<PAGE> 1
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
--------------- ---------------
Commission File Number
-----------------------
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486874
DELAWARE 13-3745313
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Address and zip code of principal executive offices)
(212) 935-2626
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
-----------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
-----------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
DOCUMENTS INCORPORATED BY REFERENCE: NONE
- - -------------------------------------------------------------------------------
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TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 4
Item 3. Legal Proceedings........................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......................................... 8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters........................ 9
Item 6. Selected Financial Data..................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 11
Item 8. Financial Statements and Supplementary Data................................................. 17
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................................. 44
PART III
Item 10. Directors and Executive Officers of Registrant............................................. 45
Item 11. Executive Compensation..................................................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 51
Item 13. Certain Relationships and Related Transactions............................................. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on 8-K................................ 54
</TABLE>
<PAGE> 3
PART I
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
51.0% voting and 53.0% 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 solely from its 53.0% 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 comprised 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)--Pittsburgh &
Conneaut Dock Company (P&C Dock) and one in--plant rail operation--Fairfield
Southern Company, Inc. (Fairfield Southern, together with DMIR, EJ&E, B&LE,
Union, Lake Terminal, McKeesport, Birmingham Southern and P&C Dock constitute
the Railroad Group), a Great Lakes shipping fleet (the Fleet Group) and an
inland barge operation (the Barge Group). The Railroad Group, the Fleet Group
and the Barge Group accounted for approximately 69%, 20% and 11% of revenues,
respectively, in 1996.
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 58% of
its revenues in 1996 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 18% of revenues, resulting in the steel industry accounting for 76%
of Transtar's revenues in 1996. Movements of coal to utilities and other
customers accounted for 10% of Transtar's revenues in 1996, while miscellaneous
traffic accounted for the remaining 14%.
The shareholders of Transtar are Holdings, which owns a 51.0% voting
and a 53.0% economic interest, USX, which owns a 49.0% voting and a 45.7%
economic interest, and Transtar's management which owns a 1.3% economic
interest. Management's direct interest has been reduced since Transtar's
formation due to repurchases of 750 shares of nonvoting stock from retiring
managers. Such stock has been allocated to promoted managers in a stock option
program. Total economic ownership of Management, including the effect of this
program, is 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.
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.
1
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RAILROAD GROUP
Each rail subsidiary is a regional or switching railroad with
individual specialties. Revenues from USX represented approximately 51% of the
Railroad Group's revenues in 1996. 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 Inland Steel. The DMIR hauls taconite to its Two Harbors and Duluth docks
where it is loaded onto Fleet Group 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.
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 non-affiliated customers in the Chicago
area.
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 unaffiliated 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 provides
USS/Kobe with in-plant switching services and maintenance of track and
equipment.
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. It also
transports coal and coke for various non-affiliated customers. Fairfield
Southern, a Birmingham Southern subsidiary, provides all of the in-plant
switching at Fairfield Works.
FLEET GROUP
The Fleet Group 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.
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<PAGE> 5
The Fleet Group's operations involve hauling of bulk materials, such
as taconite pellets, iron ore, limestone, slag, salt, petroleum coke, sand and
gypsum to and from ports located on the Great Lakes. It transports taconite
pellets from DMIR docks at Two Harbors and Duluth for consumption at USX's Gary
and Mon Valley facilities and the USS/Kobe facility at Lorain. It transports
limestone from Michigan ports to Duluth for use in flux pellet production at
USX's Minntac plant and directly to USX's Gary Works and USS/Kobe facilities
and to Conneaut, Ohio (for loading on to the B&LE) for use in steel-making and
lime kilns. The Fleet Group also transports limestone, coal, coke and salt for
non-affiliated customers and transports ore under charter arrangements for
other vessel companies.
BARGE GROUP
The Barge Group consists of Transtar's subsidiary Warrior & Gulf
Navigation Company (WGN) and WGN's subsidiary, Mobile River Terminal (MRT).
WGN, headquartered in Chickasaw, Alabama, operates on the Black
Warrior-Tombigbee waterway and the Tennessee-Tombigbee waterway, utilizing a
fleet of 220 barges (of which 129 are leased) and 22 towboats.
WGN's traffic consists principally of southbound coal and wood chips
and northbound iron ore and coke. Collectively these products comprised 90% of
1996's volume of 8.7 million revenue tons. Much of this volume is handled
through one of two terminals operated by the Barge Group. WGN's terminal,
located on the Black Warrior River outside of Birmingham, is an intermodal
transfer facility with the capability of transferring bulk or structural cargo.
MRT's terminal at Mobile is a salt water/fresh water transfer facility.
OPERATING REVENUES
Transtar's total operating revenues were $509.1 million in 1996. 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 both fleet and barge operations. Dock
handling revenues were earned by both the rail and the barge operations.
Set forth below are freight revenues of Transtar by commodity groups
for the years 1994 through 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994
------------------ ------------------- -------------------
$ % of $ % of $ % of
(mil.) total (mil.) total (mil.) total
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Iron Ore........................ $206.1 40.5 $201.1 40.7 $199.0 41.6
Coal............................ 61.0 12.0 63.4 12.8 62.4 13.1
Coke............................ 39.3 7.7 38.8 7.8 36.5 7.6
Steel & General Merch........... 146.2 28.7 146.0 29.5 135.9 28.4
Dock Handling................... 23.5 4.6 20.1 4.1 23.4 4.9
Trucking........................ 1.0 .2 0.8 0.2 0.6 0.1
All other revenues.............. 32.0 6.3 24.3 4.9 20.7 4.3
------ ----- ------ ----- ------ -----
Total Revenues............... $509.1 100.0 $494.5 100.0 $478.5 100.0
====== ===== ====== ===== ====== =====
</TABLE>
EMPLOYEES
Transtar employed an average of 3,300 employees in 1996, virtually the
same as 1995. Approximately 83% of Transtar's employees are covered by
collective bargaining agreements.
3
<PAGE> 6
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 Fleet and
Barge 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 service provided.
ITEM 2. PROPERTIES
THE RAILROAD GROUP
Roadway, Yards and Structures
The Railroad Group has approximately 1,700 miles of track in
operation, consisting of approximately 650 miles of first main track (route
miles) and approximately 1,050 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:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Track miles of rail laid............ 86 68 30
Ties inserted (thousands)........... 142 101 107
Track miles resurfaced.............. 506 486 342
</TABLE>
4
<PAGE> 7
The Railroad Group owns or leases the equipment described in the table
below.
<TABLE>
<CAPTION>
Owned Leased Total
--------------------- -------------------- --------------------
Average Average Average
Description Units Age Units Age Units Age
- - ------------------------------------------------- ------ ------- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Locomotives:
Road......................................... 120 32 13 25 133 31
Switcher..................................... 120 31 - - 120 31
------ -- ----- -- ------ --
Total Locomotives.......................... 240 31 13 25 253 31
====== == ===== == ====== ==
Freight Cars:
Box.......................................... 69 20 - - 69 20
Gondola...................................... 3,642 25 988 18 4,630 23
Hopper....................................... 8,551 42 864 17 9,415 40
Flat......................................... 508 34 - - 508 34
------ -- ----- -- ------ --
Total Freight Cars......................... 12,770 37 1,852 18 14,622 34
====== == ===== == ====== ==
</TABLE>
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)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Roadway and structures................................. $11.6 $11.0 $ 7.1
Railroad equipment:
Locomotives.......................................... 0.4 0.4 0.5
Freight cars......................................... 2.1 3.2 0.8
Other.................................................. 3.6 3.0 3.8
----- ----- -----
Total.............................................. $17.7 $17.6 $12.2
===== ===== =====
</TABLE>
Capital expenditures for the Railroad Group for 1997 are expected to
be approximately $17.6 million, of which approximately $11.1 million are
anticipated for roadway and structures and approximately $1.0 million are for
railroad equipment. Expenditures on new equipment comprise a relatively small
portion of the Company's capital expenditures because Transtar retains adequate
equipment capacity and performs regular preventative maintenance on its
equipment.
5
<PAGE> 8
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)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Roadway and structures................................. $38.1 $36.5 $33.3
Railroad equipment:
Locomotives.......................................... 27.4 26.5 23.2
Freight cars......................................... 21.6 20.5 17.4
Other.................................................. 8.4 8.2 8.6
----- ---- ----
Total................................................ $95.5 $91.7 $82.5
===== ===== =====
</TABLE>
Annual maintenance programs are developed which are consistent with
the Company's strategy of facility rationalization. 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 FLEET GROUP
The Fleet Group 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 362,308 gross tons (GT) at mid-summer draft.
The Fleet Group owns or leases four large beam vessels. 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. Included
are the Roger Blough, the Edwin H. Gott, the Edgar B. Speer, which is a leased
vessel, and the Presque Isle, which is under long-term charter from Litton
Great Lakes Corporation.
The Fleet Group's four intermediate size self-unloading carriers
include the John G. Munson, with a forward deck-mounted boom, the Arthur M.
Anderson, the Cason J. Callaway and the Philip R. Clarke.
The Fleet Group's remaining vessels are three smaller, self-unloading
vessels. These include the George A. Sloan, which is the Fleet Group's primary
vessel for transiting the Welland Canal into Lake Ontario, the Calcite II and
the Myron C. Taylor, which are the two 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.
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A list of the Fleet Group's active vessels, all of which are dry bulk
self-unloaders, is set forth in the table below.
<TABLE>
<CAPTION>
Seasonal
Capacity Year Capacity
Vessel Length (feet) (GT)(1) Acquired (M-GT) (2)
------ ------------- -------- -------- ----------
<S> <C> <C> <C> <C>
Ore Fleet
- - ---------
Gott..................................... 1,004 62,190 1978 2,378
Speer(4)................................. 1,004 62,190 (3) 1980 2,378
Presque Isle(4).......................... 1,000 51,595 1973 1,930
Blough................................... 858 43,913 (3) 1972 1,914
Anderson................................. 767 25,295 1952 1,048
Callaway................................. 767 25,295 1952 1,048
Clarke................................... 767 25,295 1952 1,048
Stone Fleet
- - -----------
Munson................................... 768 25,550 1952 1,867
Sloan.................................... 621 15,625 1943 1,087
Calcite II............................... 605 12,902 1929 964
Taylor................................... 604 12,458 1929 1,005
------- ------
Total.................................... 362,308 16,667
======= ======
</TABLE>
(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) Vessels leased by the Fleet Group.
Capital expenditures for the Fleet Group for 1997 are expected to be
approximately $0.2 million.
THE BARGE GROUP
The Barge Group owns 22 towboats and 91 barges and operates another
129 barges utilizing long-term lease arrangements.
Towboat and barge maintenance costs have declined significantly in
recent years due to the replacement of older owned barges with 129 new leased
barges.
Capital expenditures for the Barge Group for 1997 are expected to be
approximately $0.5 million.
7
<PAGE> 10
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
other 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1996.
8
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PART II
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. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Transtar Holdings, L.P.
As of and for the year ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Income (loss) from equity in earnings of Transtar.. $37.6 $ 31.1 $ 28.4 $ 5.1 $(19.4)
Interest and other financial expense............... (18.8) (16.6) (14.7) (0.9) -
Income (loss) from continuing operations........... $19.6 $ 13.8 $ 13.0 $ 4.1 $(19.4)
Balance Sheet Data:
Investment in Transtar............................. $ 0.5 $(15.4) $(16.9) $(44.7) $(45.5)
Total assets....................................... 50.9 14.0 (9.4) (35.2) (45.5)
Long-term debt..................................... 148.8 130.7 114.8 100.9 -
Partners' equity (deficit)......................... (98.6) (117.3) (124.9) (137.2) (45.5)
</TABLE>
9
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<TABLE>
<CAPTION>
Transtar, Inc.
