UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(Zip Code)
(732) 564-3122
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ___ No ___
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ___ No X
As of August 12, 2009, 2,979,190 shares of common stock, $.50 par value,
were outstanding. In addition, at such date, the issuer held 1,885,750
shares of common stock, $.50 par value, in treasury.
Page 1 of 45 pages
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Financial Statements for the periods
ending June 30, 2009 and 2008 are unaudited):
Consolidated Balance Sheets as of June 30,
2009 and December 31, 2008 4 - 5
Consolidated Statements of Operations and
Comprehensive Loss for the Six Months
Ended June 30, 2009 and 2008 6
Consolidated Statements of Operations and
Comprehensive Loss for the Three Months
Ended June 30, 2009 and 2008 7
Consolidated Statements of Cash Flows for the
Six months Ended June 30, 2009 and 2008 8 - 9
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Notes to Consolidated Financial Statements 10 - 22
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23 - 39
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 40
Item 4. Controls and Procedures 40
Item 4T. Controls and Procedures 40
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings 41 - 43
Item 1A. Risk Factors 44
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 44
Item 3. Defaults Upon Senior Securities 44
Item 4. Submission of Matters to a Vote of
Security Holders 44
Item 5. Other Information 44
Item 6. Exhibits 44
SIGNATURES 45
EXHIBITS 46 - 51
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In $000's)
ASSETS
June 30, December 31,
2009 2008
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 708 $ 716
Marketable securities 1,999 2,480
Accounts receivable - trade 31 34
Refundable income taxes 382 808
Prepaid expenses and other 39 103
Restricted escrow account for
post-closure costs 1,057 1,044
Total current assets 4,216 5,185
PROPERTY, PLANT AND EQUIPMENT
Land 1,067 1,067
Buildings and improvements 613 613
Machinery and equipment 3,392 3,320
Total gross assets 5,072 5,000
Less accumulated depreciation 3,087 3,035
Net property, plant and
equipment 1,985 1,965
OTHER ASSETS
Restricted escrow account for
post-closure costs 5,489 6,019
Other 34 36
Total other assets 5,523 6,055
TOTAL ASSETS $11,724 $13,205
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See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2009 2008
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 17 $ 9
Accounts payable 224 194
Current portion of income taxes
payable 161 161
Accrued income taxes 3 3
Accrued professional fees 89 364
Accrued miscellaneous liabilities 55 58
Current portion of accrued post-
closure costs 1,057 1,044
Total current liabilities 1,606 1,833
LONG-TERM LIABILITIES
Long-term debt 55 8
Income taxes payable 496 577
Accrued post-closure costs 7,088 7,312
Total long-term liabilities 7,639 7,897
TOTAL LIABILITIES 9,245 9,730
STOCKHOLDERS' EQUITY
Common stock, $.50 par value,
10,000,000 shares authorized,
4,864,940 shares issued 2,432 2,432
Additional paid-in capital 1,450 1,450
Retained earnings 9,519 10,068
Accumulated other comprehensive
income 92 539
Subtotal 13,493 14,489
Treasury stock, at cost - 1,885,750
shares (11,014) (11,014)
TOTAL STOCKHOLDERS' EQUITY 2,479 3,475
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $11,724 $13,205
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See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In $000's, except per share data)
(Unaudited)
For the Six Months Ended
June 30,
2009 2008
NET OPERATING REVENUE $ 205 $ 372
COST OF OPERATIONS
Direct operating costs (221) (221)
Selling, general and administrative
expenses (836) (1,028)
Accretion expense (152) (168)
Total cost of operations (1,209) (1,417)
GAIN ON SALE OF EQUIPMENT - 1
LOSS FROM OPERATIONS (1,004) (1,044)
OTHER INCOME (EXPENSE)
Investment income 54 55
Investment income on restricted
escrow account 385 172
Interest expense (1) (1)
Rental income 8 13
Proceeds from insurance claims 8 2
Miscellaneous income, net of
miscellaneous expenses 1 18
Total other income 455 259
LOSS BEFORE INCOME TAX BENEFIT (549) (785)
Income tax benefit - (175)
NET LOSS $ (549) $ (610)
NET LOSS PER COMMON SHARE $ (.18) $ (.20)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE LOSS:
NET LOSS $ (549) $ (610)
Change in unrealized gain (loss) (447) (9)
NET COMPREHENSIVE LOSS $ (996) $ (619)
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See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In $000's, except per share data)
(Unaudited)
For the Three Months Ended
June 30,
2009 2008
NET OPERATING REVENUE $ 94 $ 213
COST OF OPERATIONS
Direct operating costs (60) (118)
Selling, general and administrative
expenses (373) (510)
Accretion expense (76) (84)
Total cost of operations (509) (712)
GAIN ON SALE OF EQUIPMENT - -
LOSS FROM OPERATIONS (415) (499)
OTHER INCOME (EXPENSE)
Investment income 52 20
Investment income on restricted
escrow account 255 95
Interest expense - -
Rental income 1 7
Proceeds from insurance claims 8 -
Miscellaneous income, net of
miscellaneous expenses - 16
Total other income 316 138
LOSS BEFORE INCOME TAX BENEFIT (99) (361)
Income tax benefit - (31)
NET LOSS $ (99) $ (330)
NET LOSS PER COMMON SHARE $ (.03) $ (.11)
NUMBER OF SHARES USED IN CALCULATION 2,979,190 2,979,190
COMPREHENSIVE LOSS:
NET LOSS $ (99) $ (330)
Change in unrealized gain (loss) (314) (243)
NET COMPREHENSIVE LOSS $ (413) $ (573)
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See Notes to Consolidated Financial Statements
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
For the Six months Ended
June 30,
2009 2008
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 209 $ 345
Cash paid to suppliers and employees (1,241) (822)
Interest and dividends received 54 55
Other income received 84 33
Interest paid (1) (1)
Income tax refunds, net of taxes paid 346 (61)
Proceeds from the restricted escrow
account 445 116
Landfill post-closure maintenance costs (367) (459)
Net cash used in operating activities (471) (794)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of marketable
securities 3,479 3,760
Purchase of marketable securities (2,999) (3,204)
Proceeds from sale of equipment - 1
Purchase of equipment (12) (20)
Net cash provided by investing
activities 468 537
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on vehicle financing (5) (5)
Net cash used in
financing activities (5) (5)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (8) (262)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 716 961
CASH AND CASH EQUIVALENTS AT END OF
THE QUARTER $ 708 $ 699
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Noncash financing transactions during the six months ended June 30,2009 and
2008 are as follows:
Cost of vehicle $ 60 $ -
Loan on new vehicle (60) -
Cash paid $ - $ -
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
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PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Six Months Ended
June 30,
2009 2008
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $ (549) $ (610)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation 52 48
Gain on sale of equipment - (1)
Accretion expense 152 168
Earnings on restricted escrow accounts (385) (172)
(Increase) decrease in assets:
Accounts receivable net 3 (28)
Refundable income taxes 426 (141)
Prepaid expenses and other 64 192
Long-term assets 2 12
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 42 197
Income taxes payable (81) (110)
Accrued professional fees (275) (6)
Proceeds from the restricted escrow
Account 445 116
Accrued post-closure maintenance costs (367) (459)
NET CASH USED IN OPERATING ACTIVITIES $ (471) $ (794)
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See Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and consequently
do not include all of the disclosures normally required by accounting
principles generally accepted in the United States of America or those
normally made in the Company's annual Form 10-K filing. Accordingly, the
reader of this Form 10-Q may wish to refer to the Company's Form 10-K for
the year ended December 31, 2008 for further information.
The financial information has been prepared in accordance with the
Company's customary accounting practices except for certain
reclassifications to the 2008 consolidated financial statements in order to
conform to the presentation followed in preparing the 2009 consolidated
financial statements.
