ITEM 1. BUSINESS
Transtar Holdings, L.P. is a Delaware limited partnership which was originally formed in 1988 as Blackstone Transportation Partners L.P. (BTP) for the sole purpose of holding voting stock and nonvoting stock of Transtar, Inc. (Transtar or the Company). BTP was renamed Transtar Holdings, L.P. (Holdings) in November 1993. Holdings has no operations of its own and owns 5,100 shares of voting stock and 5,100 shares of nonvoting stock of Transtar, representing a 51% voting and 53% economic interest in Transtar. Transtar Capital Corporation (TCC), a Delaware corporation, is a wholly owned subsidiary of Holdings. TCC has nominal assets and does not conduct any operations. TCC was formed in connection with an offering of 13 3/8% Senior Discount Notes. Separate consolidated financial statements of Transtar are included in this 10-K because Transtar is a majority owned subsidiary of Holdings which is not consolidated in the consolidated financial statements of Holdings. Holdings' earnings are derived primarily from its 53% economic interest in Transtar. Blackstone Transportation Company, Inc. (BTC), a Delaware corporation, is Holdings' sole general partner.
THE COMPANY
Transtar is a transportation holding company composed of two business groups: The Railroad Group and the Marine Group. The Railroad Group is composed of seven railroads Duluth, Missabe and Iron Range Railway Company (DMIR), Elgin, Joliet and Eastern Railway Company (EJ&E), Bessemer and Lake Erie Railroad Company (B&LE), Union Railroad Company (Union), The Lake Terminal Railroad Company (Lake Terminal), McKeesport Connecting Railroad Company (McKeesport), Birmingham Southern Railroad Company (Birmingham Southern), one dock facility-Pittsburgh & Conneaut Dock Company (P&C Dock) and one in-plant rail operation-Fairfield Southern Company, Inc. The Marine Group is composed of two shipping operations-Great Lakes Fleet (GLF) and Warrior and Gulf Navigation Company (WGN) and one salt water/fresh water dock facility-Mobile River Terminal (MRT). The Railroad Group and Marine Group accounted for approximately 70% and 30% of revenues, respectively, in 1998.
Transtar provides the sole rail access to, as well as the primary water transport for, nearly all the steel making plants of USX Corporation (USX), servicing US Steel (USS), USS Mining Co., L.L.C. (USM) and the USS/Kobe Steel Company (USS/Kobe) joint venture at Lorain, Ohio. Transtar derived 57% of its revenues in 1998 from serving these USX facilities. These services are provided under certain Transportation Services Agreements (See Item 13, Certain Relationships and Related Transactions for a discussion of these agreements, including their duration). Other steel-related customers generated an additional 19% of revenues, resulting in the steel industry accounting for 76% of Transtar's revenues in 1998. Movements of coal to utilities and other customers accounted for 13% of Transtar's revenues in 1998, while miscellaneous traffic accounted for the remaining 11%.
The shareholders of Transtar are Holdings, which owns a 51% voting and a 53% economic interest, USX, which owns a 49% voting and a 46% economic interest, and Transtar's management which owns a 1% economic interest. Management's direct interest has been reduced since Transtar's formation due to repurchases of 704 shares of nonvoting stock from retiring managers. Certain shares have been allocated to promoted managers in a stock option program. Including the effect of this program, economic ownership of management would be 5%.
OPERATIONS OVERVIEW
The Company's transportation groups service USX and other domestic steel producers by delivering raw materials, such as iron ore pellets (taconite), limestone, coal and coke, to steel producing facilities, by moving materials within certain steel plants and by transporting semi-finished and finished steel products from such facilities. The Company also hauls coal and other freight for numerous other customers.
Prior to December 1988, all of Transtar's subsidiaries were wholly owned by USX. Transtar was formed in December 1988 to purchase these companies from USX in a leveraged buyout. The Transtar subsidiaries carry a multitude of raw materials, semi-finished products, and finished goods in Alabama, Illinois, Indiana, Minnesota, Ohio, Pennsylvania, Wisconsin, and destinations on the Great Lakes.
RAILROAD GROUP
Each rail subsidiary is a regional or switching railroad with individual specialties. Revenues from USX represented approximately 53% of the Railroad Group's revenues in 1998. The following paragraphs describe Transtar's major rail subsidiaries and their operations.
DMIR
The DMIR is located in northeastern Minnesota and northwestern Wisconsin and includes two major storage and shipping facilities at Duluth and Two Harbors, Minnesota. It is the sole rail carrier serving USX's Minntac facility and also serves the taconite producing facilities of both EVTAC Mining and Ispat Inland Mining. The DMIR hauls taconite to its Two Harbors and Duluth docks where the taconite is loaded onto vessels for delivery to USX's Gary Works and Mon Valley facilities and other lower lake steel plants including the USS/Kobe's Lorain, Ohio facility. The DMIR also hauls taconite for interchange to long haul railroads.
EJ&E
The EJ&E is a belt railroad that encircles Chicago, Illinois. It is the sole serving carrier for USX's Gary, Indiana steel facility and transports inbound coal, coke and scrap and outbound semi-finished and finished steel. The EJ&E performs certain in-plant switching functions within the Gary Plant. It also provides rail services to numerous other customers in the Chicago area. The EJ&E provides trackage rights and haulage for other railroads.
B&LE
The B&LE services western Pennsylvania and northeastern Ohio and transports coal, ore and limestone. Its principal northbound traffic is steam coal destined for utility customers. The B&LE also delivers ore pellets via the Union to USX's Edgar Thomson Works.
UNION
The Union is located in the Mon Valley, approximately 12 miles east of Pittsburgh, Pennsylvania. It is the sole serving carrier for three USX facilities: the Clairton Coke Works, the Edgar Thomson Works and the Irvin Works. The Union transports coal, coke, ore, scrap and finished and semi-finished steel products. In addition, it provides USX with in-plant switching services at its Clairton Coke Works and maintenance services on USX's own rolling stock and track at its Mon Valley plants. The Union also handles coal for a variety of other customers at its river-to-rail transfer facility at Duquesne, Pennsylvania.
LAKE TERMINAL
The Lake Terminal is located in Lorain, Ohio and is the sole-serving rail carrier to the USS/Kobe facility there. The Lake Terminal also provided USS/Kobe with in-plant switching services as well as maintenance of track and equipment during 1998. USS/Kobe awarded the in-plant switching and maintenance of track and equipment to a competing company at the end of 1998.
BIRMINGHAM SOUTHERN/FAIRFIELD SOUTHERN
The Birmingham Southern is located in the Birmingham, Alabama area and is the sole-serving carrier for USX's Fairfield Works. It transports coal, coke, iron ore, semi-finished and finished steel and other products. Fairfield Southern, a Birmingham Southern subsidiary, provides all of the in-plant switching at Fairfield Works.
MARINE GROUP
The Marine Group is comprised of a Great Lakes shipping fleet and an inland barge operation. Revenues from USX represented approximately 65% of the Marine Group's revenues in 1998. The following paragraphs describe Transtar's marine subsidiaries and their operations.
GLF
The GLF owns nine lake vessels and operates two other vessels under long-term charter agreements. They operate in a market area throughout the five Great Lakes, extending from the western end of Lake Superior to the eastern end of Lake Ontario.
WGN/MRT
WGN, headquartered in Chickasaw, Alabama, operates on the Black Warrior-Tombigbee waterway and the Tennessee-Tombigbee waterway, utilizing a fleet of 248 barges (of which 183 are leased) and 20 towboats. MRT, WGN's subsidiary is a salt water/fresh water transfer facility located at Mobile, Alabama.
OPERATING REVENUES
Transtar's total operating revenues were $497.8 million in 1998. These revenues were primarily earned from the transportation of freight. The revenues incorporate traffic originated, terminated, and switched by rail operations as well as commodities transported by marine operations. Dock handling revenues were earned by both the rail and the marine operations.
Set forth below are freight revenues of Transtar by commodity groups for the years 1996 through 1998.
EMPLOYEES
Transtar employed an average of 3,346 employees in 1998, virtually the same as 1997. Approximately 85% of Transtar's employees are covered by collective bargaining agreements.
GOVERNMENTAL REGULATION
The Company's subsidiaries are subject to environmental, safety, health and other regulations generally applicable to all businesses. In addition, the Company's rail subsidiaries, like other rail common carriers, are subject to regulation by the Surface Transportation Board, the Federal Railroad Administration, state departments of transportation and other state and local regulatory agencies. Government regulation of the railroad industry is a significant determinant of the competitiveness and profitability of railroads. Deregulation of certain rates and services under the Staggers Rail Act of 1980 (the Staggers Act) has substantially increased the flexibility of railroads to respond to market forces, but has also resulted in highly competitive and steadily decreasing rates. Various interests have sought and continue to seek reimposition of government controls on the railroad industry in areas deregulated in whole or in part by the Staggers Act. The Company's marine operations are subject to regulation by the U.S. Coast Guard. Additional regulation, changes in regulation, re-regulation and certain types of de-regulation of the industry through legislative, administrative, judicial or other action could materially affect the Company.
COMPETITION
The Company faces competition from railroads, motor carriers, shipping companies and inland barge operations depending upon the market served. The ability to compete for freight traffic is dependent upon rates charged, as well as the quality and reliability of the services provided.
ITEM 2.
ITEM 2. PROPERTIES
THE RAILROAD GROUP
Roadway, Yards and Structures
The Railroad Group has approximately 1,600 miles of track in operation, consisting of approximately 600 miles of first main track (route miles) and approximately 1,000 miles of additional main track, passing track, way switching track and yard switching track.
Principal railroad yard facilities owned by the Railroad Group are located at Two Harbors, Proctor, and Keenan, Minnesota; Joliet, Illinois; Gary, Indiana; Conneaut, Ohio; and Greenville, Pennsylvania.
The following table summarizes the Railroad Group's track and roadway activities for the periods indicated:
The Railroad Group owns or leases the equipment described in the table below.
Improvement and ongoing maintenance of roadway, structures and equipment are essential components of the Company's efforts to improve service and reduce operating costs. The Railroad Group has made the following capital expenditures in order to maintain and improve train service:
Railroad Capital Expenditures (dollars in millions)
Capital expenditures for the Railroad Group for 1999 are expected to be approximately $17.4 million, of which approximately $9.8 million are anticipated for roadway and structures and approximately $3.4 million are for railroad equipment.
The following table shows the Railroad Group's expenses for ongoing maintenance and repairs of roadway, structures and railroad equipment (including administrative and inspection costs) for the periods indicated.
Railroad Maintenance Expenditures (dollars in millions)
Future maintenance programs will be determined by track, locomotive and car requirements necessary to provide quality service at projected business levels. The Railroad Group maintains full service car and locomotive shops in Proctor, Minnesota; Joliet, Illinois; Gary, Indiana; and Greenville, Pennsylvania.
THE MARINE GROUP
The GLF owns nine vessels and leases two additional vessels under long-term charter agreements. All of the vessels are self-unloaders, with a total cargo capacity of 362,900 gross tons (GT) at mid-summer draft.
Included in this fleet are four large beam vessels, the Roger Blough, the Edwin H. Gott, the Edgar B. Speer, and the Presque Isle. These vessels are the maximum size beam permitted through the locks at Sault Ste. Marie. They range in size from 858 to 1,004 feet in length and are specifically designed for and dedicated principally to carrying taconite pellets for USX. The Edgar B. Speer and the Presque Isle are under long-term charter.
It also owns four intermediate size self-unloading carriers which are the John G. Munson, with a forward deck-mounted boom, the Arthur M. Anderson, the Cason J. Callaway and the Philip R. Clarke.
The remaining vessels are three smaller, self-unloading vessels. These include the George A. Sloan, the Calcite II and the Myron C. Taylor, which are the three shortest vessels in the fleet at just over 600 feet in length with a 60-foot beam. These vessels serve some of the smaller volume cargoes in the Great Lakes trade.
A list of the GLF's active vessels, all of which are dry bulk self-unloaders, is set forth in the table below.
(1) Measured in gross tons of iron ore or taconite pellets at mid-summer draft mark.
(2) Seasonal capacity in thousand gross tons (M-GT) for the ore fleet is for shipping between Duluth/Two Harbors, Minnesota and Gary, Indiana and for the stone fleet between Rogers City, Michigan and Gary, Indiana.
(3) Can be unloaded only at dedicated port facilities (Conneaut, Gary, and Indiana Harbor).
(4) Leased vessels.
WGN owns 20 towboats and 65 barges and operates another 183 barges utilizing long-term lease arrangements.