As of and for the year ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Operating revenues.................................. $509.1 $494.5 $478.5 $437.0 $440.5
Operating expenses (excluding item shown below)(1).. 360.4 352.1 331.7 332.2 332.3
Depreciation and amortization....................... 26.4 26.7 27.7 33.8 35.4
------ ------ ------ ------ ------
Operating income.................................. 122.3 115.7 119.1 71.0 72.8
Other income (expense).............................. 1.7 1.1 (8.7) 1.7 1.2
Interest income..................................... 1.0 1.2 1.0 1.1 0.9
Interest and other financial expense................ (21.3) (24.1) (25.3) (47.8) (56.6)
------ ------ ------ ------ ------
Income before income taxes........................ 103.7 93.9 86.1 26.0 18.3
Provision for income taxes.......................... 32.8 35.2 32.4 10.2 7.0
------ ------ ------ ------ ------
Income from continuing operations................... $70.9 $58.7 $ 53.7 $ 15.8 $ 11.3
====== ====== ====== ====== ======
Other Data:
Consolidated Cash Flow(2)........................... $152.5 $148.6 $149.9 $128.8 $124.3
Cash provided by operating activities............... 113.8 94.0 99.8 68.8 72.2
Cash provided (used) by investing activities........ (15.8) (16.9) 1.2 (6.4) (9.6)
Cash (used) by financing activities................. (83.9) (87.0) (99.1) (64.4) (62.3)
Capital expenditures................................ 19.6 20.3 13.7 11.2 13.7
Dividends paid...................................... 40.9 55.8 - - -
Non-cash interest(3)................................ 0.1 0.1 0.1 15.7 26.1
Consolidated Cash Flow to cash interest............. 7.2x 6.2x 5.9x 4.0x 4.1x
Fixed charge coverage ratio(4)...................... 7.2x 6.2x 5.9x 2.7x 2.2x
Ratio of earnings to fixed charges(5)............... 4.6x 4.1x 3.7x 1.5x 1.3x
Balance Sheet Data:
Cash and cash equivalents........................... $24.7 $ 10.6 $ 20.5 $ 18.6 $ 20.6
Total assets........................................ 515.1 513.7 530.6 560.9 591.3
Long-term debt less current portion................. 196.4 265.2 329.0 390.2 462.9
</TABLE>
(1) Operating expenses include non-recurring charges (credits) of $(1.0)
million, $(1.7) million, $17.3 million, and $8.5 million for the years
ended December 31, 1996, 1994, 1993, and 1992, respectively. These
charges primarily relate to non-recurring personal injury and labor
costs, permanent impairments of certain assets and environmental costs.
(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 interest on certain payment-in-kind notes
and 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.
10
<PAGE> 13
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 solely from its 53.0% 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.
1996 VERSUS 1995 AND 1994
OVERALL
Substantially all of the net income of Holdings consists of Holdings'
share in the earnings of Transtar accounted for by the equity method. Holdings'
Equity earnings of Transtar increased to $37.6 million in 1996 from $31.1
million in 1995 and $28.4 million in 1994. 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 1996, Holdings' net income totaled $19.6 million, an increase of
$5.8 million from $13.8 million in 1995 and a $6.6 million increase from the
$13.0 million recorded in 1994.
REVENUES AND EXPENSES
Holdings did not produce any revenues in 1996, 1995, or 1994.
Holdings' operating expenses decreased in 1996 to $0.6 million, or $0.1 million
less than the $0.7 million in 1995 and $0.2 million less than the $0.8 million
incurred in 1994. As a result of a December 1993 offering of debt, interest and
other financial expenses grew from $14.7 million in 1994, to $16.6 million in
1995, and $18.8 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
On December 7, 1993, Holdings and 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.
On August 29, 1996, Transtar declared a cash dividend in the amount of
$850 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 August 27, 1996.
Holdings received $8.7 million on August 29, 1996, representing its 53 %
economic interest in the Transtar dividend. On November 26, 1996, Transtar
declared a second cash dividend of $1,275 per share on both its Voting and
Nonvoting Stock to holders of record of the stock on November 22, 1996.
Holdings received $13.0 million on November 26, 1996 representing its 53%
economic interest in the Transtar dividend. Pursuant to an Indenture Agreement
relating to the issuance of the Notes (the Notes Indenture), both dividend
payments were deposited into an escrow account.
In February 1997, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Senior Discount 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 Senior Discount
Notes and was held open for 20 business days. No Notes were tendered for
repurchase. In March 1997, in accordance with the Notes Indenture and an
agreement governing the escrow account, Holdings withdrew from the escrow
account $5.3 million to distribute to its partners and $0.3 million to pay
certain administrative expenses.
11
<PAGE> 14
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
In 1995, Transtar declared two cash dividends, each in the amount of
$1,450 per share, on both its Voting and Nonvoting stock to holders of record
on October 27, 1995. The first dividend was paid on October 31, 1995 and the
second was paid on December 29, 1995. Holdings received $14.8 million on
October 31, 1995 and $14.8 million on December 29, 1995, representing its 53 %
economic interest in the Transtar dividend. Pursuant to the Notes Indenture,
both dividend payments were deposited in an escrow account. In accordance with
the Notes Indenture and the escrow agreement, Holdings distributed from the
first dividend $6.2 million to its partners and $0.4 million to pay certain
administrative expenses. In January 1996, after distributing $0.9 million to
its partners and $0.1 million to pay certain administrative expenses, Holdings
offered to repurchase a portion of the Senior Discount 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 Senior
Discount 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 Notes, make a Restricted
Payment (as defined by the Notes Indenture), purchase or optimally redeem Notes
or to pay administrative expenses of Holdings. Interest earned on the escrow
balance amounted to $1.4 million and $76 thousand in 1996 and 1995,
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 concurrence
of USX.
12
<PAGE> 15
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar, Inc. (Transtar or the Company) is a holding company with
principal operations in railroad freight and dock operations, Great Lakes
shipping and inland barging.
1996 VERSUS 1995
OVERALL
Transtar reported record net income of $70.9 million in 1996, compared
to net income of $58.7 million in 1995. Transtar's results in 1996 were driven
by the economy's continued strength, particularly within the domestic steel
industry, which shipped at its highest level since 1974.
OPERATING REVENUES
Operating revenues in 1996 totaled $509.1 million, or $14.6 million
greater than in 1995. Revenue increases achieved by the Rail Group and the
Fleet Group were $12.0 million and $4.3 million, respectively. These increases
were partially offset by a revenue decline of $1.7 million on the Barge Group.
Domestic steel shipments increased by 4.2 percent in 1996 and helped produce
additional business volumes for Transtar. Approximately 40% of the overall
revenue improvement was related to the movement of iron ore and associated dock
handling which increased $5.9 million over 1995. The strong demand for iron ore
pellets required an extension of the 1995 Great Lakes shipping season into the
first quarter of 1996. Sailing in the very harsh first quarter weather
conditions produced accessorial revenue of $1.8 million. Demurrage revenues,
resulting primarily from industry retention of railroad freight cars, increased
$1.8 million. Additional haulage for other transportation companies under
various charter agreements provided a $2.7 million improvement in revenues.
Coal and associated dock handling revenues remained virtually unchanged as the
increased demand for coal deliveries to Great Lakes customers was offset by
decreased shipments from Alabama origins destined for export.
OPERATING EXPENSES
Operating expenses increased $8.1 million from 1995 levels to $386.9
million in 1996. Contributing to cost increases were: 1) increased repair and
maintenance materials of $2.2 million, reflecting additional traffic volumes;
2) fuel costs increases of $5.5 million, reflecting additional traffic volumes
as well as continually escalating prices; and 3) an increase in long-term lease
expense of $1.7 million, reflecting new leases involving freight cars,
locomotives and barges that were entered into in late 1995 and during 1996.
Decreased car hire earnings, which are handled as a credit to operating
expenses, and additional labor costs due to contract signings generated
moderate increases in operating expense. Partially offsetting these increases
were reduced state tax reserves of $1.0 million coupled with recognition of a
$1.0 million credit resulting from the settlement of environmental litigation.
INTEREST EXPENSE
Transtar's net interest expense decreased by $2.7 million in 1996 from
1995. This decrease is equally attributable to the retirement of $23.0 million
of term debt during 1996 combined with a 50 basis point decrease in the average
interest rate from 1995 to 1996.
13
<PAGE> 16
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1996 was $32.8 million. The
decrease of $2.5 million from 1995 is net of a reversal of prior years tax
estimates. During 1996, Transtar completed a review of its accrual for prior
year income tax liabilities and concluded that certain contingent liabilities
which it previously had anticipated and provided for, were no longer
appropriate. Accordingly, the current year provision for income taxes includes
a reversal of $7.1 million for those previously recorded amounts. Transtar
believes the tax reserves adequately reflect the liabilities of the company.
1995 VERSUS 1994
OVERALL
Transtar reported net income of $58.7 million in 1995, compared to net
income of $53.7 million in 1994. Transtar's results in 1995 were driven by the
economy's continued strength, particularly within the domestic steel industry,
which shipped at its highest levels since the early 1980's. Additionally, in
1994 an $11.0 million charge was recorded as full and final settlement of
expenses associated with an anti-trust litigation indemnification issue with
USX Corporation (USX). Also in 1994, a credit of $2.0 million was recorded as a
result of the resolution of an environmental issue.
OPERATING REVENUES
Operating revenues in 1995 totaled $494.5 million, or $16.1 million
greater than in 1994. Revenue increases were achieved by all operating groups,
with the Barge Group increasing $7.9 million, the Rail Group increasing $6.0
million, and the Fleet Group increasing $2.2 million. U.S. domestic steel
shipments increased by 3.0 percent in 1995 and produced additional business
volume for Transtar. Movements of raw materials used in the steel production
process, such as ore and coke as well as outbound steel products, all showed
revenue increases over 1994. Ore revenues improved by $1.8 million, coke
revenues improved by $2.3 million, and steel and general merchandise revenues
improved by $10.1 million. Coal and associated dockhandling revenues decreased
by $1.1 million primarily due to the decreased demand for coal deliveries to
Great Lakes customers, which offset increased shipments from Alabama origins
destined for export.
OPERATING EXPENSES
Operating expenses increased $19.4 million from 1994 levels to $378.8
million in 1995. Contributing to this cost increase were: 1) increased
employment costs of $10.3 million, primarily to meet the demand of additional
traffic volumes and increased maintenance, 2) favorable settlement of tax
issues in 1994 in the states of Ohio and Minnesota which reduced expenses by
$2.4 million, 3) repair and maintenance materials and outside contractor cost
increases of $2.5 million, reflecting the increased traffic volumes, 4) the
favorable settlement in 1994 of an environmental issue that resulted in a net
favorable one-time reduction in cost of $1.7 million, and 5) a long-term lease
expense increase of $1.0 million, reflecting the impact of the sale and
leaseback of 500 freight cars in mid 1994 and the leasing of additional barges
in late 1994 and in 1995.