Quarterly financial information has not been audited. In the opinion
of management, the information presented reflects all adjustments necessary
for a fair statement of interim results. All such adjustments are of a
normal and recurring nature except as disclosed herein.
In preparing the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America,
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. See Part I, Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation for additional information
regarding the estimates and assumptions the Company makes that affect its
consolidated financial statements.
The Company sells the electricity it generates to a local utility.
Such sales account for 100% of the Company's Net Operating Revenues for the
six month periods ended June 30, 2009 and 2008, and represented 100% of the
Company's Accounts Receivable - Trade as of June 30, 2009 and December 31,
2008.
NOTE 2 - MARKETABLE SECURITIES
At June 30, 2009, the Company's marketable securities consisted
primarily of U. S. Treasury bills classified as available-for-sale and are
carried at their fair value of $1,999,000, which approximated cost. At
December 31, 2008, the Company's marketable securities consisted primarily
of U.S. Treasury bills classified as available-for-sale and are carried at
their fair value of $2,480,000, which also approximated cost. Net
unrealized gains and losses related to the Company's marketable securities
are included in stockholders' equity, net of income tax (stockholders'
equity also includes net unrealized gains related to the restricted escrow
accounts discussed in Note 3). Proceeds from the maturity of marketable
securities for the six months ended June 30, 2009 and 2008 were $3,479,000
and $3,760,000, respectively. No marketable securities were sold prior to
their maturity during the period in either 2009 or 2008.
NOTE 3 - RESTRICTED ESCROW ACCOUNTS FOR POST-CLOSURE COSTS
At June 30, 2009 and December 31, 2008 the Company held $6,546,000 and
$7,063,000, respectively, in a restricted escrow account which is to be
used to fund post-closure costs at Kinsley's Landfill (the "Kinsley's
Landfill"). The escrow account is legally restricted for purposes of
settling closure and post-closure costs, and was established to provide
financial assurance through the deposit of a portion of the tipping fee
charged when the landfill was operating. All disbursements from the
restricted escrow account must be approved by the New Jersey Department of
Environmental Protection. The balance of funds, if any, remaining after the
end of the post-closure activities will revert to the State of New Jersey.
The restricted escrow primarily contains U.S. Treasury Notes and government
backed debt securities. At June 30, 2009 the securities are carried at
their fair value of $6,546,000, with a cost of $6,454,000, gross unrealized
gains of $151,000 and gross unrealized losses of $59,000. At December 31,
2008 the securities had a fair market value of $7,063,000, with a cost of
$6,524,000, gross unrealized gains of $541,000 and gross unrealized losses
of $2,000. The net unrealized gains and losses are included in
stockholder's equity for the respective periods (stockholders' equity also
includes net unrealized gains related to the Company's marketable securities
discussed in Note 2). The portion of the restricted escrow funds reported
as current equals the current portion of accrued post-closure costs related
to the Kinsley's Landfill (see Note 6).
NOTE 4 - FAIR VALUE
Effective January 1, 2008, the Company adopted Statement of Financial
Accounting Standard No. 157, "Fair Value Measurements" (SFAS 157), as it
applies to its financial instruments, and Statement of Financial Accounting
Standard No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115" (SFAS 159).
In February 2008, the FASB issued Staff Position FAS 157-2, Effective Date
of FASB Statement No. 157, which delayed the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except those that
are measured at fair value on a recurring basis. Effective January 1, 2009,
the Company adopted SFAS 157 with respect to non-financial assets and
liabilities measured on a non-recurring basis.
SFAS 157 defines fair value, outlines a framework for measuring fair
value, and details the required disclosures about fair value measurements.
Under SFAS 157, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the principal or most
advantageous market. SFAS 157 enables the reader of the financial
statements to assess the inputs used to determine the fair value of an asset
or liability by establishing a hierarchy for ranking the quality and
reliability of such inputs. Level 1 inputs include quoted market prices
in an active market for identical assets or liabilities. Level 2 inputs are
market data, other than Level 1, that are observable either directly or
indirectly. Level 2 inputs include quoted market prices for similar assets
or liabilities, quoted market prices in an inactive market, and other
observable information that can be corroborated by market data. Level 3
inputs are unobservable and corroborated by little or no market data. SFAS
157 requires the utilization of the lowest possible level of input to
determine fair value. The adoption of this statement did not have any
material impact on the Company's consolidated results of operations and
financial condition.
The following table provides information on the assets measured at fair
value on a recurring basis (table in $000):
Carrying Amount
in Consolidated Fair Value Measurements Using
Balance Sheet
June 30, 2009 Level 1 Level 2 Level 3
Marketable securities $ 1,999 $ 1,999 - -
Restricted escrow account
for post-closure costs $ 6,546 $ 6,546 - -
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SFAS 159 permits companies to irrevocably choose to measure certain
financial instruments and other items at fair value. If the fair value
option is elected, unrealized gains and unrealized losses will be recognized
in earnings at each subsequent reporting date. The Company did not elect
the fair value option to measure certain financial instruments.
NOTE 5- INCOME TAXES
The Company recognized a federal income tax benefit for the six and
three month periods ended June 30, 2008 due to its ability to carry-back
net operating losses to 2006 for credit against federal income taxes paid
with respect to such year. Federal tax laws limit the carry-back of losses
to two preceding years. The Company recognized no income tax benefit for
the six and three month periods ended June 30, 2009 since no federal income
taxes were paid for either 2007 or 2008, and the tax benefit resulting from
the loss reported for the periods in 2009 is fully offset by an increase in
the deferred tax valuation allowance.
The provision for income tax expense (benefit) for the six months ended
June 30, 2008 is based upon the Company's anticipated annual effective tax
rate and consists of the following (table in 000's):
2009 2008
Provision for operations
Currently payable (refundable):
Federal $ - $(190)
State - 15
- (175)
Deferred:
Federal - -
State - -
- -
Total income tax provision (benefit) $ - $(175)
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Income taxes payable, equal to $657,000 as of June 30, 2009,
represents the amount due the United States Internal Revenue Service (the
"Service") in settlement of litigation concluded during October 2000
regarding the Company's tax liability for taxable years 1980-88 and certain
issues from taxable years 1989-91. During July 2004, the Service accepted
the Company's Offer in Compromise (the "Offer") which requested a reduction
in the amount payable with respect to such settlements and permission to pay
the reduced obligation in installments. The Offer committed the Company to
pay a total of $2,490,000 in satisfaction of the assessed federal income
taxes and interest of approximately $4,800,000. A payment of $810,000 was
made during October 2004 and the balance due is being paid in monthly
installments over nine years as follows: (a) $18,230 per month for each of
the forty-eight months beginning August 2004, and (b) $13,416 per month for
each of the sixty months beginning August 2008. The total of the
installments paid from inception through June 30, 2009 equals approximately
$1,023,000. Approximately $161,000 is due in each of the four years
subsequent to June 30, 2009 and one installment is due in the fifth year.
The sum of the payments due during the twelve months subsequent to June 30,
2009 has been classified as a current liability and the balance of the
payments due have been classified as a long-term liability. The Service
does not impose interest on amounts payable pursuant to the Offer. The
Company is permitted to receive refunds of prior tax overpayments and from
the carryback of losses. Should the Company default in any of the terms of
the Offer, the Service may initiate suit to impose one or more remedies
available to it, including the reinstatement of the total amount previously
assessed and/or impose interest.
NOTE 6 - POST-CLOSURE COSTS AND CONTINGENT ENVIRONMENTAL LIABILITIES
Post-Closure Costs
The Company has future obligations for post-closure maintenance costs
with respect to a landfill it owns and operated, the Kinsley's Landfill,
and a landfill it operated on real property leased from others, the MAC
Landfill. Kinsley's Landfill ceased accepting solid waste at its landfill
in Deptford Township, New Jersey during February 1987 and commenced closure
of that facility. 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.