Capital expenditures for the Marine Group were $0.9 million in 1998 and are expected to be approximately $3.3 million in 1999.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There have been no legal proceedings involving Holdings since its formation. Transtar and certain of its operating subsidiaries are defendants in lawsuits and actions incident to the normal conduct of its business. While the results of these lawsuits and actions cannot be predicted with certainty, Transtar believes the ultimate outcomes will not have a material adverse effect on the operations, liquidity, capital resources and financial position of Transtar.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Holdings is a Delaware limited partnership and as such its partnership interests are privately held and are not freely transferable.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(1) Operating expenses include non-recurring charges (credits) of $3.5 million, $7.0 million, $(1.0) million and $(1.7) million for the years ended December 31, 1998, 1997, 1996, and 1994, respectively. These items relate to non-recurring labor costs, permanent impairments of certain assets and environmental credits.
(2) Consolidated Cash Flow represents earnings before interest expense, provision for income taxes, extraordinary item, cumulative effect of change in accounting principle, depreciation, amortization, special charges and non-cash SFAS 106 expenses related to other post-retirement benefits. Consolidated Cash Flow is a non-GAAP measure of performance and should not be considered as an alternative to net income, or any other GAAP measure of performance, or to cash flows from operating, investing or financing activities as a measure of liquidity. Consolidated Cash Flow is presented because it is a defined term in an indenture and because management believes it provides useful information regarding the Company's ability to service and/or incur debt.
(3) Non-cash interest represents amortization of debt issuance costs.
(4) Fixed Charge Coverage Ratio is equal to Consolidated Cash Flow to Fixed Charges. Fixed charges consist of interest expense and amortization of debt issuance costs.
(5) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, cumulative effect of change in accounting principle and extraordinary items, plus fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs, and a portion of operating lease rental expense that is representative of the interest factor.
ITEM 7.
ITEM 7.
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations is presented as an analysis of Transtar Holdings, L.P.'s (Holdings) equity investment in Transtar, Inc. (Transtar). Holdings' earnings are derived primarily from its 53% economic interest in Transtar. The following discussion should be read in conjunction with Holdings' Consolidated Financial Statements and Transtar's Consolidated Financial Statements and the related notes thereto included in Item 8 of Part II of this 10-K.
1998 VERSUS 1997 AND 1996
OVERALL
Substantially all of the earnings of Holdings consists of Holdings' share in the earnings of Transtar accounted for by the equity method. Holdings' equity earnings of Transtar were $31.3 million in 1998 compared to $36.3 million in 1997 and $37.6 million in 1996. For a discussion of the results of operations of Transtar, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for Transtar.
In 1998, Holdings' net income totaled $9.6 million, a decrease of $7.5 million from $17.1 million in 1997 and a $10.0 million decrease from the $19.6 million recorded in 1996.
REVENUES AND EXPENSES
Holdings did not produce any revenues in 1998, 1997, or 1996. Holdings' operating expenses of $0.2 million in 1998 remained unchanged from 1997, and are $0.3 million less than the $0.5 million incurred in 1996. As a result of the accretion of certain discount notes sold by Holdings in December 1993, interest and other financial expenses grew from $18.8 million in 1996, to $21.3 million in 1997, and $24.1 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On December 7, 1993, Holdings and Transtar Capital Corporation (TCC) issued $218 million aggregate principal amount of 13 3/8% Series A Senior Discount Notes due December 15, 2003. In 1994, Holdings and TCC exchanged the Series A Notes for Series B Notes (Notes). The first cash interest payment on the Notes is due on June 15, 2000.
Transtar declared no dividends during 1998.
On both October 30 and December 19, 1997, Transtar declared cash dividends in the amount of $625 per share on both its Class A Voting Common Stock and its Class B Nonvoting Common stock to holders of record of the stock on October 28 and December 17, 1997, respectively. During 1997, Holdings received $12.8 million representing its 53% economic interest in the Transtar dividends. Pursuant to an Indenture relating to the issuance of the Notes (the Notes Indenture), both dividend payments were deposited into an escrow account.
In February 1998 and 1997, in accordance with the Notes Indenture, Holdings offered to repurchase a portion of the Notes at a price equal to 101 % of the accreted value of such Notes on the date of purchase. The offer to purchase the Notes was made by a notice to holders of the Notes and was held open for 20 business days. During 1998, in accordance with the Notes Indenture and an agreement governing the escrow account, Holdings withdrew from the escrow account $0.7 million to distribute to its partners and $0.2 million to pay certain administrative expenses.
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Funds in the escrow account are invested in cash equivalents and may only be released to pay interest and principal on Notes, make certain payments permitted under the Notes Indenture, purchase or optionally redeem Notes or to pay administrative expenses of Holdings. As of December 31, 1998 the escrow balance is $47.3 million. Interest earned on the escrow balance amounted to $2.6 million, $2.4 million, and $1.4 million in 1998, 1997 and 1996, respectively.
The only business activity of Holdings is its investment in Transtar. Holdings does not require any additional liquidity or capital resources, other than for professional fees and certain other administrative expenses, until the first interest payment is due on the Notes.
Future dividends of Transtar are governed by Transtar's bylaws which require unanimous approval by the Company's directors to declare a dividend or other distribution (absent a decision by an independent consultant breaking a deadlocked vote). Holdings and USX each have the right, pursuant to a Stockholders Agreement dated as of December 28, 1988, as amended (the Stockholders' Agreement), to designate certain directors to the board of directors of the Company. As such, Holdings' ability to cause the Company to declare and pay a dividend or other distribution is dependent upon the concurrence of USX.
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Transtar, Inc. (Transtar or the Company) is a holding company consisting of two business groups, the Railroad Group and the Marine Group.
1998 VERSUS 1997
OVERALL
Transtar reported net income of $59.0 million in 1998, compared to net income of $68.4 million in 1997. Transtar's results in 1998 were driven by weakening of the domestic steel industry due to lower priced imported steel and by revenue concessions granted in recently approved long-term Transportation Services Agreements with USX and USS/Kobe.
OPERATING REVENUES
Operating revenues in 1998 totaled $497.8 million, or $28.3 million less than in 1997. Revenue decreases of $9.0 million and $19.3 million were reported by the Railroad Group and Marine Group, respectively. The softening of the domestic steel market due to the increase of imported foreign steel, coupled with implementation of new Transportation Services Agreements in 1998 severely impacted revenues. Revenues generated by the transportation and handling of raw materials used in the steel production process, such as ore and coke, as well as outbound steel products all showed decreases from 1997 amounting to $34.9 million. Approximately one-third of this change was driven by rate reductions granted in the new Transportation Services Agreements. Demurrage revenues, resulting primarily from industry retention of railroad freight cars, increased $2.3 million. In spite of rate reductions included in the new Transportation Services Agreements, coal and associated dock handling revenues improved by $7.8 million, due to the increased demand for coal deliveries to Great Lakes customers and increased shipments from Alabama origins destined for export.
OPERATING EXPENSES
Operating expenses decreased $10.1 million from 1997 levels to $393.0 million in 1998. Contributing to the overall cost decrease were: 1) lower diesel fuel prices which contributed to a $7.0 million reduction in fuel expense; 2) favorable property tax adjustments recorded in 1998 which reduced state and local taxes by $1.2 million; 3) changes in asset lives which resulted in decreased depreciation expense of $1.3 million; 4) recognition in 1997 of $7.0 million of expense associated with a limited early retirement program and an accounting department consolidation; 5) increased recovery in 1998 of maintenance expenses which are shared with third parties in the amount of $2.7 million; 6) decreases in casualty expense and liability insurance of $2.3 million; 7) a $1.2 million reduction in shifting and towing expense and mobile equipment rentals on the barge lines; and 8) increased allocation of labor forces to capital improvement projects which reduced operating expenses by $1.5 million. Partially offsetting these cost decreases were: 1) increased labor expense of $6.3 million reflecting contractual wage increases, additional hours worked and higher health insurance costs; 2) additional lease cost of $0.8 million reflecting new leases of freight cars and barges commencing during 1998; 3) reduced net car hire earnings (a contra-cost) of $1.1 million due to the weakened domestic steel market and fewer off-line loadings for a large portion of Transtar's gondola freight car fleet; and 4) recognition of $3.5 million of expense associated with a partial curtailment of services provided by the Lake Terminal Railroad due to a reduction in business at USS/Kobe, and further accounting department consolidation.
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $4.9 million in 1998 from 1997. This decrease is primarily attributed to the retirement of $72.0 million of term debt during 1998. Fewer land sales agreements by the Railroad Group in 1998 and decreased equity income recorded by the Marine Group resulted in a reduction of $1.5 million in other income.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1998 was $36.7 million or a decrease of $5.4 million from 1997, and is directly related to the decline in before tax profit in 1998.
1997 VERSUS 1996
OVERALL
Transtar reported net income of $68.4 million in 1997, compared to net income of $70.9 million in 1996. Transtar's results in 1997 were driven by the economy's continued strength, particularly within the domestic steel industry, which shipped at record levels. Transtar's income before taxes in 1997 totaled $110.6 million or $6.9 million more than was earned in 1996. The decline in net income between years was a result of a $7.1 million reduction of prior years tax reserves that had been recognized in 1996.
OPERATING REVENUES
Operating revenues in 1997 totaled $526.1 million, or $17.0 million greater than in 1996. Revenue increases achieved by the Railroad Group and Marine Group were $10.4 million and $6.6 million, respectively. Domestic steel shipments increased by 3.8 percent in 1997 and Transtar shared in this improvement. Raw materials used in the steel production process, such as ore and coke, as well as outbound steel products all showed increases over 1996. Ore revenues improved by $13.8 million, coke revenues improved by $4.3 million and steel and general merchandise revenues improved by $1.9 million. Coal revenues decreased by $2.5 million primarily due to the diversion of certain shipments originating in Alabama to destinations not served by Transtar carriers.
OPERATING EXPENSES
Operating expenses increased $16.3 million from 1996 levels to $403.2 million in 1997. Contributing to cost increases were: 1) increased labor expense of $2.8 million reflecting contractual wage increases and increased operating labor and maintenance requirements; 2) increased repair and maintenance materials' expense of $3.4 million; 3) increases in state and local taxes of $1.6 million associated with increased earnings and favorable property tax adjustments recorded in 1996; 4) a lease cost increase of $0.9 million reflecting new leases involving freight cars, locomotives and barges commencing in late 1996 and during 1997; 5) a $7.0 million recognition of expense associated with a limited early retirement program and an accounting department consolidation; and 6) a $1.0 million reduction to cost recorded in the second quarter of 1996 resulting from the settlement of environmental litigation. Partially offsetting these cost increases was a decrease in diesel fuel prices which contributed to a $1.9 million reduction in fuel expense.
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $4.0 million in 1997 from 1996. This decrease is primarily attributed to the retirement of $62.0 million of term debt during 1997. Land sales in 1997 by the Railroad Group generated an additional $2.0 million of the before tax income.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1997 was $42.1 million, or an increase of $9.4 million over 1996. In 1996, Transtar completed a review of its tax reserves and concluded that certain reserves were no longer necessary. This decrease in reserve requirements resulted in a credit of $7.1 million to the 1996 tax provision.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Transtar ended 1998 with cash and cash equivalents totaling $21.4 million, which was $2.9 million less than the $24.3 million it had at year end 1997. During 1998, Transtar retired $72.0 million of its term loan obligations compared to $62.0 million retired during 1997. Transtar paid no dividends in 1998 and paid dividends of $24.1 million to its shareholders in 1997. A 1997 amendment to its Credit Agreement permitted Transtar to pay dividends during 1997 not to exceed $25.0 million.
At December 31, 1998, Transtar had $124.0 million term loan obligations remaining, including $57.7 million due in June and December 1999. Transtar expects to repay its 1999 obligation from its operating cash flow.
On August 1, 1999, USX and USS/Kobe, along with several major steel companies, face the expiration of their labor agreements with the United Steelworkers of America. Their ability to negotiate an acceptable labor contract is essential to maintaining the level of Transtar's ongoing operations. A prolonged labor interruption at USX could have a material adverse effect on Transtar's operations, financial results and cash flow.
Contractual commitments in the amount of $45.0 million and $14.7 million have been made to acquire a tug barge vessel and to acquire components for the assembly of 280 freight cars, respectively, at December 31, 1998. Acquisition of the freight car components is in response to a commitment under the new Transportation Services Agreement with USX to spend up to $20.0 million to assure the continuance of in-plant coke movements at its Gary Works. It is anticipated that the freight cars and the tug barge will be financed by operating leases.
Transtar and certain of its operating subsidiaries are defendants in lawsuits and actions in which claims have been made against the Company. While the results of these lawsuits and actions cannot be predicted with certainty, the Company believes the ultimate outcomes will not have a material adverse effect on the operations, liquidity, capital resources, or financial position of Transtar.
CAPITAL RESOURCES
Net cash used for investing activities in 1998 of $21.2 million was $1.3 million more than 1997. This change reflects increased capital spending in 1998 of $0.8 million and a $0.5 million decrease in proceeds from disposition of assets.