14
<PAGE> 17
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
INTEREST EXPENSE
Transtar's net interest expense decreased by $1.3 million in 1995 from
1994. This decrease is attributable to the reduction of $51.0 million of term
debt during 1995, partially offset by a 160 basis point increase in the average
interest rate from 1994 to 1995.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1995 was $35.3 million. The
increase of $2.8 million over 1994 is primarily attributable to the improvement
in Transtar's pretax income of $7.8 million in 1995 when compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Transtar ended 1996 with cash and cash equivalents totaling $24.7
million, which was $14.1 million more than the $10.6 million it had at year end
1995. During 1996, Transtar repaid $23.0 million of its term loan obligations
and the entire $20.0 million it had previously drawn against its revolving line
of credit. Following repayment of this borrowing, Transtar had $24.2 million
available under its $25 million revolving line of credit. During 1995, Transtar
repaid $51.0 million of its term loan obligations. A 1995 amendment to its
Credit Agreement permitted payment of dividends not to exceed Transtar's 1996
net income. Transtar paid dividends of $40.9 million to its shareholders in
1996 compared to the $55.8 million of dividends paid in 1995.
At December 31, 1996, Transtar had $258.0 million term loan
obligations remaining, including $61.6 million (due June and December 1997) to
complete its 1997 obligation. On January 13, 1997, Transtar repaid $10.0
million of this obligation. Transtar expects to repay the remaining 1997
obligation from its operating cash flow.
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 utilized for investing activities in 1996 at $15.8 million
was $1.1 million less than 1995. This change reflects decreased capital
spending in 1996 of $0.6 million and a $0.5 million increase in the proceeds
from disposition of assets.
Cash used for financing activities in 1996 decreased $3.0 million from
1995. Cash used for term loan debt payments declined by $28.0 million from
1995. In 1996, Transtar repaid $23.0 million of its debt obligation versus the
$51.0 million it repaid in 1995. Transtar retired $20.0 million of revolving
credit loans in 1996 which were incurred in 1995. In 1996, dividends of $40.9
million were paid to stockholders, compared with $55.8 million in 1995 and no
dividends in 1994.
15
<PAGE> 18
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
CAPITAL EXPENDITURES
Transtar's capital requirements during 1997 are forecasted to be
approximately $18.4 million. Contractual commitments to acquire, via operating
lease, two locomotives and twenty barges have been made. Internally generated
funds from operations are sufficient to fund Transtar's mandatory debt payments
as well as future capital requirements.
In 1996, capital expenditures of $19.6 million represented a $0.6
million decrease from 1995. Capital expenditures in 1995 totaled $20.3 million,
or $6.6 million more than in 1994. In addition to these capital expenditures,
the Company spent $115.0 million in 1996, $110.5 million in 1995, and $103.9
million in 1994 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, 1996 and 1995, accrued liabilities for
remediation totaled $0.4 million and $3.0 million, respectively. The Company
has considered the other potentially responsible parties in determining this
accrual. For the period 1989 through 1996, actual cash payments associated with
environmental expense have totaled $9.8 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 $9.8 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.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TRANSTAR HOLDINGS, L.P.
Page
----
<S> <C>
Report of Independent Accountants........................................................................ 18
Consolidated Balance Sheet as of December 31, 1996 and 1995.............................................. 19
Consolidated Statement of Income for the Years Ended December 31, 1996, 1995 and 1994.................... 20
Consolidated Statement of Partners' Equity for the Years Ended December 31, 1996, 1995
and 1994................................................................................................. 20
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994................ 21
Notes to Consolidated Financial Statements............................................................... 22
TRANSTAR, INC.
Report of Independent Accountants........................................................................ 26
Consolidated Balance Sheet as of December 31, 1996 and 1995.............................................. 27
Consolidated Statement of Income for the Years Ended December 31, 1996, 1995 and 1994.................... 28
Consolidated Statement of Retained Earnings for the Years Ended December 31, 1996, 1995
and 1994................................................................................................. 28
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994................ 29
Notes to Consolidated Financial Statements............................................................... 30
Financial Statement Schedules............................................................................ 54
</TABLE>
17
<PAGE> 20
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 17 of the Annual
Report on Form 10-K, present fairly, in all material respects, the financial
position of Transtar Holdings, L.P. and Transtar Capital Corporation (TCC)
(Holdings) at December 31, 1996, and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, 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.
Price Waterhouse LLP
600 Grant Street
Pittsburgh, PA 15219
February 24, 1997
18
<PAGE> 21
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2)................................................ $ 386 $ 95
Other current assets.............................................................. 329 365
-------- --------
Total current assets............................................................ 715 460
Restricted cash (Note 4)............................................................ 44,579 23,096
Investment in Transtar.............................................................. 491 (15,417)
Other assets (Note 2)............................................................... 5,105 5,843
-------- --------
Total assets.................................................................... $ 50,890 $ 13,982
======== ========
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities.................................... $ 729 $ 615
Long-term debt (Note 3)............................................................. 148,767 130,673
-------- --------
Total liabilities............................................................... 149,496 131,288
PARTNERS' EQUITY (DEFICIT)...................................................... (98,606) (117,306)
-------- --------
Total liabilities and partners' equity (deficit)................................ $50,890 $13,982
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE> 22
TRANSTAR HOLDINGS, L.P.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues............................................................ $ - $ - $ -
-------- -------- --------
Operating expenses:
Selling, general and administrative expenses.................... 551 736 804
-------- -------- --------
Operating (loss)............................................ (551) (736) (804)
Interest income..................................................... 1,399 81 19
Interest and other financial expenses............................... (18,832) (16,626) (14,669)
-------- -------- --------
(Loss) before equity in earnings of Transtar.................... (17,984) (17,281) (15,454)
Equity in earnings of Transtar ..................................... 37,584 31,082 28,442
-------- -------- --------
Net income...................................................... $ 19,600 $ 13,801 $ 12,988
======== ======== ========
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
Partners' equity (deficit), beginning of year....................... $(117,306) $(124,907) $(137,216)
Distribution to partners (Note 4)................................... (900) (6,200) -
Net income.......................................................... 19,600 13,801 12,988
Other adjustments to partners' equity (Note 5)...................... - - (679)
--------- --------- ---------
Partners' equity (deficit), end of year............................. $ (98,606) $(117,306) $(124,907)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
20
<PAGE> 23
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................... $ 19,600 $ 13,801 $ 12,988
Adjustments to reconcile net income to net cash used by
operating activities:
Amortization................................................. 380 517 601
Non-cash interest and other financial expenses............... 18,832 16,604 14,669
Non-cash interest income.................................... (1,393) (76) -
Equity in earnings of Transtar............................... (37,584) (31,082) (28,442)
Changes in:
Accounts payable........................................... 114 (96) (427)
All other changes - net.................................... (343) (398) (741)
-------- -------- --------
Net cash used by operating activities.................... (394) (730) (1,352)
-------- -------- --------
INVESTING ACTIVITIES:
Dividends received............................................. 21,675 29,580 -
-------- -------- --------
Net cash provided by investing activities................ 21,675 29,580 -
-------- -------- --------
FINANCING ACTIVITIES:
Restricted cash................................................ (21,675) (29,580) -
Distribution to partners....................................... (900) (6,200) -
Withdrawal from restricted cash................................ 1,585 6,560 -
Financing fees (Note 2)........................................ - - (335)
-------- -------- --------
Net cash used by financing activities.................... (20,990) (29,220) (335)
-------- -------- --------
Increase (decrease) in cash and cash equivalents................. 291 (370) (1,687)
Cash and cash equivalents at beginning of period................. 95 465 2,152
-------- -------- --------
Cash and cash equivalents at end of period....................... $ 386 $ 95 $ 465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
21
<PAGE> 24
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.
Transportation Services Agreements, 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.
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 51.0 percent of the voting shares and
53.0 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.
22
<PAGE> 25
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.
Reclassifications -- Certain reclassifications of prior years' data
have been made to conform to 1996 classifications.
NOTE 3: LONG-TERM DEBT
<TABLE>
<CAPTION>
Interest December 31, December 31,
Rate (%) Maturity 1996 1995
-------- -------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Series B Senior Discount Notes ................ 13.375 2003 $148,767 $130,673
Less amount due within one year.............. - -
-------- --------
Long-term debt due after one year............ $148,767 $130,673
======== ========
</TABLE>
- - ---------
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, 1996 and 1995
was $168.8 million and $149.4 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
$18.1 million, $15.9 million and $13.9 million in 1996, 1995 and 1994,
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.
23
<PAGE> 26
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: (CONTINUED)
On September 15, 1995, 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, 1995 in an amount not
to exceed $58.0 million. The amendment also permitted the payment of dividends
after June 30, 1996 equal to or less than Transtar's net income for the fiscal
year ending December 31, 1996. The amendment permitted Transtar to use proceeds
from Revolving Credit Loans to pay dividends during either year. (See Note 4.)
NOTE 4: RELATED PARTY TRANSACTIONS
On August 29, 1996, Transtar declared a cash dividend in the amount of
$850 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 August 27, 1996. Holdings received $8.7 million on August 29, 1996,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture Agreement relating to the issuance of the Notes (the Notes
Indenture), the dividend payment was paid into an escrow account. On November
26, 1996 Transtar declared a cash dividend of $1,275 per share on both its
Voting Stock and its Nonvoting Stock to holders of record of the stock on
November 22, 1996. Holdings received $13.0 million on November 26, 1996,
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, 1997, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Senior Discount 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 Senior
Discount Notes and was held open for 20 business days. No Notes were tendered
for repurchase. In March 1997, in accordance with the Notes Indenture and an
agreement governing the escrow account, Holdings withdrew from the escrow
account $5.3 million to distribute to its partners and $0.3 million to pay
certain administrative expenses.
In 1995, Transtar declared two cash dividends, each in the amount of
$1,450 per share, on both its Voting Stock and its Nonvoting Stock to holders
of record of the stock on October 27, 1995. The first dividend was paid on
October 31, 1995 and the second was paid on December 29, 1995. Holdings
received $14.8 million on October 31, 1995 and $14.8 million on December 29,
1995, representing its 53% economic interest in the Transtar dividend. Pursuant
to the Notes Indenture, the first dividend payment was paid into an escrow
account. In accordance with the Notes Indenture and the agreement governing the
escrow account, Holdings distributed $6.2 million of the first dividend payment
to its partners and $0.4 million was used to pay certain administrative
expenses.
In accordance with the Notes Indenture, the second dividend payment
was paid into the escrow account. In January 1996, after distributing $0.9
million to its partners, Holdings offered to repurchase a portion of the Senior
Discount 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 Senior Discount Notes and was held open for 20
business days. No Notes were tendered for repurchase. In 1996 Holdings withdrew
$0.7 million from the escrow account to pay administrative expenses.
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make a Restricted
Payment (as defined by the Notes Indenture), purchase or optimally redeem Notes
or to pay administrative expenses of Holdings. Interest earned on the escrow
balance amounted to $1.4 million and $76 thousand in 1996 and 1995,
respectively.
24
<PAGE> 27
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: PARTNERS' EQUITY
In 1994 , Holdings recorded an adjustment to Partners Equity of $(0.7)
million. This adjustment was due to a change in ownership related to a Transtar
repurchase of treasury stock from their Management Stock Trust.
25
<PAGE> 28
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 17 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, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.
