar and
Marvin H. Mahan of a total of $4.075 million which was applied to
the Company's, Inmar's and Marvin H. Mahan's liability to the AT&T
Group. The Company believes that the terms of the settlements are
no less favorable to the Company than could be obtained with non-
affiliated parties.
In December 1989, the Company and Inmar agreed to share
equally certain expenses in connection with the AT&T Suit. As of
December 31, 1992, the Company paid $514,000 towards such costs.
Inmar has disputed which items of expenses were to be shared.
Further, in April 1991, Marvin H. Mahan issued a demand upon the
Company for reimbursement of approximately $300,000 in costs which
he incurred in connection with the AT&T Suit. The dispute
concerning the shared expenses and Marvin H. Mahan's demand for
reimbursement were subjects of the October 1998 settlement
agreement with Inmar discussed below.
Pursuant to a December 1988 agreement with Tang Realty, Inc.
("Tang"), a corporation controlled by Marvin H. Mahan, in 1988,
1989 and 1990 the Company spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by the Company for a limited period of time. In October
1990, the Company determined that it would no longer continue to
contribute to the remediation of that site and in March 1991 the
Company made a demand upon Tang for reimbursement of the amounts it
had expended in connection with such remediation. In April 1991
Tang rejected the demand for reimbursement and demanded the Company
resume the remediation. These demands are the subject of the
October 1998 settlement agreement with Tang discussed below. One
of the Company's wholly-owned subsidiaries, Kin-Buc, Inc. ("Kin-
Buc"), leased from Inmar approximately 50 acres of land upon which
a portion of the Kin-Buc landfill (the "Kin-Buc Landfill") is
located. This lease ran to July 1995. The annual base rent of
$162,500 had been waived by Inmar because the Kin-Buc Landfill was
not operating. In April 1991, Inmar demanded that, in accordance
with certain provisions of the Kin-Buc Lease, the Company indemnify
Inmar and Marvin H. Mahan against liability for remediation of the
leased tract, and pay Inmar $6.6 million in damages for loss of
value of its adjoining property. The claim for damages is the
subject of the October 1998 settlement agreement with Inmar
discussed below.
In 1988, Kin-Buc paid $1,200,000 to Inmar for clay to be used
for the closure of the Kin-Buc Landfill. Under its agreement with
Inmar, the Company had a right to a refund of the purchase price of
the clay if it is unable to extract or use the clay. For a
discussion of this matter see Part I, Item 3. Legal Proceedings -
"As to the Clay Deposits". This matter is a subject of the October
1998 settlement agreement discussed below.
Since Marvin H. Mahan's retirement from the Company, it has
provided Marvin H. Mahan the use of an automobile and contributed
to the expenses of maintaining an office for his use including
secretarial services. Such expenses totalled approximately $10,000
in both 1999 and 1998. In addition, the Company agreed to pay
$40,000 in 1997 toward legal fees incurred by Marvin H. Mahan with
respect to litigation related to the Kin-Buc Landfill and
reimbursed an additional $68,000 of such fees in 1998 pursuant to
the October 1998 settlement agreement discussed below.
The Company entered into negotiations with Inmar, Marvin H.
Mahan and Tang (collectively, the "Mahan Interests") toward a
settlement of disputes with the Company, namely, Inmar's demand for
damages for loss of value of property adjoining the Kin-Buc
Landfill, the sharing of legal expenses of the suit settled in 1995
pertaining to a site in Carlstadt, New Jersey, and the
reimbursement of remediation costs and damages for loss of value at
the Piscataway, New Jersey site owned by Tang Realty. Negotiations
also included the Mahan Interests' joining in the December 1997
settlement of a derivative suit stemming from litigation regarding
the remediation of the Kin-Buc landfill, the satisfaction of Kin-
Buc's $1.1 million judgment against Inmar and the Mahan Interests'
cooperation in the prosecution of the suit against Transtech's
insurers. In October, 1998 the Company entered into an agreement
with the Mahan Interests which resolved such disputes and assigned
to the Company all of the Mahan Interests', and certain other
insured entities' affiliated with the Mahan Interests, rights as
insureds and claimants under the excess insurance policies now the
subject of litigation initiated by the Company. The Company agreed
to vacate Kin-Buc's judgment in exchange for $480,000 which was
paid to the Company from funds deposited with the Superior Court of
New Jersey, and to pay $200,000 for the aforementioned assignment
of rights under the insurance policies to be paid in two equal
installments. The first installment was paid when the Company
received the $480,000 from the Superior Court and the second
installment is payable when the Company receives payment for claims
made against the insurance carriers. An amount equal to the second
installment was placed in escrow when the funds were received from
the Superior Court and is included in other assets in the
accompanying December 31, 1999 balance sheet. The Company also
agreed to indemnify Marvin H. Mahan for claims that may be made on
account of past actions he took in his role as an officer and
director of the Company and reimbursed Marvin H. Mahan $68,000 for
a portion of the Mahan Interests' legal fees related to the Kin-Buc
litigation and their efforts to release the funds held by the
Superior Court. The Mahan Interests and the Company exchanged
releases from all other claims each has made against the other.
On April 22, 1994 the Company made a loan of $75,000 to Robert
V. Silva, President and Chairman of the Board of the Company
evidenced by a note which bears interest at a floating prime rate
plus 1% and is due and payable as determined by the Board of
Directors. A total of $115,000 was outstanding with respect to the
loan, including interest, as of December 31, 1999.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a Delaware
corporation, purchased 100% of the Hunt Valve Company, Inc. common
stock owned by THV Acquisition Corp, a wholly-owned subsidiary of
the Company, representing 79.05% of the issued and outstanding Hunt
common stock (see Part I, Item 1, Description of Business,
Discontinued Operations). Fifteen percent of the common stock
issued by ValveCo was purchased by certain directors and executive
officers who are members of management of the Company and/or Hunt,
namely, Robert V. Silva (7.5%), David Huberfield (4%), Andrew J.
Mayer, Jr. (2%) and Gerald Bogner (1.5%) for $150,000. Such
directors and executive officers also obtained the right to
acquire, for an aggregate cost of $2.3 million, an additional 12.5%
of ValveCo's common stock pursuant to the exercise of performance
and value-based options. In addition, the aforementioned directors
and executive officers of the Company and Hunt were employed in
various capacities by ValveCo and Hunt after the sale. Mr. Silva
resigned from his employment with ValveCo and Hunt effective
January 1, 1997, and as a director of Hunt in August 1998. Mr.
Mayer also resigned from his employment with ValveCo and Hunt
effective January 1, 1997. These two directors and executive
officers of the Company sold their equity holdings in ValveCo in
August 1998.
<PAGE>
PART IV
Part IV, Item 13. Exhibits and Reports on Form 8-K.
Exhibits
The exhibits to this report are listed in the Exhibit Index on
pages 36 to 40.
Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, hereunto duly
authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
By: /s/ Robert V. Silva
Robert V. Silva, President and
Chief Executive Officer
and Director
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the date
indicated.
/s/ Robert V. Silva March 30, 2000
Robert V. Silva, President and
Chief Executive Officer
and Director
/s/ Andrew J. Mayer, Jr. March 30, 2000
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
<PAGE>
TRANSTECH INDUSTRIES, INC.
EXHIBIT INDEX
Sequential
Exhibit No. Page No.
3 Articles of Incorporation and By-Laws:
3 (a) Articles of incorporation: Incorporated by
reference to Exhibit 3 (a) to the Company's
Annual Report on Form 10-K for fiscal year
ended December 31, 1989
3 (b) By-laws: Incorporated by reference to Exhibit
3 (b) to the Company's Annual Report on Form
10-K for fiscal year ended December 31, 1989
3 (c) Amended and restated by-laws: See "G" below
10 Material contracts:
10 (a) Stock Purchase Agreement dated June 29, 1989
among the Company and the Tendering
Shareholders, as therein defined: See "A"
below
10 (b) Stock Option Cancellation Agreement dated June
29, 1989 among the Company, Charles F. Trapp
and Edward Egan: See "B" below
10 (c) Purchase Agreement dated as of July 14, 1989
between The Tax Strategy Group, Inc. and the
Company: See "B" below
10 (d) Non-Negotiable, Non-Recourse Installment
Promissory Note dated as of July 14, 1989 by
the Company to The Tax Strategy Group, Inc.:
See "B" below
10 (e) Security Agreement dated as of July 14, 1989
between the Company and The Tax Strategy
Group, Inc.: See "B" below
10 (f) Master Lease Agreement dated as of July 14,
1989 between The Tax Strategy Group, Inc. and
CLI Equity Resources XV, L.P. ("CLI"),
assigned by CLI to the Company by Consent and
Assignment Agreement dated as of July 14,
1989: See "B" below
<PAGE>
Sequential
Exhibit No. Page No.
10 (n) Property Purchase Agreement dated December 31,
1992 by and among Red Robin Realty, Inc. as
Seller and James Messner, Sr. and James
Messner, Jr. as Buyers: See "C" below
10 (o) Asset Purchase Agreement dated December 31,
1992 by and among Genetic Farms, Inc., as
Seller and James Messner, Sr. and James
Messner, Jr., as Buyers: See "C" below
10 (p) Settlement Agreement and Mutual Release dated
October 28, 1992 among Transtech Industries,
Inc. and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The Continental Insurance Company:
See "C" below
10 (q) Order for Approval of De Minimis Settlement
and for Dismissal of Certain Defendants of the
District Court for the District of New Jersey
dated November 2, 1992 in Transtech
Industries, Inc. et al. v. A&Z Septic Clean,
et al., Civil Action No. 90-2578 (HAA)
approving settlements with certain defendants
identified on Exhibits 1 and 2 to such Order
pursuant to The Kin-Buc Landfill Contribution
Agreement in the form of Exhibit 3 to such
Order: See "C" below
10 (y) Settlement Agreement and Mutual Release dated
May 31, 1994 among Transtech Industries, Inc.
and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The City Insurance Company: See "D"
below
10 (z) Settlement Agreement and Release dated April
20, 1994 among Transtech Industries, Inc.
Inmar Associates, Inc., Marvin H. Mahan, Mt.
Vernon Insurance Company and The United States
Liability Insurance Company: See "D" below
10 (ac) Settlement Agreement and Release dated
September 16, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
<PAGE>
Sequential
Exhibit No. Page No.
Inmar Associates, Inc., and its subsidiaries
and affiliates, and the National Union Fire
Insurance Company of Pittsburgh, Pa.: See "E"
below
10 (ad) Settlement Agreement and Mutual Release dated
October 3, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
Inmar Associates, Inc. and its subsidiaries
and affiliates, Marvin H. Mahan and Allstate
Insurance Company: See "E" below
10 (au) Settlement Agreement approved in September
1995 among Transtech Industries, Inc., Inmar
Associates, Inc., Marvin H. Mahan and certain
members of the 216 Paterson Plank Road
Cooperating PRP Group: See "F" below
10 (av) Income Tax Sharing Agreement dated September
27, 1991 among Transtech Industries, Inc., THV
Acquisition Corp., HVHC, Inc. and Hunt Valve
Company, Inc.: See "F" below
10 (aw) Stock Purchase Agreement dated as of October
24, 1995 between ValveCo Inc. and THV
Acquisition Corp. (without schedules): See
"G" below
10 (ax) Amended and Restated Stock Purchase Agreement
dated as of January 15, 1996 among THV
Acquisition Corp., ValveCo Inc., Transtech
Industries, Inc., Hunt Valve Company, Inc. and
Terold N.V., with exhibits, and letter
agreement dated February 5, 1990 among THV
Acquisition Corp., ValveCo Inc. and Transtech
Industries, Inc.: See "H" below
10 (ay) Escrow Agreement dated March 1, 1996 by and
among THV Acquisition Corp., ValveCo Inc. and
United States Trust Company of New York, as
escrow agent: See "I" below
10 (az) Settlement Agreement for Matters Relating to
the Kin-Buc Landfill dated December 23, 1997
among Transtech Industries, Inc. and certain
of its subsidiaries, Waste Management, Inc.
and certain of its affiliates including SCA
Services, Inc., Inmar Associates, Inc., Dock
<PAGE>
Sequential
Exhibit No. Page No.