Post-closure maintenance costs include estimated costs to be incurred
for providing required post-closure monitoring and maintenance of the
landfill. Post-closure activities occur after the entire landfill ceases
to accept waste and closes. These activities involve maintenance of the
final cover, methane gas control, leachate management and groundwater
monitoring, surface water monitoring and control, and other operational and
maintenance activities that occur after the site ceases to accept waste.
The post-closure maintenance period generally runs for up to 30 years after
final site closure for municipal solid waste landfills. Obligations
associated with monitoring and controlling methane gas migration and
emissions are set forth in applicable landfill permits and these
requirements are based upon the provisions of the Clean Air Act of 1970, as
amended.
The Company has accrued for such post-closure maintenance costs in
accordance with Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143"). Pursuant to
SFAS 143, a liability for an asset retirement obligation should be
initially measured at fair value. In situations where quoted market prices
are unavailable, the estimate of fair value should be based on the best
available information, including the results of present value techniques in
accordance with Statement of Financial Accounting Concepts No. 7, "Using
Cash Flow and Present Value in Accounting Measurements" ("SFAC 7").
Changes in the liability due to the passage of time are recognized as
operating items in the statement of operations and are referred to as
accretion expense. Changes in the liability due to revisions to estimated
future cash flows are recognized by increasing or decreasing the liability,
with, in the case of closed landfills, an offset to the statement of
operations.
The Company relies on third parties to provide certain materials,
supplies and professional services for post-closure activities.
Accordingly, the fair market value of these future obligations is based
upon quoted and actual prices paid for similar work. The Company's
personnel perform the majority of the services required for its post-
closure obligations. The Company has added a profit margin onto the cost
of such services to better reflect their fair market value as required by
SFAS 143.
The Company's estimates of costs to discharge asset retirement
obligations for landfills are developed in today's dollars. The estimated
costs are inflated to the expected time of payment and then discounted back
to present value. The estimated costs in current dollars were inflated to
the expected time of payment using an inflation rate of 2.5%, and the
inflated costs were discounted to present value using a credit-adjusted,
risk-free discount rate of 4.5%. The credit-adjusted, risk-free rate is
based on the risk-free interest rate on obligations of similar maturity and
adjusted for the risk associated with investments permitted and typically
held in the Company's post-closure escrow accounts discussed in Note 3.
Changes in the credit-adjusted, risk-free rate do not change recorded
liabilities, but subsequently recognized obligations are measured using the
revised credit-adjusted, risk-free rate.
The following tables summarize the actual activity in the Company's
asset retirement obligation liabilities for post-closure costs for the six
months ended June 30, 2009 and 2008 (table in $000):
2009 2008
Asset retirement obligation
liability, beginning of period $ 8,356 $ 8,797
Accretion expense 152 168
Obligations settled during
the period (335) (451)
Other adjustments (discussed below) (28) (27)
Asset retirement obligation
liability, end of period 8,145 8,487
Less: Current portion (1,057) (1,043)
Long-term portion $ 7,088 $ 7,444
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The amount reported as current portion represents the estimate of the
cost to be incurred during the subsequent twelve months. The post-closure
maintenance costs of the Kinsley's Landfill are funded from a restricted
escrow account (see Note 3).
The thirty-year post-closure care period for the MAC Landfill was to
expire on June 7, 2008. On June 3, 2008 the New Jersey Department of
Environmental Protection ("NJDEP") notified the Company of its decision to
temporarily extend the post-closure care period until such time the NJDEP
performs a re-evaluation and re-assessment of conditions at the landfill.
The NJDEP has requested certain environmental data concerning the landfill
for such purpose. The NJDEP intends to then determine what further
actions, if any, will be required of the Company. Because of the nature,
scope and timing of NJDEP's decision and information request, the Company
has requested an administrative hearing to contest certain aspects of
NJDEP's decision including the extension of the post-closure care period.
The Company's accrual established for the estimated post-closure
maintenance cost for the Mac Landfill was depleted during 2008. The
Company is expensing ongoing post-closure maintenance costs as incurred
until the obligations of the Company with respect to the site, if any, are
determined. Until such time, the Company is unable to reasonably estimate
the future cost of such obligations. Post-closure maintenance costs
related to the MAC Landfill approximated $12,000 for the six months ended
June 30, 2009, and was reported as direct operating cost. Such amount
included approximately $10,000 of engineering fees incurred in response to
NJDEP inquiries.
The Company annually reviews its calculations with respect to landfill
asset retirement obligations unless there is a significant change in the
facts and circumstances related to a landfill during the year, in which
case the Company will review its calculations after the significant change
has occurred.
The Company began re-grading a section of the Kinsley's Landfill in
2006 in accordance with a plan approved by NJDEP. The re-grading plan calls
for the use of both recycled and non-recycled materials to fill and re-contour
the areas of the mound containing depressions. The Company receives a fee to
accept certain of the recycled materials. The costs incurred for re-
grading activities shall be paid from such fees. However, costs incurred
for re-grading activities in excess of such fees, if any, will be submitted
to NJDEP for reimbursement from the Kinsley's Escrow. The amounts reported
as Other adjustments in the above tables equal the related re-grading
expenses at the Kinsley's Landfill. No proceeds were generated from the
re-grading project during either 2009 or 2008.
Contingent Environmental Liabilities
The Company's past participation in the waste handling, treatment and
disposal industries subjects the Company to additional claims that may be
made against the Company for the remediation of sites in which the Company
is deemed a potentially responsible party. 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. The costs of litigation associated with a
site are expensed as incurred. Further discussion of the contingent
environmental liabilities addressed below may be found in the Company's
filing on Form 10-K for the year ended December 31, 2008
SCP Site
Transtech was one of 43 respondents to a September 1990 Administrative
Order of Environmental Protection Agency ("EPA") concerning the
implementation of interim environmental remediation measures at a site in
Carlstadt, New Jersey owned by Inmar and allegedly operated by Transtech as
a solvents recovery plant for approximately five years ending in 1970. The
site is known as the Scientific Chemical Processing Superfund Site (the "SCP
Site").
In September 1995, Transtech entered into a settlement agreement to
resolve litigation regarding the allocation of remediation costs among
certain respondents and potentially responsible parties. Notwithstanding
the September 1995 settlement, under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Company may have
liability in connection with the SCP 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 choose
to do so.
During September 2002, EPA issued a notice of potential liability and
of consent decree violations to potentially responsible parties regarding
the SCP Site. On November 12, 2004 an Unilateral Administrative Order (the
"UAO") was issued by EPA naming fifteen companies, including the Company,
as respondents. The UAO requires the respondents to "make best efforts to
cooperate and coordinate with Settling Defendants" who are in the process
of implementing the response actions required under the UAO. A group of 69
potentially responsible parties (the "Settling Defendants") have entered
into a Consent Decree that requires the implementation of the same response
actions as the UAO. The response actions include the design and
implementation of the remedy selected for the second operable unit ("OU2")
at the SCP Site, reimburse the United States approximately $2.0 million for
certain past costs allegedly incurred at the SCP Site, and make payment of
certain future response costs that may be incurred in connection with the
implementation of the OU2 remedy. The EPA estimated the present value of
the selected remedy is $7.5 million which includes capital cost of $4.7
million plus annual O&M costs of $180,000 per annum. EPA publications
report work on OU2 began in April 2008 and should be completed in 2009, and
a final remedy to address contamination of off-site ground water should be
selected in 2011. The "best efforts to cooperate and coordinate with
Settling Defendants" includes the requirement to negotiate with the
Settling Defendants as to either the amount of work required under the UAO
the Company will be willing to assume or the amount of the cash
contribution the Company is willing to make toward the implementation of
the UAO. The Company has informed EPA of its intent to comply with the UAO
and cooperate and coordinate with the Settling Defendants' representative.