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Cash used for financing activities in 1998 decreased $12.9 million from 1997. Cash used for term loan debt payments increased by $10.0 million from 1997. In 1998, Transtar repaid $72.0 million of its term debt obligations versus the $62.0 million it repaid in 1997 and the $23.0 million it repaid in 1996. In 1998, no dividends were paid to stockholders, compared with $24.1 million in 1997 and $40.9 million in 1996.
CAPITAL EXPENDITURES
Transtar's capital requirements during 1999 are forecasted to be approximately $20.7 million. Internally generated funds from operations are expected to be sufficient to fund Transtar's mandatory debt payments as well as future capital requirements.
In 1998, capital expenditures of $26.4 million increased $0.8 million from 1997. Capital expenditures in 1997 totaled $25.6 million, or $6.0 million more than in 1996. In addition to these capital expenditures, the Company spent $113.2 million in 1998, $117.6 million in 1997, and $110.6 million in 1996 for repair and maintenance of its facilities and equipment.
ENVIRONMENTAL MATTERS
Transtar is subject to federal, state, and local laws and regulations relating to the environment. These laws regulate discharges into the environment, as well as the handling, storage, transportation, and disposal of waste and hazardous materials. These laws also require responsible parties to undertake remediation of hazardous waste disposal sites. Transtar provides for remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Certain Transtar operating subsidiaries have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and are required to share the cost to remediate certain Superfund sites identified by the Environmental Protection Agency (EPA). In those instances where the probable costs of cleanup are estimable, Transtar has recorded a liability. At December 31, 1998 and 1997, accrued liabilities for remediation totaled $0.4 million. The Company has considered the other potentially responsible parties in determining this accrual. For the period 1989 through 1998, actual cash payments associated with environmental expense have totaled $10.2 million.
Transtar and USX have entered into an environmental indemnification agreement, whereby USX has agreed to indemnify Transtar against 75 percent of certain environmental claims, losses, liabilities, obligations, damages, deficiencies, costs, and expenses (collectively, Environmental Liabilities) in excess of $10 million. This environmental indemnification agreement covers Environmental Liabilities relating to certain assets and properties transferred by USX to Transtar upon the formation of Transtar, which Environmental Liabilities existed or occurred prior to such formation. Of the $10.2 million expended since 1988, $7.8 million is applicable to the $10 million threshold. Although it is not presently possible to estimate the ultimate amount of all remediation and compliance costs that might be incurred or the penalties that may be imposed, management does not believe these potential costs will have a material adverse effect on the Company.
YEAR 2000
Transtar is committed to addressing the Year 2000 issue that could impact its existing computer and operating systems. Management continues to execute a plan which addresses mainframe information systems, non-information technology systems and third parties. A plan to identify and address Year 2000 issues as they apply to mainframe information systems was completed in mid-1997. An outside contractor was hired to assist in the implementation of the plan during 1997, 1998 and 1999. Transtar expects to spend approximately $4.1 million on
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
mainframe applications, of which $3.2 million has already been incurred. Management believes that Transtar has made substantial progress in determining outside vendor Year 2000 compliance on all acquired software, and in formulating plans for ensuring that compliant versions of vendor code are implemented prior to the year 2000. The last component of the mainframe arena is hardware. Transtar has assessed the compliance of its mainframe components and, based on ongoing internal testing and review of information received from its vendors, believes that vendor compliance will meet its requirements. Comprehensive tests are scheduled for mid-1999, where hardware, system software and applications software will be combined in an advanced date scenario at Transtar's disaster recovery facility.
An assessment of non-information technology systems that are an integral part of Transtar's rail and marine operations was initiated during the fourth quarter of 1997 to determine the Year 2000 compliance status. This review encompassed train and process control systems, navigation systems, communication systems, as well as any other equipment in which embedded chip technology could create date functionality problems. This assessment has been substantially completed and recommendations have been made for upgrades and replacement, if necessary, to ensure Year 2000 compliance. Including non-information technology systems, Transtar expects to spend in excess of $5.1 million to become Year 2000 ready.
In order to ensure that third party vendors will be Year 2000 compliant, Transtar initiated a vendor compliance survey program during the second quarter of 1998. Follow-up contacts with major vendors have been completed and indicate that approximately three-fourths are either compliant or in the process of ensuring compliance. Transtar believes that alternate sources are available to replace those vendors who are unable to perform due to Year 2000 problems. Additionally, Transtar has modified the language of its purchase orders to require that all products with electrical/electronic elements come equipped with Year 2000 certified components.
While Transtar management believes that Transtar's critical information and operating systems will be Year 2000 ready, there can be no guarantee that it will be completely successful. Transtar's management has not yet quantified the impact of partial non-compliance or a likely worst case scenario on the operating results of Transtar. Formal contingency plans are being developed for those potential Year 2000 failures which would pose the greatest risks to Transtar's operations. No assurance can be given that the effect of any such partial non-compliance will not have a material adverse effect on the operating results of Transtar.
TRANSPORTATION SERVICES AGREEMENTS WITH USX
On June 30, 1998 Transtar reached agreement in principle with USX on new Transportation Services Agreements with final agreement reached December 21, 1998. (See Note 13 to Consolidated Financial Statements). The new Agreements were approved by the lending institutions who participate in Transtar's Credit Agreement on February 12, 1999. These agreements generally extend through December 31, 2004, and ensure Transtar's position as a participant at all of the US Steel and US Steel Mining facilities it presently services. Third parties will be permitted to handle certain volumes of selected commodities. The new Transportation Services Agreements rate reductions, including a $6.25 million revenue refund recorded in June 1998, reduced Transtar's operating revenues and operating income by $14.4 million in 1998. These revenue reductions are anticipated to have an approximate $15.0 million per year impact on future years operating revenues and operating income based on currently expected volume levels.
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
USS/KOBE STEEL MILLS
Since 1895, the Lake Terminal Railroad (a Transtar subsidiary) has performed intra-plant switching of hot metal and other steel products within the USS/Kobe Steel mill, maintained the rail line that operates inside and around this facility, and provided maintenance services to USS/Kobe's freight car and locomotive fleet. In 1998 USS/Kobe elected to terminate the in-plant switching services provided by the Lake Terminal Railroad on tracks owned by USS/Kobe, as well as the maintenance services. As of December 29, 1998 under the terms of a new Transportation Services Agreement which extends through December 31, 2008, the Lake Terminal Railroad will provide interchange service between linehaul carriers and the in-plant rail provider for this facility. As a result, it is anticipated that Transtar will experience an annual decrease of approximately $8.0 million in revenues, with no material impact on operating income.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical (including, but not limited to, statements regarding the future impact of the Transportation Services Agreements) are forward-looking statements subject to risk and uncertainties that could cause actual results to differ materially. Such risk and uncertainties include fluctuations in economies worldwide, in general, and the industries that Transtar serves, in particular, fluctuations in Transtar's customer demand for transportation and related services, changes in relationships with key customers (including the loss of certain major customers), changes in variations in weather and climatic patterns, competitive pressure from other carriers, changes in governmental regulations, changes in terms from lenders, ability to retain key management and to reach agreement on labor issues, or other factors identified in this report.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TRANSTAR HOLDINGS, L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of TRANSTAR HOLDINGS, L.P.
In our opinion, the consolidated financial statements of Transtar Holdings, L.P., as listed in the accompanying index on page 18 of the Annual Report on Form 10-K, present fairly, in all material respects, the financial position of Transtar Holdings, L.P. and its subsidiary, Transtar Capital Corporation (TCC), (together, "Holdings") at December 31, 1998, and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Holdings' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Transtar, Inc. is a significant equity investment of Holdings (as described in Note 1, page 23); accordingly, the financial statements of Transtar, Inc. should be read in connection with the consolidated financial statements of Holdings.
PricewaterhouseCoopers LLP 600 Grant Street Pittsburgh, PA 15219
February 22, 1999
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR HOLDINGS, L.P.
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION AND RELATED PARTIES
On December 28, 1988, agreements were executed forming a new holding company, Transtar, Inc. (Transtar). Transtar, in turn, purchased certain former directly or indirectly wholly owned subsidiaries (the transportation subsidiaries) of USX Corporation (USX). As a result of these agreements, Blackstone Capital Partners L.P. (BCP) and Blackstone Transportation Partners L.P. (BTP), investment partnerships (collectively, Blackstone) controlled by their general partner Blackstone Management Associates L.P. (BMA), owned a 51 percent economic and voting interest in Transtar. USX held a 44 percent economic and 49 percent voting interest, and the remaining 5 percent of Transtar's equity was held as nonvoting shares by a management stock trust. A Technical Services Agreement, an Agreement as to Tax Matters between Transtar and USX, and other ancillary agreements exist as a result of this transaction. Transportation Services Agreements with USX and other related parties which existed at the time of the transaction were renegotiated in 1998 (See Note 13 of the Transtar, Inc. Financial Statements for additional details).
BTP was originally formed in 1988 for the sole purpose of holding voting stock and nonvoting stock in Transtar. BTP was renamed Transtar Holdings, L.P. (Holdings) in November 1993. Additionally, in November 1993, BMA withdrew from its role as general partner of Holdings and substituted Blackstone Transportation Company, Inc. (BTC) as the general partner of Holdings. Transtar Capital Corporation, a Delaware corporation and wholly owned subsidiary of Holdings (TCC), was formed in connection with an Offering of 13 3/8% Series A Senior Discount Notes. In 1994, Holdings and TCC exchanged the Series A Notes for Series B Notes (Notes). Holdings and TCC have no operations of their own. TCC is a shell corporation which has nominal assets and equity and no liabilities, operations or cash flows. Accordingly, the financial statements of TCC are not presented because they do not provide material information to investors. Holdings owns 51 percent of the voting shares and 53 percent of the economic interest in the capital stock of Transtar.
The consolidated financial statements presented herein reflect the ownership by Holdings of the outstanding shares of Transtar capital stock formerly held by Blackstone. Since Holdings and BCP are under common control, the contribution of BCP's Transtar shares to Holdings has been accounted for in a manner similar to a pooling of interests.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of Holdings include the accounts of Holdings and TCC, a wholly owned subsidiary. The investment in Transtar, over which Holdings has significant influence in management and control, is accounted for using the equity method and is carried in the investment account at Holdings' share of net assets plus advances. A proportionate share of Transtar's income is included as equity in earnings of Transtar.
Cash and Cash Equivalents -- Cash and cash equivalents includes cash on hand and time deposits, certificates of deposit, high-grade commercial paper, and government securities, all purchased with maturities of three months or less, and all of which are carried at cost which approximates market.
Income Taxes -- No current or deferred United States federal income taxes or state income taxes have been provided for Holdings since, as a partnership, Holdings is not subject to such taxes.
Deferred Debt Issue Costs -- Deferred debt issue costs represent the unamortized portion of capitalized fees and expenses relating to issuance of the Notes on December 7, 1993. At that time, fees and expenses amounting to $7.0 million were capitalized. During 1994, additional fees amounting to $0.3 million were capitalized.
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: (CONTINUED)
Use of Estimates -- Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year.
NOTE 3: LONG-TERM DEBT
On December 7, 1993, Holdings and TCC (Issuers) issued $218 million aggregate principal amount of 13.375 percent Series A Senior Discount Notes due December 15, 2003. In 1994, Holdings and TCC exchanged the Series A Notes for Series B Notes (Notes). The Notes are the joint and several obligations of the Issuers. An original issue discount of $118 million will be amortized over a six year period commencing December 15, 1993 and ending December 15, 1999. Interest will be payable semi-annually in arrears on June 15 and December 15 commencing on June 15, 2000. The Notes have a principal at maturity of $218 million. The carrying value represents the principal at maturity less the unamortized discount. The fair value of the Notes at December 31, 1998 and 1997 was $214.8 million and $198.5 million, respectively. Fair value of the Notes is based on quoted market prices. The Notes are not guaranteed by Transtar or any of its subsidiaries and are subordinated to all existing and future liabilities of the Issuers' subsidiaries. Interest expense attributable to the Notes was $23.4 million, $20.6 million and $18.1 million in 1998, 1997 and 1996, respectively.
The Issuers will be dependent on sales of, or dividends or distributions on, Holdings' Transtar stock in order to meet their obligations under the Notes or new notes as applicable. Except as noted below, Transtar's December 7, 1993 Credit Agreement (the Credit Agreement) prohibits the payment of dividends exceeding $1.5 million annually by Transtar until the sixth anniversary of the issuance of the Notes or new notes, as applicable. Commencing on the sixth anniversary of the issuance of the Notes or new notes, the Credit Agreement will permit the payment of dividends sufficient to fund the next cash interest payment on the Notes or new notes so long as no default with respect to that Credit Agreement has occurred and is continuing at such time or would result from the payment of such dividends. Transtar's by-laws require unanimous approval of Transtar's directors to declare a dividend or other distribution (absent a decision by an independent consultant breaking a deadlocked vote). Holdings and USX each have the right, pursuant to a Stockholders Agreement dated as of December 28, 1988, as amended (the Stockholders Agreement), to designate certain directors to the board of directors of Transtar. As such, Holdings' ability to cause Transtar to declare and pay a dividend or other distribution is dependent upon the concurrence of USX.