Watch Quarry, Inc., Marvin H. Mahan, Robert J.
Meagher, and Anthony Gaess: See "J" below
10 (ba) Stipulation of Settlement and Release dated
December 23, 1997 among Transtech Industries,
Inc. and certain of its shareholders and
former officers, Inmar Associates, Inc., Tang
Realty, Inc., Waste Management, Inc. and
certain of its affiliates including SCA
Services, Inc.: See "J" below
10 (bb) Settlement Agreement dated October 22, 1998
among Transtech Industries, Inc. and its
subsidiary, Inmar Associates, Inc., Tang
Realty, Inc., Dock Watch Quarry Pit, Inc. and
Marvin H. Mahan: See "K" below
11 Statement regarding computation of net loss 41
per share
13 Annual Report to Stockholders 42 - 102
21 Subsidiaries of the Registrant 103
"A" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
June 30, 1989
"B" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
July 14, 1989
"C" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992, as
amended on May 18, 1993
"D" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1994
<PAGE>
"E" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1994
"F" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995
"G" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
October 24, 1995
"H" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
March 1, 1996
"I" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995
"J" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997
"K" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998
Exhibit 13. Annual Report to Stockholders.
TRANSTECH INDUSTRIES, INC.
ANNUAL REPORT
1999
COMPANY PROFILE
Transtech Industries, Inc. and its subsidiaries
provide environmental services and generate
electricity utilizing methane gas. The Company's
headquarters are located in Piscataway, New Jersey.
TABLE OF CONTENTS
Page
President's Letter 2
Management's Discussion and Analysis of
Financial Condition 4
Consolidated Balance Sheets 17
Consolidated Statements of Operations 19
Consolidated Statements of Comprehensive Income 20
(Loss)
Consolidated Statements of Stockholders' Equity 21
(Deficit)
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 25
Report of Independent Certified Public Accountants 58
Market Prices of Common Stock 59
Directory 60
Transtech Industries, Inc.
President's Letter
To Our Stockholders:
I am pleased to report that during 1999 Transtech moved
forward on several fronts effecting our operations.
As I mentioned in my letter accompanying last year's report,
we had reached settlements with the Internal Revenue Service on the
issues in our Tax Court case arising from the audit of our tax
returns for the years 1980 through 1991. We are still awaiting
final determination of the case as more fully described in this
report. When the proceeding comes to conclusion, the Company will
face significant cash requirements which exceed our currently
available liquid assets. However, the settlements avoided the
additional expense of a prolonged trial and the significant risk of
an even larger tax liability.
I also mentioned our entry into a long-term gas lease
agreement related to Kinsley's Landfill. The gas lease was only
one of a number of transactions we intended to complete with the
lessee and its affiliates in order to provide the Company with
additional liquidity. We continued to negotiate the ancillary
agreements and amendments to the gas lease throughout 1999. In
early 2000 we chose to terminate the negotiations and the gas lease
agreement due to an inability to reach acceptable terms and
conditions with the parties involved. We are considering other
alternatives to these transactions.
We have been pursuing opportunities to expand the customer
base of our environmental services segment. Beginning in 1998 and
throughout 1999 we devoted considerable efforts to secure a
contract and related state government approval to perform the
closure of a site in New Jersey. We hope these efforts will be
rewarded this year; however there can be no assurances that we will
be successful in these efforts. The Company believes the
methodology we propose to utilize for this site may prove to be
viable for other sites as well.
We also continued to pursue the cost recovery action against
our excess insurers for the significant costs the Company has
incurred in connection with the remediation of several sites with
which the Company had historically been involved.
Although the Company continues its attempts to improve its
Transtech Industries, Inc.
President's Letter, cont'd
liquidity through the efforts described above and through the sale
of other assets, we cannot currently determine whether the timing
or amount of any cash proceeds will be sufficient to satisfy our
tax liabilities and other obligations and return the Company to an
expanded operating mode.
Sincerely,
Robert V. Silva
<PAGE>
Transtech Industries, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
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 Company's operations consist of the parent company and 25
subsidiaries, two of which conduct active operations. The
operations of these two subsidiaries' have been classified into two
segments: the generation and sale of electricity utilizing methane
gas and the performance of environmental services. The other
subsidiaries of the Company hold assets consisting primarily of
cash and marketable securities, real property, notes receivable and
contract rights.
The Company and certain subsidiaries were previously active in
the resource recovery and waste management industries. These
activities included the operation of three landfills and a solvents
recovery facility. These sites are now closed, but the Company
continues to own and/or remediate the landfills and has both
incurred and accrued for the substantial costs associated
therewith. The Company has also incurred significant litigation
expense related to one of the three landfills owned and operated by
the Company, litigation before the U.S. Tax Court, and in its
ongoing litigation against certain excess insurance carriers. The
Company has accrued $3.4 million through December 31, 1999 with
respect to federal and state income tax obligations stemming from
the litigation before the U.S. Tax Court. This estimated amount
exceeds the Company's currently liquid assets. The Company is
aggressively pursuing numerous alternatives to raise cash to fund
its obligations. Toward this end the Company successfully
completed the sale of its alkali products segment in 1995, the sale
of its valve manufacturing operations in 1996 and the sale of other
certain property held for sale during 1997 and 1998. However, the
Company is currently unable to determine whether the timing and the
amount of cash generated from the Company's continuing efforts to
generate liquidity will be sufficient to discharge the Company's
tax liability and its continuing operating liabilities as they come
due (see the discussion of "Liquidity and Capital Resources" below
and Notes 9 and 15 to the Company's Consolidated Financial
Statement).
Operating Revenues
Consolidated operating revenues decreased 87%, or $651,000,
for the year ended December 31, 1999, compared to the year ended
December 31, 1998. Consolidated operating revenues by business
segment for the years ended December 31, 1999 and 1998 were as
follows (in $000):
<TABLE>
- Quarter - Total
1999 1st 2nd 3rd 4th Year
<S> <C> <C> <C> <C> <C>
Electric Generation $ 31 $ 25 $ 2 $ - $ 58
Environmental Svcs. 174 212 234 163 783
Subtotal 205 237 236 163 841
Intercompany (136) (213) (232) (163) (744)
Net Operating
Revenues $ 69 $ 24 $ 4 $ 0 $ 97
- Quarter - Total
1998 1st 2nd 3rd 4th Year
Electric Generation $ 65 $ 69 $ 72 $ 46 $ 252
Environmental Svcs. 244 262 351 289 1,146
Subtotal 309 331 423 335 1,398
Intercompany (104) (131) (192) (223) (650)
Net Operating
Revenues $205 $200 $231 $112 $ 748
</TABLE>
The above results for the first quarter of 1999 have been
restated to reflect credits issued in subsequent periods.
Revenues from the segment which generates electricity using
methane gas as fuel were $58,000 for the year ended December 31,
1999, a decrease of $194,000 or 77% compared to $252,000 for 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 and
located in Deptford, New Jersey. Engineering studies indicate
sufficient quantities of gas at the landfill to continue the
operation of the facility for approximately 12 years. Electricity
generated is sold pursuant to a long term contract with a local
utility. The contract has five years remaining. Revenues are a
function of the number of kilowatt hours sold, the rate received
per kilowatt hour and capacity payments. The Company sold 2.3
million kwh during the year ended December 31, 1999 compared to 8.7
million kwh sold in the prior year. The combined rate received
(per Kilowatt and capacity payment) decreased 12% in the current
period when compared to the comparable period last year. Elements
of the landfill gas are more corrosive to the equipment than
traditional fuels, resulting in more hours dedicated to repair and
maintenance than with equipment utilizing traditional fuels. The
operation experienced an increase in equipment failures and down-
time for repairs in 1999 and 1998. The decline in quantity of
kilowatt hours sold in 1999 is primarily due to the Company
electing not to repair the diesel/generating units pending the
outcome of negotiations of an offer to purchase the electricity
generating operations. Such negotiations terminated during January
2000. The Company is evaluating several options with respect to
future operation of the facility. The contract with the local
utility allows for a continuous interruption in electricity supply
for a period of up to twelve months. The Company temporarily
curtailed the facility's operations during June 1999. See the
discussion of "Liquidity and Capital Resources" below and Note 4 to
the Company's Consolidated Financial Statements for further
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 provides construction,
remedial and maintenance services at landfills, commercial and
industrial sites, and manages methane gas recovery operations. The
environmental services segment reported $783,000 of gross operating
revenues for 1999 (prior to elimination of intercompany sales)
compared to $1,146,000 for 1998, a decrease of 32%. Approximately
$744,000 or 95% of the environmental services segment's revenues
for the period, compared to $650,000 or 56% for last year, were for
services provided within the consolidated group and therefore
eliminated in consolidation. Substantially all the third party
sales during 1999 and 1998 were to three and seven customers,
respectively. Third party sales during 1999 and 1998 were $39,000
and $496,000, respectively. Such third-party revenue for 1999 and
1998 includes $30,000 and $222,000 for fees earned with respect to
installation, operation and maintenance of a new gas collection
system at a landfill site owned by the Company located in Deptford,
New Jersey and referred to above. The new gas collection system
supplements an existing system. Both systems are now owned by the
entity which entered into the long term lease of the landfill gas
at the site referenced above.
The Company is continuing its efforts to expand the customer
base of this segment to entities outside the consolidated group.
The Company continues to provide quotes on construction and
maintenance projects involving the closure and remediation of waste
sites and contaminated properties. This is a competitive market in
which contracts are awarded on the basis of price and experience.
In particular, the Company has devoted significant time and has
incurred professional fees during 1998 and 1999 in pursuit of a
contract and state government approval to perform the closure of a
site in New Jersey. Recycled materials are to be utilized for
certain applications in the closure process. In the event the
Company is awarded the contract, the Company will seek
reimbursement of such professional fees, certain other contract
development expenses, and construction costs from a trust to be
established to finance the closure. However, there are no
assurances sufficient funds will be available for reimbursement of
such expenditures.
This segment continues to perform closure activities on sites
previously operated by subsidiaries of the Company. Work performed
on a landfill owned by the Company and located in Deptford, New
Jersey is submitted for reimbursement to a trust account
established to finance the closure activities at the site (see
Liquidity and Capital Resources - Liquidity).
Cost of Operations
Consolidated direct operating costs for the year ended
December 31, 1999 were $70,000, a decrease of $473,000 or 87% when
compared to $543,000 reported for 1998. The costs of the
electricity generating segment decreased 84% for the year ended
December 31, 1999 when compared to the prior year due to a decrease
in operating, repair and maintenance costs related to the
electricity generating equipment as a result of the shut down.
Direct operating costs for 1998 also include $44,000 for the
purchase of landfill gas. Costs of the environmental services
segment decreased 21% overall due primarily to the decrease in
sales volume.
Consolidated selling, general and administrative expenses for
the year ended December 31, 1999 were $1,375,000, a decrease of
$166,000 from $1,541,000 reported for the prior year. The decrease
was primarily due to reductions in salary and benefit expenses, bad
debt, and professional fees and expenses incurred with respect to
the Company's environmental and tax litigation (see Note 15 to the
Company's Consolidated Financial Statements). Professional fees
and administrative costs continue to be incurred in support of the
Company's ongoing insurance and tax litigation, marketing and asset
divestiture efforts (see Liquidity and Capital Resources -
Liquidity). The operating costs of the non-operating subsidiaries,
consisting primarily of insurance, and franchise and real estate
taxes, aggregated approximately $32,000 and $71,000 for the years
ended December 31, 1999 and 1998, respectively.
Operating Loss
The Company's consolidated operating loss for the year ended
December 31, 1999 increased to $1,348,000 from a loss of $1,336,000
reported for the prior year.
Other Income (Expense)
Consolidated investment income decreased to $153,000 for the
year ended December 31, 1999 from $207,000 reported for the prior
year due primarily to a decrease in the amount of funds available
for investment.
Consolidated interest expense decreased to $3 for the year
ended December 31, 1999 compared to $5 for the year ended December
31, 1998 due to a decease in the amount of outstanding funded debt.