The Company, together with the property owner, previously contributed cash
and proceeds from insurance settlements toward the remediation of the SCP
Site. Such contributions total $16.4 million, plus interest earned
thereon, which the Company believes should satisfy the share of remediation
costs which could be found attributable to the Company for the SCP Site and
any contamination or damage caused off-site. Please see Part II, Item 1.
Legal Proceedings of the Form 10-Q for further discussion of this matter.
Berry's Creek Study Area
The Company was one of 158 recipients of a Notice of Potential
Liability and Request to Perform Remedial Investigation/Feasibility Study
(the "Notice"), issued by the EPA on March 9, 2006, regarding the
contamination of the Berry's Creek Study Area (the "Creek Area") located in
Bergen County, N.J. A tributary adjacent to the SCP Site in Carlstadt,
N.J. flows into Berry's Creek. The Creek Area includes the approximately
seven mile long water body known as Berry's Creek, a canal, all tributaries
to Berry's Creek and related wetlands. Tidal areas of the river into which
Berry's Creek empties are also subject to the Notice. Each recipient of
the Notice is designated as a potentially responsible party under CERCLA,
and may be held liable for the cleanup of the Creek Area and costs the EPA
has incurred with regard to the Creek Area. The investigation and
feasibility study regarding the scope of the contamination of the Creek Area
is being conducted by a group of 100 potentially responsible parties. EPA
publications report field work was to begin during the spring of 2009, and
that it will take approximately five years from commencement of field work
to develop potential cleanup options. Since no discovery has taken place
concerning allegations against the Company, it is not possible to estimate
the Company's ultimate liability, if any, with respect to the Creek Area.
Kin-Buc Landfill
The Kin-Buc Landfill, located in Edison, New Jersey, was operated on
property both owned and leased by the Company's subsidiary, Kin-Buc, Inc.
("Kin-Buc"). Operations at the Kin-Buc Landfill ceased in 1977. The
operation and maintenance of remedial measures implemented at the Kin-Buc
Landfill continue pursuant to the provisions of Administrative Orders issued
by the EPA to the Company and other respondents, including SCA Services,
Inc. ("SCA"), an affiliate of Waste Management, Inc. During December 1997,
the Company entered into four agreements that settled lawsuits related to
the allocation of costs of remediation of the Kin-Buc Landfill and
substantially relieved the Company from certain future obligations with
respect to the site. As part of the settlement, SCA agreed to defend and
indemnify Transtech, Kin-Buc and another subsidiary, Filcrest Realty, Inc.
from claims by non-settling non-municipal waste and municipal waste
potentially responsible parties in the litigation. SCA also agreed to
defend and indemnify the Company from certain liabilities in connection with
the remediation of the Kin-Buc Landfill. However, the Company remains a
responsible party under the Administrative Orders issued by the EPA
discussed above, and continues to incur administrative and legal costs for
issues and activities related to the site.
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2009 and
December 31, 2008 (table in $000's, except for monthly installment amounts):
June 30, December 31,
2009 2008
Note payable to a finance company, due
in monthly installments of $459,
including interest at 7.99% per annum,
to August 2009; secured by a vehicle
carried at a net book value of $6. $ 1 $ 3
Note payable to a bank, due in monthly
installments of $505, including
interest at 7.75% per annum, to June
2011; secured by a vehicle carried
at a net book value of $13. 11 14
Non-interest bearing note payable to
a finance company, payable in 60
monthly installments of $1,154, to
June 2014; including interest imputed
at 6% per annum; secured by a vehicle
carried at a net book value of $59. 60 -
Total long-term debt 72 17
Less: Current portion (17) (9)
Long-term portion $ 55 $ 8
|
NOTE 8 - SEGMENT INFORMATION
The Company's continuing operations are grouped into three segments:
(a) operations which generate electricity from recovered methane gas, (b)
operations which perform maintenance, remediation, closure, post-closure and
related services on landfill sites, and (c) corporate and other. Corporate
and other includes selling, general and administrative expenses not
specifically allocable to the other segments. Corporate assets are
represented primarily by cash and cash equivalents, marketable securities
and real estate held for investment and sale. Financial information by
segment for the six months ended June 30, 2009 and 2008 follows.
(table in $000's) Electricity Environmental Corporate
Generation Services and Other Total
2009
Gross operating revenues $ 205 $ 331 $ - $ 536
Eliminations (a) - (331) - (331)
Net operating revenues 205 - - 205
Depreciation expense 28 19 5 52
Income (loss)
from operations (b) (15) (223) (766) (1,004)
Capital expenditures 5 2 65 72
2008
Gross operating revenues $ 372 $ 437 $ - $ 809
Eliminations (a) - (437) - (437)
Net operating revenues 372 - - 372
Depreciation expense 25 20 3 48
Income (loss)
from operations (b) 158 (242) (960) (1,044)
Capital expenditures 5 14 1 20
|
(a) Eliminations include intercompany sales, billings to the Kinsley's
Escrow and fees received in conjunction with the Kinsley's Landfill re-
grading project, if any.
(b) Income (loss) from operations of the Environmental Services
segment includes accretion expense of $152,000 and $168,000 for 2009 and
2008, respectively.
NOTE 9 - LEGAL PROCEEDINGS
See Part II, Item 1. Legal Proceedings of this Form 10-Q for a
discussion of recent developments with respect to the Company's legal
matters.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and related notes,
which provide additional information concerning the Company's financial
activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934, and the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or the Company's future financial
performance. In some cases, forward-looking statements can be identified by
terminology such as may, will, should, expect, plan, anticipate, believe,
estimate, intend, potential or continue, and similar expressions or
variations. These statements are only predictions. 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. All forward-looking statements
included in this document are based on information available to the Company
and its employees on the date of filing, and the Company and its employees
assume no obligation to update any such forward-looking statements. In
evaluating these statements, the reader should specifically consider various
factors.
Discussion of Critical Accounting Policies
For a discussion of the Company's critical accounting policies, see the
Company's Annual Report on Form 10-K for the year ended December 31, 2008.
Results of Operations
Results for the six months ended June 30, 2009 and 2008
Consolidated net operating revenues were $205,000 for the six months
ended June 30, 2009, a decrease of $167,000 or 45%, compared to $372,000
reported for the period ended in 2008. Consolidated operating revenues by
business segment for the six months ended June 30, 2009 and 2008 were as
follows (table in $000):
2009 2008
Environmental Svcs. $ 331 $ 437
Electricity Generation 205 372
Subtotal 536 809
Eliminations (331) (437)
Net Operating Revenues $ 205 $ 372
|
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 $331,000 of gross operating revenues for the period in
2009 (prior to eliminations) compared to $437,000 for the period in 2008.
Substantially all of the environmental services segment revenue for
the period in both 2009 and 2008 were from post-closure activities on
landfills previously operated by the Company's subsidiaries. Post-closure
maintenance performed on a landfill owned by the Company, the Kinsley's
Landfill, is submitted for reimbursement to a restricted escrow account
established to finance the post-closure activities at the site (the
"Kinsley's Escrow") (see Notes 3 and 6 to the Company's Consolidated
Financial Statements). The Company billed the Kinsley's Escrow
approximately $331,000 and $432,000 for post-closure maintenance performed
during the six months ended June 30, 2009 and 2008, respectively. All
reimbursements from the Kinsley's Escrow must be approved by the New Jersey
Department of Environment Protection ("NJDEP"). Billings to the Kinsley's
Escrow and for services provided to members of the consolidated group are
eliminated in the calculation of net operating revenue. The Company is
continuing its efforts to expand the customer base of the environmental
services segment to additional entities beyond the consolidated group.