On October 9, 1997, Transtar and the lending institutions that are party to the Credit Agreement approved an amendment that permitted Transtar to pay dividends during the fiscal year ending December 31, 1997 in an amount not to exceed $25.0 million. (See Note 4)
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: RELATED PARTY TRANSACTIONS
On October 27, 1997, Transtar declared a cash dividend in the amount of $625 per share on both its Class A Voting Common Stock (Voting Stock) and its Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997, representing its 53% economic interest in the Transtar dividend. Pursuant to an Indenture relating to the issuance of the Notes (the Notes Indenture), the dividend payment was paid into an escrow account. On December 16, 1997, Transtar declared a cash dividend of $625 per share on both its Voting Stock and its Nonvoting Stock to holders of record of the stock on December 16, 1997. Holdings received $6.4 million on December 19, 1997, representing its 53% economic interest in the Transtar dividend. In accordance with the Notes Indenture, this dividend was paid into the escrow account.
In February 1998, in accordance with the Notes Indenture, Holdings offered to repurchase a portion of the Notes at an offer price equal to 101% of the accreted value of such Notes on the date of purchase. The offer to purchase the Notes was made by a notice to holders of the Notes and was held open for 20 business days. No Notes were tendered for repurchase.
In February 1997, in accordance with the Notes Indenture and related to certain dividends paid into the escrow account in 1996, Holdings offered to repurchase a portion of the Notes at an offer price equal to 101% of the accreted value of such Notes on the date of purchase. The offer to purchase the Notes was made by a notice to holders of the Notes and was held open for 20 business days. No Notes were tendered for repurchase.
Funds in the escrow account are invested in cash equivalents and may only be released to pay interest and principal on the Notes, make certain payments permitted under the Notes Indenture, purchase or optionally redeem Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in accordance with the Notes Indenture and an agreement governing the escrow account, Holdings withdrew from the escrow account $0.7 million, $13.7 million and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2 million,$0.3 million and $0.7 million, respectively, to pay certain administrative expenses. Interest earned on the escrow balance amounted to $2.6 million, $2.4 million and $1.4 million in 1998, 1997 and 1996, respectively.
NOTE 5: PARTNERS' EQUITY
In 1998 and 1997, Holdings recorded adjustments to Partners Equity of $(0.9) million and $(0.2) million, respectively. These adjustments were recorded as a result of changes in ownership related to Transtar repurchases of treasury stock from its Management Stock Trust.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of TRANSTAR, INC.
In our opinion, the consolidated financial statements of Transtar, Inc., as listed in the accompanying index on page 18 of this Annual Report on Form 10-K, present fairly, in all material respects, the financial position of Transtar, Inc., and its subsidiaries (the Company) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP 600 Grant Street Pittsburgh, PA 15219
February 22, 1999
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF INCOME
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: FORMATION OF HOLDING COMPANY AND RELATED PARTIES
On December 28, 1988, agreements were executed to form a new holding company, Transtar, Inc. (Transtar). Transtar, in turn, purchased certain former directly or indirectly wholly owned subsidiaries (the transportation subsidiaries) of USX Corporation (USX). As a result of these agreements, Blackstone Capital Partners, L.P. and Blackstone Transportation Partners, L.P. (BTP), investment partnerships (collectively, Blackstone) controlled by their general partner Blackstone Management Associates, L.P. (BMA), owned a 51 percent economic and voting interest in Transtar. USX held a 44 percent economic and 49 percent voting interest, and the remaining 5 percent of Transtar's equity was held as nonvoting shares by a management stock trust. A Technical Services Agreement, an Agreement as to Tax Matters between Transtar and USX, and other ancillary agreements exist as a result of this transaction. Transportation Services Agreements with USX and other related parties which existed at the time of the transaction were renegotiated in 1998. A significant part of Transtar's operations are with related parties (See Note 13). Transtar's operations are conducted in two business segments -- railroad operations and marine operations.
BTP was originally formed in 1988 for the sole purpose of holding voting stock and nonvoting stock in Transtar. In November 1993, BTP was renamed Transtar Holdings, L.P., a Delaware limited partnership (Holdings), which assumed ownership of BTP's then 51.8 percent economic interest and 51 percent voting interest in the capital stock of Transtar. Holdings has no operations of its own.
Since its formation, Transtar has repurchased certain shares of nonvoting stock from its management stock trusts and has recorded these shares as Treasury Stock. As of December 31, 1998 and 1997, Holdings owns 53 percent economic interest and 51 percent voting interest in the capital stock of Transtar; USX owns 46 percent economic interest and 49 percent voting interest; and the management stock trust holds the remaining 1 percent economic interest.
The Transtar transaction was accounted for as a purchase transaction prescribed by Accounting Principles Board Opinion (APB) No. 16 as modified by the Financial Accounting Standards Board's Emerging Issues Task Force Consensus No. 86-16, "Carryover of Predecessor Cost in Leveraged Buyout Transactions" (EITF 86-16). EITF 88-16, "Basis in Leveraged Buyout Transactions," subsequently superseded EITF 86-16. However, this transaction was completed prior to the effective date of EITF 88-16.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of Transtar include the accounts of Transtar and its subsidiaries. All significant intercompany transactions and balances have been eliminated from the consolidated financial statements.
Cash and Cash Equivalents -- Cash and cash equivalents include cash on hand and time deposits, certificates of deposit (CD), high-grade commercial paper, or government securities, all purchased with maturities of 3 months or less, and all of which are carried at cost which approximates market.
Operating Parts and Supplies -- Operating parts and supplies consist primarily of repair and replacement materials for railroad and marine equipment and facilities, and are carried at the lower of average cost or market, defined as replacement cost.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
Fuel Oil Hedging -- Transtar from time to time enters into agreements to hedge exposure to price fluctuations in connection with the purchase of fuels for propulsion. Such transactions are accounted for as part of the commodity being hedged and are settled on a monthly basis. (See additional information in Note 10.)
Interest Rate Hedging -- Transtar from time to time is party to interest rate protection agreements with several financial institutions to reduce the potential impact of increases in variable interest rates associated with the December 7, 1993, Credit Agreement and an amendment to the Credit Agreement dated March 12, 1997. If required, interest expense associated with these agreements is accrued monthly and settled quarterly. (See additional information in Notes 9 and 10.)
Property, Plant, and Equipment -- Properties acquired by Transtar at December 28, 1988 are stated at a combination of historical cost and fair value as a result of the accounting for the purchase transaction prescribed by APB 16, as modified by EITF 86-16. Subsequent property acquisitions are recorded at cost. Depreciation is generally computed on the straight-line method, utilizing a composite or grouped asset approach, based on estimated lives of the assets, which are generally from 3 to 50 years. Proceeds from the sale of those facilities depreciated on a group basis are credited to the depreciation reserve, which is subject to periodic adjustments through depreciation studies performed on a scheduled basis.
When facilities depreciated on an individual basis are sold, the difference between the selling price and the remaining undepreciated value is reflected in income. When nondepreciable assets are sold, any gain or loss is reflected in income.
Ordinary maintenance and repairs are charged to expense as incurred.
Deferred Dry Dock Costs -- USS Great Lakes Fleet, Inc. (a Transtar subsidiary) is required by the U.S. Coast Guard to inspect and perform certain maintenance on each of its lake-going vessels every 5 years. Costs to perform this operation (dry dock costs) are deferred and amortized on a straight-line basis over 60 months from the time each vessel is dry docked.
Deferred Lump-Sum Compensation -- Certain Transtar labor contracts contain provisions for compensation in the form of lump-sum payments. Lump-sum compensation that is determined to benefit future periods is deferred and amortized over the period of the contract in accordance with the provisions of EITF 88-23, "Lump-Sum Payments Under Union Contracts."
Acquisition Debit -- The Transtar transaction was accounted for as a business combination following the requirements of APB 16, as modified by EITF 86-16. These principles were used to determine the cost basis of Transtar. The difference between the purchase price and the new cost basis of Transtar resulted in the recognition of a $17.4 million acquisition debit in retained earnings in the consolidated financial statements.
Revenue Recognition -- Revenues are generally recognized upon completion of a service, usually a transportation movement.
Pension and Other Postretirement Benefits Costs -- Substantially all hourly and salary employees of Transtar are covered by qualified pension plans. Pension expense is based on a number of factors, including years of service, career earnings, and actuarial assumptions that are applied to plan assets and liabilities. Transtar accounts for pension
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions." Transtar provides certain health care and life insurance benefits for retirees. Substantially all employees may become eligible for these benefits upon retirement. Transtar accounts for costs related to these benefits in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions."
In 1998, the Company adopted SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132 revise employers disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of these plans.
Insurance -- Transtar insures its rail, marine, property, and casualty exposures. Certain self-insured retentions are maintained. Catastrophic coverage is also carried. Costs resulting from noninsured losses are charged against income upon occurrence.
Postemployment Benefits -- Transtar provides certain benefits to former or inactive employees after employment but before retirement. Substantially all employees may become eligible for these benefits. Transtar accounts for costs related to these benefits in accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
Use of estimates -- Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year end and the reported amounts of revenues and expenses during the year.
New Accounting Standards -- The Financial Accounting Standards Board has issued a new accounting standard:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" requires that companies recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Transtar plans to adopt the standard, effective with its first quarter 2000 financial statements, as required.
Reclassifications -- Certain reclassifications of prior years' data have been made to conform to 1998 classifications.
NOTE 3: PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1989, Transtar adopted a noncontributory defined benefit plan covering substantially all employees and a defined benefit plan covering salary employees. Both plans recognize service and earnings as accrued under the predecessor USX plans, but contain offset provisions for the amount of pension benefits accrued as of December 28, 1988, the liability for which was retained by USX. Pension benefits for employees that retired prior to Transtar's formation on December 28, 1988 are the responsibility of USX. Assets of the plans generally consist of corporate debt and equity securities and government obligations.
Transtar provides certain medical and life insurance benefits to eligible retired employees and their dependents under defined benefit plans. The majority of benefits under provisions of these plans have not been prefunded. Medical and life insurance benefits for employees retired prior to Transtar's formation are obligations of USX. Assets of the plan generally consist of high quality corporate and government obligations.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
(a) Includes a small plan that has an accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation $(1,899) $(1,462) Projected benefit obligation $(2,119) $(1,770) Plan assets -- --
The assumed health care cost trend rate in 1999 and thereafter is 5%
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
Net periodic pension and other postretirement benefit costs include the following components:
Pension - -------
As a result of a reduction in business at The Lake Terminal Railroad (a Transtar subsidiary) Transtar, in addition to the benefit cost shown above, recognized a curtailment loss of $2.6 million in 1998. Also in addition to the benefits cost shown above, programs of early retirements and separations caused recognition of a curtailment loss of $4.0 million in 1997.
Transtar participates in certain defined benefit multi-employer plans of maritime unions. Expenses related to these plans amounted to $0.2 million, $1.0 million, and $1.1 million in 1998, 1997, and 1996, respectively. The company also sponsors certain defined contribution pension plans. Participation in these plans is available to substantially all salaried employees and to certain groups of hourly employees. Company contributions to the salary plan are based on matching of employee contributions up to certain limits specified by the provisions of the plan. The cost of this plan was $1.5 million, $1.5 million and $1.4 million in 1998, 1997 and 1996, respectively.
Other Postretirement Benefits - -----------------------------
A one percentage point change in assumed health care cost trend rates would have the following effects:
1% increase 1% decrease ----------- ----------- (in thousands) Effect on total of service and interest cost components ............. $ 1,242 $(1,000) Effect on postretirement benefit obligation ........................... $12,824 $(9,840)
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: OPERATING SEGMENTS
Transtar adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" in 1998 which establishes new standards for reporting information about its operating segments. Transtar consists of two reportable segments: Railroad Group and Marine Group. The two reportable segments provide different services, have different methods of distributing their services and operate in different regulatory environments.
Railroad Group - This segment is composed of nine business units which are primarily railroad companies. The Railroad Group provides rail transport and material handling services for nearly all of the steel making plants of USX Corporation, servicing US Steel, USS Mining Co. and USS/Kobe Steel Company at Lorain, Ohio. Some of the business units provide rail service to other steel related customers, utilities, and miscellaneous other customers in the midwest, south and eastern United States.
Marine Group - This segment is composed of two shipping operations and one fresh water/saltwater dock facility that provide primary water transport for essentially the same USX facilities as the rail group, as well as utilities and miscellaneous other customers.