Interest expense reported as "Interest expense - income taxes
payable" represents the amount of interest accrued on estimated
income taxes payable as a result of the Company's tax litigation
discussed below. The Company reported a credit of $96,000 for the
year ended December 31, 1999 versus interest expense of $242,000
for the comparable period of 1998. The credit reported for 1999
reflects a decrease in the estimated income taxes payable as the
Company continiues to engage in discussions with the Service
regarding the calculation of taxes and interest on account of
settlements executed to date.
Consolidated gain (loss) on sale of property and equipment for
the years ended December 31, 1999 and 1998 include deferred income
associated with a 1992 installment sale of real property of
$179,000 and $30,000, respectively.
Consolidated miscellaneous income (expense) for the year ended
December 31, 1999 increased $248,000 to $363,000 of net income when
compared to $115,000 reported for the same period of 1998.
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 excess insurance carrier.
Miscellaneous income for the period in 1999 and 1998 also
includes income of $10,000 and $219,000, respectively, 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. The 1998
payment was made from income earned by the lessee which was
escrowed during the 1980's and released from escrow during 1998.
The Company recognized charges totalling $218,000 in 1998
related to an October 1998 agreement which resolved issues in
dispute among the Company, a former principal shareholder, director
and officer of the Company and certain entities affiliated with
him. These parties also assigned to the Company their rights as
insureds and claimants under insurance policies now the subject of
litigation initiated by the Company. The charges recognized were
$50,000 to reduce the carrying-value of the Company's rights to
certain clay deposits to the amount received and a charge of
$168,000 included under the caption "Miscellaneous income
(expense)" in recognition of certain obligations assumed by the
Company pursuant to the October 1998 agreement (see Notes 8 and 15
to the Company's Consolidated Financial Statements).
Income (Loss) before Income Taxes (Credits)
The consolidated loss from operations before income tax
credits was $558,000 for the year ended December 31, 1999, compared
to $1,279,000 for the prior year.
Income Taxes (Credits)
Income tax credits for the years ended December 31, 1999 and
1998 equalled $215,000 and $332,000, respectively. As discussed
below (see Liquidity and Capital Resources - Taxes), the Company
filed a petition with the Tax Court to contest certain adjustments
asserted in a deficiency notice issued by the Internal Revenue
Service (the "Service") as a result of the Service's audit of the
Company's federal tax returns for the years 1982 through 1988. The
Service also conducted an audit of the Company's 1989-91 federal
tax returns, which resulted in the challenge of a number of
deductions claimed by the Company. Income tax credit for 1999
includes a credit of $221,000 for federal taxes which result from
adjustments to the Company's estimated audit liability as the
Company continues to engage in discussions with the Service
regarding the calculation of taxes and interest on account of
settlements executed to date (see Note 9 to the Company's
Consolidated Financial Statements).
Net Loss
Net loss for the year ended December 31, 1999 was $343,000 or
$.12 per share, compared to a net loss of $947,000, or $.33 per
share, for the year ended December 31, 1998.
Liquidity and Capital Resources
General
Net cash used in operating activities for the year ended
December 31, 1999 decreased to a net use of $952,000 from a use of
$1,256,000 when compared to the prior year due primarily to the
decrease in cash required for operations. Net cash provided by
investing activities decreased this year to $865,000 from
$1,597,000 again due primarily to the decrease in cash required for
operations and proceeds received in 1998 with respect to the
Company's rights to certain clay deposits. The use of cash in
financing activities decreased to $44,000 from $47,000 for the
period compared to last year, due primarily to a decrease in
landfill closing costs incurred at the one site financed from the
Company's general funds. Funds held by the Company in the form of
cash and cash equivalents decreased as of December 31, 1999 to
$474,000 from $605,000. The sum of cash, cash equivalents and
marketable securities as of December 31, 1999 decreased to
$1,702,000 from $2,411,000 when compared to the prior year.
Working capital deficit was $(1.4) million for the year ended
December 31, 1999 and $(1.2) million for the year ended December
31, 1998, and the ratio of current assets to current liabilities
was 0.6 to 1 and 0.7 to 1 as of December 31, 1999 and 1998,
respectively.
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, 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 $3.4 million through December 31, 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.
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 December 31, 1999, approximately
$904,000 of federal income tax and $127,000 of state income tax,
$2,399,000 of federal interest (plus additional interest from
December 31, 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. These settlements are currently
under review by the Congressional Joint Committee on Taxation.
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.
Prior to 1998, all of the adjustments from the 1980-88 period
and the 1989-91 period were settled in the revised stipulations of
partial settlement, except for the adjustment relating to computer
equipment acquired in 1989 and a remediation deduction issue
relating to prior periods. The computer leasing issue was settled
in the first supplement to the third stipulation of settlement that
was executed on January 22, 1998. The computer equipment issue was
resolved by the Company agreeing to the disallowance of
approximately $3.8 million of deductions for 1989 and no other
adjustments to deductions or income for 1989 or subsequent years.
On December 21, 1998, the Company entered into a second supplement
to the third revised stipulation of settled issues with the Service
in which the Service agreed to concede the remediation deduction
issue, which was the last remaining issue in the case.
The Company has current operating losses and net operating
loss and tax credit carryforwards that will partly offset the tax
liability resulting from the settled adjustments to taxable income.
Taking into account such carryforwards, the estimated federal
income tax and interest that is owed on account of the settlements
is approximately $3,430,000, with interest through December 31,
1999 ($904,000 of taxes and $2,399,000 of interest). The
settlements also will result in approximately $237,000 of state
income tax (not including penalties and penalty interest that may
be assessed) $110,000 of which was paid to one state during the
second quarter of 1996. This state had a tax amnesty program in
effect pursuant to which all interest and penalties for back taxes
were waived upon payment of the tax liability. If the settlemetns
are approved by the Congressional Joint Committee on Taxation,
payment of the federal tax liability and the remaining state tax
liability will be due after judgment is rendered at the conclusion
of the Tax Court case. The $3.4 million of taxes and interest
through December 31, 1999 that is estimated to be owed by the
Company (plus additional interest accruing from December 31, 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.
Remediation and Closure Costs
As of December 31, 1999, 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 11 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,owned and operated by the
Company's subsidiary, Kin-Buc, Inc. ("Kin-Buc") and substantially
relieved the Company from future obligation with respect to the
site (see Notes 11 and 15 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 been remediating the Kin-Buc
Landfill, located in Edison, New Jersey, under an Amended
Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. 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.
The Company carried an accrued remediation liability of
approximately $10 million related to the Kin-Buc Landfill,
essentially all of which has been reversed as a result of the
settlements described above. The Company recognized income in an
amount equal to the reduction of such accrued remediation liability
in the year ended December 31, 1997.
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, 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 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, officer and 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. In November 1999 and
again in February 2000 EPA and the Company agreed to extend the
statute an additional three months. 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 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 December 31, 1999 and 1998.
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
<PAGE>
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 $268,000, 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 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. 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. The Company has committed a portion of the proceeds, if
any, arising from this suit to be paid to certain third-parties in
conjunction with settlements of certain litigation and fee
arrangement (see Note 15 to the Company's Consolidated Financial
Statements). 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 (see Note 15 to the Company's Consolidated Financial
Statements).
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
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 (see Note 4 to the Company's
Consolidated Financial Statements).
Year 2000 Data Conversion
The Company did not experience any significant disruption to
business operations due to Year 2000 software failures. The
Company does not know the extent to which its customers may have
been affected by such failures.
<TABLE>
<PAGE>
Transtech Industries, Inc.
Consolidated Balance Sheets
(In $000's)
<CAPTION>
December 31, 1999 1998
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 474 $ 605
Marketable securities 1,228 1,806
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 214 225
Notes receivable 115 108
Recoverable closure costs from escrow fund 158 166
Prepaid expenses and other 128 153
Total current assets 2,317 3,063
Plant and Equipment
Machinery and equipment 2,894 2,891
Less accumulated depreciation 2,816 2,794
Net plant and equipment 78 97
Other Assets
Notes receivable - 137
Assets held for sale 1,312 1,312
Escrowed funds from sale of subsidiary 900 859
Other 133 132
Total other assets 2,345 2,440
Total Assets $ 4,740 $ 5,600
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Balance Sheets, cont'd
(In $000's)
<CAPTION>
December 31, 1999 1998
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 7 $ 24
Accounts payable 144 289
Accrued income taxes 3,430 3,747
Deferred income taxes - 3
Accrued miscellaneous expenses 167 163
Total current liabilities 3,748 4,226
Long-Term Debt 6 15
Accrued Remediation and Closure Costs 2,091 2,110
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 6,015 6,358
Net unrealized gains on marketable
securities 21 32
Sub-Total 9,909 10,263
Treasury stock, at cost - 1,885,750 shares (11,014) (11,014)
Total stockholders' equity (deficit) (1,105) (751)
Total Liabilities and
Stockholders' Equity (Deficit) $ 4,740 $ 5,600
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<PAGE>
Transtech Industries, Inc.
Consolidated Statements of Operations
(In $000's, except per share data)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Net Operating Revenues $ 97 $ 748
Cost of Operations
Direct operating costs 70 543
Selling, general and
administrative expenses 1,375 1,541
Total cost of operations 1,445 2,084
Operating Income (Loss) (1,348) (1,336)
Other Income (Expense)
Investment income 153 207
Interest expense (3) (5)
Interest credit (expense) - income taxes payable 96 (242)
Gain (loss) sale/disposal of property
and equipment 181 32
Writedown of clay deposits - (50)
Miscellaneous income (expense) 363 115
Total other income 790 57
Income (Loss) Before Income Taxes (Credit) (558) (1,279)
Income Taxes (Credit) (215) (332)
Net Income (Loss) $ (343) $ (947)
Basic Net Income (Loss) Per Common Share:
Net Income (Loss) Per Common Share $ (.12) $ (.33)
Weighted Average Common Shares
Outstanding 2,829,190 2,829,190
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<PAGE>
Transtech Industries, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In $000's)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Net Income (Loss) $(343) $ (947)
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains (losses) on securities:
Valuation adjustments (11) (19)
(Provision) credit for taxes - 17
Less: Gains (losses) realized during period - -
Total (11) (2)
Comprehensive Income (Loss) $ (354) $ (949)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In $000's)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Common Stock
Balance at December 31 $ 2,357 $ 2,357
Additional Paid-In Capital
Balance at December 31 1,516 1,516
Retained Earnings
Balance at January 1 6,358 7,305
Net income (loss) (343) (947)
Balance at December 31 6,015 6,358
Net Unrealized Gains on Marketable
Securities
Balance at January 1 32 34
Valuation adjustments (11) (19)
(Provision) credit for taxes - 17
Balance at December 31 21 32
Treasury Stock
Balance at December 31 (11,014) (11,014)
Total Stockholders' Equity (Deficit) $ (1,105) $ (751)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows
(In $000's)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents
Cash Flows from Operating Activities:
Cash received from customers $ 131 $ 638
Cash paid to suppliers and
employees (1,560) (2,055)
Interest and dividends received 121 153
Other income received 363 115
Interest paid (3) (5)
Income tax paid (4) (2)
Other assets, escrowed cash deposits - (100)
Net cash provided by (used in)
operating activities (952) (1,256)
Cash Flows from Investing Activities:
Proceeds from sale of marketable
securities 2,171 1,520
Purchase of marketable securities (1,603) (735)
Collections on notes receivable 315 69
Proceeds from sale of property,
plant and equipment 7 270
Purchase of property, plant
and equipment (25) (7)
Proceeds from receivable/clay deposits - 480
Net cash provided by (used in)
investing activities 865 1,597
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments on
long-term debt $ (25) $ (21)
Proceeds from issuance of
long-term debt - -
Payment of landfill closing
costs (19) (26)
Net cash provided by (used in)
financing activities (44) (47)
Net increase (decrease) in cash
and cash equivalents (131) 294
Cash and cash equivalents at
beginning of year 605 311
Cash and cash equivalents at
end of year $ 474 $ 605
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<PAGE>
Transtech Industries, Inc.
