<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission File 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, NY 10154
(Address and zip code of principal executive offices)
(212) 935-2626
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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<PAGE> 2
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
A. TRANSTAR HOLDINGS, L.P.
Consolidated Balance Sheet 3
Consolidated Statements of Income and Partners' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
B. TRANSTAR, INC.
Consolidated Balance Sheet 10
Consolidated Statements of Income and Retained Earnings 11
Consolidated Statement of Cash Flows 12
Notes to Consolidated Financial Statements 13
Management's discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION 16
SIGNATURE 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
A. TRANSTAR HOLDINGS, L.P.
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------- -----------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 256 $ 386
Other current assets 386 329
---------------------- -----------------------
Total current assets 642 715
Restricted cash 40,438 44,579
Investment in Transtar 25,771 491
Other assets 4,552 5,105
---------------------- -----------------------
Total assets $ 71,403 $ 50,890
====================== =======================
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities $ 378 $ 729
Long-term debt 164,812 148,767
---------------------- -----------------------
Total liabilities 165,190 149,496
PARTNERS' EQUITY (DEFICIT) (93,787) (98,606)
---------------------- -----------------------
Total liabilities and partners' equity $ 71,403 $ 50,890
====================== =======================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------- --------------
1997 1996 1997 1996
----------------- -------------- ---------------- ---------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
---------------- ---------------- ---------------- ---------------
Operating expenses:
Selling, general and administrative expenses 98 130 345 412
---------------- ---------------- ---------------- ---------------
Operating (loss) (98) (130) (345) (412)
Interest income 576 347 1,733 944
Interest and other financial expenses (5,460) (4,820) (16,599) (13,926)
---------------- ---------------- ---------------- ---------------
(Loss) before equity in earnings of Transtar (4,982) (4,603) (15,211) (13,394)
Equity in earnings of Transtar 13,461 13,785 25,451 24,193
---------------- ---------------- ---------------- ---------------
Net income $ 8,479 $ 9,182 $ 10,240 $ 10,799
================ ================ ================ ===============
</TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Partners' equity (deficit), beginning of period ($102,266) ($116,589) ($98,606) ($117,306)
Distribution to partners -- -- (5,250) (900)
Net income 8,479 9,182 10,240 10,799
Other adjustments to partners' equity -- -- (171) --
---------------- ---------------- ---------------- ----------------
Partners' equity (deficit), end of period ($93,787) ($107,407) ($93,787) ($107,407)
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------------------
1997 1996
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,240 $ 10,799
Adjustments to reconcile to net cash (used)
for operating activities:
Amortization 258 298
Non-cash interest and other financial expenses 16,599 13,926
Non-cash interest income (1,725) (941)
Equity in earnings of Transtar (25,451) (24,193)
Changes in:
Accounts payable (351) (286)
------------------ ------------------
Net cash used for operating activities (430) (397)
------------------ ------------------
INVESTING ACTIVITIES:
Dividends received -- 8,670
------------------ ------------------
Net cash provided by investing activities -- 8,670
------------------ ------------------
FINANCING ACTIVITIES:
Restricted cash -- (8,670)
Distribution to partners (5,250) (900)
Withdrawal from restricted cash 5,550 1,285
------------------ ------------------
Net cash provided by (used for) financing activities 300 (8,285)
------------------ ------------------
Decrease in cash and cash equivalents (130) (12)
Cash and cash equivalents at beginning of period 386 95
------------------ ------------------
Cash and cash equivalents at end of period $ 256 $ 83
================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
NOTE 1: BASIS OF FINANCIAL STATEMENT PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all normal recurring adjustments
considered necessary for a fair statement of the results of operations for the
three and nine month periods ended September 30, 1997 have been included. The
results of operations for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results of operations for the full
year. When reading the financial information contained in this Quarterly
Report, reference should be made to the financial statements, schedules and
notes contained in Transtar Holdings, L.P.'s (Holdings) Annual Report on Form
10-K for the year ended December 31, 1996. Transtar Capital Corporation (TCC),
a subsidiary of Holdings, is a shell corporation which has nominal assets 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.