The accounting policies of the reportable segments are the same as those disclosed in Note 2. Transtar evaluates the performance of its operating segments based on the operating income of the respective business units. Summarized financial information concerning reportable segments is shown on the following table. The "Other" column includes non-allocated corporate related items and the elimination of inter-business unit transactions.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: (CONTINUED)
The majority of revenues earned are attributed to customers located in the United States and all assets are located in the United States. See Note 13 regarding information about major customers.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INCOME TAXES
Components of income tax expense are as follows:
The reconciliation of the U.S. statutory income tax rate to the total provision is as follows:
Deferred tax assets and liabilities are composed of the following:
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: OTHER CURRENT ASSETS
NOTE 7: PROPERTY, PLANT, AND EQUIPMENT
The above amounts include equipment leased under capital leases of zero and $1.2 million at December 31, 1998 and 1997, respectively. For capital lease assets, depreciation expense for the years ended December 31, 1998, 1997, and 1996 was $27 thousand, $2 thousand, and $8 thousand, respectively. Accumulated depreciation at December 31, 1998 and 1997 was zero. Transtar leases a variety of facilities and equipment, including marine vessels, railroad equipment, barges, office equipment, and office space. Some of these leases contain purchase and renewal options and a residual value guarantee at the end of their lease term. Rent expense for operating leases was $26.9 million, $26.8 million, and $25.6 million for 1998, 1997, and 1996, respectively.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: (CONTINUED)
Total commitments under operating leases are as follows: (dollars in thousands)
NOTE 8: OTHER ASSETS
Deferred debt issue costs represent the unamortized portion of capitalized fees and expenses relating to the term loan and revolving credit facilities obtained in connection with a refinancing on December 7, 1993. Fees and expenses amounting to $4.2 million were capitalized and are being amortized over the life of the term loan.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: LONG-TERM DEBT
(a) This Credit Agreement with a group of lending institutions is dated December 7, 1993 and provides for a series of short-term variable rate loans over a 7 year life, which are secured by the stock of the Transtar subsidiaries. Principal payments are scheduled semi-annually on June 30 and December 31 in installments ranging from $20 million to $42 million. The first scheduled payment was due on June 30, 1994, and the last scheduled payment is due on December 31, 2000. Terms of the agreement require that the first $5 million of excess cash flow prepayments be applied in the inverse order of maturity and that sale leaseback prepayments be applied ratably over the remaining scheduled payment dates. All other voluntary or asset sale prepayments are to be applied in the order of maturity. In 1998, voluntary or asset sales prepayments of $72 million were applied to payments scheduled for June 30, 1998, December 31, 1998, and June 30, 1999. In 1997, voluntary or asset sales prepayments of $62 million were applied to payments scheduled for June 30, 1997, December 31, 1997 and June 30, 1998. Interest accrues at variable rates based on either an alternate base rate, an adjusted CD rate, or an adjusted London Interbank Offered Rate. Transtar periodically selects from these debt instruments to determine the variable rates of the loan. Interest rates are available in multiples of $1 million of borrowings in durations ranging from 1 day to 6 months.
(b) Transtar's debt interest expense in 1998, 1997, and 1996 was $11.9 million, $16.3 million, and $20.2 million, respectively. The average effective rates for the comparable periods were 7.2 percent, 7.2 percent, and 7.1 percent, respectively. As required by the December 7, 1993 Credit Agreement, Transtar protected the variable interest rate on at least 40 percent of the outstanding term debt balance through March 12, 1997. An amendment to the Credit Agreement dated March 12, 1997 eliminated the interest rate protection covenant. Transtar had no interest rate protection agreements in place at December 31, 1998. During 1998, 1997 and 1996, there was no interest expense attributable to rate protection agreements.
(c) Required payments of long-term debt for 1999 and 2000 are $57.7 million and $66.3 million, respectively.
Transtar has a revolving credit agreement with a consortium of banks. This loan facility of up to $25 million is available for working capital and letter of credit purposes through December 31, 2000. Interest accrues at the same variable rates as the term debt. There is an annual commitment fee of 1/2 of 1 percent of the unused portion of the loan facility. Outstanding letters of credit are $0.9 million at December 31, 1998 and 1997. Transtar did not borrow from this facility in 1998 or 1997.
The above debt agreements contain certain restrictions on capital spending, levels of new indebtedness, and the payment of dividends, as well as certain financial covenant requirements.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: (CONTINUED)
On October 9, 1997, Transtar and the lending institutions that are party to the Credit Agreement approved an amendment that permitted Transtar to pay dividends during the fiscal year ending December 31, 1997 in an amount not to exceed $25.0 million. (See Note 12)
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by Transtar using the best available market information and appropriate valuation methodologies. However, considerable judgment was necessary in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that Transtar could realize in a current market exchange or the value that ultimately will be realized upon maturity or disposition. Additionally, because of the variety of valuation techniques permitted under SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," comparability of fair values among entities may not be meaningful. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of those financial instruments for which it was practicable to estimate that value.
Cash and cash equivalents - The carrying amount for cash and cash equivalents approximates fair value.
Noncurrent receivables - The carrying amount for noncurrent receivables approximates fair value.
Current debt and long-term debt - The carrying amount of Transtar's borrowings under the credit facility and capital leases approximates fair value, because most of Transtar's borrowings have variable rates of interest.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: (CONTINUED)
Interest rate agreements - The fair value of interest rate protection agreements is the amount that Transtar would receive or pay to terminate the agreements, considering interest rates and remaining maturities based on quoted market prices or discounted cash flow methods, or the cost to replace the agreement. Transtar had no interest rate protection agreements in place at December 31, 1998 or 1997.
Fuel oil hedges - The fair value of fuel oil hedges is based on the futures index for NYMEX No. 2. Transtar had a fuel oil hedging agreement in place for 1.0 million gallons per month at December 31, 1998, and no fuel oil hedging agreements in place at December 31, 1997. Transtar generated expense of $0.3 million in 1998, no income or expense in 1997, and income of $0.4 million in 1996 as a result of fuel oil hedges.
NOTE 11: DEFERRED CREDITS AND OTHER LIABILITIES
NOTE 12: EQUITY
As of December 31, 1998 and 1997, Transtar had authorized and issued 10,000 shares of Class A Voting Common Stock (Voting Stock) with no par value and 10,000 shares of Class B Nonvoting Common Stock (Nonvoting Stock) with no par value. Holdings owns 5,100 shares of the Voting Stock and 5,100 shares of the Nonvoting Stock; USX owns 4,900 shares of the Voting Stock and 3,900 shares of the Nonvoting Stock; and 296 shares of the Nonvoting Stock are held by management stock trusts. An additional 704 shares of the Nonvoting Stock, previously repurchased from the management stock trusts, are being held as Treasury Stock at cost.
On October 27, 1997, Transtar declared a cash dividend of $625 per share on both its Voting Stock and its Nonvoting Stock to holders of record of the stock on October 27, 1997. The dividend of $12.0 million was paid on October 30, 1997. On December 16, 1997 Transtar declared a cash dividend of $625 per share on its Voting Stock and its Nonvoting Stock to holders of record of the stock on December 16, 1997. The dividend of $12.0 million was paid on December 19, 1997.
During 1994, Transtar implemented a stock option plan to promote the interests of Transtar and its stockholders by attracting and retaining key management employees. The total number of options granted in 1994 was 750, all of which were subject to a five-year vesting schedule commencing December 28, 1993, unless vesting was waived by Transtar's Compensation Committee. All options granted in 1994 have an exercise price of
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: (CONTINUED)
$8,364.05, which was the estimated fair market value of the Company's common stock at the date of grant. The options became exercisable up to 20 percent per year and do not have an expiration date. Shares exercised were 103 and 48 in 1998 and 1997, respectively. As of December 31, 1998, there were 599 options vested and exercisable under the 1994 grant.
In 1996, Transtar adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The statement defines a fair-value-based method of accounting for employee stock options, but allows companies to continue to record compensation cost using currently accepted recognition principles. Companies electing to continue using currently accepted recognition principles must make proforma disclosures of net income as if the fair-value-based method of accounting had been applied to options granted in fiscal years beginning after December 15, 1994. Transtar adopted the disclosure-only options under SFAS No. 123. In 1998, 105 options were granted under the plan, all of which are subject to a five-year vesting schedule commencing December 28, 1997. All options granted in 1998 have an exercise price of $24,687.80 which was the estimated fair market value of the Company's common stock at the date of grant. These options become exercisable up to 20 percent per year and do not have an expiration date. The effect on net income that would have been reflected in the income statement if the fair-value-based method of accounting had been used to account for the issuance of these options is immaterial. There were no options granted during the years 1995 through 1997.
NOTE 13: RELATED-PARTY TRANSACTIONS
The Transportation Services Agreements which existed at the formation of Transtar provided Transtar with certain rights including: (i) sole serving rail carrier status at USX's Minntac, Gary, Fairfield and Mon Valley facilities as well as USS/Kobe's Lorain facility; (ii) sole rights to perform specified USX in-plant switching services; (iii) sole serving Great Lakes Fleet bulk commodity carrier status for USX, including USS/Kobe; and (iv) primary inland barge operator status for the water transport of USX's commodities originating at or destined for Birmingham, Alabama. With respect to the services referred to in clause (i) above, the Transportation Services Agreements provided that such services would continue indefinitely as long as a non-Transtar rail carrier had not obtained access to the USX facility being served; with respect to the services referred to in clause (ii) above, the agreements were exclusive through 1998 and provided that such services would continue indefinitely so long as USX had not purchased from Transtar or otherwise obtained the Transtar track on which such services were provided; with respect to the services referred to in clause (iii) above, the agreements provided that such services would continue for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other USX facilities, which terms would have been automatically renewed for successive one-year periods unless either USX or Transtar had given the other at least three years prior written notice of termination; with respect to the services described in clause (iv) above, the agreements provided that such services would generally continue until December 28, 1998. The agreements also provided that USX should not, at any time, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to any of the USX plants for which Transtar is the sole serving rail carrier or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access; provided that USX could, after December 28, 1998, request that an independent arbitrator determine whether it is reasonable and equitable under the facts, circumstances and the regulatory and competitive conditions in effect at that time, at one or more facilities, for USX to seek access for a non-Transtar rail carrier.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13: (CONTINUED)
With respect to the services referred to in clause (ii) above, USS/Kobe Steel Company elected to terminate in-plant switching services provided by the Lake Terminal Railroad (a Transtar subsidiary) effective December 29, 1998. USS/Kobe has not purchased or otherwise obtained any Transtar track at this facility. In-plant switching services provided by parties other than Transtar will be performed on tracks currently owned by USS/Kobe. The annual impact on Transtar will be a revenue reduction of approximately $8.0 million, with no material impact on operating income.
With respect to the services referred to in clause (iii) above, USS/Kobe Steel Company, on March 14, 1996, provided written notice to terminate on March 15, 1999, the end of their primary term. USX on February 12, 1997 provided written notice of their intent to terminate effective March 15, 2000.
In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes Fleet bulk commodity carrier service only) executed new Transportation Services Agreements which, among other things, extend the time and exclusivity periods of the original agreements. The new agreements were approved on February 12, 1999 by the lending institutions who participate in Transtar's Credit Agreement. The new agreements were retroactively effective July 1, 1998 and will extend through December 31, 2004 for the services referred to in clauses (i), (ii) and (iv) above, with the exception of rail and rail related services at USS/Kobe Steel (see below), and will extend through March 15, 2005 for the services referred to in clause (iii) above. With respect to the services referred to in clause (i) above, the new Transportation Services Agreements provide that such services will continue indefinitely as long as a non-Transtar rail carrier has not obtained access to the USX facility being served; with respect to the services referred to in clause (ii) above, the agreements are exclusive through 2004 and provide that such services will continue indefinitely so long as USX has not purchased from Transtar or otherwise obtained the Transtar track on which such services are provided. The new agreements cover all of the services currently provided by Transtar, except that a third party may provide transportation services for: with respect to the services referred to in clause (i) above, a maximum per year of forty percent of blast furnace burden tonnage destined for USX's Edgar Thomson facility in the Mon Valley; with respect to the services referred to in clause (iii) above, a maximum of six hundred thousand gross tons of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15, 1999, a maximum per year of ten percent of tonnage via the Great Lakes from March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and with respect to the services referred to in clause (iv) above, a maximum per year of ten percent of imported iron ore and coke tonnage destined for USX's Fairfield, Alabama facility, a maximum per year of ten percent of export coal tonnage originating at US Steel's Concord Preparation Plant and a maximum per year of ten percent of domestic coal tonnage via barge originating at US Steel's Concord Preparation Plant. The agreements provide that USX shall not, at any time, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to any of the USX plants for which Transtar is the sole serving rail carrier or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access; provided that USX may, after December 31, 2004, request that an independent arbitrator or mediator determine whether it is reasonable and equitable under the facts, circumstances and the regulatory and competitive conditions in effect at that time, at one or more facilities, for USX to seek access for a non-Transtar rail carrier. Transtar is required to acquire certain coke rail cars, not to exceed a maximum expenditure of $20 million. The agreements also provide for certain price concessions and market based price changes. USX is entitled to a refund of approximately $6.3 million (with an equal reduction in Transtar's operating income which was recognized in June 1998) for services provided during the first half of 1998. Including this refund, total price concessions for 1998 reduced Transtar's revenue and operating income by $14.4 million.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13: (CONTINUED)
On December 29, 1998, Transtar and USS/Kobe executed a new Transportation Services Agreement for sole service carrier work including absorbed switching, single line movements and other related transportation services. This agreement was approved on February 12, 1999 by the lending institutions who participate in Transtar's Credit Agreement. The new agreement was effective December 29, 1998 and extends through December 31, 2008 for the sole service carrier work. In-plant scrap handling via rubber tire vehicles is under contract until July 31, 2000. The agreement provides that USS/Kobe shall not, during the term of the agreement, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to the USS/Kobe Works or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access. The agreement provides for market based price changes and no price concessions.