Consolidated Statements of Cash Flows, cont'd
(In $000's)
<CAPTION>
Years ended December 31, 1999 1998
<S> <C> <C>
Reconciliation of Net Income (Loss)
to Net Cash Provided by (Used in)
Operating Activities:
Net income (loss) $ (343) $ (947)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used
in) Operating Activities:
Depreciation and amortization 39 60
Bad debt expense - 31
(Gain) loss on sale of property,
plant and equipment (181) (32)
Writedown of clay deposits - 50
Increase (decrease) in
deferred income taxes (3) 353
(Increase) decrease in assets:
Accounts and notes receivable 19 (128)
Prepaid expenses and other 17 (95)
Net assets of discontinued operations (41) (42)
Other assets (1) (100)
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses (141) 39
Accrued income taxes (317) (445)
Net Cash Provided by (Used in)
Operating Activities $ (952) $ (1,256)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Transtech Industries, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies:
Principles of Consolidation:
The Consolidated Financial Statements include the accounts
of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments
purchased with an original maturity of three months or less
and funds deposited in money market accounts to be cash
equivalents. At December 31, 1999 and 1998, cash and cash
equivalents includes interest-bearing cash equivalents of
$389,000 and $471,000, respectively.
Plant and Equipment:
Plant and equipment are stated at cost. Depreciation is
provided on a straight-line basis over estimated useful lives
of 3-15 years for machinery and equipment.
Disclosure About Fair Value of Financial Instruments:
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued miscellaneous
expenses approximates fair value because of the short maturity
of these items. The carrying amount of notes receivable (net
of allowances for uncollectible amounts) and notes payable
(including current portion) approximates fair value since such
notes bear interest at current market rates.
Financial instruments which potentially subject the
Company to credit risk are cash and cash equivalents, and
accounts and notes receivable. Credit limits, ongoing credit
evaluations, and account monitoring procedures are utilized to
minimize the risk of loss with respect to accounts receivable.
Notes receivable are generally collateralized by real property
or other fixed assets.
Use of Estimates:
In preparing financial statements in accordance with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Year 2000 Data Conversion:
The Company did not experience any significant disruption
to business operations due to Year 2000 software failures.
The Company does not know the extent its customers' may have
been effected by such failures.
Reclassification:
Certain reclassification have been made to the 1998
financial statements in order to conform to the presentation
followed in preparing the 1999 financial statements.
Note 2 - Going Concern Uncertainty:
The Company's financial statements have been prepared on
a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in
the normal course of business. The Company has incurred
significant operating losses in each of the prior five years
and it is anticipated that such operating losses will continue
as general and administrative expenses are expected to exceed
the Company's available earnings from its remaining operating
businesses in the near-term. The Company has accrued
$3,430,000 for taxes and interest relating to the settlement
of issues raised by the Internal Revenue Service resulting
from audits of the Company's consolidated Federal income tax
returns for the years 1980 through 1988. This estimated tax
liability, which will be due upon the conclusion of the Tax
Court case (See Notes 9 and 15), exceeds the Company's current
financial resources. The Company is aggressively pursuing
numerous alternatives to raise cash to fund this liability
including:(i) the disposition of all of its non-operating
assets held for sale (See Note 6), (ii) the collection of
amounts due the Company, and(iii) continuing legal claims
against insurance carriers for recovery of past remediation
costs. Toward this end the Company successfully completed the
sale of its alkali products segment in 1995, the sale of its
valve manufacturing operations in 1996 and the sale of other
certain property held for sale during 1997 and 1998. However,
the Company is currently unable to determine whether the
timing and the amount of cash generated from these efforts
will be sufficient to discharge the Company's tax liability
and its continuing operating liabilities as they come due.
The consolidated financial statements do not include any
adjustments that might result if the Company is unable to
continue as a going concern.
Note 3 - Marketable Securities:
The Company classifies all debt and equity 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
December 31, 1999 and 1998, available-for-sale debt securities
consisted of $1,169,000 and $1,736,000, respectively, of U.S.
Government Securities with maturities through May 2000 and
June 1999, respectively. 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 $59,000 as of
December 31, 1999 and a cost of $38,000 and a market value of
$70,000 as of December 31, 1998. The aggregate excess of fair
value over cost of such securities as of December 31, 1999 and
1998 of $21,000 and $32,000, respectively, is presented as a
separate component of stockholders' equity. The excess of
fair value over cost consisted of gross unrealized gains of
$38,000 and gross unrealized losses of $17,000 as of December
31, 1999 and gross unrealized gains of $57,000 and gross
unrealized losses of $25,000 as of December 31, 1998. The
cost of marketable securities sold is determined on the
specific identification method and realized gains and losses
are reflected in income. Proceeds from sale of available-for-
sale securities during the year ended December 31, 1999 and
1998 amounted to $2,171,000 and $1,520,000, respectively.
Dividend and interest income is accrued as earned.
Note 4 - Trade Receivable:
On June 30, 1998, the Company's wholly-owned subsidiary
Kinsley's Landfill, Inc. ("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 electricity generating operation.
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 the lessee, (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.
Trade Receivable as of December 31, 1999 and 1998 includes
$200,000 and $171,000 respectively, for fees earned with
respect to installation, operation and maintenance of a new
gas collection system at a landfill site owned by the Company
and referred to above. The new gas collection system
supplements an existing system. Both systems are now owned by
the entity which entered into the long term lease of the
landfill gas at the site referenced above. The agreements
with DGC and its affiliates provide that in the event of a
termination of the agreements, the Company will submit DGC's
cost of constructing and acquiring the gas collection systems
for reimbursement from the escrow account established to
finance the site's post-closure activities (see Note 11).
Submittals for reimbursement must be reviewed by an
independent engineering firm and approved by the New Jersey
Department of Environmental Protection. The Company
anticipates that amounts due it from DGC will be paid from
funds received from the escrow account.
Note 5 - Notes Receivable:
Notes receivable consist of the following (in $000's):
1999 1998
Demand note receivable from Officer
(See Note 18) $115 108
7.25% Installment note receivable
from sale of real property (net of
deferred income of $179,000)
(See Note 7) - 137
___ ___
Total notes receivable 115 245
Less: Current portion 115 108
Long-term portion $ 0 $137
Note 6 - 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 December 31,
1999 and 1998. 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. 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 March 1998 the Company sold approximately 2 acres of
property located in Readington Township, N.J. classified as
assets held for sale for net proceeds after expenses totalling
$268,000. No gain or loss has been reported in 1998 related to
the sale since the proceeds approximated the carrying value of
the property. During the fourth quarter of 1997 the Company
charged $33,000 to operations to reduce the carrying value of
the property.
During the fourth quarter of 1992, two subsidiaries of the
Company sold property consisting of approximately 569 acres of
land, together with buildings and improvements and auxiliary
equipment, in exchange for consideration aggregating $916,000.
The consideration consisted of $66,000 in cash and $850,000 in
non-recourse seven-year notes which were secured by the
property purchased as well as other real estate owned by the
buyers. The notes bore interest at 7.25% per annum and
required principal payments of $50,000 on each of the first,
second, fourth, fifth and sixth anniversaries, $200,000
payable on the third anniversary and the balance payable on
the seventh anniversary. The buyer had the right to extend
the payment of the seventh installment over three additional
years. The notes were paid-in-full during the fourth quarter
of 1999.
The Company recognized $179,000 and $30,000 of income from
this transaction for the years ended December 31, 1999 and
1998, respectively. The Company had deferred income of
$179,000 as of December 31, 1998 which was recognized in 1999
under the installment method. The deferred income had been
netted against the gross value of the notes receivable for
financial reporting purposes.
Note 7 - Discontinued Operations:
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, which together with
$150,000 and $109,000 of accrued interest income through
December 31, 1999 and 1998, respectively, are classified as
long-term in the accompanying consolidated balance sheets.
Note 8 - Receivable/Clay Deposits:
In 1988, Kin-Buc, Inc., a wholly-owned subsidiary of the
Company ("Kin-Buc") purchased 150,000 cubic yards of clay for
use in the closure of the landfill site it owned and operated
in Edison, N.J. (the "Kin-Buc Landfill") for $1.2 million from
Inmar Associates, Inc. ("Inmar"), a corporation owned and
controlled by Marvin H. Mahan, a former principal shareholder,
director and officer of the Company, and applied this amount
against its accrual for remediation and closure costs. In
1992, the Company reclassified approximately $1,077,000 of
this accrual, representing the cost of the clay not required
for such closure, to other long-term assets, recognizing the
Company's plan to market the clay to third parties. Pursuant
to the agreement for the purchase of the clay, Kin-Buc was
entitled to a refund of the purchase price of clay it was
unable to mine or could not use. In August 1996, the Company
learned that Inmar intended to obtain relief from a 1983 order
of the Superior Court, Morris County, New Jersey ("Superior
Court") prohibiting the sale of its land, and in October 1996,
the Company learned that Inmar had contracted to sell a
substantial portion of its land, upon which a substantial
amount of the clay is situated, to Edison Expansion, Inc.
("Expansion"). In November 1996, Kin-Buc brought suit
entitled Kin-Buc, Inc., v. Inmar Associates, Inc. and Edison
Expansion, Inc. in Superior Court against Inmar and Expansion
for, among other things, a declaratory judgment that Kin-Buc's
rights in the clay would survive a sale of the land to
Expansion and, alternatively, a money judgment against Inmar.
Kin-Buc also filed a lis pendens against the Inmar property.
In December 1996, Expansion sought and obtained a discharge of
the lis pendens and a closing of the sale to Expansion took
place in January 1997.
In accordance with a Court order entered in another Inmar
matter, the net proceeds of the sale, totalling approximately
$530,000, were to be deposited with the Court to secure any
payment of costs of remediation of a Carlstadt, New Jersey
Superfund Site for which Inmar or Marvin H. Mahan is held
liable. The order permitted Inmar to apply to the Court for
permission to withdraw proceeds for other purposes. In March
1997, the Court denied Kin-Buc's request that the proceeds be
dedicated to the payment of whatever money judgement Kin-Buc
might obtain against Inmar, but agreed that Kin-Buc could
reapply for such relief when and if it obtained such a
judgment. In June 1997, Kin-Buc requested the entry of a
default judgment against Inmar for its failure to answer Kin-
Buc's complaint and in August, Kin-Buc obtained such a
judgment in the amount of approximately $1.1 million.
Separately, in October 1997, the Court granted summary
judgment to Expansion, dismissing Kin-Buc's suit for a
declaratory judgment that Kin Buc's rights to the clay
survived the sale of the land to Expansion. Kin-Buc has not
appealed this decision.
During the fourth quarters of 1997 and 1996, the Company
charged $47,000 and $500,000, respectively, to operations to
reduce the carrying value of this asset to management's best
estimate of the values it then believed it would ultimately
realize from resolution of these matters, considering the
amount of the proceeds held by the Superior Court and assuming
the Company would be able to recover such proceeds.
In October, 1998 the Company entered into an agreement
with Inmar, Marvin H. Mahan and certain affiliates which
resolved the many issues in dispute among the parties,
including a resolution of the judgment against Inmar. See
Note 15 to the Company's Consolidated Financial Statements for
a discussion of the agreement. The Company agreed to vacate
the judgment in exchange for $480,000 to be paid to the
Company from the funds deposited with the Court. Such funds
were released to the Company in December 1998. The Company
charged $50,000 to operations in the quarter ended September
30, 1998 to reduce the carrying value of this asset to
$480,000.
Note 9 - Income Taxes:
The Company has adopted FASB Statement No. 109
("Accounting for Income Taxes") which requires the use of an
asset and liability approach for financial accounting and
reporting of income taxes. Deferred income taxes are
provided for all temporary differences between the financial
reporting and tax basis of the Company's assets and
liabilities, and net operating loss and tax credit
carryforwards.