Revenues from the segment that generates electricity were
approximately $205,000 and $372,000 for the six months ended June 30, 2009
and 2008, respectively. The fuel utilized by this operation is the methane
component of the gas generated by the Kinsley's Landfill. The electricity
generating facility consists of four trailer mounted diesel
engine/electricity generator units ("Gen-set(s)") each capable of
generating approximately 11,000 kilowatt hours ("kWh") per day when
operating at 85% capacity. Three of the four Gen-sets were available for
operations during the period in 2009 and 2008, subject to routine repairs
and maintenance. The fourth Gen-set requires significant repairs which
have been deferred. Electricity generated is sold pursuant to a contract
with a local utility. Revenues are a function of the number of kWh sold,
the rate received per kWh and capacity payments. The Company sold
approximately 4.10 million kW and 4.08 million kW during the six months
ended June 30, 2009 and 2008, respectively. The average combined rate (per
kWh and capacity payments) received per kWh equaled $.0500 and $.0912 for
the six months ended June 30, 2009 and 2008, respectively. Generally
speaking, the rate received by the Company reflects the market demand for
electric power and the market price of fossil fuels. Engineering studies
indicate that the quantity of gas generated by the landfill is declining
but project sufficient landfill gas to continue the operation of three of
the existing Gen-sets through 2011 and two of the existing Gen-sets for the
period of 2012 through 2017. Elements of the landfill gas are more
corrosive to the equipment than traditional fuels, resulting in more off-
line hours dedicated to repair and maintenance than with equipment
utilizing traditional fuels.
Cost of Operations
Consolidated direct operating costs for the six months ended June 30,
2009 were $221,000, equal to the amount reported for the period in 2008.
Approximately $12,000 of direct operating costs reported for the period in
2009 were incurred for post-closure maintenance at the MAC Landfill (see
Liquidity and Capital Resources, Post-Closure Maintenance Costs below).
All but approximately $4,000 of the other direct operating costs related to
the environmental services segment for the period in 2009 and approximately
$17,000 for the period in 2008, were incurred in conjunction with the
services provided to members of the consolidated group as described above
and, therefore, eliminated in consolidation. The balance of the direct
operating costs reported for the period in 2009 and 2008 were attributable
to the electricity generating segment. The increase in operating costs is
primarily due to repairs required on one Gen-set.
Consolidated selling, general and administrative expenses for the six
months ended June 30, 2009 and 2008 were $836,000 and $1,028,000,
respectively. Components of selling, general and administrative expenses
for the six months ended June 30, 2009 and 2008 were as follows (table in
$000):
2009 2008
Legal expenses $ 165 $ 322
Other professional fees 84 79
Non-operating subsidiary expenses 30 29
All other administrative expenses 557 598
Total $ 836 $1,028
|
Legal expenses reported for the period in 2009 and 2008 include
approximately $35,000 and $116,000, respectively, of fees for matters
related to the Company's landfills or the remediation of sites to which the
Company has been named as a potentially responsible party ("PRP") or an
alleged PRP. Such fees in the periods for both 2009 and 2008 were
primarily attributable to matters related to the Kin-Buc Landfill and the
Berry's Creek Study Area which are discussed below. Other professional
fees include fees due to accountants, engineers, consultants and directors.
The operating costs of the non-operating subsidiaries, consisting primarily
of insurance premiums, franchise, corporate and real estate taxes,
aggregated approximately $30,000 and $29,000 for the period in 2009 and
2008, respectively. All other administrative expenses decreased $41,000 to
$557,000 for the period in 2009 from $598,000 for the period in 2008. This
decrease was primarily attributable to a decline in personnel related costs
as well as general operating expenses. Professional fees and
administrative costs continue to be incurred in regard to the Company's
business development and asset divestiture efforts (see Liquidity and
Capital Resources below). The Company also incurs legal and other
professional fees, and administrative expenses, during the course of
evaluating businesses for possible acquisition.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure maintenance costs was
$152,000 and $168,000 for the six months ended June 30, 2009 and 2008,
respectively.
Operating Loss
The Company's consolidated operating loss for the six months ended
June 30, 2009 decreased to $1,004,000 from a loss of $1,044,000 reported
for the period in 2008.
Other Income (Expense)
Consolidated investment income was $54,000 for the six months ended
June 30, 2009 versus $55,000 reported for the period in 2008. The amount
reported for the period in 2009 includes approximately $51,000 of interest
earned on refunded federal income taxes. The decrease in the balance of
investment income reflects both a decrease in the rate of interest earned
on U.S. Treasury securities, and other investments, and a decrease in the
amount of funds available for investment.
Consolidated investment income earned on the restricted escrow accounts
dedicated to the funding of the Company's landfill post-closure maintenance
costs was $385,000 and $172,000 for the six months ended June 30, 2009 and
2008, respectively. The amount reported for the periods in 2009 and 2008
include net gains of $241,000 and $20,000, respectively, from the sale of
securities.
Consolidated interest expense was $1,000 for the six months ended June
30 in both 2009 and 2008.
Consolidated rental income, net of related expenses, was $8,000 and
$13,000 for the six months ended June 30, 2009 and 2008, respectively.
Income included in this category consists of royalty payments, reported net
of commission, received from the lessee of certain of the Company's real
property situated beneath the lessee's landfill and income earned from the
rental of certain of the Company's property upon which a radio tower is
situated.
Proceeds from insurance claims totaled $8,000 and $2,000 for the six
months ended June 30, 2009 and 2008, respectively, of which approximately
$1,000 and $2,000 represents proceeds received from claims filed against
certain of the Company's insolvent excess insurance carriers. See
"Liquidity and Capital Resources - Insurance Claims for Past Remediation
Costs" for further discussion of this issue.
Consolidated net miscellaneous income for the six months ended June
30, 2009 and 2008 was $1,000 and $18,000, respectively. The amount
reported for the period in 2008 includes a partial refund of expenses,
$17,000, the Company had paid toward the 2004 settlement of litigation
regarding the Chemsol Superfund Site.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $549,000 for the
six months ended June 30, 2009, compared to a loss of $785,000 for the
period in 2008.
Income Tax Benefit
The provision for federal and state income tax benefit for the six
months ended June 30, 2008 equaled $175,000. The Company recognized
federal income tax benefit for the period due to its ability to carry-back
net operating losses to 2006 for credit against federal income taxes paid
with respect to such years. No benefit was recognized in the period for
2009 since no federal income taxes were paid in regard to 2008 or 2007.
Net Loss
Net loss for the six months ended June 30, 2009 was $549,000 or $.18
per share, compared to a net loss of $610,000 or $.20 per share, for the
six months ended June 30, 2008.
Results for the three months ended June 30, 2009 and 2008
Consolidated net operating revenues were $94,000 for the three months
ended June 30, 2009, a decrease of $119,000 or 56%, compared to $213,000
reported for the period ended in 2008. Consolidated operating revenues by
business segment for the three months ended June 30, 2009 and 2008 were as
follows (table in $000):
2009 2008
Environmental Svcs. $ 178 $ 218
Electricity Generation 94 213
Subtotal 272 431
Eliminations (178) (218)
Net Operating Revenues $ 94 $ 213
|
The environmental services segment reported $178,000 of gross
operating revenues for the period in 2009 (prior to eliminations) compared
to $218,000 for the period in 2008. Billings to the Kinsley's Escrow for
post-closure maintenance performed at the Kinsley's Landfill was
approximately $178,000 and $217,000, respectively. Billings to the
Kinsley's Escrow and for services provided to members of the consolidated
group are eliminated in the calculation of net operating revenue.
Revenues from the segment that generates electricity were
approximately $94,000 and $213,000 for the three months ended June 30, 2009
and 2008, respectively. The Company sold approximately 2.25 million kW and
2.22 million kW during the period in 2009 and 2008, respectively. The
average combined rate (per kWh and capacity payments) received per kWh
equaled $.0418 and $.0956 for the period in 2009 and 2008, respectively.