Transtar earns a significant portion of its revenues from transportation and related services provided to USX. For 1998, 1997, and 1996, transactions with USX represented 57 percent, 59 percent, and 58 percent of total revenues, respectively. Receivables from USX as of December 31, 1998 and 1997 represented 23 percent and 22 percent of total receivables, respectively. Terms of these transactions are similar to those of nonrelated customers.
On August 1, 1999, USX and USS/Kobe, along with several major steel companies, face the expiration of their labor agreements with the United Steelworkers of America. Their ability to negotiate an acceptable labor contract is essential to maintaining the level of Transtar's ongoing operations. A prolonged labor interruption at USX could have a material adverse effect on Transtar's operations, financial results and cash flow.
Transtar provides maintenance services to USX. Proceeds from services provided amounted to $5.8 million, $6.4 million, and $7.2 million for 1998, 1997, and 1996, respectively.
USX provided several corporate services associated with ongoing business activities of Transtar. Total expenses for these services were $ 0.8 million, $0.6 million, and $0.6 million for 1998, 1997, and 1996, respectively.
Transtar purchased materials from USX amounting to $0.6 million, $1.1 million, and $0.5 million, in 1998, 1997, and 1996, respectively. USX purchased materials from Transtar amounting to $0.5 million, $0.7 million and $0.8 million in 1998, 1997 and 1996, respectively.
Pursuant to an Asset Purchase Agreement related to the formation of Transtar in December 1988, Transtar reimbursed USX $1.0 million, $1.1 million, and $1.4 million for certain benefits paid to Transtar retirees by USX in 1998, 1997, and 1996, respectively.
Transtar pays, to USX and a Blackstone affiliate, a monitoring fee of 0.15 percent of consolidated revenue. Total monitoring fees (0.3 percent of revenue) paid and accrued were $1.5 million, $1.6 million, $1.5 million in 1998 1997, and 1996, respectively. These fees were accounted for as operating expense.
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14: COMMITMENTS AND OTHER CONTINGENCIES
Transtar is subject to federal, state, local, and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. Transtar provides for remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. At December 31, 1998 and 1997, accrued liabilities for remediation totaled $0.4 million. For the period 1989 through 1998 actual cash payments associated with environmental expense have totaled $10.2 million.
Transtar and USX have entered into an environmental indemnification agreement, whereby USX has agreed to indemnify Transtar against 75 percent of certain environmental claims, losses, liabilities, obligations, damages, deficiencies, costs, and expenses (collectively, Environmental Liabilities) in excess of $10 million. This environmental indemnification agreement covers Environmental Liabilities relating to certain assets and properties transferred by USX to Transtar upon the formation of Transtar, which Environmental Liabilities existed or occurred prior to such formation. Of the $10.2 million expended since 1988, $7.8 million is applicable to the $10 million threshold. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed.
At year end 1998, a Transtar subsidiary had a commitment in the amount of $45 million to exercise its purchase option by March 29, 1999 on a lake vessel currently operated under a Bareboat Charter. It is anticipated that this vessel will be financed by operating lease.
At year end 1997, certain Transtar subsidiaries had purchase commitments in the amount of $3.9 million for the acquisition of rail and marine equipment. In January 1997, a Transtar subsidiary entered into an agreement to purchase 9.5 million net gallons of fuel oil per shipping season for the shipping seasons of 1997, 1998 and 1999. The purchase price for the fuel oil will be based upon market prices subject to certain minimum price provisions.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information about each of BTC's (Holdings' sole general partner) and TCC's executive officers and directors. Unless otherwise indicated, positions listed are for both BTC and TCC. Each executive officer holds office until his successor shall have been appointed or until his death, resignation or removal. The directors and executive officers of BTC and TCC receive no compensation.
Name Age, Business Experience and Other Directorships ---- ------------------------------------------------
James J. Mossman age 40, Director since November 1993 and President and Director President since November 1993; a Member of Blackstone Group Holdings (BGH) L.L.C.; a General Partner of BGH L.P. from 1990 to February 1996; Vice President of The Blackstone Group L.P. (The Blackstone Group) from 1987 to 1989. Mr. Mossman is a director of Collins & Aikman Corporation and Transtar.
Peter G. Peterson age 72, Director since November 1993; Director Co-Founding Member of BGH L.L.C.; Co-Founding Partner of BGH L.P. from 1985 to February 1996; and, Chairman of The Blackstone Group since 1985. Mr. Peterson is a director of Sony Corporation and Transtar, and he is the Vice Chairman of the Federal Reserve Bank of New York. He is also Chairman of the Council on Foreign Relations, Chairman of the Institute for International Economics, and Founding President of The Concord Coalition.
Stephen A. Schwarzman age 52, Director since November 1993; Director Co-Founding Member of BGH L.L.C.; Co-Founding Partner of BGH L.P. from 1985 to February 1996; and President & Chief Executive Officer of The Blackstone Group since 1985. Mr. Schwarzman is a director of Collins & Aikman Corporation and Transtar.
Howard A. Lipson age 35, Treasurer since November 1993; Mr. Treasurer Lipson joined The Blackstone Group in 1988 and is a member of BGH L.L.C. Mr. Lipson is a director of Rose Hills, Inc., Prime Succession Holdings, Inc., AMF Group Inc., Graham Packaging, Allied Waste Industries, Volume Service, Inc., and Ritvik Holdings, Inc.
The following table sets forth certain information concerning the officers of Transtar.
Mr. Rosati is President and Chief Executive Officer, a position he has held since January 1, 1994. Mr. Rosati had been Vice President-Finance and Chief Financial Officer of Transtar and its subsidiaries. Mr. Rosati had also been Comptroller of B&LE until December 1, 1988, when he was elected Vice President-Finance of the Railroads. His railroad experience of 33 years includes positions as Manager-Audit Division, Manager of Marketing, and Dock Superintendent with DM&IR, and Superintendent in the Transportation Department with EJ&E. Prior experience with the firm of Ernst & Ernst, Pittsburgh, Pa., 1960-1965. Mr. Rosati is a Director of the Transtar subsidiaries and is a member of the Pennsylvania Institute of Certified Public Accountants. He is a graduate of the University of Pittsburgh, BBA-1961 and attended the Graduate Business Program at the University of Minnesota-Duluth, 1976-1979.
Mr. Habic was elected Vice President-Operations of Transtar on July 1, 1993. He is responsible for the operations of all Transtar subsidiaries. His railroad experience encompasses 34 years. He held a succession of increasingly responsible Operating Department positions within the Railroad Group. He was appointed General Superintendent of Transportation of the EJ&E in 1978. He was appointed General Superintendent of The Pittsburgh & Conneaut Dock in 1983. In 1984, he was appointed General Manager of the B&LE and several shortline railroads. Mr. Habic is also a Director of the Transtar subsidiaries. He holds a B.S. from the U.S. Military Academy at West Point and an M.B.A. from Northwestern University.
Mr. Schulte is Vice President-Finance of Transtar and CFO. Mr. Schulte had previously been Comptroller of Transtar and its subsidiaries. Mr. Schulte had also been Comptroller of the Railroad Group beginning January, 1989. Since joining the Union Railroad in 1966, he progressed through various accounting positions on the Railroads. He was appointed Treasurer for the Railroads in 1981, Director of Internal Audit in 1983, and Comptroller of the DM&IR and EJ&E Railroads in 1985. Mr. Schulte is a Director of the Transtar subsidiaries and is a member of the American and Pennsylvania Institutes of Certified Public Accountants. He holds a B.S. in Accounting from The Pennsylvania State University.
Mr. Bobich was elected Vice President-Administration of Transtar on March 1, 1998. He began his career on the Bessemer and Lake Erie Railroad in the Information Systems Department and since then has held positions of increasing responsibility in accounting and information systems. In 1986, Mr. Bobich was named Treasurer of the Railroad subsidiaries and in 1989 was named Treasurer of Transtar, Inc. On July 1, 1997, he was appointed Assistant to President. He is a Director of the Transtar subsidiaries and is a 1966 graduate of Ohio University with a BBA in Accounting.
Mr. Vignovic is Vice President-Marketing of Transtar. Mr. Vignovic began his railroad career on the B&LE as a Cost Analyst in 1964. From 1967 on, Mr. Vignovic held a series of marketing positions within the Railroads. He was appointed Vice President-Marketing of all of the Railroads in 1994. Mr. Vignovic is a Director of all of the Transtar subsidiaries and is a member of the National Freight Traffic Association and the Traffic Clubs of Chicago and Pittsburgh. He holds a B.S. from Carnegie Mellon University and an MBA from the University of Chicago.
Mr. Gentile is General Counsel and Secretary of Transtar, and all of its subsidiaries, a position he has held since December 28, 1988. He is also Vice President-Law of Transtar, a position he has held since May 1, 1995. Mr. Gentile began his career with the Railroad Group in March 1979, holding positions of increasing importance within the Legal Department. He was appointed General Claim Agent in 1984, named Senior General Claim Agent in 1986. Mr. Gentile is a Director of all of the Transtar subsidiaries. Prior to joining the Railroad Group, Mr. Gentile was in private practice as a trial lawyer. Mr. Gentile is a member of the American, Pennsylvania and Allegheny County Bar Associations and American Corporate Counsel Association. He is a graduate of the University of Pittsburgh, BA-1973 (summa cum laude, Phi Beta Kappa), University of Pittsburgh, JD-1976, LaRoche College, MS-1984, University of Pittsburgh, MBA (Beta Sigma Gamma)-1989.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The directors and executive officers of BTC (Holdings' sole general partner) and TCC receive no compensation but are reimbursed for travel and out-of-pocket expenses incurred in connection with their duties as directors and executive officers.
The following table provides certain summary information concerning the compensation paid or accrued by the Company on behalf of the Company's Chief Executive Officer and the four other most highly-compensated executive officers of the Company for the years ended December 31, 1998, December 31, 1997, and December 31, 1996:
TRANSTAR, INC. SUMMARY COMPENSATION TABLE
- ------------------- (1) Includes health additive; executive tax assistance and financial planning; and imputed income for automobiles.
(2) This column includes amounts contributed or accrued in 1998 under the Transtar Salaried Savings Fund Plan and the related Supplemental Savings Plans ($14,892, $10,578, $9,662, $8,300, and $8,257 for Messrs. Rosati, Habic, Schulte, Vignovic and Gentile, respectively); annual imputed income associated with executive life insurance policies in 1998 ($1,951, $2,232, $1,031, $997, and $594 for Messrs. Rosati, Habic, Schulte, Vignovic and Gentile, respectively); and annual amounts attributable to split-dollar life insurance provided by Transtar in 1998 ($12,785, $8,352, $7,326, $7,815, and $5,029 for Messrs. Rosati, Habic, Schulte, Vignovic and Gentile, respectively).
STOCK OPTION PLAN
During 1994, Transtar implemented a stock option plan to promote the interests of Transtar and its stockholders by attracting and retaining key management employees. The total number of options granted was 750, all of which were subject to a 5-year vesting schedule commencing December 28, 1993. These options generally become exercisable at the vesting date and do not have an expiration date. The option price per share is $8,364.05, and each exercised option will be repurchased by the Company at a price calculated using a formula set forth in the stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors and executive officers of BTC (Holdings' sole general partner) and TCC receive no compensation. See 'Management--Compensation of Directors and Executive Officers.'
James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman serve as directors of BTC (Holdings' sole general partner) and TCC. Transtar pays a monitoring fee of 0.15% of its consolidated revenue to Blackstone Management Partners L.P. James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman are partners of Blackstone Management Partners L.P. Monitoring fees paid were approximately $747,000 for 1998, $789,000 for 1997, and $765,000 for 1996.
PENSION BENEFITS
Transtar, Inc. pension benefits are comprised of two defined benefits: the first, based on final earnings and the second, on career earnings. The following table shows the annual final earnings pension benefits for retirement at age 62 (or earlier under certain circumstances), for various levels of eligible earnings which would be payable to employees retiring with representative years of service based on a formula of a specified percentage (dependent on years of service) of average annual eligible earnings in the five consecutive years of the ten years prior to retirement in which such earnings were highest. Eligible earnings are base earnings and exclude any bonuses paid. As of December 31, 1998, Messrs. Rosati, Habic, Schulte, Vignovic, and Gentile have 33, 34, 32, 34, and 19 credited years of service, respectively.