Price Waterhouse LLP
600 Grant Street
Pittsburgh, PA 15219
February 24, 1997
26
<PAGE> 29
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2).......................................... $ 24,691 $ 10,618
Accounts receivable from related parties (Note 13).......................... 18,611 15,562
Accounts receivable from others............................................. 46,335 49,670
Other current assets (Note 6)............................................... 5,513 5,234
-------- --------
Total current assets...................................................... 95,150 81,084
Property, plant, and equipment,
less accumulated depreciation (Note 7)...................................... 385,637 395,943
Operating parts and supplies.................................................. 15,896 18,271
Other assets (Note 8)......................................................... 18,452 18,359
-------- --------
Total assets.............................................................. $515,135 $513,657
======== ========
LIABILITIES
Current liabilities:
Accounts payable ........................................................... $66,030 $51,382
Payroll and benefits payable................................................ 37,318 34,777
Accrued taxes............................................................... 10,328 10,234
Accrued interest............................................................ 2,906 4,360
Borrowings under revolving credit agreement (Note 9)........................ -- 20,000
Current portion of long-term debt (Note 9).................................. 61,603 15,813
Other current liabilities................................................... 1,526 1,504
-------- --------
Total current liabilities................................................. 179,711 138,070
Long-term debt less current portion (Note 9).................................. 196,400 265,203
Postretirement benefits other than pensions (Note 4).......................... 102,707 98,659
Deferred credits and other liabilities (Note 11).............................. 35,412 40,845
-------- --------
Total liabilities......................................................... 514,230 542,777
Commitments and contingencies (Note 14)
STOCKHOLDERS' EQUITY
Common stock (Note 12)........................................................ 1,000 1,000
Paid-in capital (Note 12)..................................................... 24,000 24,000
Retained earnings (deficit)................................................... (17,822) (47,847)
Treasury stock (Note 12)...................................................... (6,273) (6,273)
-------- --------
Total stockholders' equity................................................ 905 (29,120)
-------- --------
Total liabilities and stockholders' equity................................ $515,135 $513,657
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
27
<PAGE> 30
TRANSTAR, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues from related parties (Note 13).............................. $293,601 $279,291 $272,085
Revenues from others................................................. 215,525 215,242 206,377
-------- -------- --------
Total revenues..................................................... 509,126 494,533 478,462
-------- -------- --------
Operating expenses (excluding items shown below)..................... 348,188 340,163 320,808
Selling, general, and administrative expenses........................ 12,190 11,925 10,880
Depreciation and amortization........................................ 26,483 26,716 27,681
-------- -------- --------
Total operating expenses........................................... 386,861 378,804 359,369
-------- -------- --------
Operating income................................................. 122,265 115,729 119,093
Other income (expense) (Note 13)..................................... 1,703 1,118 (8,722)
Interest income...................................................... 1,060 1,212 984
Interest and other financial expenses................................ (21,314) (24,144) (25,253)
-------- -------- --------
Income before income taxes......................................... 103,714 93,915 86,102
Less provision for income taxes (Note 5)............................. 32,783 35,256 32,430
-------- -------- --------
Net income.......................................................... $ 70,931 $ 58,659 $ 53,672
======== ======== ========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Retained earnings (deficit), beginning of period.................... $(47,847) $(50,681) $(104,353)
Dividends paid (Note 12)............................................. (40,906) (55,825) --
Net income........................................................... 70,931 58,659 53,672
-------- -------- ---------
Retained earnings (deficit), end of period........................... $(17,822) $(47,847) $ (50,681)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
28
<PAGE> 31
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................. $70,931 $58,659 $53,672
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................................ 26,483 26,716 27,681
Non cash interest expense............................................ 731 816 1,086
Deferred taxes....................................................... (459) 8,959 15,620
Loss (gain) on sale of assets........................................ (399) 9 (1,324)
Non cash postretirement benefits expense (Note 4).................... 4,759 6,114 4,793
Changes in:
Accounts receivable................................................ 286 2,333 (8,257)
Accounts payable................................................... 14,648 (8,624) 11,368
Deferred credits................................................... (4,708) 3,236 (11,059)
All other changes - net............................................ 1,526 (4,178) 6,179
------- ------- -------
Net cash provided by operating activities.......................... 113,798 94,040 99,759
------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures................................................. (19,634) (20,267) (13,700)
Proceeds from the sale of assets..................................... 3,828 3,344 14,941
------- ------- -------
Net cash provided by (used for) investing activities............... (15,806) (16,923) 1,241
------- ------- -------
FINANCING ACTIVITIES:
Repayment of long-term borrowings.................................... (23,013) (51,138) (98,207)
Borrowings (repayments) - revolver................................... (20,000) 20,000 --
Dividends paid....................................................... (40,906) (55,825) --
Payments to acquire treasury stock................................... -- -- (836)
All other, net....................................................... -- -- (93)
------- ------- -------
Net cash used for financing activities............................. (83,919) (86,963) (99,136)
------- ------- -------
Increase (decrease) in cash and cash equivalents....................... 14,073 (9,846) 1,864
Cash and cash equivalents at beginning of period....................... 10,618 20,464 18,600
------- ------- -------
Cash and cash equivalents at end of period............................. $24,691 $10,618 $20,464
======= ======= =======
SUPPLEMENTAL INFORMATION:
Income taxes paid.................................................... $32,443 $25,595 $14,946
Interest paid........................................................ $22,003 $22,672 $21,457
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
29
<PAGE> 32
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.
Transportation Services Agreements, 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. Transtar's operations are
conducted in one business segment, transportation services, which is composed
of three primary operations -- railroad and dock facility operations, Great
Lakes shipping operations, and river barge 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 51.0 percent
voting interest in the capital stock of Transtar. Holdings has no operations of
its own.
During 1993 and 1994, Transtar repurchased 750 shares of nonvoting
stock from the management stock trust and has recorded these shares as Treasury
Stock. As of December 31, 1996, Holdings owns 53.0 percent economic interest
and 51.0 percent voting interest in the capital stock of Transtar; USX owns
45.7 percent economic interest and 49.0 percent voting interest; and the
management stock trust holds the remaining 1.3 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.
Had the Transtar transaction been accounted for in accordance with
EITF 88-16, a change in the basis of the acquired properties would not have
resulted. Properties acquired by Transtar at December 28, 1988 would have been
stated at a value of approximately $106 million less than the amount originally
recorded, and the pension liability recognized at December 28, 1988 would have
been $13 million less than the amount originally recorded. These differences
would have resulted in a decrease in stockholders' equity of approximately
$52.5 million as of December 31, 1996 via the acquisition debit as described in
Note 2 below. Annual operating income since December 28, 1988 would have been
higher by approximately $4 million, reflecting lower depreciation expense
partially offset by higher pension cost.
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.
30
<PAGE> 33
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 2: (CONTINUED)
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.
Fuel Oil Hedging -- Transtar from time to time enters into agreements
to hedge exposure to price fluctuations in connection with the purchase of
approximately fifty percent of its consumption of No. 2 heating oil (diesel
fuel). 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 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. If required, interest expense associated with these
agreements is accrued monthly and settled quarterly. Transtar is exposed to
credit loss in the event of nonperformance by the other parties with respect to
the interest rate protection agreements. However, Transtar does not anticipate
nonperformance by the counterparties. (See additional information in Notes 9
and 10.)
Property, Plant, and Equipment (PP&E) -- 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."
31
<PAGE> 34
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 2: (CONTINUED)
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 an 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 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 costs in accordance with Statement of Financial Accounting
Standards (SFAS) No. 87, "Employers' Accounting for Pensions."
Insurance -- Transtar insures its rail, marine, property, and casualty
exposures. Certain self-insured retentions are maintained. Catastrophic
coverage is also carried.
Postretirement Benefits Other Than 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."
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.
Reclassifications -- Certain reclassifications of prior years' data
have been made to conform to 1996 classifications.
32
<PAGE> 35
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 3: PENSIONS
Effective January 1, 1989, Transtar adopted a noncontributory defined
benefit plan covering substantially all employees. Benefits payable under this
plan are the higher of an amount based on years of service and final average
pensionable earnings, or a minimum benefit based on years of service.
Concurrently, Transtar adopted a defined benefit plan covering salary
employees. Benefits payable under this plan are based on years of service and
career pensionable earnings.
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.
For both plans, the funding policy provides that payments to the
respective trusts shall be equal to the Employee Retirement Income Security Act
minimums, plus additional amounts as may be approved by management from time to
time. Assets of the plans generally consist of corporate debt and equity
securities and government obligations.
Net periodic pension cost was determined as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cost of benefits earned during the period...................... $ 6,413 $ 5,323 $ 5,953
Interest cost on projected benefit obligation.................. 7,829 6,807 6,240
Actual return on assets........................................ (8,769) (11,798) 516
Amortization of unrecognized net obligation and
deferral of gains (losses)................................... 5,160 9,737 (2,182)
------- ------- -------
Net periodic pension cost...................................... $10,633 $10,069 $10,527
======= ======= =======
</TABLE>
33
<PAGE> 36
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 3: (CONTINUED)
The following table sets forth the plans' funded status and amounts recognized
on Transtar's balance sheet based on the discount rate, compensation level, and
return on assets assumptions noted.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------------ -----------------------------------
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
ABO Assets Total ABO Assets Total
------ ------- ----- ------ ------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation........... $(70,613) -- $(70,613) $(8,593) $(53,002) $(61,595)
======== ======= ======== ======= ======== ========
Accumulated benefit obligation
(ABO)............................... (73,955) (1,118) (75,073) (8,702) (56,822) (65,524)
======== ======= ======== ======= ======== ========
Projected benefit obligation........ (112,826) (1,393) (114,219) (14,605) (89,594) (104,199)
Plan assets at fair value.............. 79,808 -- 79,808 9,180 53,027 62,207
-------- ------- -------- ------- -------- --------
Projected benefit obligation in
excess of plan assets............... (33,018) (1,393) (34,411) (5,425) (36,567) (41,992)
Unrecognized prior service cost........ 2,993 452 3,445 -- 3,218 3,218
Unrecognized net loss.................. 25,998 301 26,299 3,683 24,286 27,969
Unrecognized net obligation at
inception of plan.................... 4,603 -- 4,603 606 4,654 5,260
-------- ------- -------- ------- -------- --------
Pension asset (liability) recognized
on the balance sheet................. $ 576 $ (640) $ (64) $(1,136) $ (4,409) $ (5,545)
======== ======= ======== ======= ======== ========
</TABLE>
The assumed discount rate used to measure the benefit obligations of
major plans was 7.5 percent at December 31, 1996, and 7.25 percent at December
31, 1995. The assumed rates of future increases in compensation levels was 3.5
percent for the non-contributory plan and 4.0 percent for the salary plan at
both year ends. The expected long-term rate of return on plan assets was
assumed to be 11 percent for 1996 and 10 percent for 1995 and 1994.
Transtar participates in certain defined benefit multi-employer plans
of maritime unions. Expenses related to these plans amounted to $1.1 million in
1996, 1995, and 1994.
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 $1.4
million in 1996, $1.1 million in 1995, and $1.1 million in 1994.
NOTE 4: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Transtar provides certain medical and life insurance benefits to
eligible retired employees and their dependents under defined benefit plans.
Medical benefits are provided for hospitalization, physician services, and
other major medical costs and are subject to various cost-sharing features and
coordination with Medicare. The majority
34
<PAGE> 37
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 4: (CONTINUED)
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.
Net periodic postretirement benefit cost for 1996, 1995, and 1994
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cost of benefits earned during the period..................................... $1,954 $2,200 $2,495
Interest cost on accumulated postretirement benefit obligation (APBO)......... 6,486 7,299 6,109
Amortization of gains......................................................... (498) (95) (208)
Amortization of prior service cost............................................ 247 484 17
Expected return on assets..................................................... (10) (11) (7)
------ ------ ------
Net periodic postretirement benefit cost.................................... $8,179 $9,877 $8,406
====== ====== ======
</TABLE>
In 1996, 1995, and 1994, the incremental effect on postretirement
benefit expense as the result of adoption of SFAS No. 106 was an increase of
$4.8 million, $6.1 million, and $4.8 million, respectively.