NOTE 2: LONG-TERM DEBT:
On December 7, 1993, Holdings and TCC (Issuers) issued $218 million aggregate
principal amount of 13.375% Senior Discount Notes due December 15, 2003
(Notes). The Notes are the joint and several obligations of the Issuers. An
original issue discount of $118 million is being amortized over the 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 Notes are not guaranteed by Transtar, Inc. (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 $16.0
million and $13.4 million in the first nine months of 1997 and 1996,
respectively, and was $5.3 million and $4.6 million in the third quarter of
1997 and 1996, respectively.
NOTE 3: 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 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 Notes at an offer price equal to 101% of
the accreted value of such Notes on the date of purchase. The offer to purchase
the Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase. In the first nine months
of 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.
6
<PAGE> 7
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In accordance with the Notes Indenture, both dividend payments were
paid into an escrow account. In the first nine months of 1996, Holdings
distributed $0.9 million to its partners, and used $0.4 million to pay
administrative expenses. Holdings offered to repurchase a portion of the Notes
at an offer price equal to 101% of the accreted value of such Notes on the date
of purchase. The offer to purchase the Notes was made by a notice to holders of
the Notes and was held open for 20 business days. No Notes were tendered for
repurchase.
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make a Restricted
Payment (as defined by the Notes Indenture), purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. Interest earned on the
escrow balance was $1.4 million and $0.9 million in the first nine months of
1997 and 1996, respectively, and was $0.3 million for both the third quarter of
1997 and 1996, respectively.
NOTE 4: SUBSEQUENT EVENTS:
On October 27, 1997 Transtar declared a cash dividend in the amount of
$625 per share on both its Voting Stock and its Nonvoting Stock. The dividend
was paid on October 30, 1997 to holders of record of the stock on October 27,
1997. Holdings received $6.4 million on October 30, 1997, representing its 53%
economic interest in the Transtar dividend. Pursuant to the Notes Indenture,
the dividend payment was paid into the escrow account.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes an analysis of Holdings' equity investment in Transtar.
Holdings is a Delaware limited partnership. It was originally formed in 1988 as
Blackstone Transportation Partners L. P. ("BTP") for the sole purpose of
holding voting and non-voting stock of Transtar. BTP was renamed Transtar
Holdings, L.P. in November 1993. 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 the notes
related hereto included within this filing.
Transtar Holdings Results
For the Three and Nine Months ended September 30, 1997
Compared to
Three and Nine Months ended September 30, 1996
Overall
Holdings recorded net income for the third quarter and the first nine months of
1997 of $8.5 million and $10.2 million, respectively. This represents decreases
of $0.7 million and $0.6 million, respectively, from the $9.2 million and $10.8
million of net income recorded during the third quarter and the first nine
months of 1996. Holdings' results reflect its equity investment in Transtar.
For a discussion of results of operations of Transtar, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
Transtar, Inc.
Revenues and Expenses
Holdings did not record any revenues in either 1997 or 1996. Holdings' selling,
general and administrative expenses for the third quarter and first nine months
of 1997, respectively, were slightly lower than those incurred in the
respective periods of 1996. Equity earnings of Transtar and interest income
improved to $25.5 million and $1.7 million in the first nine months of 1997, an
increase of $1.3 million and $0.8 million, respectively, over the similar
periods of 1996. Equity earnings of Transtar showed a modest decline in the
third quarter of $0.3 million to $13.5 million, while interest income increased
by $0.2 million to $0.6 million over the same period. Interest and other
financial expense increased by $0.6 million and $2.7 million, respectively,
during the third quarter and first nine months from the $4.8 million and $13.9
million reported for the similar periods last year.
Liquidity and Capital Resources
During 1996, Transtar declared two cash dividends, the first in the amount of
$850 per share and the second in the amount of $1,275 per share, on both its
Class A Voting Common Stock and its Class B Nonvoting Common Stock. Holdings
received dividends totaling $21.7 million, representing its 53 percent economic
interest in the Transtar dividend. Pursuant to an Indenture Agreement relating
to the issuance of the Notes (Notes Indenture), both dividends were deposited
into an escrow account. In accordance with the Notes Indenture and an agreement
governing the escrow account, during the first nine months of 1997 Holdings
withdrew from the escrow account $5.3 million to distribute to its partners and
$0.3 million to pay administrative expenses. In the first nine months of 1996,
Holdings distributed $0.9 million to its partners and paid $0.4 million of
administrative expenses from dividends received from Transtar in 1995. There
were no further distributions during the second or third quarters of 1996 or
1997.