Cost of Operations
Consolidated direct operating costs for the three months ended June
30, 2009 were $60,000, a decrease of $58,000 or 49% when compared to
$118,000 reported for the period in 2008. Approximately $5,000 of direct
operating costs reported for the period in 2009 were incurred for post-
closure maintenance at the MAC Landfill. All the other direct operating
costs related to the environmental services segment for the period in 2009
and 2008 were incurred in conjunction with the services provided to members
of the consolidated group as described above and, therefore, eliminated in
consolidation. The balance of the direct operating costs reported for the
period in 2009 and 2008 were attributable to the electricity generating
segment. The decrease in operating costs is primarily due to a decrease in
repairs required on the Gen-sets.
Consolidated selling, general and administrative expenses for the
three months ended June 30, 2009 and 2008 were $373,000 and $510,000,
respectively. Components of selling, general and administrative expenses
for the three months ended June 30, 2009 and 2008 were as follows (table in
$000):
2009 2008
Legal expenses $ 49 $ 167
Other professional fees 31 26
Non-operating subsidiary expenses 20 19
All other administrative expenses 273 298
Total $ 373 $ 510
|
Legal expenses reported for the period in 2009 and 2008 include
approximately $10,000 and $15,000, respectively, of fees for matters
related to the Company's landfills or the remediation of sites to which the
Company has been named as a potentially responsible party ("PRP") or an
alleged PRP. Such fees in the periods for both 2009 and 2008 were
primarily attributable to matters related to the Kin-Buc Landfill, the
Berry's Creek Study Area and the SCP Site which are discussed below. Other
professional fees include fees due to accountants, engineers, consultants
and directors. The operating costs of the non-operating subsidiaries,
consisting primarily of insurance premiums, franchise, corporate and real
estate taxes, aggregated approximately $20,000 and $19,000 for the period
in 2009 and 2008, respectively. All other administrative expenses
decreased $25,000 to $273,000 for the period in 2009 from $298,000 for the
period in 2008. This decrease was primarily attributable to a decline in
personnel related expenses.
Consolidated accretion expense recognized on the Company's asset
retirement obligation for landfill post-closure maintenance costs was
$76,000 and $84,000 for the three months ended June 30, 2009 and 2008,
respectively.
Operating Loss
The Company's consolidated operating loss for the three months ended
June 30, 2009 decreased to $415,000 from a loss of $499,000 reported for
the period in 2008.
Other Income (Expense)
Consolidated investment income was $52,000 for the three months ended
June 30, 2009 versus $20,000 reported for the period in 2008. The amount
reported for the period in 2009 includes approximately $51,000 of interest
earned on refunded federal income taxes. The decrease in the balance of
investment income reflects both a decrease in the rate of interest earned
on investments and a decrease in the amount of funds available for
investment.
Consolidated investment income earned on the restricted escrow accounts
dedicated to the funding of the Company's landfill post-closure maintenance
costs was $255,000 and $95,000 for the three months ended June 30, 2009 and
2008, respectively. The amounts reported for the periods in 2009 and 2008
include net gains of $166,000 and $20,000 respectively, from the sale of
securities.
Consolidated interest expense was less than $1,000 for the three
months ended June 30 in both 2009 and 2008.
Consolidated rental income, net of related expenses, was $1,000 and
$7,000 for the three months ended June 30, 2009 and 2008, respectively.
Proceeds from insurance claims was $8,000 for the three months ended
June 30, 2009.
Consolidated net miscellaneous income for the three months ended June
30, 2009 was less than $1,000, and $16,000 for the period in 2008. The
amount reported for the period in 2008 includes a partial refund of
expenses, $17,000, the Company had paid toward the 2004 settlement of
litigation regarding the Chemsol Superfund Site.
Loss before Income Tax Benefit
The consolidated loss before income tax benefit was $99,000 for the
three months ended June 30, 2009, compared to a loss of $361,000 for the
period in 2008.
Income Tax Benefit
The provision for federal and state income tax benefit for the three
months ended June 30, 2008 equaled $31,000. The Company recognized federal
income tax benefit for the period due to its ability to carry-back net
operating losses to 2006 for credit against federal income taxes paid with
respect to such years. No benefit was recognized in the period for 2009
since no federal income taxes were paid in regard to 2008 or 2007.
Net Loss
Net loss for the three months ended June 30, 2009 was $99,000 or $.03
per share, compared to a net loss of $330,000 or $.11 per share, for the
three months ended June 30, 2008.
Liquidity and Capital Resources
General
As discussed herein, the Company faces significant short-term and
long-term cash requirements for (i) funding its professional and
administrative costs, (ii) federal income taxes payable, and (iii) funding
post-closure costs and other expenses associated with sites of past
operations. The Company's past participation in the waste handling,
treatment and disposal industries subjects the Company to additional claims
that may be made against the Company for the remediation of sites in which
the Company is deemed a potentially responsible party. In addition, future
events or changes in environmental laws or regulations, which cannot be
predicted at this time, could result in material increases in post-closure
costs, and other potential liabilities, that may ultimately result in costs
and liabilities in excess of the Company's available financial resources.
In addition, the Company cannot ascertain if its operations and funding
sources will be adequate to satisfy its future cash requirements.
Statement of Cash Flow
Net cash used in operating activities for the six months ended June
30, 2009 and 2008 was $471,000 and $794,000, respectively. The primary
sources of cash from operating activities for the period in both 2009 and
2008 was cash received from customers of $209,000 and $345,000,
respectively. Other income received of $84,000 for the period in 2009
includes $67,000 received from the escrow containing proceeds from a 2001
excess insurance claim settlement. The escrow was established in
conjunction with the 1997 settlement of litigation which addressed
remediation costs of the Kin-Buc Landfill. The primary uses of cash from
operating activities for the period in both 2009 and 2008 were payments
made to suppliers and employees, and payments of landfill post-closure
maintenance costs. Cash paid to suppliers and employees for the period in
2009 and 2008 totaled $1,241,000 and $822,000, respectively. Payments of
landfill post-closure maintenance costs related to the Kinsley's Landfill
were $355,000 and $454,000 for the period in 2009 and 2008, respectively.
Certain post-closure maintenance costs of the Kinsley's Landfill are
initially paid by the Company, such as personnel costs and other necessary
materials or services for which credit terms are limited. The Company
seeks reimbursement for such payments from the restricted escrow account
dedicated to fund the post-closure maintenance costs of the Kinsley's
Landfill. The Company received reimbursements of $445,000 and $116,000
from the Escrow for the period in 2009 and 2008, respectively. Post-
closure maintenance costs of the MAC Landfill are funded from the Company's
general funds, and equaled $12,000 and $5,000 for the period in 2009 and
2008, respectively. See "Post-Closure Maintenance Costs" below for further
discussion of the Company's landfill post-closure maintenance cost
obligations. The Company received a Federal Income taxes refund of
$426,000 and $49,000 for the period in 2009 and 2008, respectively.
Installments paid pursuant to the Company's Offer in Compromise (discussed
below) for the period in 2009 and 2008 totaled $80,000 and $110,000,
respectively.
Net cash provided by investing activities for the six months ended June
30, 2009 and 2008 was $468,000 and $537,000, respectively. Funds provided
by investing activities for the period in both 2009 and 2008 were primarily
utilized to fund operating activities. Net cash flow used in financing
activities of $5,000 reported for the period in both 2009 and 2008, were
principal payments due on vehicle financing.
As a result of these activities, funds held by the Company in the form
of cash and cash equivalents decreased $8,000 for the six months ended June
30, 2009 from December 31, 2008, versus a decrease of $262,000 in cash and
cash equivalents reported for the period in 2008. The sum of cash, cash
equivalents and marketable securities as of June 30, 2009 decreased to
$2,707,000 from $3,196,000 reported as of December 31, 2008.