The following table sets forth the amounts included in Transtar's
consolidated balance sheet:
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
APBO attributable to:
Retirees............................................................................ $ (40,242) $ (38,153)
Fully eligible plan participants.................................................... (12,010) (11,112)
Other active plan participants...................................................... (36,530) (40,164)
--------- ---------
Total APBO..................................................................... (88,782) (89,429)
Unrecognized net gain............................................................... (19,267) (14,666)
Unrecognized prior service costs.................................................... 1,257 1,487
Plan assets at fair value........................................................... 176 144
--------- ---------
Accrued postretirement benefit obligation included in the balance sheet............. $(106,616) $(102,464)
========= =========
</TABLE>
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.5 percent at December 31, 1996, and
7.25 percent at December 31, 1995. The assumed health care cost trend rates
used at December 31, 1996 were 6 percent in 1997, declining to an ultimate rate
in 1998 of 5 percent. The assumed health care cost trend rates used at December
31, 1995 were 7 percent in 1996 and 6 percent in 1997, declining to an ultimate
rate in 1998 of 5 percent.
A one percentage point increase in the assumed health care cost trend
rate would have increased the 1996 net periodic postretirement benefit cost by
$1.3 million, and would have increased the APBO as of December 31, 1996, by
$11.7 million.
Assets of the plans generally consist of high quality corporate and
government obligations. The funding policy is determined by contractual
agreements with certain represented organizations.
35
<PAGE> 38
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 5: INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current federal.......................................................... $29,316 $22,884 $13,797
Current state, local, and foreign........................................ 3,926 3,412 3,013
Deferred taxes........................................................... (459) 8,960 15,620
------- ------- -------
Total.................................................................... $32,783 $35,256 $32,430
======= ======= =======
</TABLE>
The reconciliation of the U.S. statutory income tax rate to the total
provision is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- -------------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate applied to income
before tax............................. $36,300 35.00% $32,870 35.00% $30,136 35.00%
State income tax after federal income
tax impact............................. 3,458 3.33 3,120 3.32 2,809 3.26
Revision of prior years tax provision
estimates.............................. (7,126) (6.87) (836) (.89) (625) (.73)
Other, net............................... 151 .15 102 .11 110 .14
------- ----- ------- ----- ------ ------
Total.................................... $32,783 31.61% $35,256 37.54% $32,430 37.67%
======= ===== ======= ===== ======= =====
</TABLE>
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------- -------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Accrual differences....................................... $ 6,036 $ -- $ 2,072 $ --
Postretirement benefits................................... 42,806 -- 40,820 --
PP&E basis differences.................................... -- 65,803 -- 60,312
------- ------- ------- -------
Total..................................................... $48,842 $65,803 $42,892 $60,312
======= ======= ======= =======
Net balance............................................... $16,961 $17,420
======= =======
</TABLE>
36
<PAGE> 39
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 6: OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Prepaid insurance.......................................................... $2,233 $2,133
Deferred compensation...................................................... 981 915
Supplies - current......................................................... 1,442 1,452
Other current assets....................................................... 857 734
------ ------
Total...................................................................... $5,513 $5,234
====== ======
</TABLE>
NOTE 7: PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Railroad equipment.......................................................... $384,726 $378,310
Marine vessels and related equipment........................................ 88,320 85,272
Barges, tows, and related equipment......................................... 41,474 45,832
Buildings................................................................... 26,975 26,579
Other....................................................................... 7,543 7,606
-------- --------
Subtotal - depreciable property........................................... 549,038 543,599
Less - accumulated depreciation........................................... (211,972) (196,529)
--------- --------
Net depreciable property.................................................... 337,066 347,070
Land........................................................................ 48,571 48,873
-------- --------
Property, plant, and equipment, less accumulated depreciation............... $385,637 $395,943
======== ========
</TABLE>
The above amounts include equipment leased under capital leases of
$42 thousand and $127 thousand at December 31, 1996 and 1995, respectively. For
these assets, depreciation expense for the years ended December 31, 1996, 1995,
and 1994 was $8 thousand, $136 thousand, and $154 thousand, respectively.
Accumulated depreciation at December 31, 1996 and 1995 was $36 thousand and
$112 thousand, respectively. Transtar leases a variety of facilities and
equipment, including marine vessels, railroad equipment, barges, office
equipment, and office space. Rent expense for operating leases was $24.4
million, $21.4 million, and $18.9 million for 1996, 1995, and 1994,
respectively.
37
<PAGE> 40
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 7: (CONTINUED)
Total commitments under operating leases are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year
<S> <C>
1997........................................................ $ 21,074
1998........................................................ 18,086
1999........................................................ 17,343
2000........................................................ 16,942
2001........................................................ 14,888
Later years................................................. 92,162
--------
Total minimum lease payments.............................. $180,495
========
</TABLE>
Obligations under capital leases are not material.
NOTE 8: OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Long-term receivables and other investments........................................... $6,193 $5,663
Deferred debt issue costs............................................................. 1,603 2,334
Deferred dry dock costs............................................................... 3,706 3,011
Deferred compensation................................................................. 1,111 1,345
Deferred lease costs.................................................................. 4,183 4,642
Other deferred charges................................................................ 1,656 1,364
------- -------
Total............................................................................... $18,452 $18,359
======= =======
</TABLE>
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.
38
<PAGE> 41
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 9: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
Interest ---------------------
Rates (%) Maturity 1996 1995
--------- -------- ---- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Term loan (a)............................................. (b) 2000 $258,000 $281,000
Capital leases............................................ 1997 3 16
-------- --------
Total long-term debt (c)............................. 258,003 281,016
Less amount due within 1 year........................ (61,603) (15,813)
-------- --------
Long-term debt due after 1 year...................... $196,400 $265,203
======== ========
</TABLE>
(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 1996, voluntary or asset sales
prepayments of $23 million were applied to payments scheduled for
December 31, 1996 and June 30, 1997. In 1995, voluntary or asset sales
prepayments of $51 million were applied to payments scheduled for
December 31, 1995, June 30, 1996, and December 31, 1996. 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 1996, 1995, and 1994, including
the effect of rate protection, was $20.2 million, $23.0 million, and
$23.4 million, respectively. The average effective rates for the
comparable periods were 7.1 percent, 7.6 percent, and 6.0 percent,
respectively. As required by the December 7, 1993 Credit Agreement,
Transtar must protect the variable interest rate on at least 40
percent of the outstanding term debt balance. The following table
summarizes interest rate protection at December 31, 1996:
<TABLE>
<CAPTION>
Notional Expiration Interest Interest
Amount Date Rate Floor Rate Ceiling
------ ---- ---------- ------------
(in millions)
<S> <C> <C> <C>
$ 15 6/29/97 -- 9.00%
100 4/01/97 4.75% 7.03%
</TABLE>
During 1996 and 1995, there was no interest expense attributable to
the rate protection agreements. During 1994, interest expense
attributable to the rate protection agreements was $0.1 million.
(c) Required payments of long-term debt for 1998 through 2000 are $68.8
million, $61.3 million, and $66.3 million, respectively.
38
<PAGE> 42
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 9: (CONTINUED)
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 and to pay dividends during
1995 and 1996 (see below). 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. Transtar borrowed $20 million under this facility
in December 1995. Interest expense was $0.5 million and $16 thousand in 1996
and 1995, respectively. Outstanding letters of credit are $0.8 million and $1.6
million at December 31, 1996 and 1995, respectively. In 1996, Transtar repaid
the $20 million of borrowings under the revolving credit facility.
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.
On September 15, 1995, 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, 1995 in an amount not
to exceed $58.0 million. The amendment also permitted the payment of dividends
after June 30, 1996 equal to or less than Transtar's net income for the fiscal
year ending December 31, 1996. The amendment permitted Transtar to use proceeds
from Revolving Credit Loans to pay dividends during either year (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.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1996 1995
-------------------------- -------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............................. $ 24,691 $ 24,691 $ 10,618 $ 10,618
Noncurrent receivables................................ 3,854 3,854 4,155 4,155
Liabilities:
Current maturities of long-term debt.................. 61,603 61,603 15,813 15,813
Long-term debt........................................ 196,400 196,400 265,203 265,203
Off-balance-sheet financial instruments:
Interest rate protection.............................. -- -- -- 2
Fuel oil hedges....................................... -- -- -- --
</TABLE>
40
<PAGE> 43
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 10: (CONTINUED)
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.
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.
Fuel oil hedges - Transtar had no fuel oil hedging agreements in place
at December 31, 1996. Fuel oil hedging agreements in place at December 31, 1995
had no value. Transtar generated income of $0.4 million in 1996 as a result of
fuel oil hedges. Amounts generated in previous years were immaterial.
NOTE 11: DEFERRED CREDITS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Pension liabilities....................................................... $ -- $ 3,837
Personal injuries......................................................... 13,673 13,043
Operating accounts........................................................ 2,858 4,677
Deferred credits - leases................................................. 1,920 1,868
Deferred taxes............................................................ 16,961 17,420
------- -------
Total................................................................ $35,412 $40,845
======= =======
</TABLE>
NOTE 12: EQUITY
As of December 31, 1996 and 1995, 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 250 shares of the Nonvoting Stock are held by a
management stock trust. An additional 750 shares of the Nonvoting Stock,
previously repurchased from the management stock trust, are being held as
Treasury Stock at cost.
On August 29, 1996, Transtar declared a cash dividend of $850 per
share on both its Voting Stock and its Nonvoting Stock to holders of record of
the stock on August 27, 1996. The dividend of $16.4 million was paid on August
29, 1996. On November 26, 1996 Transtar declared a cash dividend of $1,275 per
share on both its Voting and its Nonvoting Stock to holders of record of
its stock on November 22, 1996. The dividend of $24.5 million was paid on
November 26, 1996.
41
<PAGE> 44
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 12: (CONTINUED)
In 1995, Transtar declared two cash dividends, each in the amount of
$1,450 per share on both its Voting Stock and its Nonvoting Stock, to holders
of record of the stock on October 27, 1995. The first dividend of $27.9 million
was paid on October 31, 1995 and the second dividend of $27.9 million was paid
on December 29, 1995.
During 1994, Transtar implemented a fixed 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
are subject to a 5-year vesting schedule commencing December 28, 1993. All
options granted under the plan have an exercise price of $8,364.05, which was
the estimated fair market value of the Company's common stock at the date of
grant. The options become exercisable up to 20 percent per year and do not have
an expiration date. As of December 31, 1996, there were 450 options exercisable
and 300 options outstanding under the plan.
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 option under SFAS No.
123. There were no options granted in 1996 or 1995. The adoption of this
statement had no effect on the results of operations or financial position of
Transtar.
NOTE 13: RELATED-PARTY TRANSACTIONS
The Transportation Services Agreements provide 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
Service 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 1998 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; with
respect to the services referred to in clause (iii) above, the agreements
provide that such services will continue for a term ending on March 15,1999 for
USS/Kobe and March 15, 2000 for the other USX facilities, which terms will be
automatically renewed for successive one-year periods unless either USX or
Transtar has given the other at least three years prior written notice of
termination; with respect to the services described in clause (iv) above, the
agreements provide that such services will generally continue until December
28, 1998.
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.