<TABLE>
The provision (credit) for income taxes consists of the
following (in $000's):
1999 1998
<S> <C> <C>
Provision for operations
Currently payable (refundable):
Federal $ - $ (650)
State 9 2
9 (648)
Deferred:
Federal - 295
State (3) (1)
(3) 294
Total income tax
provision (credit) 6 (354)
1999 1998
Provision for tax audits
Currently payable:
Federal (221) (37)
State - -
(221)
Deferred:
Federal - 59
Total provision for tax audits (221) 22
Total income tax provision
(credit) $ (215) $ (332)
</TABLE>
<TABLE>
Deferred tax expense results from temporary differences as
follows (in $000's):
1999 1998
<S> <C> <C>
Excess of tax over book
(book over tax) depreciation $ (7) $ 25
Change in Federal valuation allowance
(Net of $4,000 related to unrealized
depreciation of available for
sale securities) 191 78
Change in state valuation allowance (270) -
Federal net operating loss carryforwards (180) -
State net operating loss carryforwards 285 -
Non-deductible impairment losses - 186
Deferred gain - installment sale (24) (6)
Remediation and closure costs 8 5
Deferred state income taxes (3) -
Other - 6
$ - $ 294
</TABLE>
<TABLE>
Deferred tax assets and liabilities at December 31, 1999
and 1998 were comprised of the following (in $000's):
1999 1998
<S> <C> <C>
Deferred tax assets
Remediation and closure costs $ 36 $ 44
Non-deductible accruals 43 43
Depreciation 19 12
Federal net operating
loss carryforwards 180 -
State net operating loss
carryforwards 632 915
Subtotal 910 1,014
Valuation allowance for deferred
tax assets (901) (977)
Total 9 37
1999 1998
Deferred tax liabilities
Other - (3)
Unrealized appreciation of
equity securities (9) (13)
Installment sales - (24)
Total (9) (40)
Net deferred tax liability $ - $ (3)
Included in the accompanying balance sheet as:
Current deferred tax liability $ - $ (3)
Non-current deferred tax
liability - -
$ - $ (3)
</TABLE>
The Company has recorded valuation allowances of $901,000
and $977,000 as of December 31, 1999 and 1998, respectively,
to reflect the estimated amount of deferred tax assets which
are not currently realizable. Recognition of these deferred
tax assets is dependent upon both the sufficiency and timing
of future taxable income.
At December 31, 1999 the Company and its subsidiaries had
state net operating loss carryforwards of $8,408,000 which
expire $355,000 in 2000, $1,030,000 in 2001, $1,485,000 in
2002, $914,000 in 2003, $1,741,000 in 2004, $2,114,000 in 2005
and $769,000 in 2006.
The following is a reconciliation between the amount of
reported total income tax (credit) from continuing operations
and the amount computed by multiplying the income (loss)
before tax by the applicable statutory U.S. federal income tax
rate (in $000's):
<TABLE>
1999 1998
<S> <C> <C>
Tax expense (credit) computed
by applying U.S. federal
income tax rate to income (loss)
before income taxes (credits) $ (190) $ (435)
Increases (reductions) in
taxes resulting from:
State income taxes (credit) net
of federal income tax benefit 4 1
Change in federal deferred
tax valuation allowance 191 78
Other 1 2
$ 6 $ (354)
</TABLE>
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 agreements 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 December 31, 1999, approximately
$904,000 of federal income tax and $127,000 of state income
tax, $2,399,000 of federal interest plus additional interest
from December 31, 1999 until satisfaction of the tax
obligations, 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.
Prior to 1998, all of the adjustments from the 1980-88
period and the 1989-91 period were settled in the revised
stipulations of partial settlement, except for the adjustment
relating to computer equipment acquired in 1989 and a
remediation expense deduction issue relating to prior periods.
The computer leasing issue was settled in the first supplement
to the third stipulation of settlement that was executed on
January 22, 1998. The computer equipment issue was resolved by
the Company agreeing to the disallowance of approximately $3.8
million of deductions for 1989 and no other adjustments to
deductions or income in respect of the computer equipment
transaction for 1989 or subsequent years. On December 21,
1998, the Company entered into a second supplement to the
third revised stipulation of settled issues with the Service
in which the Service agreed to concede the remediation expense
deduction issue, which was the last remaining issue in the
case.
The Company has current operating losses and net operating
loss and tax credit carryforwards that will partly offset the
tax liability resulting from the settled adjustments to
taxable income. Taking into account such carryforwards, the
estimated federal income tax and interest that is owed on
account of the settlements is approximately $3,430,000, with
interest through December 31, 1999 ($904,000 of taxes and
$2,399,000 of interest). The settlements also will result in
approximately $237,000 of state income tax (not including
penalties and penalty interest that may be assessed) $110,000
of which was paid to one state during the second quarter of
1996. This state had a tax amnesty program in effect pursuant
to which all interest and penalties for back taxes were waived
upon payment of the tax liability. In conjunction with the
$110,000 payment, the Company reversed approximately $240,000
of interest that was previously accrued on the $110,000 tax
liability. Payment of the federal tax liability and the
remaining state tax liability will be due after the conclusion
of the Tax Court case. The 3,430,000 of taxes and interest
through December 31, 1999 that is estimated to be owed by the
Company (plus additional interest accruing from December 31,
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.
Note 10 - Long-term Debt:
<TABLE>
Long-term debt consists of the following (in $000's):
1999 1998
<S> <C> <C>
10.5% mortgage note, due
in monthly installments, through
April 2000, secured by certain
land and buildings held for sale,
carried at a cost of $358,000 $ 3 $ 16
Other obligations - vehicle financing 10 23
Total debt 13 39
Less: Current portion 7 24
Long-term portion $ 6 $ 15
</TABLE>
Maturities
At December 31, 1999 long-term debt matures as follows (in
$000's):
2001 $ 3
2002 3
$ 6
Note 11 - Remediation and Closure Costs:
The Company's accruals for closure and remediation
activities equal the present value of the estimated future
costs related to a site less funds held in trust for such
purposes. The costs of litigation associated with a site are
expensed as incurred. The Company has accrued remediation and
closure costs for the following sites (in $000's):
1999 1998
Kinsley's landfill $ 2,004 $ 2,005
Mac Sanitary landfill 87 105
Total $ 2,091 $ 2,110
Cash and securities held in certain trusts for post
closure activities at Kinsley's landfill have been netted
against the accrual for presentation in the Company's balance
sheet.
Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-owned
subsidiary of the Company, ceased accepting solid waste at its
landfill in Deptford Township, New Jersey on February 6, 1987
and commenced closure of that facility. At December 31, 1999
and 1998, Kinsley's has accrued $11,038,000 and $11,225,000,
respectively, for the remaining costs of closure and post-
closure care of this facility, of which $9,034,000 and
$9,221,000, respectively, is being held in interest-bearing
escrow accounts. The accrual as of December 31, 1999 is based
upon the present value of the estimated operation and
maintenance costs related to the site's containment systems
and treatment plant through the year 2016.
Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey which ceased operations in 1977. The
closure of this facility has been substantially completed. At
December 31, 1999 and 1998, Mac has accrued $87,000 and
$105,000, respectively, for the costs of continuing post-
closure care and monitoring at the facility. The accrual as
of December 31, 1999 is based upon the present value of the
estimated maintenance costs of the site's containment systems
through the year 2007.
In 1988, the Company entered into a settlement agreement
(the "Tang Agreement") regarding the costs of remediation of
certain property in Piscataway, New Jersey owned by Tang
Realty, Inc. ("Tang"), a company owned and controlled by
Marvin H. Mahan (see Note 15). Upon the signing of this
agreement, the Company paid $2,000,000 to Tang as
reimbursement for damages and remediation costs incurred by
it, and agreed to assume all future remediation costs in
connection with the Piscataway site. In October 1990, the
Company rescinded the Tang Agreement based on a reassessment
of its involvement at the site. As of the date of the
rescission, the Company had paid approximately $4,300,000 to
Tang in reimbursement for damages and actual remediation costs
incurred. In March 1991, the Company made demand upon Tang
for reimbursement of the $4,300,000 paid by the Company in the
remediation of the Piscataway site. Tang disputed the
Company's right to rescind the Tang Agreement. This dispute
is a subject of the October 1998 settlement discussed in Note
15.
During July 1999, counsel to the Company was contacted by
the United States Environmental Protection Agency (the "EPA")
regarding the Tang site. 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. In
November 1999 and again in February 2000, EPA and the Company
agreed to extend the statute an additional three months.
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.
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 operated in
Edison, New Jersey by Kin-Buc and substantially relieved the
Company from future obligation with respect to the site (see
Note 15).
The Kin-Buc Landfill ceased operations in 1977.
Remediation and closure activities continue at the Kin-Buc
Landfill pursuant to the provisions of Administrative Orders
issued by EPA to the Company and other respondents, including
SCA Services, Inc. ("SCA"), an unaffiliated company.
In 1986, Transtech, Kin-Buc, Filcrest Realty, Inc. (a
wholly owned subsidiary of Transtech ("Filcrest")) and Inmar
(together the "Transtech Group"), and SCA and certain
subsidiaries and affiliates of SCA (the "SCA Group") entered
into an agreement in settlement of litigation among themselves
regarding the sharing of the remediation and closure costs of
the Kin-Buc Landfill.
In September 1990, EPA issued an Administrative Order to
the Company, SCA and other respondents for the remediation of
the Kin-Buc Landfill (the "1990 Order") and in November 1992,
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.
Both the 1990 Order and the 1992 Order required the
Company, SCA and the other respondents to submit financial
assurance to the EPA that all of the remediation required
under those orders would be completed. In November 1990 the
Company entered into an agreement with SCA whereby SCA
submitted the guaranty by its indirect corporate parent, Waste
Management, Inc. ("WMI") (formerly known as WMX Technologies,
Inc.), of all of SCA's and the Company's obligations under
the 1990 Order. In 1992, SCA submitted a revised guaranty by
WMI to encompass SCA's and the Company's obligations under the
1992 Order, based upon an estimated aggregate remediation
project cost of $99.8 million.
The construction at Kin-Buc Landfill since July 1994 has
been financed in part with funds provided by SCA and in part
with funds provided from negotiated settlements with certain
parties to a suit that the Company initiated in June 1990 in
the United States District Court for the District of New
Jersey against approximately 450 generators and transporters
of waste disposed of at the site for the purpose of obtaining
contribution toward the cost of remediation. The Company's
cause of action against these parties arises under certain
provisions of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), which
imposes joint and several liability for the remediation of
certain sites upon persons responsible for the generation,
transportation and disposal of wastes at such sites.
The contractors have completed the construction required
by EPA pursuant to the Orders except for an area known as
Mound B discussed below. Operation of the treatment plant and
maintenance of the facilities is being conducted by an
affiliate of SCA. The total cost of the construction,
operation and maintenance of remedial systems for a 30-year
period, plus the cost of past remedial activities, was
estimated at the time of December 1997 settlement discussed
below to be in the range of approximately $80 million to $100
million.
In conjunction with the remediation, 26 acres of
undeveloped land neighboring the site and owned by Filcrest
were utilized for the construction of the containment system,
treatment plant and related facilities. The property had been
reflected at nominal value on the Company's financial
statements.
One of the four December 23, 1997 settlement agreements
was among the Transtech Group, Marvin H. Mahan, Meagher,
Inmar, Dock Watch, the SCA Group, WMI and Anthony Gaess ( a
former officer and director of SCA) ("Gaess"). In this
agreement, among other things, the parties agreed to terminate
all the other agreements between or among any of them relating
to the Kin-Buc Landfill, to dismiss the arbitration
proceedings between the Company and SCA and the related
litigation, and to dismiss all their claims against the other
parties arising from or relating to the Kin-Buc Landfill,
including claims for contribution and counterclaims. The
Company agreed to continue to prosecute its pending suit
against former excess insurance carriers and to pay SCA 75% of
the net recoveries of such suit, after allowances for related
legal fees and federal and state income tax obligations
resulting from the audit of the Company's income tax returns
for the years 1982 through 1992, up to a maximum of $3.5
million. The Company also agreed to turn over the work
products of its expert witness and its attorney in the
litigation to SCA, who will defend and indemnify the Company,
Marvin H. Mahan, Robert Meagher (a former officer of the
Company), Inmar and Dock Watch Quarry Pit, Inc. (a subsidiary
of Inmar) ("Dock Watch"), from continuing claims by non-
settling non-municipal waste and municipal waste PRPs in the
litigation. SCA will also defend and indemnify the Company
from all future liability for or in connection with the
remediation of the Kin-Buc Landfill including the area known
as Mound B.
In May 1997, EPA began an investigation of an area 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. The cost of studies
and remediation of this area is not included in the above
estimates of the total cost of the remediation.