TABLE OF PENSION BENEFITS
FINAL EARNINGS PENSION BENEFITS
Annual career earnings pension benefits are equal to 1% of total career eligible earnings plus a 30% supplement. The estimated annual career earnings benefits payable at normal retirement age 65, assuming no increase in annual earnings, will be $56,300 for Mr. Rosati, $48,430 for Mr. Habic, $45,070 for Mr. Schulte, $31,530 for Mr. Vignovic, and $60,040 for Mr. Gentile. Benefits from the final earnings and the career earnings reflected above are not subject to any reduction or offset for Social Security entitlements. Benefits from the final earnings reflected above are subject to a reduction or offset for a portion of Railroad Retirement entitlements. Benefits may be paid as an actuarially determined lump sum in lieu of monthly pensions under both the final earnings and career earnings provisions of the Plan.
In addition to the pension benefit described above, R. S. Rosati is entitled to the benefits shown in the table below based on bonuses paid under the Annual Incentive Compensation Plan upon retirement after age 60.
SUPPLEMENTAL PENSION BENEFITS
EQUITY PARTICIPATION PLAN
Key management employees of Transtar and its subsidiaries are eligible to participate in Transtar's Equity Participation Plan. Under the Equity Participation Plan, Transtar's Board of Directors appoints a compensation committee with full power to administer the plan. Participants in the plan receive awards of restricted common stock of Transtar as determined in the discretion of the compensation committee.
CERTAIN TRANSACTIONS
Transtar pays to each of USX and Blackstone Management Partners L.P. a monitoring fee of 0.15% of Transtar's consolidated revenue. Total monitoring fees paid were approximately $1.5 million for 1998, $1.6 million for 1997 and $1.5 million for 1996.
On October 27, 1997, Transtar declared a cash dividend in the amount of $625 per share on both its Class A Voting Common Stock (Voting Stock) and its Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997, representing its 53% economic interest in the Transtar dividend. Pursuant to an Indenture relating to the issuance of the Notes (the Notes Indenture), the dividend payment was paid into an escrow account. On December 16, 1997 Transtar declared a cash dividend of $625 per share on both its Voting Stock and its Nonvoting Stock to holders of record of the stock on December 16, 1997. Holdings received $6.4 million on December 19, 1997, representing its 53% economic interest in the Transtar dividend. In accordance with the Notes Indenture, this dividend was paid into the escrow account.
In February 1998, in accordance with the Notes Indenture, Holdings offered to repurchase a portion of the Notes at an offer price equal to 101% of the accreted value of such Notes on the date of purchase. The offer to purchase the Notes was made by a notice to holders of the Notes and was held open for 20 business days. No Notes were tendered for repurchase.
In February 1997, in accordance with the Notes Indenture and related to certain dividends paid into the escrow account in 1996, Holdings offered to repurchase a portion of the Notes at an offer price equal to 101% of the accreted value of such Notes on the date of purchase. The offer to purchase the Notes was made by a notice to holders of the Notes and was held open for 20 business days. No Notes were tendered for repurchase.
Funds in the escrow account are invested in cash equivalents and may only be released to pay interest and principal on the Notes, make certain payments permitted under the Notes Indenture, purchase or optionally redeem Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in accordance with the Notes Indenture and an agreement governing the escrow account, Holdings withdrew from the escrow account $0.7 million, $13.7 million and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2 million,$0.3 million and $0.7 million, respectively, to pay certain administrative expenses. As of December 31, 1998 the escrow balance is $47.3 million. Interest earned on the escrow balance amounted to $2.6 million, $2.4 million and $1.4 million in 1998, 1997 and 1996, respectively.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE ISSUERS
The following table and accompanying footnotes set forth the beneficial ownership of partnership interests of Holdings. TCC is a wholly owned subsidiary of Holdings.
(1) Represents percentage of total partnership interests (including general and limited partnership interests) in Holdings.
(2) BTC holds the sole general partnership interest in Holdings. The address of BTC is 345 Park Avenue, New York, New York 10154.
(3) The following Blackstone entities own 91.574% of the limited partnership interests in Holdings, which represents the following economic interests in Holdings: Blackstone Transportation Capital Partners L.P., 34.493%; Blackstone Domestic Capital Partners L.P., 33.880%; Blackstone Offshore Capital Partners L.P., 14.943%; Blackstone Family Investment Partnership I L.P., 5.987%; Blackstone Advisory Directors Partnership L.P., 0.843%; and Blackstone Management Associates L.P., 0.512%. The address of the Blackstone entities is 345 Park Avenue, New York, New York 10154.
(4) The address of Tyler is c/o Bain Venture Capital, 2 Copley Plaza, Boston, Massachusetts 02116.
(5) Messrs. Mossman, Peterson, Schwarzman and Lipson are affiliated with Blackstone in the capacities described under "Directors and Executive Officers of the Registrant". Partnership interests data for these individuals does not include any of the interests included in the above table beneficially owned by Blackstone.
THE COMPANY
The authorized and outstanding capital stock of the Company consists of 10,000 shares of Class A Voting Stock (Voting Stock), without par value, and 10,000 shares of Class B Nonvoting Stock (Nonvoting Stock), without par value. All of the voting and nonvoting stock of Transtar represents an equivalent economic interest in the Company.
The following table sets forth the ownership of Transtar as of December 31, 1998:
Management's direct interest has been reduced since Transtar's formation due to repurchases of 704 shares of nonvoting stock from retiring managers. Certain shares have been allocated to promoted managers in a stock option program. Including the effect of this program, total economic ownership of management would be 5 percent.
The Board of Directors of Transtar consists of five members, three of which are designated by Blackstone and two by USX pursuant to a Stockholders' Agreement.
As of December 31, 1998, all of the subsidiaries of Transtar were wholly owned, directly or indirectly, by Transtar.
The Company's by-laws provide that certain matters presented to the Board require unanimous approval of the directors, including, among other things: (a) any proposal which, if approved, (i) would require any stockholder entitled to vote (a "voting stockholder") to subscribe for additional shares of capital stock of the Company or contribute additional capital to the Company or would result in a diminution of any voting stockholder's proportionate voting power among stockholders if such voting stockholder failed to contribute additional capital voluntarily; (ii) would otherwise result in a diminution of a voting stockholder's proportionate voting power among stockholders; or (iii) results in the Company's subsidiaries being unable to perform adequately their obligations under any of the Transportation Services Agreements; (b) authorization or issuance of any shares of any equity security of the Company or any option, warrant, right or instrument convertible into any equity security of the Company or convertible or exchangeable into any option, warrant or right to receive any such equity security; (c) redemption of any stock of the Company; (d) any new borrowing by the Company or any subsidiary thereof (other than borrowings to finance specific capital expenditures approved in the annual capital budget), or the grant of any new lien, encumbrance or security interest in connection therewith on any material assets of the Company or such subsidiary not previously encumbered except in certain circumstances; (e) any merger, consolidation, liquidation or dissolution of the Company or sale of substantially all the assets thereof or sale of stock of any of the Company's subsidiaries; (f) the sale or merger of any direct or indirect subsidiary of the Company, or the sale of assets or discontinuance of operations of any direct or indirect subsidiary of the Company which in either case results in such subsidiary being unable to perform adequately its obligations under any of the Transportation Services Agreements, except for certain subsidiaries; (g) any amendment of any of the Transportation Services Agreements; (h) any expenditure or commitment in excess of $5,000,000 for the acquisition by the Company or any direct or indirect subsidiary thereof of any capital stock or other equity or ownership or proprietary interest in any other corporation, partnership, association, trust, joint venture or other entity, or of any debt obligation of any thereof; (i) any lease of real or personal property or any renewal thereof except for certain circumstances; (j) any sale and lease-back or any refinancing thereof; (k) any filing by the Company or any direct or indirect subsidiary thereof of a petition for protection under Federal bankruptcy statutes; (1) declaration of any dividend or other distribution to stockholders; and (m) selection of an independent consultant (the "Consultant").
In the event the members of the Board of Directors fail to agree unanimously on any matter for which unanimous approval is required, the by-laws provide that the Consultant shall render a decision on such matter which shall be binding, provided that the Consultant shall have no authority to render a decision on any of the matters covered by clauses (a), (b), (d), (e), (f) and (m) described above. If the Board of Directors fails to agree unanimously on any of the matters covered by clauses (a), (b), (d), (e), (f) and (m), the Company's by-laws do not specify how deadlocks are to be resolved. Therefore, the Board of Directors could remain deadlocked and would be unable to take any action on matters requiring unanimous approval.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEPENDENCE UPON USX
For the year 1998, approximately 57% of Transtar's revenues were derived from the provision of services to USX and its affiliates. Transtar's operating relationship with USX is governed by certain Transportation Services Agreements. These agreements, along with Transtar's exclusive rail access to virtually all USX's steel facilities and its integration within these facilities, provide some stability to Transtar's cash flows. The Transportation Services Agreements which existed at the formation of Transtar provided Transtar with certain rights including: (i) sole serving rail carrier status at USX's Minntac, Gary, Fairfield and Mon Valley facilities as well as USS/Kobe's Lorain facility; (ii) sole rights to perform specified USX in-plant switching services; (iii) sole serving Great Lakes Fleet bulk
commodity carrier status for USX, including USS/Kobe; and (iv) primary inland barge operator status for the water transport of USX's commodities originating at or destined for Birmingham, Alabama. With respect to the services referred to in clause (i) above, the Transportation Services Agreements provided that such services would continue indefinitely as long as a non-Transtar rail carrier had not obtained access to the USX facility being served; with respect to the services referred to in clause (ii) above, the agreements were exclusive through 1998 and provided that such services would continue indefinitely so long as USX had not purchased from Transtar or otherwise obtained the Transtar track on which such services were provided; with respect to the services referred to in clause (iii) above, the agreements provided that such services would continue for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other USX facilities, which terms would have been automatically renewed for successive one-year periods unless either USX or Transtar had given the other at least three years prior written notice of termination; with respect to the services described in clause (iv) above, the agreements provided that such services would generally continue until December 28, 1998. The agreements also provided that USX should not, at any time, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to any of the USX plants for which Transtar is the sole serving rail carrier or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access; provided that USX could, after December 28, 1998, request that an independent arbitrator determine whether it is reasonable and equitable under the facts, circumstances and the regulatory and competitive conditions in effect at that time, at one or more facilities, for USX to seek access for a non-Transtar rail carrier.
With respect to the services referred to in clause (ii) above, USS/Kobe Steel Company elected to terminate in-plant switching services provided by the Lake Terminal Railroad (a Transtar subsidiary) effective December 29, 1998. USS/Kobe has not purchased or otherwise obtained any Transtar track at this facility. In-plant switching services provided by parties other than Transtar will be performed on tracks currently owned by USS/Kobe. The annual impact on Transtar will be a revenue reduction of approximately $8.0 million, with no material impact on operating income.
With respect to the services referred to in clause (iii) above, USS/Kobe Steel Company, on March 14, 1996, provided written notice to terminate on March 15, 1999, the end of their primary term. USX on February 12, 1997 provided written notice of their intent to terminate effective March 15, 2000.
In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes Fleet bulk commodity carrier service only) executed new Transportation Services Agreements which, among other things, extend the time and exclusivity periods of the original agreements. The new agreements were approved on February 12, 1999 by the lending institutions who participate in Transtar's Credit Agreement. The new agreements were retroactively effective July 1, 1998 and will extend through December 31, 2004 for the services referred to in clauses (i), (ii) and (iv) above, with the exception of rail and rail related services at USS/Kobe Steel (see below), and will extend through March 15, 2005 for the services referred to in clause (iii) above. With respect to the services referred to in clause (i) above, the new Transportation Services Agreements provide that such services will continue indefinitely as long as a non-Transtar rail carrier has not obtained access to the USX facility being served; with respect to the services referred to in clause (ii) above, the agreements are exclusive through 2004 and provide that such services will continue indefinitely so long as USX has not purchased from Transtar or otherwise obtained the Transtar track on which such services are provided. The new agreements cover all of the services currently provided by Transtar, except that a third party may provide transportation services for: with respect to the services referred to in clause (i) above, a maximum per year of forty percent of blast furnace burden tonnage destined for USX's Edgar Thomson facility in the Mon Valley; with respect to the services referred to in clause (iii) above, a maximum of six hundred thousand gross tons of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15, 1999, a maximum per year of ten percent of tonnage via the Great Lakes from March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and with respect to the services referred to in clause (iv) above, a maximum per year of ten percent of imported iron ore and coke tonnage destined for USX's Fairfield, Alabama facility, a maximum per year of ten percent of export coal tonnage originating at US Steel's Concord Preparation Plant and a maximum per year of ten percent of domestic coal tonnage via barge originating at US Steel's Concord Preparation Plant. The agreements provide that USX shall not, at any time, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to any of the USX plants for which Transtar is the sole serving rail carrier or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access; provided that USX may, after December 31, 2004, request that an independent arbitrator or mediator determine whether it is reasonable and
equitable under the facts, circumstances and the regulatory and competitive conditions in effect at that time, at one or more facilities, for USX to seek access for a non-Transtar rail carrier. Transtar is required to acquire certain coke rail cars, not to exceed a maximum expenditure of $20 million. The agreements also provide for certain price concessions and market based price changes. USX is entitled to a refund of approximately $6.3 million (with an equal reduction in Transtar's operating income which was recognized in June 1998) for services provided during the first half of 1998. Including this refund, total price concessions for 1998 reduced Transtar's revenue and operating income by $14.4 million.