Working capital equaled $2,565,000 and $3,352,000 as of June 30, 2009
and December 31, 2008, respectively, and the ratio of current assets to
current liabilities was 2.6 to 1 as of June 30, 2009 versus 2.8 to 1 as of
December 31, 2008.
Taxes
As of June 30, 2009, the Company owes the United States Internal
Revenue Service (the "Service") $657,000 for income taxes pertaining to
taxable years 1980-88 and certain issues from taxable years 1989-91. This
amount is payable in installments pursuant to the Offer in Compromise (the
"Offer") proposed by the Company and accepted by the Service during July
2004. The Offer committed the Company to pay a total of $2,490,000 in
satisfaction of the assessed federal income taxes and interest of
approximately $4,800,000. A payment of $810,000 was made during October
2004 and the balance due is being paid in monthly installments over nine
years as follows: (a) $18,230 per month for each of the forty-eight months
beginning August 2004, and (b) $13,416 per month for each of the sixty
months beginning August 2008. The total of the installments paid from
inception through June 30, 2009 equals approximately $1,023,000.
Approximately $161,000 is due in each of the four years subsequent to June
30, 2009 and one installment is due in the fifth year. The Service does not
impose interest on amounts payable pursuant to the Offer. The Company is
permitted to receive refunds of prior tax overpayments and from the carry-
back of losses. Should the Company default in any of the terms of the
Offer, the Service may initiate suit to impose one or more remedies
available to it, including the reinstatement of the total amount previously
assessed and/or impose interest.
Post-Closure Maintenance Costs
As of June 30, 2009, the Company has accrued approximately $8.1
million for its estimated post-closure maintenance costs related to the
Company's former landfill operations at the Kinsley's Landfill.
Approximately $6.5 million is held in a restricted escrow account to
provide funding of the post-closure maintenance costs of the Kinsley's
Landfill (see Notes 3 and 6 to the Company's Consolidated Financial
Statements). All disbursements from such escrow must be approved by the
NJDEP. The timing of future approvals of outstanding reimbursement
requests is uncertain.
The thirty-year post-closure care period for the MAC Landfill was to
expire on June 7, 2008. On June 3, 2008 the NJDEP notified the Company of
its decision to temporarily extend the post-closure care period until such
time the NJDEP performs a re-evaluation and re-assessment of conditions at
the landfill. The NJDEP has requested certain environmental data
concerning the landfill for such purpose. The NJDEP intends to then
determine what further actions, if any, will be required of the Company.
Because of the nature, scope and timing of NJDEP's decision and information
request, the Company has requested an administrative hearing to contest
certain aspects of NJDEP's decision including the extension of the post-
closure care period. The Company's accrual established for the estimated
post-closure maintenance cost at this site was depleted during 2008. The
Company will expense ongoing post-closure maintenance costs as incurred
until the obligations of the Company with respect to the site, if any, are
determined. Annual post-closure maintenance costs related to the MAC
Landfill approximated $24,000 and $10,000 for the years ended December 31,
2008 and 2007.
Contingent Environmental Liabilities
During November 2004, the Company along with fourteen other potentially
responsible parties were named as respondents to an Unilateral
Administrative Order issued by the United States Environmental Protection
Agency ("EPA")regarding the Scientific Chemical Processing Superfund Site
(the "SCP Site") located in Carlstadt, New Jersey, which has been undergoing
remediation pursuant to Unilateral Administrative Order issued in 1990. The
November 2004 Unilateral Administrative Order seeks contribution toward the
remediation of an area designated Operable Unit 2, estimated to cost $7.5
million, and $2.0 million of past oversight and administrative costs from
the fifteen respondents, and a group of sixty nine other potentially
responsible parties under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). EPA publications report work on
OU2 began in April 2008 and should be completed in 2009, and a final remedy
to address contamination of off-site ground water should be selected in
2011. The Company ceased operations of a solvents recovery facility at the
site in 1970. The Company, together with the property owner, have
contributed cash and proceeds from insurance settlements toward the
remediation of the SCP Site. Such contributions total $16.4 million
through the present, plus interest earned thereon, which the Company
believes should satisfy the share of remediation costs which could be found
attributable to the Company for the SCP Site and any contamination or
danger caused off-site.
The Company was one of 158 recipients of a Notice of Potential
Liability and Request to Perform Remedial Investigation/Feasibility Study
(the "Notice"), issued by the EPA on March 9, 2006, regarding the
contamination of the Berry's Creek Study Area (the "Creek Area") located in
Bergen County, N.J. A tributary adjacent to the SCP Site in Carlstadt,
N.J. flows into Berry's Creek. The Creek Area includes the approximately
seven miles long water body known as Berry's Creek, a canal, all
tributaries to Berry's Creek and related wetlands. Tidal areas of the
river into which Berry's Creek empties are also subject of the Notice.
Each recipient of the Notice is designated as a potentially responsible
party under CERCLA, and may be held liable for the cleanup of the Creek
Area and costs the EPA has incurred with regard to the Creek Area. The
investigation and feasibility study regarding the scope of the remediation
of the Creek Area is being conducted by a group of 100 potentially
responsible parties. EPA publications report field work was to begin during
the spring of 2009, and that it will take approximately five years from
commencement of field work to develop potential cleanup options. Since no
discovery has taken place concerning allegations against the Company, it is
not possible to estimate the Company's ultimate liability, if any, with
respect to the Creek Area.
The Kin-Buc Landfill is located in Edison, New Jersey, and was operated
on property both owned and leased by the Company's subsidiary, Kin-Buc, Inc.
("Kin-Buc"). Operations at the Kin-Buc Landfill ceased in 1977. The
operation and maintenance of remedial measures implemented at the Kin-Buc
Landfill continue pursuant to the provisions of Administrative Orders issued
by the EPA to the Company and other respondents, including SCA Services,
Inc. ("SCA"), an affiliate of Waste Management, Inc. ("WMI"). As part of a
December 1997 settlement of lawsuits regarding the allocation of costs of
remediation of the Kin-Buc Landfill, SCA agreed to defend and indemnify
Transtech, Kin-Buc and another subsidiary, Filcrest Realty, Inc.
("Filcrest") from claims by non-settling non-municipal waste and municipal
waste potentially responsible parties in the litigation. SCA also agreed to
defend and indemnify the Company from certain liabilities in connection with
the remediation of the Kin-Buc Landfill, substantially relieving the Company
from certain future obligation with respect to the site. However, the
Company remains a responsible party under the Administrative Orders issued
by the EPA discussed above, and continues to incur administrative and legal
costs for issues and activities related to the site.
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.
The costs of litigation associated with a site are expensed as incurred.
Real Property
On December 10, 2007 the Mayor and Town Council of the Township of
Deptford, N.J. (the "Township") approved a resolution designating an area,
including approximately 342 acres of the Company's property and 60 acres
the Company sold in 2006 pursuant to a contract with BWF Development, Inc.
("BWF"), as an area in need of redevelopment in accordance with New Jersey
Statute 40A:12A-5. This action follows the Township's Planning Board's
August 8, 2007 approval of the study prepared by the Township's planner
entitled "Five Points Study Area, Preliminary Investigation: Determination
of an Area in Need of Redevelopment" (the "Five Points Study"). The Five
Points Study concluded that the subject area (the "Five Points Study Area")
should be designated a redevelopment area pursuant to the New Jersey Local
Housing and Redevelopment Law. During September 2007, two subsidiaries of
Transtech commenced litigation in an attempt to, among other remedies,
reverse and set aside the Township's Planning Board approval of the 2007
study prepared by the Township's planner. During December 2007, this
complaint was amended to include The Township of Deptford, Benderson
Properties, Inc. and certain of its affiliates as defendants.
The Company's wholly owned subsidiary, Filcrest Realty, Inc. owns
approximately 53 acres of undeveloped property in Edison Township, N.J.