The impact of future events or changes in environmental
laws and regulations, which cannot be predicted at this time,
could result in material increases in remediation and closure
costs related to these sites, possibly in excess of the
Company's available financial resources. A significant
increase in such costs could have a material adverse effect on
the Company's financial position, results of operations and
net cash flows.
Note 12 - Stockholders' Equity:
Stock Option Plans
At December 31, 1999, 797,000 shares of Transtech's common
stock were reserved for issuance under incentive stock option
plans that provide for the granting of options to employees at
prices equal to the market value of Transtech's common stock
on the date of grant, which options are exercisable for a
period not to exceed ten years from the date of grant. Non-
qualified stock options are available for grant to officers,
directors, certain eligible employees and consultants at
prices ranging from 50% to 100% of market value at the date of
grant and these are also exercisable for a period not to
exceed ten years. Options for 55,000 shares were outstanding
at December 31, 1999 and 1998, all of which are exercisable.
A summary of stock option transactions for 1999 and 1998
follows:
<TABLE>
1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 55,000 $0.72 55,000 $0.72
Granted - - - -
Exercised - - - -
Expired - - - -
Outstanding,
end of year 55,000 $0.72 55,000 $0.72
Options exercisable
at year end 55,000 55,000
</TABLE>
The following information applies to stock options
outstanding at December 31, 1999:
Options outstanding 55,000
Range of exercise prices $0.44 to $0.75
Weighted average exercise price $0.72
Weighted average remaining life in years 1.50
Note 13 - Employee Benefit Plans:
Retirement Savings and Profit Sharing Plans
The Company and its subsidiaries have a 401(k) Retirement
Savings and Profit Sharing Plan which covers substantially all
full-time employees. Employees may contribute up to 15% of
their eligible compensation, but not in excess of amounts
allowable under the Internal Revenue Code. The Company
matches employees' contributions in amounts or percentages
determined by the Company's board of directors. The Company
may also make profit sharing contributions to the plan in
amounts determined annually by the Company. The Company's
matching contribution was 50% of employees' contributions not
in excess of 2% of their eligible compensation during 1999 and
1998. The plan provides that the Company's matching and
profit sharing contributions may be made in cash, in shares of
Company stock, or in cash and invested in shares of Company
stock. Contributions to the plan for the years ended December
31, 1999 and 1998 were $2,000 and $8,000, respectively.
Employee Health Plans
The Company maintains an employee benefit program which
provides health care benefits to substantially all full-time
employees, and eligible dependents. The Company's health care
plan utilizes a program provided by a leading health
maintenance organization and, provides medical benefits,
including hospital, physicians' services and major medical
benefits. The employees contribute to the expense for
enrolled dependents.
Note 14 - Lease Commitments:
The Company leases land, office facilities, vehicles and
equipment under operating leases which expire through 2005.
Total rent expense charged to operations for all operating
leases was $62,000 in both 1999 and 1998.
Future minimum lease commitments under non-cancelable
operating leases with initial or remaining terms in excess of
one year are as follows (in $000's):
2000 $ 45
2001 46
2002 40
2003 41
2004 42
Thereafter 7
Note 15 - Legal Proceedings:
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service")
asserted numerous adjustments to the tax liability of the
Company and its subsidiaries for tax years 1980 through 1988,
along with interest and penalties thereon. In 1993, after the
conclusion of administrative proceedings, the Service issued
a deficiency notice to the Company asserting adjustments to
income of $33.3 million and a corresponding deficiency in
federal income taxes of approximately $13.5 million, as well
as penalties of $2.5 million and interest on the asserted
deficiency and penalties. In addition, the Service challenged
the carryback of losses incurred by the Company in taxable
years 1989 through 1991, thereby bringing those years, which
had been the subject of an ongoing audit, into the deficiency
notice. In 1994, the Company filed a petition with the Tax
Court contesting many of the proposed adjustments asserted in
the deficiency notice. On June 5, 1995, August 14, 1995,
March 7, 1996, 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
partial settlement. These settlements resolved all of the
adjustments asserted in the deficiency notice.
The Company and the Service are currently discussing the
computation of the amount of tax and interest owed as a result
of the settlements. See Note 2 for a discussion of the impact
of the tax litigation on the Company's cash resources, and
Note 9 for a discussion of the Company's accrued liability.
As to the Kin-Buc Landfill
On December 23, 1997, the Company entered into four
agreements which settled lawsuits relating to the remediation
of the Kin-Buc Landfill.
In February 1979, EPA brought suit in the United States
District Court for the District of New Jersey against
Transtech, its subsidiaries Kin-Buc and Filcrest, certain
former officers, directors and shareholders of Transtech, and
Inmar, in connection with the ownership and operation of the
Kin-Buc Landfill. This suit was placed on administrative hold
by the Court because the Company and SCA agreed to undertake
the remediation of the Landfill.
In 1986, the Company sold the stock of its subsidiary
Wastequid, Inc. to SCA, and, simultaneously therewith, the
Transtech Group entered into the 1986 Agreement with the SCA
Group regarding the sharing of the costs of remediating the
Kin-Buc Landfill, pursuant to which the Transtech Group agreed
to pay 75% of such costs and the SCA Group the remaining 25%
(the "Sharing Formula").
In 1990, Transtech, Kin-Buc and Filcrest commenced a suit
in the United States District Court for the District of New
Jersey entitled Transtech Industries, Inc. et al. v. A&Z
Septic Clean et al. against generators and transporters of
hazardous waste disposed of at the Kin-Buc Landfill (the
"PRPs") for contribution towards the cost of remediating the
Kin-Buc Landfill. In 1991, 1992 and 1993, the Transtech
Group, the SCA Group and WMI presented settlement proposals to
the PRPs believed to have been responsible, individually, for
no more than 1% of the non-municipal waste disposed of at the
Kin-Buc Landfill (the "De Minimis PRPs"). These settlements
resulted in a contribution by certain De Minimis PRPs of
approximately $10 million towards the cost of remediating the
Kin-Buc Landfill. From 1993, the litigation proceeded against
the non-settling De Minimis and non-De Minimis PRPs, believed
to have been responsible, in the aggregate, for approximately
90% of the non-municipal waste disposed of at the Kin-Buc
Landfill, and in 1995, generators and transporters of
municipal hazardous waste disposed of at the Kin-Buc Landfill
were joined in the litigation. After 1995 and continuing
through 1997, the SCA Group and WMI entered into settlements
with other non-municipal waste PRPs without the participation
of the Transtech Group. These settlements resulted in
substantial additional contributions towards the cost of
remediation. Discovery and other pre-trial proceedings had
taken place and a trial date had been tentatively set as
settlement discussions among the Transtech Group, the SCA
Group and WMI, on the one hand, and among a large group of
non-municipal waste PRPs (the "AFP Group"), the SCA Group and
WMI, on the other, were taking place.
In 1992, substantially all of the non-municipal waste
PRPs, including substantially all of the AFP Group, filed two
pleadings in the litigation involving the Company. The first
was a counterclaim against Transtech, Kin-Buc and Filcrest and
a third-party complaint against other owners or operators of
the Kin-Buc Landfill, including, among others, Inmar, Dock
Watch, Marvin H. Mahan, Meagher, the SCA Group, WMI and Gaess
(the "Owner-Operator Counterclaim"). The second pleading
involving the Company was a counterclaim against Transtech and
a third-party complaint against parties to transactions with
Transtech, including Inmar and Marvin H. Mahan, which were
alleged to have been fraudulent conveyances (the "Fraudulent
Conveyances Counterclaim"). In that pleading, the PRPs sought
to have the consideration paid by Transtech in the conveyances
returned and placed in the hands of a receiver. Discovery on
the issues presented in the Fraudulent Conveyances
Counterclaim and the Owner-Operator Counterclaim was
proceeding, and motions to join additional parties to the
Fraudulent Conveyances Counterclaim were pending at the time
settlement discussions between Transtech and the AFP Group
were taking place.
In 1993, the Transtech Group served a demand for
arbitration (the "Transtech Arbitration") on the SCA Group and
WMI seeking either rescission of the 1986 Agreement or
reformation of the Sharing Formula. In response, the SCA
Group and WMI brought an action in the Supreme Court of the
State of New York to enjoin the Transtech Arbitration.
Pending a decision by that Court, the Transtech Arbitration
was stayed. In 1995, during the stay, the SCA Group filed a
demand for arbitration (the "SCA Arbitration") seeking
reimbursement from the Transtech Group of 75% of remediation
expenses fully funded by the SCA Group to that point, and the
Transtech Group brought an action in the Supreme Court of the
State of New York to stay the SCA Arbitration pending a
decision on the motion to enjoin the Transtech Arbitration.
On motion brought by the SCA Group, the Court narrowed the
issues to be arbitrated in the SCA Arbitration and made any
findings on such issues subject to resolution of the issues in
the Transtech Arbitration. After discovery on these issues
was completed, the Transtech Group, the SCA Group and WMI
agreed to postpone proceedings in both the SCA Arbitration and
the Transtech Arbitration pending the outcome of settlement
discussions.
On December 23, 1997, settlements of the litigation,
including claims for contribution toward the cost of
remediating the Kin-Buc Landfill, the Owner-Operator
Counterclaim and the Fraudulent Conveyances Counterclaim, and
settlements of the Transtech Arbitration, the SCA Arbitration
and litigation relating thereto, resulting from discussions
among the Transtech Group, the SCA Group and WMI, on the one
hand, and among the AFP Group, the SCA Group and WMI, on the
other, were reached, and four agreements effecting these
settlements were executed and delivered.
The first of these four settlement agreements was among
Transtech, Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, the
SCA Group and the AFP Group (consisting of all but 29 non-
municipal waste PRPs). In this agreement, among other things,
all members of the AFP Group released all their claims against
Transtech, Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, Inmar
and Dock Watch, among others, arising from or relating to
claims for contribution and the Owner-Operator Counterclaim.
The second settlement agreement was among Transtech, Kin-
Buc, Filcrest, Marvin H. Mahan, Meagher, Inmar, Dock Watch,
the SCA Group, WMI and Gaess. In this agreement, among other
things, the parties agreed to terminate the 1986 Agreement and
all the other agreements between or among any of them relating
to the Kin-Buc Landfill, to dismiss the Transtech Arbitration
and the SCA Arbitration and the related litigation, and to
dismiss all their claims against the other parties arising
from or relating to the Kin-Buc Landfill, including claims for
contribution and the Owner-Operator Counterclaim. Transtech,
Kin-Buc and Filcrest agreed to continue to prosecute their
pending suit against former excess insurance carriers and to
pay SCA 75% of the net recoveries of such suit, after
allowances for related legal fees and federal and state income
tax obligations resulting from the audit of the Company's
income tax returns for the years 1982 through 1992, up to a
maximum of $3.5 million (see discussion under the heading
"Insurance" below). Transtech also agreed to turn over the
work products of its expert witness and its attorney in the
litigation to SCA, who will defend and indemnify Transtech,
Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, Inmar and Dock
Watch from continuing claims by non-settling non-municipal
waste and municipal waste PRPs in the litigation. SCA will
also defend and indemnify the Company from all future
liability for or in connection with the remediation of the
Kin-Buc Landfill.
The third settlement agreement was among the AFP Group and
certain other PRPs, Transtech, all the third-party defendants
to the Fraudulent Conveyances Counterclaim, and other parties
sought to be joined in the Fraudulent Conveyances
Counterclaim. In this agreement, the AFP Group and the other
settling PRPs dismissed all their claims in the Fraudulent
Conveyances Counterclaim in exchange for a payment $1.5
million. Of this amount, $480,000 was paid by Transtech and
the balance was paid by the third-party defendants and such
other parties.
The fourth settlement agreement was among the SCA Group,
WMI, Transtech, all the third-party defendants to the
Fraudulent Conveyances Counterclaim, and the other parties
sought to be joined in the Fraudulent Conveyances
Counterclaim. In this agreement, the SCA Group and WMI
dismissed all their claims in the Fraudulent Conveyances
Counterclaim and agreed to defend and indemnify Transtech, the
third-party defendants and such other parties against
continuing claims by non-settling PRPs (consisting of a group
of four non-municipal waste PRPs). In addition, the third-
party defendants and such other parties released Transtech
from all liability to them arising from the settlement of the
Fraudulent Conveyances Counterclaim.