Transtar has initiated discussions to structure new Transportation Services
Agreements. Transtar believes that new agreements will be in place prior to the
expiration/moratorium of the existing agreements, but there can be no assurance
of reaching an agreement.
Transtar earns a significant portion of its revenues from
transportation and related services provided to USX. For 1996, 1995, and 1994,
transactions with USX represented 58 percent, 56 percent, and 57 percent of
total revenues, respectively. Receivables from USX as of December 31, 1996 and
1995 represented 29 percent and 24 percent of total receivables, respectively.
Terms of these transactions are similar to those of nonrelated customers.
42
<PAGE> 45
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 13: (CONTINUED)
With respect to the USS GLF sole serving Great Lakes Fleet bulk
commodity carrier status for USX, the U.S. Steel Group is required to pay, at
a minimum, Transtar's annual fixed costs related to the agreement, including
lease/charter costs, depreciation of owned vessels, and other administrative
costs. Fixed costs (included in Transtar revenues) under this agreement
approximated $20 million, $21 million, and $20 million in 1996, 1995, and 1994,
respectively. The fixed costs are expected to continue at approximately the
same level over the duration of the agreement.
Transtar provides maintenance services to USX. Proceeds from services
provided amounted to $7.2 million, $8.4 million, and $10.2 million for 1996,
1995, and 1994, respectively.
USX provided several corporate services associated with ongoing
business activities of Transtar. Total expenses for these services were $0.6
million, $0.5 million, and $0.6 million for 1996, 1995, and 1994, respectively.
Transtar purchased materials from USX amounting to $0.5 million, $0.3
million, and $0.3 million, in 1996, 1995, and 1994, respectively. USX purchased
materials from Transtar amounting to $0.8 million, $1.2 million and $1.3
million in 1996, 1995 and 1994, respectively.
Pursuant to an Asset Purchase Agreement related to the formation of
Transtar in December 1988, Transtar reimbursed USX $1.4 million, $1.5 million,
and $2.3 million for certain benefits paid to Transtar retirees by USX in 1996,
1995, and 1994, respectively.
In 1994, Transtar accrued $11.0 million related to a settlement
agreement with USX to resolve any and all disputes concerning the scope of
USX's indemnity of Transtar under an anti-trust Indemnification Agreement. This
amount was charged to other income (expense) of Transtar. Transtar paid $10.0
million of the settlement in 1994.
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 approximately $1.5 million, $1.5 million, and
$1.4 million in 1996, 1995, and 1994, respectively. These fees were accounted
for as operating expenses.
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, 1996 and 1995,
accrued liabilities for remediation totaled $0.4 million and $3.0 million,
respectively. In 1996, Transtar paid $1.0 million and reversed a $1.0 million
reserve due to the settlement of an environmental remediation liability. In
1994, Transtar reversed a $2.0 million reserve due to a revised estimate of
costs for remediation of an environmental site. For the period 1989 through
1996, actual cash payments associated with environmental expense have totaled
$9.8 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 $9.8 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.
43
<PAGE> 46
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 14: (CONTINUED)
At year end 1996, certain Transtar subsidiaries had purchase
commitments in the amount of $6.6 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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
<PAGE> 47
PART III
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.
<TABLE>
<CAPTION>
Name Age, Business Experience and Other Directorships
---- ------------------------------------------------
<S> <C>
James J. Mossman age 38, Director since November 1993 and President since November 1993;
President and Director 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 People's Choice TV Corporation,
Great Lakes Dredge & Dock Corporation, Collins & Aikman Corporation and Transtar.
Peter G. Peterson age 70, Director since November 1993; Co-Founding Member of BGH L.L.C.;
Director 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, Transtar, UCAR International, Inc., and 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 50, Director since November 1993; Co-Founding Member of BGH L.L.C.;
Director 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, Transtar and UCAR
International, Inc.
Howard A. Lipson age 33, Treasurer since November 1993; Mr. Lipson joined The Blackstone
Treasurer 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., UCAR International,
Inc., Volume Service, Inc., and Ritvik Holdings, Inc.
</TABLE>
The following table sets forth certain information concerning the
officers of Transtar.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert S. Rosati . . . . . . . . . . . . . . . . . . . . 58 President and Chief Executive Officer
Frank J. Habic . . . . . . . . . . . . . . . . . . . . . 57 Vice President-Operations
Joseph W. Schulte . . . . . . . . . . . . . . . . . . . . 55 Vice President-Finance and
Chief Financial Officer
George E. Steins . . . . . . . . . . . . . . . . . . . . 61 Vice President-Administration
Rade Vignovic . . . . . . . . . . . . . . . . . . . . . . 62 Vice President-Marketing
Robert N. Gentile . . . . . . . . . . . . . . . . . . . . 45 Vice President-Law, General Counsel
and Secretary
</TABLE>
45
<PAGE> 48
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 31 years
includes positions as Manager--Audit Division, Manager of Marketing, and Dock
Superintendent with DMIR, 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.
University of Pittsburgh, BBA-- 1961. Attended Graduate Business Program at
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 32 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. Steins was elected Vice President--Administration of Transtar on
May 1, 1995. His railroad experience spans 37 years, holding positions of
increasing responsibility in accounting, marketing and operations with Transtar
companies. He most recently served as Assistant Vice President and General
Manager of the Bessemer and Lake Erie Railroad, the Elgin, Joliet and Eastern
Railway and several smaller railroad subsidiaries since 1993. Mr. Steins is a
Director of all of the Transtar subsidiaries and a member of the Association
for Transportation Law, Logistics and Policy. He holds a B.S. in Accounting
from Gannon College.
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 Club of Chicago. 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. 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.
46
<PAGE> 49
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, 1996, December 31,
1995, and December 31, 1994:
TRANSTAR, INC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------- ---------------------- ------- ALL OTHER
SALARY & RESTRICTED LTIP COMPEN-
NAME AND BONUS OTHER ($) STOCK OPTIONS PAYOUTS SATION($)
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) TOTAL ($) (1) AWARDS($) (#) ($) (2)
- - ------------------ ---- --------- -------- --------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R. S. Rosati . . . . . 1996 250,000 250,000 500,000 8,273 0 0 0 28,912
President & Chief 1995 230,000 210,000 440,000 10,609 0 0 0 23,570
Executive Officer 1994 210,000 190,000 400,000 9,792 0 200 0 24,611
F. J. Habic . . . . . . 1996 190,000 154,000 344,000 3,780 0 0 0 22,434
Vice President- 1995 180,000 146,000 326,000 6,490 0 0 0 19,110
Operations 1994 165,000 134,000 299,000 7,669 0 100 0 20,483
J. W. Schulte . . . . . 1996 160,000 115,000 275,000 3,501 0 0 0 16,713
Vice President- 1995 150,000 108,000 258,000 6,102 0 0 0 14,582
Finance and Chief 1994 140,000 101,000 241,000 8,553 0 100 0 15,439
Financial Officer
G. E. Steins. . . . . . 1996 155,000 112,000 267,000 5,751 0 0 0 19,223
Vice President- 1995 148,000 102,000 250,000 6,985 0 0 0 17,267
Administration 1994 140,000 88,000 228,000 4,597 0 25 0 18,313
R. N. Gentile . . . . . 1996 152,000 109,000 261,000 6,694 0 0 0 14,323
Vice President-Law, 1995 147,000 106,000 253,000 6,651 0 0 0 12,475
General Counsel 1994 140,000 101,000 241,000 6,262 0 50 0 12,616
and Secretary
</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 1996 under the
Transtar Salaried Savings Fund Plan and the related Supplemental Savings
Plans ($12,896, $9,619, $8,000, $7,750, and $7,600 for Messrs. Rosati,
Habic, Schulte, Steins and Gentile, respectively); annual imputed income
associated with executive life insurance policies in 1996 ($1,536, $2,235,
$862, $2,448, and $699 for Messrs. Rosati, Habic, Schulte, Steins and
Gentile, respectively); and annual amounts attributable to split-dollar
life insurance provided by Transtar in 1996 ($14,480, $10,580, $7,851,
$9,025 and $6,024 for Messrs. Rosati, Habic, Schulte, Steins and Gentile,
respectively).
47
<PAGE> 50
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
are 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 $8,364.05, and each exercised
option will eventually be repurchased by the Company at a time and price (which
approximates fair value) as defined in the stock option plan.
AGGREGATED 1996 OPTION EXERCISES
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF EXERCISABLE/
NO. OF EXERCISABLE/ UNEXERCISABLE
NO. OF UNEXERCISABLE IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
NAME EXERCISED REALIZED ($) DECEMBER 31, 1996 DECEMBER 31, 1996($)
---- --------- ------------ ------------------ --------------------
<S> <C> <C> <C> <C>
R. S. Rosati 0 0 120/80 504,360/336,240
F. J. Habic 0 0 60/40 252,180/168,120
J. W. Schulte 0 0 60/40 252,180/168,120
R. N. Gentile 0 0 30/20 126,090/ 84,060
G. E. Steins 0 0 15/10 162,390/108,260
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors and executive officers of BTC (Holdings' sole general
partner) and TCC receive no compensation.
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 $765,000 for 1996, $740,000 for 1995, and $715,000 for 1994.
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, 1996, Messrs. Rosati, Habic, Schulte, Steins, and Gentile
have 31, 32, 30, 37, and 17 credited years of service, respectively.
48
<PAGE> 51
TABLE OF PENSION BENEFITS
FINAL EARNINGS PENSION BENEFITS
<TABLE>
<CAPTION>
AVERAGE ANNUAL
ELIGIBLE EARNINGS
FOR HIGHEST FIVE
CONSECUTIVE YEARS
IN TEN-YEAR ANNUAL BENEFITS FOR YEARS OF SERVICE
PERIOD PRECEDING -----------------------------------------------------------------------------------
RETIREMENT 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS. 40 YRS.
---------------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 21,656 $ 28,875 $ 36,094 $ 43,313 $ 51,188 $ 59,063
150,000 25,988 34,650 43,313 51,975 61,425 70,875
175,000 30,319 40,425 50,531 60,638 71,663 82,688
200,000 34,650 46,200 57,750 69,300 81,900 94,500
225,000 38,981 51,975 64,969 77,963 92,138 106,313
250,000 43,313 57,750 72,188 86,625 102,375 118,125
300,000 51,975 69,300 86,625 103,950 122,850 141,750
350,000 60,638 80,850 101,063 121,275 143,325 165,375
400,000 69,300 92,400 115,500 138,600 163,800 189,000
450,000 77,963 103,950 129,938 155,925 184,275 212,625
500,000 86,625 115,500 144,375 173,250 204,750 236,250
</TABLE>
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 $56,030 for Mr. Rosati, $47,140 for Mr. Habic, $42,790
for Mr. Schulte, $34,610 for Mr. Steins, and $56,310 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
<TABLE>
<CAPTION>
AVERAGE ANNUAL BONUS
EARNINGS FOR
THREE HIGHEST
YEARS IN TEN-YEAR ANNUAL BENEFITS FOR YEARS OF SERVICE
PERIOD PRECEDING -----------------------------------------------------------------------------------
RETIREMENT 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS. 40 YRS.
------------------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 23,100 $ 30,800 $ 38,500 $ 46,200 $ 53,900 $ 61,600
200,000 46,200 61,600 77,000 92,400 107,800 123,200
300,000 69,300 92,400 115,500 138,600 161,700 184,800
</TABLE>
49
<PAGE> 52
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 1996, $1.5 million for 1995 and
$1.4 million for 1994.