On December 29, 1998, Transtar and USS/Kobe executed a new Transportation Services Agreement for sole service carrier work including absorbed switching, single line movements and other related transportation services. This agreement was approved on February 12, 1999 by the lending institutions who participate in Transtar's Credit Agreement. The new agreement was effective December 29, 1998 and extends through December 31, 2008 for the sole service carrier work. In-plant scrap handling via rubber tire vehicles is under contract until July 31, 2000. The agreement provides that USS/Kobe shall not, during the term of the agreement, take any action (a) which would in any way, either directly or indirectly, encourage any non-Transtar rail carrier to attempt to obtain access to the USS/Kobe Works or (b) which would in any way assist in and/or support any such rail carrier in any efforts to obtain such access. The agreement provides for market based price changes and no price concessions.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1). FINANCIAL STATEMENTS Financial Statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page 18.
(a)(2). FINANCIAL STATEMENT SCHEDULES Schedules are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto.
(a)(3). EXHIBITS
Footnote Exhibit Ref. No Description ---- -- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital Corporation, filed with the Secretary of State of the State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone Transportation Company, Inc., the controlling general partner of Transtar Holdings, L.P. (Holdings), filed with the Secretary of State of the State of Delaware on November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc., the controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership of Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13 3/8% Series B Senior Discount Notes due 2003 (the Notes) (included in Exhibit 4.3 hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among Holdings, TCC and the United States Trust Company of New York, as trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among Transtar, Inc. and Chemical Bank as Agent and Issuing Bank thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and Chemical Bank as Agent and Issuing Bank thereunder.
(g) 10.3.2 Amendment and Waiver dated as of March 12, 1997 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and the Chase Manhattan Bank as Agent and Issuing Bank thereunder.
(g) 10.3.3 Third Amendment and Waiver dated as of October 9, 1997 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and the Chase Manhattan Bank as Agent and Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28, 1988, by and among Blackstone Capital Partners L.P., Blackstone Transportation Partners L.P., USX Corporation and Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and USX Corporation.
10.5.1 Transportation Services Agreement, dated July 1, 1998, between Transtar, Inc. and USX Corporation.
10.5.2 Transportation Services Agreement, dated December 29, 1998, between Transtar, Inc. and USS/Kobe Steel Company.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between USX Corporation and USS Great Lakes Fleet, Inc.
Footnote Exhibit Ref. No Description ---- -- -----------
10.6.1 Transportation Services Agreement, dated July 1, 1998 between USS Great Lakes Fleet, Inc. and USX Corporation and USS/Kobe Steel Company.
(a) 10.7 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and U.S. Steel Mining.
10.7.1 Transportation Services Agreement, dated July 1, 1998, between Transtar, Inc. and U.S. Steel Mining Co., LLC.
(a) 10.8 Management Stock Trust Agreement, dated December 28, 1988, between Transtar, Inc. and Pittsburgh National Bank.
(a) 10.10 Transtar, Inc. Equity Participation Plan, dated December 28, 1988, as amended.
(e) 10.13 Transtar, Inc. Savings Plan for Salaried Employees, effective January 1, 1989 as amended through January 1, 1996.
(a) 10.14 Transtar, Inc. Flexible Compensation Plan for Non-Represented Employees of Transtar, Inc. and Subsidiary Companies, effective January 1, 1989.
(e) 10.14.1 Transtar, Inc. Split Dollar Life Insurance Plan, effective July 1, 1994.
(a) 10.15 Layoff Unemployment Benefit Program for Non-Union Salaried Employees as amended January 1, 1989.
(e) 10.16 Transtar, Inc. Salaried Retirement Plan, effective January 1, 1989 as amended through January 1, 1996.
(g) 10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1997.
(g) 10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1998.
10.16.3 Sixth Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1999.
(g) 10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective January 1, 1994.
(g) 10.18 Transtar, Inc. Supplemental Thrift Program, effective January 1, 1994.
(g) 10.19 Transtar, Inc. Supplemental Pension Program, effective January 1, 1994.
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of September 29, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991, between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between GATX Leasing Corporation, successor to Gould Leasing Services, Inc., and Bessemer and Lake Erie Railroad Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between the Bessemer and Lake Erie Railroad Company and State Street Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30, 1993, between The CIT Group/Equipment Financing, Inc. and Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15, 1989, between Elgin, Joliet & Eastern Railway Company and Mellon Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred Ship Mortgage, dated March 19, 1982, between The Connecticut Bank and Trust Company, as Owner Trustee, and Mercantile-Safe Deposit and Trust Company, as Indenture Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The Connecticut Bank and Trust Company and United States Steel Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services Agreement, dated as of July 1, 1981, between United States Steel Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton Industries, Inc. and Litton Industries Leasing Corporation and United States Steel Corporation.
Footnote Exhibit Ref. No Description ---- -- -----------
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX Corporation to Litton Industries, Inc., Litton Credit Corporation, Litton Great Lakes Corp. and Litton Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement, dated as of July 1, 1991, between United States Steel Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS Great Lakes Fleet, Inc. and Labovitz Enterprises.
(a) 10.40 Assignment of Leases, dated as of May 31, 1984, between Duluth, Missabe and Iron Range Railway Company and Joel Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982, between Duluth, Missabe and Iron Range Railway Company and USS Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of December 28, 1988, among USX Corporation, Transtar and certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer and Lake Erie Railroad Company and USX Corporation dated October 6, 1994.
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994 between GATX Third Aircraft Corporation and Elgin, Joliet and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of December 28, 1995 between Birmingham Southern Railroad company and Nationsbanc Leasing Corporation of North Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of December 28, 1995 between Duluth, Missabe and Iron Range Railway company and Heller Financial Leasing, Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
(a) 21.1 Significant Subsidiaries of Transtar Holdings, L.P.
27 Financial Data Schedule.
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(a) Previously filed with Registration Statement No. 33-73270 under corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
(g) Previously filed with Form 10-K on March 27, 1998.
(B). REPORTS ON 8-K
Holdings and TCC did not file any reports on Form 8-K during the quarter ended December 31, 1998.
(C). EXHIBITS
See Exhibits to this Form 10-K under separate cover.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
Holdings and TCC have not sent an annual report or proxy material to their security holders. The only annual report to be sent to Holdings and TCC's securities holders will be a copy of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 15(a) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25th of March, 1999.
TRANSTAR HOLDINGS, L.P.
By Blackstone Transportation Company, Inc. its controlling general partner
By /s/ Howard A. Lipson ---------------------------------- Name: Howard A. Lipson Title: Treasurer
TRANSTAR CAPITAL CORPORATION
By /s/ Howard A. Lipson ---------------------------------- Name: Howard A. Lipson Title: Treasurer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities indicated on March 25, 1999.
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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EXHIBITS filed with FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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TRANSTAR HOLDINGS, L.P. TRANSTAR CAPITAL CORPORATION (Exact name of registrant as specified in its charter) (Primary Standard Industrial Classification Code Number)
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INDEX TO EXHIBITS
FOOTNOTE EXHIBIT REF. NO DESCRIPTION ---- -- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital Corporation, filed with the Secretary of State of the State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone Transportation Company, Inc., the controlling general partner of Transtar Holdings, L.P. (Holdings), filed with the Secretary of State of the State of Delaware on November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc., the controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership of Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13 3/8% Series B Senior Discount Notes due 2003 (the Notes) (included in Exhibit 4.3 hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among Holdings, TCC and the United States Trust Company of New York, as trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among Transtar, Inc. and Chemical Bank as Agent and Issuing Bank thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and Chemical Bank as Agent and Issuing Bank thereunder.
(g) 10.3.2 Amendment and Waiver dated as of March 12, 1997 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and the Chase Manhattan Bank as Agent and Issuing Bank thereunder.
(g) 10.3.3 Third Amendment and Waiver dated as of October 9, 1997 to the Credit Agreement dated as of December 7, 1993 among Transtar, Inc. and the Chase Manhattan Bank as Agent and Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28, 1988, by and among Blackstone Capital Partners L.P., Blackstone Transportation Partners L.P., USX Corporation and Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and USX Corporation.
10.5.1 Transportation Services Agreement, dated July 1, 1998, between Transtar, Inc. and USX Corporation.
10.5.2 Transportation Services Agreement, dated December 29, 1998, between Transtar, Inc. and USS/Kobe Steel Company.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between USX Corporation and USS Great Lakes Fleet, Inc.
10.6.1 Transportation Services Agreement, dated July 1, 1998 between USS Great Lakes Fleet, Inc. and USX Corporation and USS/Kobe Steel Company.
(a) 10.7 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and U.S. Steel Mining.
10.7.1 Transportation Services Agreement, dated July 1, 1998, between Transtar, Inc. and U.S. Steel Mining Co., LLC.
(a) 10.8 Management Stock Trust Agreement, dated December 28, 1988, between Transtar, Inc. and Pittsburgh National Bank.
(a) 10.10 Transtar, Inc. Equity Participation Plan, dated December 28, 1988, as amended.
(e) 10.13 Transtar, Inc. Savings Plan for Salaried Employees, effective January 1, 1989 as amended through January 1, 1996.
(a) 10.14 Transtar, Inc. Flexible Compensation Plan for Non-Represented Employees of Transtar, Inc. and Subsidiary Companies, effective January 1, 1989.
(e) 10.14.1 Transtar, Inc. Split Dollar Life Insurance Plan, effective July 1, 1994.
FOOTNOTE EXHIBIT REF. NO DESCRIPTION ---- -- -----------
(a) 10.15 Layoff Unemployment Benefit Program for Non-Union Salaried Employees as amended January 1, 1989.
(e) 10.16 Transtar, Inc. Salaried Retirement Plan, effective January 1, 1989 as amended through January 1, 1996.
(g) 10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1997.
(g) 10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1998.
10.16.3 Sixth Amendment to the Transtar, Inc. Salaried Retirement Plan, effective January 1, 1999.
(g) 10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective January 1, 1994.
(g) 10.18 Transtar, Inc. Supplemental Thrift Program, effective January 1, 1994.
(g) 10.19 Transtar, Inc. Supplemental Pension Program, effective January 1, 1994.
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of September 29, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991, between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between GATX Leasing Corporation, successor to Gould Leasing Services, Inc., and Bessemer and Lake Erie Railroad Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between the Bessemer and Lake Erie Railroad Company and State Street Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30, 1993, between The CIT Group/Equipment Financing, Inc. and Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15, 1989, between Elgin, Joliet & Eastern Railway Company and Mellon Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred Ship Mortgage, dated March 19, 1982, between The Connecticut Bank and Trust Company, as Owner Trustee, and Mercantile-Safe Deposit and Trust Company, as Indenture Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The Connecticut Bank and Trust Company and United States Steel Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services Agreement, dated as of July 1, 1981, between United States Steel Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton Industries, Inc. and Litton Industries Leasing Corporation and United States Steel Corporation.
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX Corporation to Litton Industries, Inc., Litton Credit Corporation, Litton Great Lakes Corp. and Litton Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement, dated as of July 1, 1991, between United States Steel Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS Great Lakes Fleet, Inc. and Labovitz Enterprises.
(a) 10.40 Assignment of Leases, dated as of May 31, 1984, between Duluth, Missabe and Iron Range Railway Company and Joel Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982, between Duluth, Missabe and Iron Range Railway Company and USS Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of December 28, 1988, among USX Corporation, Transtar and certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer and Lake Erie Railroad Company and USX Corporation dated October 6, 1994.
FOOTNOTE EXHIBIT REF. NO DESCRIPTION ---- -- -----------
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994 between GATX Third Aircraft Corporation and Elgin, Joliet and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of December 28, 1995 between Birmingham Southern Railroad company and Nationsbanc Leasing Corporation of North Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of December 28, 1995 between Duluth, Missabe and Iron Range Railway company and Heller Financial Leasing, Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
(a) 21.1 Significant Subsidiaries of Transtar Holdings, L.P.
27 Financial Data Schedule.
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(a) Previously filed with Registration Statement No. 33-73270 under corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
(g) Previously filed with Form 10-K on March 27, 1998.