In April 1991, Inmar demanded that, in accordance with
certain provisions of the lease from Inmar to Kin-Buc of 50
acres upon which a portion of the Kin-Buc Landfill is located,
Transtech indemnify Inmar and Marvin H. Mahan against
liability for remediation of such property and pay Inmar $6.6
million in damages for loss of value of its adjoining
property. These demands are the subject of an October 1998
settlement agreement with Inmar discussed below.
Insurance
In 1995, Transtech, Kin-Buc and Filcrest commenced suit 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 Tang Site and
for the defense of litigation related thereto. The defendant
insurers 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. 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, arising from this
excess carrier litigation be paid to WMI in conjunction with
the settlement of the litigation related to the Kin-Buc
Landfill as discussed above, and to legal counsel representing
the Company in the suit. 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. They also cover Inmar and
other companies presently or formerly owned, controlled by or
affiliated with Marvin H. Mahan.
Mr. Mahan and such affiliated entities assigned to the
Company their rights as insureds and claimants under such
policies pursuant to the October 1998 settlement agreement
discussed below.
As to the Clay Deposits
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for
use in the closure of the Kin-Buc Landfill for $1.2 million
from Inmar. The agreement for the purchase of the clay
provided that Kin-Buc would be entitled to a refund of the
purchase price of clay it was unable to use. The Company used
a small portion of the clay and was planning to sell the
remainder to third parties.
In May 1996 Inmar applied to the Superior Court, Essex
County, New Jersey for an order vacating a 1983 order of that
Court in a suit entitled State of New Jersey, Department of
Environmental Protection v. Inmar Associates et al., Docket
No. C-1852-83E. That order prohibited Inmar from selling its
real property until all of Inmar's and Marvin H. Mahan's
obligations for the environmental cleanup of a site in
Carlstadt, New Jersey are fulfilled. In August 1996 the
Superior Court denied Inmar's application for relief from the
1983 order, but permitted it to reapply if a sale of a
specific piece of real property was upcoming.
In October 1996 Kin-Buc learned that Inmar had contracted
to sell a substantial portion of its land in Edison, New
Jersey, upon which a substantial amount of the clay is
situated, to Edison Expansion, Inc. ("Expansion"), an
unrelated company. In November 1996 Inmar reapplied to the
Superior Court for permission to complete this sale and Kin-
Buc brought suit entitled Kin-Buc, Inc. v. Inmar Associates,
Inc. and Edison Expansion, Inc., Docket No. MRS-C-249-96, in
Superior Court, Morris County, New Jersey against Inmar and
Expansion for, among other things, a declaratory judgment that
Kin-Buc's rights in the clay would survive a sale of the land
to Expansion, and, alternatively, a money judgment against
Inmar. Inmar's reapplication for relief from the 1983 order
had been moved, on the Court's motion, to the Superior Court,
Morris County, where Kin-Buc's action was pending.
In December 1996 the Superior Court permitted Inmar to
sell the land to Expansion, but ordered that the net proceeds
of the sale be paid into the Court to secure the fulfillment
of any Carlstadt cleanup obligations which Inmar or Marvin H.
Mahan may be held liable to perform. Inmar appealed this
order to the Appellate Division of the Superior Court. A
closing of the sale of the land to Expansion took place in
January 1997, and the net proceeds of the sale, totalling
approximately $530,000, were paid into the Superior Court
pending the outcome of Inmar's appeal.
In August 1997 Kin-Buc obtained a default judgment against
Inmar in the amount of approximately $1.1 million,
representing a refund of the purchase price of the clay Kin-
Buc did not use. In October 1997 the Superior Court dismissed
Kin-Buc's suit against Expansion, recognizing that Kin-Buc had
already obtained a remedy in the form of a money judgment
against Inmar.
In April 1998 the Appellate Division ruled on Inmar's
appeal of the December 1996 order which provided, among other
things, for payment into the Superior Court of the proceeds of
the sale of Inmar's land. Referring to a specific section of
the State's environmental laws, the Appellate Division
remanded Inmar's application for relief from the 1983 order
for consideration of whether four specific methods of securing
the fulfillment of cleanup obligations set forth in that
section are the only permissible methods of securing such
obligations. In June 1998 Inmar applied to the Superior Court,
on remand, for an order vacating the December 1996 order,
releasing the proceeds of the sale of Inmar's land and
removing the prohibition on the sale of Inmar's other real
property imposed by the 1983 order.
On August 3, 1998 the Superior Court granted Inmar's
application and vacated its December 1996 order, released the
proceeds and removed the prohibition on the sale of Inmar's
other real property. In December 1998, the Company received
$480,000 in accordance with the terms of an October 1998
settlement agreement with Inmar, as discussed below.
As to the Carlstadt Site
Transtech is one of 43 respondents to a September 1990
Administrative Order of EPA concerning the implementation of
interim environmental remediation measures at a site in
Carlstadt, New Jersey owned by Inmar and operated by Transtech
as a solvents recovery plant for approximately five years
ending in 1970.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in
a civil action in the United States District Court for the
District of New Jersey entitled AT&T Technologies, Inc. et al.
v. Transtech Industries, Inc. et al. v. Allstate Insurance
Company et al. (the "AT&T Suit") by a group of generators of
waste (the "AT&T Group") alleging, among other things, that
the primary responsibility for the clean-up and remediation of
the Carlstadt site rests with Transtech, Inmar and Marvin H.
Mahan.
In September 1995, the Court approved a settlement of the
AT&T Suit among Transtech, Inmar, Marvin H. Mahan, the AT&T
Group and other generators and transporters of waste handled
at the Carlstadt site who had contributed to the costs of the
remediation of the site. Pursuant to such settlement,
Transtech, Inmar and Marvin H. Mahan agreed to (i) pay $4.1
million of proceeds from settlements with primary insurers of
a coverage action brought by the Company and Inmar against
their primary and excess insurers, (ii) pay an additional
$145,000 ($72,500 from Transtech and $72,500 from Inmar and
Marvin H. Mahan), and (iii) assign their Carlstadt site-
related insurance claims against an excess insurer in exchange
for a complete release from these parties of all liability
arising from or on account of environmental contamination at
the Carlstadt site and the parties' remediation of the same.
Notwithstanding such settlement, the Company may have
liability in connection with the site to EPA for its costs of
overseeing the remediation of the site, and to parties who had
not contributed to the remediation at the time the settlement
was approved but who may later do so. The Company has
received no indication that EPA intends to assert a claim for
oversight costs.
In a related matter, in October 1989, the Company,
together with owners and operators of industrial sites in the
Hackensack, New Jersey meadowlands, including a site in Wood-
Ridge, were sued in the United States District Court for the
District of New Jersey for contribution towards the cost of
remediation of those sites, adjacent lands and adjacent water
courses, including Berry's Creek. The plaintiffs in this
suit, Morton International, Inc., Velsicol Chemical Corp. and
other parties who have been ordered to remediate such
industrial sites, adjacent lands and adjacent water courses,
seek contribution from the Company towards the cost of
remediating Berry's Creek, which, they allege, was
contaminated, in part, by the Company's operations at a nearby
solvents recovery facility at Carlstadt, New Jersey. Shortly
after the institution of suit, the plaintiffs began
negotiating with the governmental entities which ordered the
remediation of the sites, adjacent land and adjacent water
courses, as to the scope of remediation and, pending those
negotiations, had stayed the suit. In August 1996, the
plaintiffs reinstituted the suit but shortly thereafter agreed
to sever claims against the Company and proceed against other
defendants. As a result, the claims against the Company have
again been stayed. Since the plaintiffs' negotiations
concerning the scope of the remediation of Berry's Creek are
still ongoing, and no discovery has taken place concerning
allegations against the Company, it is not possible to
estimate the Company's ultimate liability in this matter.
In December 1989, Inmar and Transtech agreed to share
equally certain costs in connection with the AT&T Suit. As of
December 31, 1992, Transtech paid $514,000 towards such costs.
Inmar has disputed which expenses are to be shared. Further,
in April 1991, Marvin H. Mahan made a demand upon Transtech
for reimbursement of approximately $300,000 in costs which he
incurred in connection with the AT&T Suit. The dispute
concerning the shared expenses and Marvin H. Mahan's demand
for reimbursement are subjects of the October 1998 settlement
agreement with Inmar discussed below.
As to the Tang Site
Pursuant to a December 1988 agreement with Tang, in 1988,
1989 and 1990 Transtech spent approximately $4.3 million for
the remediation of a Piscataway, New Jersey site owned by Tang
and operated by Transtech for a limited period of time. In
October 1990, Transtech determined that it would no longer
continue to contribute to the remediation of that site.
During July 1999, counsel to the Company was contacted by the
United States Environmental Protection Agency (the "EPA")
regarding the Tang site. 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. In
November 1999 and again in February 2000, EPA and the Company
agreed to extend the statute an additional three months.
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.
In connection with its determination not to continue to
contribute to the remediation of the Tang site, in March 1991
Transtech made a demand upon Tang for reimbursement of the
amounts it had expended in connection with such remediation.
In April 1991, Tang rejected the demand for reimbursement and
demanded Transtech resume the remediation. These demands are
the subject of the October 1998 settlement agreement with Tang
discussed below.
As to Negotiations with Inmar, Tang and Marvin H. Mahan
The Company had been negotiating with Inmar, Marvin H.
Mahan and Tang (collectively, the "Mahan Interests") toward a
settlement of disputes with the Company, namely, Inmar's
demand for damages for loss of value of property adjoining the
Kin-Buc Landfill, the sharing of legal expenses of the suit
settled in 1995 pertaining to a site in Carlstadt, New Jersey,
and the reimbursement of remediation costs and damages for
loss of value at the Piscataway, New Jersey site owned by
Tang. Negotiations broadened to include the Mahan Interests'
joining in the December 1997 settlement of a derivative suit
stemming from litigation regarding the remediation of the Kin-
Buc landfill, the satisfaction of Kin-Buc's $1.1 million
judgment against Inmar and the Mahan Interests' cooperation in
the prosecution of the suit against Transtech's excess
insurers. In October, 1998 the Company entered into an
agreement with the Mahan Interests which resolved such
disputes and assigned to the Company all rights of the Mahan
Interests, and certain other insured entities affiliated with
the Mahan Interests, as insureds and claimants under the
excess insurance policies now the subject of litigation
initiated by the Company. The Company agreed to vacate Kin-
Buc's judgment against Inmar in exchange for $480,000 which
was paid to the Company from funds deposited with the Superior
Court of New Jersey, and to pay $200,000 for the
aforementioned assignment of rights under the insurance
policies to be paid in two equal installments. The first
installment was paid when the Company received the $480,000
from the Superior Court and the second installment is payable
when the Company receives payment for claims made against the
insurance carriers. An amount equal to the second installment
was placed in escrow when the funds were received from the
Superior Court and is included in "Other" assets in the
accompanying December 31, 1999 and 1998 balance sheets. The
Company also agreed to indemnify Marvin H. Mahan for claims
that may be made on account of past actions he took in his
role as an officer and director of the Company and reimbursed
Marvin H. Mahan $68,000 for a portion of the Mahan Interests'
legal fees related to the Kin-Buc litigation and their efforts
to release the funds held by the Superior Court. The Mahan
Interests and the Company exchanged releases from all other
claims each has made against the other.
General
In the ordinary course of conducting its business, the
Company becomes involved in certain lawsuits and
administrative proceedings (other than those described
herein), some of which may result in fines, penalties or
judgments being assessed against the Company. The management
of the Company is of the opinion that these proceedings, if
determined adversely individually or in the aggregate, are not
material to its business or consolidated financial position.
The uncertainty of the outcome of the aforementioned tax
litigation and insurance litigation and the impact of future
events or changes in environmental laws or regulations, which
cannot be predicted at this time, could result in increased
remediation and closure costs, and increased tax and other
potential liabilities. A significant increase in such costs
could have a material adverse effect on the Company's
financial position, results of operations and net cash flows.
The Company may ultimately incur costs and liabilities in
excess of its available financial resources.