On August 29, 1996, Transtar declared a cash dividend in the amount of
$850 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 August 27, 1996. Holdings received $8.7 million on August 29, 1996,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture Agreement relating to the issuance of the Notes (the Notes
Indenture), the dividend payment was paid into an escrow account. On November
26, 1996 Transtar declared a cash dividend of $1,275 per share on both its
Voting Stock and its Nonvoting Stock to holders of record of the stock on
November 22, 1996. Holdings received $13.0 million on November 26, 1996,
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, 1997, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Senior Discount 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 Senior
Discount Notes and was held open for 20 business days. No Notes were tendered
for repurchase. In March 1997, in accordance with the Notes Indenture and an
agreement governing the escrow account, Holdings withdrew from the escrow
account $5.3 million to distribute to its partners and $0.3 million to pay
certain administrative expenses.
In 1995, Transtar declared two cash dividends, each in the amount of
$1,450 per share, on both its Voting Stock and its Nonvoting Stock to holders
of record of the stock on October 27, 1995. The first dividend was paid on
October 31, 1995 and the second was paid on December 29, 1995. Holdings
received $14.8 million on October 31, 1995 and $14.8 million on December 29,
1995, representing its 53% economic interest in the Transtar dividend. Pursuant
to the Notes Indenture, the first dividend payment was paid into an escrow
account. In accordance with the Notes Indenture and the agreement governing the
escrow account, Holdings distributed $6.2 million of the first dividend payment
to its partners and $0.4 million was used to pay certain administrative
expenses.
In accordance with the Notes Indenture, the second dividend payment
was paid into the escrow account. In January 1996, after distributing $0.9
million to its partners, Holdings offered to repurchase a portion of the Senior
Discount 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 Senior Discount Notes and was held open for 20
business days. No Notes were tendered for repurchase. In 1996 Holdings withdrew
$0.7 million from the escrow account to pay administrative expenses.
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make a Restricted
Payment (as defined by the Notes Indenture), purchase or optimally redeem Notes
or to pay administrative expenses of Holdings. Interest earned on the escrow
balance amounted to $1.4 million and $76 thousand in 1996 and 1995,
respectively.
50
<PAGE> 53
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.
<TABLE>
<CAPTION>
Percentage Economic
Name of Beneficial Owners Type of Interest of Class Interest (1)
------------------------- ---------------- --------- ------------
<S> <C> <C> <C>
BTC(2) General Partnership 100.000% 1.000%
Blackstone entities(3) Limited Partnership 91.574% 90.658%
Tyler Massachusetts L.P. 8.426% 8.342%
("Tyler")(4) Limited Partnership
James J. Mossman(5) General and Limited Partnership 0 0
Peter G. Peterson(5) General and Limited Partnership 0 0
Stephen A. Schwarzman(5) General and Limited Partnership 0 0
Howard A. Lipson(5) General and Limited Partnership 0 0
All executive officers and directors
as a group (4 persons)(5) General and Limited Partnership 0 0
</TABLE>
(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%; and
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.
51
<PAGE> 54
The following table sets forth the ownership of Transtar as of
December 31, 1996:
<TABLE>
<CAPTION>
Voting Stock % of Voting Nonvoting % of Non- % of Total
Shareholder Owned Shares Stock Owned voting Shares Shares
----------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Transtar Holdings, L.P.......... 5,100 51.0% 5,100 55.1% 53.0%
USX Corporation................. 4,900 49.0 3,900 42.2 45.7
Management...................... -- -- 250 2.7 1.3
------ ----- ----- ----- -----
Total....................... 10,000 100.0% 9,250 100.0% 100.0%
====== ===== ===== ===== =====
</TABLE>
Management's direct interest has been reduced since Transtar's
formation due to repurchases of 750 shares of nonvoting stock from retiring
managers. Such stock has been allocated to promoted managers in a stock option
program. Total economic ownership of Management, including the effect of this
program, is 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, 1996, 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
52
<PAGE> 55
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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEPENDENCE UPON USX
For the year 1996, approximately 58% 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 three 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. Among other
things, the Transportation Services Agreements provide 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
Service 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 1998 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; with
respect to the services referred to in clause (iii) above, the agreements
provide that such services will continue for a term ending on March 15, 1999
for USS/Kobe and March 15, 2000 for the other USX facilities, which terms will
be automatically renewed for successive one-year periods unless either USX or
Transtar has given the other at least three years prior written notice of
termination; with respect to the services described in clause (iv) above, the
agreements provide that such services will generally continue until December
28, 1998. The agreements also 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 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. In making such a decision, the independent
arbitrator must consider the effect of his decision on the relevant Transtar
unit's cost/price relationship as of December 28, 1988 as well as USX's
competitive position.
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.
Transtar has initiated discussions to structure new Transportation Services
Agreements. Transtar believes that new agreements will be in place prior to the
expiration/moratorium of the existing agreements, but there can be no assurance
of reaching an agreement.
53
<PAGE> 56
PART IV
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 17.
(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
<TABLE>
<CAPTION>
Footnote Exhibit
Ref. No Description
- - -------- ------- -----------
<S> <C> <C>
(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.
(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.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between USX Corporation and USS Great
Lakes Fleet, Inc.
(a) 10.7 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and
U.S. Steel Mining.
(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.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
Footnote Exhibit
Ref. No Description
- - -------- ------- -----------
<S> <C> <C>
(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.
(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.
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
Footnote Exhibit
Ref. No Description
- - -------- ------- -----------
<S> <C> <C>
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer and Lake Erie Railroad Company and
USX Corporation dated October 6, 1994.
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
</TABLE>
- - -------------
(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.
(b). REPORTS ON 8-K
Holdings and TCC filed a report on Form 8-K on November 26, 1996
reporting under Item 5 of the 8-K that Transtar had declared dividends
as discussed in Holdings Note 4 hereto.
(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.
56
<PAGE> 59
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 21st of March, 1997.
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 21, 1997.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ JAMES J. MOSSMAN Director and President (Principal Executive Officer)
---------------------------------- of BTC and TCC
James J. Mossman
/s/ HOWARD A. LIPSON Treasurer (Principal Financial and Principal
---------------------------------- Accounting Officer) of BTC and TCC
Howard A. Lipson
/s/ STEPHEN A. SCHWARZMAN Director of BTC and TCC
----------------------------------
Stephen A. Schwarzman
/s/ PETER G. PETERSON Director of BTC and TCC
----------------------------------
Peter G. Peterson
</TABLE>
57
<PAGE> 60
- - ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
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, 1996
-----------------------------
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
6719
6719
(Primary Standard Industrial
Classification Code Number)
-------------------------------------------------------------------------------
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
- - -------- ------- -----------
<S> <C> <C>
(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.
(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.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between USX Corporation and USS Great
Lakes Fleet, Inc.
(a) 10.7 Transportation Services Agreement, dated December 28, 1988, between Transtar, Inc. and
U.S. Steel Mining.
(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.
(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.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
- - -------- ------- -----------
<S> <C> <C>
(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.
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.
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
- - -------- ------- -----------
<S> <C> <C>
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
</TABLE>
- - ----------------
(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.
<PAGE> 1
EXHIBIT 10.44.1
<PAGE> 2
Exhibit 10.44.1
TRANSTAR, INC.
AMENDED STOCK OPTION PLAN
The purposes of the Transtar, Inc. Stock Option Plan (this "Plan")
are to promote the interests of Transtar, Inc. ("Transtar") and its
stockholders by attracting and retaining key management employees of
exceptional ability; to maximize Transtar's long-term success and return to
stockholders; and to provide certain key management employees with a greater
incentive to contribute to the success of Transtar through the award and
exercise of stock options ("Options") in Transtar Class B Non-Voting Common
Stock (the "Stock").
1. ELIGIBILITY - Key management employees of Transtar and any of its
subsidiaries (the "Participants") selected by the "Compensation Committee"
(defined in Section 2 of this Plan) shall be eligible to participate in this
Plan.
2. COMPENSATION COMMITTEE - The Board of Directors of Transtar (the
"Board") shall appoint a committee (the "Compensation Committee") consisting of
some or all of the members of the Board, who shall administer this Plan and
serve at the pleasure of the Board. The Compensation Committee shall have full
and final power and authority to designate Participants, to determine the terms
of Plan participation, to determine the restrictions on transfer applicable to
the Options awarded under this Plan and to the Stock subject to the Options, to
determine the treatment of dividends paid on the Stock and of compensation in
lieu of dividends, to supervise the administration of and to interpret this
Plan, to promulgate rules and regulations and to take all actions in connection
with or relating to this Plan as it deems necessary. Any determination or
action of the Compensation Committee shall be by unanimous vote of all of its
members and shall be final, conclusive and binding upon all Participants and
their respective heirs, executors and assigns.
3. OPTION AWARDS - Each Participant shall receive Option awards as
determined in the discretion of the Compensation Committee.
4. ISSUANCE OF OPTIONS - The Compensation Committee shall cause the
President and Chief Executive Officer of Transtar to send to the Participant a
Notice (in accordance with Section 14 of this Plan), evidencing that an Option
has been granted to the Participant under this Plan.
5. RESTRICTIONS ON TRANSFER - No Option or Vested Option (defined in
Section 6(d) of this Plan) may be assigned, transferred, pledged, or
hypothecated in any way, and shall not be subject to execution, attachment or
similar process. An attempted assignment, transfer, pledge, hypothecation or
other disposition of an Option or Vested Option contrary to these provisions,
and the levy of any execution, attachment or similar process on the Option or
Vested Option, shall be null and void. No provision contained in this Section 5
is intended to restrict the exercise of a Vested Option by the personal
representative of the Participant upon the Participant's death.
1
<PAGE> 3
6. EXERCISE OF OPTIONS - (a) No Option is eligible to be exercised
until it becomes a Vested Option. Exercise of a Vested Option requires Notice
to Transtar by the Participant and payment by the Participant to Transtar of
$8,364.05 per share of Stock. A Vested Option may be exercised with respect to
all or any number of shares of Stock that are subject to the Vested Option. A
Vested Option may be exercised by the Participant at any time, or upon the
occurrence of either of the events described in Section 6(e) of this Plan
("Voluntary Exercise") but, in any event, must be exercised upon the occurrence
of an event described below in this Section 6(b)(c) or (f) ("Mandatory
Exercise"). If Voluntary Exercise has not previously occurred, Mandatory
Exercise of a Vested Option by virtue of retirement upon or after age 60
requires Notice and payment of $8,364.05 per share of Stock to Transtar by the
Participant at least 180 days prior to the effective date of the retirement and
entitles the Participant to (1) immediate issuance by Transtar of all or that
number of shares of Stock subject to the Vested Option for which the
Participant exercises the Vested Option and (2) a subsequent payment (the
"Payment") upon retirement determined in accordance with the formula set forth
in Section 6(b)(i) of this Plan. Any other Mandatory Exercise of a Vested
Option entitles the Participant to the Payment determined in accordance with
the formula set forth in Section 6(b) (c) or (f) of this Plan, as applicable.