In February 1997 and January 1996, Holdings offered to repurchase a portion of
its Senior Discount Notes at an offer price equal to 101% of the accreted value
of such notes on the date of purchase. These offers to purchase the notes were
made by a notice to holders of the Senior Discount Notes and were held open for
20 business days. No notes were tendered for repurchase. Holdings earned
interest from the balance in the escrow account for the third quarter and the
first nine months of 1997 of $0.3 million and $1.4 million, respectively.
8
<PAGE> 9
The only business activity of Holdings is its investment in Transtar. It is not
anticipated that Holdings will require any additional liquidity or capital
resources, other than for professional fees and certain other administrative
expenses, until the first cash interest payment is due on the Notes on June 15,
2000.
Subsequent events
On October 27, 1997, Transtar declared a cash dividend in the amount of $625
per share on both the Class A Voting Common Stock and the Class B Nonvoting
Stock. Dividends were paid on October 30, 1997, to holders of record of the
stock as of October 27, 1997. Holdings received a $6.4 million dividend on
October 30, 1997.
9
<PAGE> 10
B. TRANSTAR, INC.
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------- ----------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $24,190 $24,691
Accounts receivable from related parties 19,673 18,611
Accounts receivable from others 51,720 46,335
Other current assets 6,462 5,513
---------------------- ----------------------
Total current assets 102,045 95,150
Property, plant, and equipment,
less accumulated depreciation 379,089 385,637
Operating parts and supplies 18,173 15,896
Other assets 17,690 18,452
---------------------- ----------------------
Total assets $516,997 $515,135
====================== ======================
LIABILITIES
Current liabilities:
Accounts payable $ 68,614 $66,030
Payroll and benefits payable 37,653 37,318
Accrued taxes 14,441 10,328
Accrued interest 1,562 2,906
Current portion of long-term debt 27,000 61,603
Other current liabilities 3,206 1,526
---------------------- ----------------------
Total current liabilities 152,476 179,711
Long-term debt less current portion 169,000 196,400
Postretirement benefits other than pensions 105,534 102,707
Deferred credits and other liabilities 41,245 35,412
---------------------- ----------------------
Total liabilities 468,255 514,230
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock 1,000 1,000
Paid-in capital 23,979 24,000
Retained earnings (deficit) 30,210 (17,822)
Treasury stock (6,447) (6,273)
---------------------- ----------------------
Total stockholders' equity 48,742 905
---------------------- ----------------------
Total liabilities and stockholders' equity $516,997 $515,135
====================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
10
<PAGE> 11
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------------- ---------------------------------
1997 1996 1997 1996
------ ------ ------ ------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues from related parties $ 87,282 $ 80,266 $222,595 $211,913
Revenues from others 57,846 61,893 161,164 161,232
--------------- -------------- -------------- --------------
Total revenues 145,128 142,159 383,759 373,145
--------------- -------------- -------------- --------------
Operating expenses (excluding items shown below) 91,416 86,283 266,748 256,724
Selling, general, and administrative expenses 3,627 3,441 8,845 8,847
Depreciation and amortization 6,622 6,632 19,996 20,033
--------------- -------------- -------------- --------------
Total operating expenses 101,665 96,356 295,589 285,604
--------------- -------------- -------------- --------------
Operating income 43,463 45,803 88,170 87,541
Other income 1,034 518 1,898 992
Interest income 286 245 695 584
Interest and other financial expenses (4,119) (5,187) (13,430) (16,150)
--------------- -------------- -------------- --------------
Income before income taxes 40,664 41,379 77,333 72,967
Less provision for income taxes 15,261 15,364 29,301 27,309
--------------- -------------- -------------- --------------
Net income $25,403 $26,015 $48,032 $45,658
=============== ============== ============== ==============
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Retained earnings (deficit), beginning of period $4,807 ($28,204) ($17,822) ($47,847)
Dividends paid -- (16,362) -- (16,362)
Net income 25,403 26,015 48,032 45,658
--------------- -------------- -------------- --------------
Retained earnings (deficit), end of period $30,210 ($18,551) $30,210 ($18,551)
=============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
11
<PAGE> 12
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------------------
1997 1996
---------------------- ---------------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 48,032 $ 45,658