Note 16 - Segment Information:
The Company's continuing operations can be grouped into
three segments: operations which generate electricity from
recovered methane gas, operations which perform maintenance,
remediation and related services on landfill sites, and
corporate and other. Corporate and other includes: (i)
selling, general and administrative expenses not specifically
allocable to the other segments, and (ii) other administrative
costs incurred for the continuing closure and post-closure
activities at the Company's dormant landfill facilities.
Corporate assets are represented primarily by cash and cash
equivalents, marketable securities, notes receivable and real
estate held for investment and sale.
<TABLE>
<CAPTION>
<PAGE>
(In $000's) Electricity Environmental Corporate
Generation Services and Other
<S> <C> <C> <C>
1999
Operating revenues $ 58 $ 39 $ -
Intercompany revenues $ - $ 744 $ -
Income (loss)
from operations $ (69) $ (244) $(1,035)
Identifiable assets $ - (a) $ 338 $ 4,402
Depreciation expense $ 5 $ 29 $ 5
Capital expenditures $ - $ 24 $ 1
1998
Operating revenues $ 252 $ 496 $ -
Intercompany revenues $ - $ 650 $ -
Income (loss)
from operations $ (3) $ (83) $(1,250)
Identifiable assets $ 5(a) $ 393 $ 5,202
Depreciation expense $ 24 $ 31 $ 5
Capital expenditures $ - $ 6 $ 1
(a) Substantially all of the assets of the electricity
generation segment are fully depreciated.
</TABLE>
During the years ended December 31, 1999 and 1998, three
and seven customers, respectively, of the Company accounted
for 100% of the Company's consolidated operating revenues.
Note 17 - Net Income (Loss) Per Common Share:
The Company has adopted SFAS No. 128. "Earnings per Share"
which requires entities with complex capital structures to
present both basic earnings per share ("EPS") and diluted EPS.
Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock, such
as stock options, were exercised, converted into common stock
or resulted in the issuance of common stock. Diluted EPS is
computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period increased
by the dilutive effect of common stock-equivalent shares
computed using the treasury stock method. Diluted EPS have
not been presented since the calculations are anti-dilutive
for each of the periods presented.
Note 18 - Related Party Transactions:
The Company and its subsidiaries have had transactions
with businesses owned or controlled by the Company's principal
shareholders or members of their immediate family.
On April 22, 1994, the Company made a loan of $75,000 to
the President and Chairman of the Board of Directors of the
Company, evidenced by a note which bears interest at a
floating prime rate plus 1% and is due and payable as
determined by the Board of Directors. Approximately $115,000
and $108,000 was outstanding with respect to the loan,
including interest, as of December 31, 1999 and 1998,
respectively.
Until July 1995, the Company leased certain real property
from Inmar Associates, Inc., a corporation controlled by
Marvin H. Mahan, a former officer, director and principal
shareholder of the Company, and the father of three of the
Company's principal shareholders. No rental payments have
been made since 1990 (see Note 15). Since Mr. Mahan's
retirement from the Company, it has provided Mr. Mahan the use
of an automobile and contributed to the expenses of
maintaining an office for his use including secretarial
services. Such expenses totalled approximately $10,000 in
each of 1999 and 1998. In October 1998, the Company, Mr.
Mahan and certain entities affiliated with him entered into an
agreement which resolved outstanding disputes (see Note 15).
On March 1, 1996, ValveCo Inc. ("ValveCo"), a newly-formed
Delaware corporation organized by Three Cities Research, Inc.
("TCR"), a Delaware corporation unaffiliated with the Company
or any of its directors and officers, purchased 100% of the
Hunt Valve Company, Inc. common stock owned by THV Acquisition
Corp., a wholly owned subsidiary of the Company, representing
79.05% of the issued and outstanding Hunt common stock.
Eighty-five percent of the common stock issued by ValveCo was
purchased by the TCR investors and 15% was purchased by four
individuals affiliated with the Company, namely the Company's
President and Chairman of the Board of Directors (7.5%), the
Company's Vice President and Chief Financial Officer, who is
also a member of the board (2%), a director of Hunt (1.5%) and
Hunt's President and Chief Operating Officer (4%) for
$150,000. These four individuals also obtained the right to
acquire, for an aggregate cost of $2.3 million, an additional
12.5% of ValveCo's common stock pursuant to the exercise of
performance and value-based options. In addition, the
aforementioned directors and executive officers of the Company
and/or Hunt were employed in various capacities by ValveCo and
Hunt after the sale. The Company's President and Chairman of
the Board of Directors resigned from his employment with
ValveCo and Hunt effective January 1, 1997, and as a director
of Hunt in August 1998. The Company's Vice President and
Chief Financial Officer also resigned from his employment with
ValveCo and Hunt effective January 1, 1997. These two
directors and executive officers of the Company sold their
equity holdings in ValveCo in August 1998.
<PAGE>
Transtech Industries, Inc.
Report of Independent Certified Public Accountants
To the Stockholders and the Board of Directors
Transtech Industries, Inc.
We have audited the accompanying consolidated balance sheets
of Transtech Industries, Inc. and subsidiaries as of December 31,
1999 and 1998 and the related consolidated statements of
operations, comprehensive income (loss), stockholders' equity
(deficit), and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Transtech Industries, Inc. and subsidiaries as of
December 31, 1999 and 1998 and the results of their operations and
their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Notes 2, 9 and 15 to the consolidated
financial statements, the Company has experienced recurring
operating losses and has current liabilities which exceed its
available financial resources. These factors raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
BRIGGS, BUNTING AND DOUGHERTY, LLP
Philadelphia, Pennsylvania
March 22 2000
<PAGE>
Transtech Industries, Inc.
Market Prices of Common Stock
The Company's Common Stock is traded under the symbol TRTI on
the OTC Bulletin Board. The following table sets forth by quarter
the high and low bid price for the Company's common stock during
the period January 1, 1998 through December 31, 1999. The high and
low bid price information has been obtained from The Nasdaq Stock
Market, Inc.
<TABLE>
<CAPTION>
1998 High Low 1999 High Low
<S> <C> <C> <C> <C> <C>
1st quarter $.4500 $.3125 1st quarter $.1100 $.1000
2nd quarter .1875 .1875 2nd quarter .2200 .1000
3rd quarter .1875 .1875 3rd quarter .1000 .1000
4th quarter .2700 .1250 4th quarter .1000 .0625
</TABLE>
The above quotations represent prices between dealers and do
not include retail markups, markdowns or commissions. They do not
represent actual transactions.
The number of holders of record of the Common Stock of the
Company at December 31, 1999 was 266.
The Company paid no dividends in either stock or cash in 1999
or 1998 and does not presently anticipate paying dividends in the
foreseeable future.
<PAGE>
Transtech Industries, Inc.
Directory
Executive Offices: Directors: Independent Certified
Public Accountants:
200 Centennial Avenue Robert V. Silva
Suite 202 Chairman of the Board, Briggs, Bunting &
Piscataway, NJ 08854 President and Chief Dougherty, LLP
Phone: (732) 981-0777 Executive Officer Two Logan Sq., Suite 2121
Fax: (732) 981-1856 Transtech Industries, Inc. 18th & Arch Streets
Philadelphia, PA 19103
Arthur C. Holdsworth, III
Vice President of Sales Transfer Agent:
Millington Quarry, Inc.
Millington, New Jersey Continental Stock
Transfer & Trust Co.
Andrew J. Mayer, Jr. 2 Broadway
Vice President-Finance, New York, NY 10004
Chief Financial Officer 212-509-4000
and Secretary
Transtech Industries, Inc. OTC Bulletin Board
Symbol:
Officers:
TRTI
Robert V. Silva
President and Chief Internet Address:
Executive Officer
www.
Andrew J. Mayer, Jr. Transtechindustries.com
Vice President-Finance,
Chief Financial Officer
and Secretary
Form 10-KSB
The Company will provide without charge to any stockholder a copy of its most
recent Form 10-KSB filed with the Securities and Exchange Commission including
the financial statements and schedules thereto. Requests by stockholders for
a copy of the Form 10-KSB must be made in writing to: Transtech Industries,
Inc., 200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854,
Attention: Secretary.
Exhibit 11. Computation of Net Income (Loss) Per Share.
<TABLE>
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<CAPTION>
Years Ended
December 31,
BASIC: 1999 1998
<S> <C> <C>
Weighted Average Common Shares
Outstanding 2,829,190 2,829,190
Net Income (Loss) $ (343,000) $ (947,000)
Basic Net Income (Loss)
Per Common Share:
Net Income (Loss) per share $.(12) $ (.33)
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) $ (343,000) $ (947,000)
Diluted Net Income (Loss)
Per Common Share:
Net Income (Loss) Per Share $ .(12) $ (.33)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSTECH
INDUSTRIES, INC'S ANNUAL REPORT TO STOCKHOLDERS FOR THE PERIOD ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 474
<SECURITIES> 1228
<RECEIVABLES> 216
<ALLOWANCES> 2
<INVENTORY> 0
<CURRENT-ASSETS> 2317
<PP&E> 2894
<DEPRECIATION> 2816
<TOTAL-ASSETS> 4740
<CURRENT-LIABILITIES> 3748
<BONDS> 0
0
0
<COMMON> 2357
<OTHER-SE> (3462)
<TOTAL-LIABILITY-AND-EQUITY> 4740
<SALES> 97
<TOTAL-REVENUES> 97
<CGS> 70
<TOTAL-COSTS> 1375
<OTHER-EXPENSES> (793)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (558)
<INCOME-TAX> (215)
<INCOME-CONTINUING> (343)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (343)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
Exhibit 21. Subsidiaries of the Registrant.
The registrant, Transtech Industries, Inc. (incorporated in
the State of Delaware), is the sole stockholder of the following
corporations, except for (g), (h) and (i), in which Sandcrest, Inc.
is the sole stockholder; (k) and (q), in which Methane Energy
Recycling, Inc. is the sole stockholder; (p), in which Smithtown
Energy Recycling, Inc. holds a 75% interest and Energy Recycling,
Inc. holds a 25% interest; (r), in which Riverhead Energy
Recycling, Inc. holds a 75% interest and Energy Recycling, Inc.
holds a 25% interest; (u), in which ACC Investment Co., Inc. is the
sole stockholder; (v), in which Chambers Brook, Inc. is the sole
stockholder; (w), in which Transtown, Inc. is the sole stockholder.
The operations of all of the listed corporations and partnerships
are included in the consolidated financial statements which are
incorporated herein by reference from the registrant's Annual
Report to Stockholders filed as an exhibit hereto.
(a) Kinsley's Landfill, Inc. (a New Jersey corporation)
(b) Filcrest Realty, Inc. (a New Jersey corporation)
(c) Sandcrest, Inc. (a New Jersey corporation)
(d) Kin-Buc, Inc. (a New Jersey corporation)
(e) Mac Sanitary Land Fill, Inc. (a New Jersey corporation)
(f) Birchcrest, Inc. (a New Jersey corporation)
(g) Del Valley Farms, Inc. (a New Jersey corporation)
(h) Genetic Farms, Inc. (a New Jersey corporation)
(i) Red Robin Realty, Inc. (a New Jersey corporation)
(j) United Environmental Services, Inc.(a New Jersey corporation)
(k) Smithtown Energy Recycling, Inc. (a New York corporation)
(l) Energy Recycling, Inc. (a New Jersey corporation)
(m) Methane Energy Recycling, Inc. (a New Jersey corporation)
(n) Pennsylvania Continental Feed, Inc.(a Pennsylvania corporation)
(o) Harrison Returns, Inc. (a New Jersey corporation)
(p) Smithtown Land Gas Company (a New York partnership)
(q) Riverhead Energy Recycling, Inc. (a New York corporation)
(r) Riverhead Land Gas Company (a New York partnership)
(s) Delsea Realty, Inc. (a New Jersey corporation)
(t) ACC Investment Co., Inc. (a Delaware corporation)
(u) Transtown, Inc. (a Delaware corporation)
(v) Camden Energy Recycling, Inc. (a New Jersey corporation)
(w) Chambers Brook, Inc. (a Delaware corporation)
(x) Arrow Realty, Inc. (a Pennsylvania corporation)
(y) THV Acquisition Corp. (a Delaware corporation)