During 2008, the Township of Edison prevailed in its suit against the
Company to condemn 0.48 acres of Filcrest Realty, Inc. property situated
along the Raritan River and obtain easements to install a shoreline walkway.
The matter is currently under appeal. See Part II, Item 1. - Legal
Proceedings for a discussion of this matter.
The Company is pursuing the disposition of its remaining property
through the sale of individual parcels and/or groups of parcels. The
Company is unable to determine when sale(s) of the remaining parcels will
ultimately be consummated and proceeds received given the location of the
properties, access issues and the location of wetlands on certain portions
of the property.
Insurance Claims for Past Remediation Costs
In February 2002, the Company consummated an October 2001 settlement
of litigation it had commenced in 1995 against its excess insurers who
provided coverage during the period of 1965 through 1986 (the "Lloyds
Suit"). Many of the non-settling insurance companies are insolvent,
however the estates of some of these insolvent companies have sufficient
assets to make a partial contribution toward claims filed by the Company.
During the year ended December 31, 2008, the Company received $58,000 of
proceeds related to claims filed against the estates of insolvent insurers.
As of such date, the Company has resolved claims against its excess
insurers representing approximately 98% of the value assigned to the
coverage provided under the policies that were the subject of the Lloyds
Suit. The October 2001 Settlement Agreement released and terminated all
rights, obligations and liabilities of the settling excess insurers and the
Company with respect to the subject insurance policies. The Company had
previously reached settlement of claims made against the majority of its
primary insurers for the period of 1965 through 1986 as well, agreeing to
forego future claims against the policies in conjunction with the
settlements.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not Applicable.
Item 4. CONTROLS AND PROCEDURES
Not Applicable.
Item 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management evaluated, with the participation of its
principal executive officer and principal financial officer, the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Act")) as of the end of the period
covered by this report. Based on such evaluation, the principal executive
officer and the principal financial officer of the Company concluded that
as of June 30, 2009, the design and operation of the Company's disclosure
controls and procedures were effective, at a reasonable level of assurance,
in ensuring that the information required to be disclosed by the Company in
the reports it files or submits under the Act is (i) accumulated and
communicated to the Company's management (including the principal executive
officer and principal financial officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Changes in Internal Control Over Financing Reporting
There were no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act)
during the Company's last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's internal control
over financial reporting.
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Edison Township Property
The Company's wholly owned subsidiary, Filcrest Realty, Inc. owns
approximately 53 acres of undeveloped property in Edison Township, N.J.
Edison Township requested that Filcrest Realty, Inc. grant it an easement on
a portion of this property to install a shoreline walkway on certain lots
situated along the Raritan River. This property was included in the area
remediated pursuant to Administrative Orders issued by the EPA (see Note 6 -
Post-closure Costs and Contingent Environmental Liabilities). The Company
denied the Township's request believing the structure and location proposed
by the Township will adversely impact the value of that entire tract which
totals approximately 15 acres. The Township's appraiser set the value of
the easement at $15,000 which the Company regards as too low. The Company
had offered to sell the 15 acres to the Township. During April 2008 the
Township of Edison brought suit against the Company in the Superior Court of
New Jersey entitled Township of Edison v. Filcrest Realty, Inc. (No. MID-L-
02173-08) to commence condemnation proceeding on the 0.48 acres for which
the easement is sought. The Company filed its objections with the Superior
Court during May 2008. On June 23, 2008 the Superior Court ruled in favor
of the Township, authorizing it to acquire, by eminent domain, an easement
over the shore-line property. On August 5, 2008, the Company filed an
appeal of the Superior Court's decision with the Appellate Division entitled
Township of Edison v. Filcrest Realty, Inc. (No, A-005891-07T2). The
Company also filed a motion with the Superior Court to stay further action
by the Township pending outcome of the appeal on August 8, 2008. Such
motion was denied during September 2008. On July 28, 2009 the Appellate
Division affirmed the Superior Court's June 2008 decision. In March 2009,
a panel of Commissioners heard testimony related to the value of the
land affected by the easement, and increased the valuation to approximately
$46,000. The Company has appealed the Commissioner's decision. The Company
is evaluating its remaining options with respect to these matters.
The Carlstadt SCP Site
As previously disclosed, the Company was 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 allegedly operated by Transtech as a solvents
recovery plant for approximately five years ending in 1970. The site is
known as the Scientific Chemical Processing Superfund Site (the "SCP Site").
In 1988, the Company, Inmar Associates, Inc. and Marvin H. Mahan
(referred herein as the "Co-defendants") 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
alleging, among other things, that the primary responsibility for the clean-
up and remediation of the SCP Site rests with the Company and the Co-
defendants.
In September 1995, the Court approved a settlement of the AT&T Suit
pursuant to which the Company and the Co-defendants agreed to (i) pay $4.1
million of proceeds from settlements with primary insurers of a coverage
action brought by the Company and Inmar Associates, Inc. against their
primary and excess insurers, (ii) pay an additional $145,000, and (iii)
assign certain of their SCP Site-related insurance claims against excess
insurers in exchange for a complete release from these parties of all
liability to them arising from or on account of environmental contamination
at the SCP site and the parties' remediation of the same.
Notwithstanding the September 1995 settlement, the Company may have
liability in connection with the SCP 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 choose
to do so.
The Company requested a complete and detailed accounting of the actual
total expenditures for the remediation work completed at the SCP Site from
the SCP Cooperating PRP Group. The SCP Cooperating PRP Group denied the
request but alleged that, in the aggregate, $15 million has been expended
in regard to the site. The Company, as stated above, together with the Co-
defendants, had contributed $145,000 cash and $4.1 million of proceeds from
the settlement with primary insurance carriers in 1995, an additional $12.0
million from the Company's October 2001 settlement with its excess
insurance carriers in satisfaction of the assigned SCP Site related claims
and an additional $250,000 in 2005 from the claims being pursued against
the insolvent excess carriers, to a Qualified Settlement Fund established
to fund costs incurred for the remediation of the Carlstadt SCP Site which
is administered by the SCP Cooperating PRP Group. Such contributions total
$16,450,000, plus interest earned, which the Company believes should more
than satisfy the share of remediation costs which may be found attributable
to the Company for the SCP Site and any contamination or damage caused
offsite.
On October 2, 2007, the Company filed a motion under the previously
reported action 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), seeking an Order compelling the SCP
Cooperating PRP Group to account for how and how much it has spent of the
$16,450,000 paid by the Company. The October 2007 motion was denied by the
Superior Court in January 2008. In January 2008 the Company filed an
appeal of the Superior Court's decision with the Superior Court of New
Jersey Appellate Division entitled Transtech Industries, Inc. v. Certain
Underwriters at Lloyds London and SCP Carlstadt PRP Group, (Docket No. A-
002604-07T2). During July 2009, the Appellate Division affirmed the
decision of the Superior Court. The Company is evaluating its remaining
options with respect to this matter.
Other Matters
No material developments have occurred with respect to the other
litigation, or the other pending legal proceedings involving the Company,
subsequent to that reported in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2008. Reference is made thereto for a
description of such litigation and to the discussion contained in Part I,
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources of this Form 10-Q.
In the ordinary course of conducting its business, the Company becomes
involved in certain lawsuits and administrative proceedings (other than
those referred 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.
Item 1A. RISK FACTORS
Not applicable.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
Exhibit 31(a) Certification Pursuant to Rules 13a-14(a) and 15d-
14(a) of the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002 by Chief
Executive Officer
Exhibit 31(b) Certification Pursuant to Rules 13a-14(a) and 15d-
14(a) of the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002 by Chief
Financial Officer
Exhibit 32(a) Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Chief Executive Officer
Exhibit 32(b) Certification Pursuant to 18 U.S.C. Section 1350,as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Chief Financial Officer
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: August 14, 2009 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
(Principal Executive Officer)
|
and
Date: August 14, 2009 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
|
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