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,996 20,033
Amortization 497 556
Deferred taxes 4,810 4,157
(Gain) on sale of assets (903) (164)
Changes in other assets and liabilities 1,942 2,527
---------------------- ---------------------
Net cash provided by operating activities 74,374 72,767
---------------------- ---------------------
INVESTING ACTIVITIES:
Capital expenditures (14,346) (14,155)
Proceeds from the sale of assets 1,799 2,009
---------------------- ---------------------
Net cash used for investing activities (12,547) (12,146)
---------------------- ---------------------
FINANCING ACTIVITIES:
Repayment of long-term borrowings (62,003) (16,011)
Repayment - revolver -- (20,000)
Treasury Stock, net (325) --
Dividends paid -- (16,362)
---------------------- ---------------------
Net cash used for financing activities (62,328) (52,373)
---------------------- ---------------------
Increase (Decrease) in cash and cash equivalents (501) 8,248
Cash and cash equivalents at beginning of period 24,691 10,618
---------------------- ---------------------
Cash and cash equivalents at end of period $ 24,190 $ 18,866
====================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
12
<PAGE> 13
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
NOTE 1: BASIS OF FINANCIAL STATEMENT PRESENTATION:
Separate consolidated financial statements of Transtar are included in this
10-Q because Transtar is a majority owned subsidiary of Holdings which is not
consolidated in the consolidated financial statements of Holdings. The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal recurring adjustments considered
necessary for a fair statement of the results of operations for the three and
nine month periods ended September 30, 1997 have been included. The results of
operations for the three and nine month periods ended September 30, 1997 are
not necessarily indicative of the results of operations for the full year. When
reading the financial information contained in this Quarterly Report, reference
should be made to the Transtar financial statements, schedules and notes
contained in Holdings' Annual Report on Form 10-K for the year ended December
31, 1996.
NOTE 2: SUBSEQUENT EVENTS:
On October 27, 1997 Transtar declared a cash dividend in the amount of
$625 per share on both its Class A Voting Common Stock and its Class B
Nonvoting Common Stock to holders of record of the stock on October 27, 1997.
The dividend of $12.0 million dollars was paid on October 30, 1997.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar Results
For the Three and Nine Months ended September 30, 1997
Compared to the
Three and Nine Months ended September 30, 1996
Overall
Transtar is a transportation holding company composed of two business groups:
the Railroad Group and the Marine Group. Transtar's net income for the quarter
ending September 30, 1997 was $25.4 million, a decrease of $0.6 million
compared with the same period of 1996. Operating income of $43.5 million
recorded in the third quarter of 1997 was $2.3 million less than the comparable
period of 1996. Net income for the nine months ended September 30, 1997 was
$48.0 million, a $2.4 million improvement over the same period of 1996.
Operating income of $88.2 million during the first nine months of 1997 was $0.6
million greater than the same period of 1996.
Operating Revenues
Operating revenues totaled $145.1 million for the third quarter of 1997, or an
increase of $3.0 million over the third quarter of 1996. During the first nine
months of 1997, Transtar's operating revenues were $383.8 million, an increase
of $10.6 million or 2.8% over the same period of 1996. Both of the business
groups benefited from increased revenues during the first nine months of 1997.
A revenue increase of $5.7 million to $274.1 million was achieved by the
Railroad Group during the first nine months of 1997 and reflected increased
traffic volumes of ore and coke. Railroad Group revenues in the third quarter
of 1997 were $1.4 million less than the $97.9 million earned in the same period
last year. This decline is the result of planned furnace outages at USS-Edgar
Thompson Works and USS/KOBE Works of 80 days and 56 days, respectively, and
lower export coal shipments, partially offset by full production levels during
1997 at USS-Fairfield Works which experienced a 70-day planned furnace outage
during the third quarter of 1996. Marine Group revenues increased by $4.4
million in the third quarter of 1997 when compared with the same period of
1996. This improvement is the direct result of a 21-day river outage for lock
repairs and the 70-day furnace outage at USS-Fairfield Works during the third
quarter of 1996. The Marine Group's first nine months of 1997 saw revenues
increase $4.8 million from the levels earned in the first nine months of 1996.