All shares of stock issued under this Plan to the Participant prior to the date
of such Mandatory Exercise shall be surrendered for redemption/purchase and
Payment in accordance with such formula. Voluntary Exercise of a Vested Option
entitles the Participant to issuance by Transtar of all or that number of
shares of Stock subject to the Vested Option for which the Participant
exercises the Vested Option. All Stock issued pursuant to this Plan shall be
placed in a trust for the benefit of the Participant and be subject to the
restrictions on transfer set forth in a Share Transfer Restriction Agreement
dated as of December 28, 1988 and shall bear a legend (the "Legend") reading:
"The shares represented by this certificate are subject to
restrictions against transfer and provisions for optional
purchase and sale set forth in a Share Transfer Restriction
Agreement dated as of December 28, 1988 and a Management
Stock Trust Agreement. A copy of such Share Transfer
Restriction Agreement and such Management Stock Trust
Agreement have been filed in the registered office of
Transtar, Inc., where the same may be inspected daily
during business hours."
Upon occurrence of any of the events described in Section 6(b) of this Plan,
the Participant shall receive Payment for the Stock held in trust, determined
in accordance with the formula set forth in Section 6(b), as applicable;
provided, however, that in the case of Mandatory Exercise by virtue of
retirement upon or after age 60, the Participant having provided Notice and
payment of $8,364.05 per share of Stock to Transtar at least 180 days prior to
the effective date of the retirement, Payment to the Participant shall be made,
and the amount of the Payment determined, upon the effective date of
retirement.
2
<PAGE> 4
In the case of retirement upon or after age 60, should any of the
other events set forth in Section 6(b),(c),(e) or (f) of this Plan occur after
the Participant has provided Notice and payment of $8,364.05 per share of Stock
to Transtar but before the effective date of retirement, the Payment shall be
made, and the amount of the Payment determined, when the exercise occurs
pursuant to Section 6 (b),(c),(e) or (f) of this Plan rather than at the time
when the Participant would have retired.
If Voluntary Exercise by a Participant (other than by occurrence of
either of the events described in Section 6(e) of this Plan) is followed by the
retirement of the Participant less than 180 days after the Voluntary Exercise,
the Payment shall be made, and the amount of the Payment determined, 180 days
after the Voluntary Exercise.
(b) A Participant's retirement, permanent and total incapacity, death
or termination of employment with Transtar, shall result in a Mandatory
Exercise of the Participant's "Vested Options" (as defined in Section 6(d) of
this Plan). Upon Mandatory Exercise, all Vested Options shall be exercised and
all Stock at any time issued under this Plan to the Participant shall be
surrendered to Transtar for redemption. The amount of the Payment to the
Participant will be determined pursuant to the following formula, (reduced by
the amount of $8,364.05 per share of Stock where such payment has not been made
to Transtar by the Participant) and will be made to the Participant in
accordance with the provisions of this Plan:
<TABLE>
<S> <C> <C>
(i) Retirement upon or after 5.00 X Cash Flow
attaining age 60, permanent - Obligations
and total incapacity, death
(ii) Termination of 4.00 X Cash Flow
employment with Transtar - Obligations
</TABLE>
For purposes of (i) and (ii) above, the term "Cash Flow" shall mean, for the
most recent three fiscal years average thereof, Transtar's earnings (before
interest, taxes, depreciation and amortization) excluding any incremental
effects of FAS 106 and any other non-cash charges and credits, less its capital
expenditures, and the term "Obligations" shall mean the sum of the total
principal amount of Transtar's outstanding debt and the total liquidation value
of Transtar's outstanding preferred stock.
The formula expressed above represents a fair measure of market value
for the Stock. The Board will periodically assess the continued relevancy of
the formula taking into account any significant transactions or events that may
have an impact on the market value of the Stock.
(c) Notwithstanding the preceding, if any entity shall become the owner of
substantially all of the stock of Transtar (other than the Stock subject to
this Plan) Mandatory Exercise of all of the Options of each Participant shall
occur, solely at the option of Transtar; provided, however, that in such event,
the amount of the Payment shall not be pursuant to the above formula but rather
3
<PAGE> 5
shall be determined on the basis of the per share price paid by the new owner
for the stock of Transtar acquired in the transaction pursuant to which such
new owner becomes the owner of substantially all of the stock of Transtar, less
$8,364.05 per share of Stock. Upon Mandatory Exercise pursuant to this Section
6(c) and as a precondition to Payment, all Vested Options shall be exercised
and all shares at any time issued under this Plan to the Participant shall be
surrendered to Transtar for redemption.
(d) A Participant's Options awarded to him hereunder shall vest upon
the earlier of (i) the occurrence of any of the events described in Section 6
(c)(e) or (f) or (ii) pursuant to the following schedule ("Vested Options"):
<TABLE>
<CAPTION>
5-Year Percentage of Option
Vesting Schedule which is Vested Option
---------------- ----------------------
<S> <C>
December 28, 1994 20%
December 28, 1995 40%
December 28, 1996 60%
December 28, 1997 80%
December 28, 1998 100%
</TABLE>
Notwithstanding the foregoing schedule, a portion of a Participant's Option
shall automatically become a Vested Option upon his retirement on or after
attaining age 60 or upon his permanent and total incapacity or death (such
portion shall be determined on a pro rata basis, in proportion to the number of
years during the 5-year vesting schedule period before his retirement,
incapacity or death to the entire 5-year period). The Restrictions on Transfer
described in Section 5 of this Plan shall continue after an Option vests.
(e) Notwithstanding anything to the contrary in paragraphs (c) and (d)
above, all of a Participant's Vested Options shall become exercisable, upon the
occurrence of either of the following events:
(i) An initial public offering ("IPO") of the stock of Transtar; or
(ii) The Compensation Committee makes an exception in its discretion.
In the event of an IPO of the stock of Transtar, all Options, whether Vested or
unvested and whether issued prior to the date of the IPO or thereafter, shall
expire if not exercised on or before the tenth anniversary of the date of the
IPO.
(f) A Mandatory Exercise of all Vested Options of a Participant shall
occur upon a sale by Transtar Holdings, L.P. or any of its successors in
interest ("Holdings") and/or USX Corporation ("USX") of its shares of Transtar
to a third party, solely at the option of such third party. In such an event,
the amount of the Payment to the Participant shall be determined by
4
<PAGE> 6
multiplying the number of shares of Stock by the same price per share as is
received from such third party by Holdings or USX, as the case may be, less
$8,364.05 per share of Stock. Upon Mandatory Exercise pursuant to this Section
6(f) and as a precondition to Payment, all Vested Options shall be exercised
and all shares at any time issued under this Plan to the Participant shall be
surrendered to the third party for purchase.
7. DIVIDENDS - (a) Cash dividends paid on the Stock issued pursuant
to a Vested Option that has been exercised, and compensation in lieu of
dividends in an amount equal to dividends that would have been paid on the
Stock subject to an Unvested Option, shall be paid to a trust for the benefit
of the Participant. Distribution of such cash dividends and compensation in
lieu of dividends shall be made to the Participant from the trust, in the case
of a Vested Option that has been exercised, immediately, and in the case of
Stock subject to an Unvested Option, when the Option becomes vested.
(b) Compensation in lieu of dividends in an amount equal to dividends that
would have been paid on the Stock subject to a Vested Option that has not been
exercised, shall be paid directly to the Participant.
8. CHANGES IN CAPITAL STRUCTURE - In the event of a stock split,
reverse stock split, stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, separation, reorganization,
combination, reclassification, liquidation, or the occurrence of any of the
events described in Section 6 (c), (e) or (f) of this Plan after the effective
date of this Plan, which results or would result in a change in the kind or
number of shares of Stock subject to Options or Vested Options, a proportionate
adjustment shall be made in the number and kind of shares of Stock subject to
all Options and Vested Options for the purpose of, and before determining the
amounts of, dividends, compensation in lieu of dividends, issuance of Stock,
and any Payment to a Participant.
9. LAPSED OPTIONS - (a) If, Mandatory Exercise of a Vested Option
pursuant to Section 6 (b), (c) or (f) of this Plan, would result in a net
Payment per share of less than $1, the Vested Option shall lapse.
(b) Any Options awarded to a Participant which have not become Vested
Options upon a Mandatory Exercise as described in Section 6 (b), (c) or (f) of
this Plan, shall lapse.
(c) All Options and Vested Options of a Participant shall lapse and
all Stock issued under this Plan to the Participant shall be redeemed, if such
Participant's employment with Transtar is terminated for cause. Payment to the
Participant for such shares redeemed shall be the amount paid by the
Participant upon exercise of the Option ($8,364.05), less any amounts owed to
Transtar or any of its subsidiaries by the Participant or that are subject to a
right of recovery from the Participant by Transtar or any of its subsidiaries.
For purposes of the initial sentence of this Section 9(c), the definition of
the term "cause" shall be determined by the Compensation Committee; provided,
however, if the Participant has an employment agreement with Transtar
5
<PAGE> 7
which provides a definition of the term "cause" with respect to the termination
of his employment with Transtar, then such definition from his employment
agreement shall be determinative for purposes of this Section 9(c).
(d) Options and Vested Options which lapse shall be null and void upon
Notice to the Participant by Transtar and shall thereafter be available for
future awards, if any, to be made under this Plan.
10. RIGHTS - Nothing in this Plan or any document describing or
referring to this Plan shall be deemed to confer on any Participant the right
to continue his employment with Transtar or any of its subsidiaries.
11. AMENDMENTS, MODIFICATION, DISCONTINUANCE AND TERMINATION - The
Board may from time to time amend, modify, discontinue or terminate this Plan
or any provision hereof.
12. APPLICABLE LAW - This Plan, all related documents, agreements and
instruments and all actions taken hereunder shall be governed by the laws of
the Commonwealth of Pennsylvania.
13. EFFECTIVE DATE AND TERMINATION - The effective date of this Plan
shall be December 29, 1993 and this Plan shall be in effect until terminated by
the Board.
14. NOTICES - Any Notice under this Plan shall be in writing, and if
to Transtar, shall be delivered to the General Counsel of Transtar or mailed to
its principal office, 135 Jamison Lane, Monroeville, Pennsylvania, 15146 (or
such other address as Transtar shall later designate) addressed to the General
Counsel, and if to a Participant, shall be delivered personally or mailed to
the Participant at his address appearing in the records of Transtar. Notice
mailed to a Participant shall be deemed effective when deposited in the United
States mails, postage prepaid. Notice mailed to Transtar shall be deemed
effective when received in the offices of its General Counsel.
6
<PAGE> 1
EXHIBIT 12.1
<PAGE> 2
Exhibit 12.1
TRANSTAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary item and change in
accounting principle....................... $103,714 $93,915 $86,102 $25,976 $18,261
Fixed charges:
Interest expense and amortization of
debt issuance costs........................ $21,314 $24,144 $25,253 $47,838 $56,608
Interest expense on rentals.................. 7,854 6,057 6,225 6,956 6,956
------- ------- -------- ------- -------
Total fixed charges................... $29,168 $30,201 $31,478 $54,794 $63,564
======= ======= ======= ======= =======
Earnings before income taxes,
extraordinary item, change in
accounting principle and fixed
charges.................................... $132,882 $124,116 $117,580 $80,770 $81,825
======== ======== ======== ======= =======
Ratio of earnings to fixed charges........... 4.56 4.11 3.74 1.47 1.29
==== ==== ==== ==== ====
</TABLE>
Income for the years 1992, 1993, 1994 and 1996 includes non-recurring charges
(credits) $8.5 million, $17.3 million $(1.7) million, and $(1.0) million,
respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 386
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 715
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,890
<CURRENT-LIABILITIES> 729
<BONDS> 148,767
0
0
<COMMON> 0
<OTHER-SE> (98,606)
<TOTAL-LIABILITY-AND-EQUITY> 50,890
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 551
<TOTAL-COSTS> 551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,832
<INCOME-PRETAX> 19,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