This net improvement was the result of: the relatively mild weather and ice
conditions when compared with the severe conditions that adversely impacted
navigation on the Great Lakes during the first four months of 1996; the absence
of river and furnace outages; and lower coal volumes due to changed routing and
production shortfalls at origin mines in Alabama.
Operating Expenses
Transtar's operating expenses increased $5.3 million and $10.0 million,
respectively, during the third quarter and the first nine months of 1997, from
$96.4 million and $285.6 million for the same periods of 1996. The Railroad
Group's third quarter 1997 expenses increased by $4.1 million over the $64.6
million incurred for the same period of 1996. Additionally, the Railroad
Group's operating expenses increased $12.4 million for the first nine months of
1997 to $209.5 million. These net increases were primarily the result of four
major items: increased expenditures for repairs to freight cars, locomotives and
track structures; recognition of expenses associated with a limited early
retirement program and a partial accounting department consolidation; reduced
billable maintenance work performed for others on freight cars, locomotives and
track structures; and a reduction to cost in the second quarter of 1996
resulting from the settlement of environmental litigation. Marine Group
operating expenses totaled $36.3 million during the third quarter of 1997
reflecting an increase of $0.8 million primarily attributed to increased traffic
levels on the inland waterway system. Operating costs for the Marine Group
decreased by $2.7 million during the first nine months of 1997 from the $98.0
million incurred in the same period last year. These reduced costs can be traced
to lower expenses associated with fuel, outside contractor services and health
care.
14
<PAGE> 15
Other Income, net
Transtar's other income, net, improved by $1.6 and $3.7 million, respectively,
during the third quarter and the first nine months of 1997, when compared to
$4.4 million and $14.6 million for the same periods of 1996. The major factors
contributing to this improvement in both periods was a reduction in interest
expense due to lower outstanding debt and gains recognized from the sale of
non-operating real estate.
Provision for Income Taxes
Transtar's provision for income taxes decreased $0.1 million to $15.3 million
during the third quarter of 1997 while increasing $2.0 million to $29.3 million
in the first nine months, when compared to the same periods of 1996. These
changes for both periods are directly related to the change in Transtar's
income before taxes.
Liquidity and Capital Resources
Transtar's cash and temporary investments were $24.2 million at September 30,
1997, or $0.5 million less than the balance at the end of 1996, and $5.3 million
greater than the balance at September 30, 1996. Cash flow from operating
activities during the nine months ended September 30, 1997 amounted to $74.4
million, or $1.6 million more than the comparable period of 1996. This change is
primarily attributed to less cash interest paid in the first nine months of
1997. Cash flow used in investing activities during the first nine months of
1997 totaled $12.5 million, or $0.4 million more than was utilized during the
same period of 1996. Gross capital expenditures, amounted to $14.3 million for
the first nine months of 1997, an increase of $0.2 million versus the same
period of 1996. Proceeds from the sale of property amounted to $1.8 million
during the first nine months of 1997 versus the $2.0 million that was generated
in the comparable period of 1996.
For the first nine months of 1997, Transtar retired $62.0 million of its
long-term debt, versus $16.0 million of long-term debt retirement in the same
period of 1996. During the first nine months of 1996, Transtar repaid $20.0
million outstanding on its revolving credit facility. Since the December 7,
1993 refinancing, Transtar has retired $249.0 million of its long-term
obligations. Transtar, as of September 30, 1997, has $24.1 million available
under its $25.0 million Revolving Credit Facility.
On August 29, 1996, Transtar declared and paid a cash dividend in the amount of
$850 per share, or $16.4 million, on both its Class A Voting Common Stock and
its Class B Non-Voting Common Stock, to holders of record of the stock on
August 27, 1996. No dividends were declared or paid during the third quarter or
the first nine months of 1997.
Subsequent events
On October 30, 1997, Transtar paid a cash dividend in the amount of $625 per
share, or $12.0 million, on both its Class A Voting Common Stock and its Class
B Non-Voting Common Stock, to holders of record of the stock on October 27,
1997.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Holdings and TCC had no reportable events of material pending legal proceedings
other than ordinary routine litigation incidental to the business during the
nine month period ended September 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on 8-K
Holdings and TCC did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 12, 1997
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
By: /s/HOWARD A. LIPSON
-----------------------------
Howard A. Lipson, Treasurer
17
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