<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, 2000
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 033-73270
------------
Commission File Number 033-73270-1
------------
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
------ ------
<PAGE> 2
Transtar Holdings, L.P.
Transtar Capital Corporation
Form 10-Q
Quarterly Period Ended September 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
A. TRANSTAR HOLDINGS, L.P.
Consolidated Balance Sheet 3
Consolidated Statements of Operations 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
Quantitative and Qualitative Disclosures About Market Risk 9
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 15
Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION 17
SIGNATURE 18
</TABLE>
<PAGE> 3
4
PART I - FINANCIAL INFORMATION
------------------------------
A. TRANSTAR HOLDINGS, L.P.
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
--------- ---------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 312 $ 299
Other current assets -- 10
--------- ---------
Total current assets 312 309
Restricted cash 37,389 49,846
Investment in Transtar 103,024 81,340
Other assets 2,337 2,891
--------- ---------
Total assets $ 143,062 $ 134,386
========= =========
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities $ 515 $ 389
Accrued interest 8,588 1,296
--------- ---------
Total current liabilities 9,103 1,685
Long-term debt (Note 3) 218,080 218,080
--------- ---------
Total liabilities 227,183 219,765
PARTNERS' EQUITY (DEFICIT) (84,121) (85,379)
--------- ---------
Total liabilities and partners' equity $ 143,062 $ 134,386
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and administrative expenses 42 57 137 161
-------- -------- -------- --------
Operating (loss) (42) (57) (137) (161)
Interest income 639 667 2,140 1,839
Interest and other financial expenses (7,477) (7,019) (22,430) (20,277)
-------- -------- -------- --------
(Loss) before equity in earnings of Transtar (6,880) (6,409) (20,427) (18,599)
Equity in earnings of Transtar 10,846 10,158 21,685 18,773
-------- -------- -------- --------
Net income $ 3,966 $ 3,749 $ 1,258 $ 174
======== ======== ======== ========
</TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Partners' equity (deficit), beginning of period $(88,087) $(92,212) $(85,379) $(87,432)
Net income 3,966 3,749 1,258 174
Other adjustments to partners' equity -- (421) -- (1,626)
-------- -------- -------- --------
Partners' equity (deficit), end of period $(84,121) $(88,884) $(84,121) $(88,884)
======== ======== ======== ========
</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,
-----------------------------
2000 1999
-------- --------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,258 $ 174
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Non-cash interest and other financial expenses 554 20,277
Non-cash interest income (2,127) (1,830)
Equity in earnings of Transtar (21,685) (18,773)
Changes in:
Accrued interest 7,292 --
Accounts payable 126 153
Other assets and liabilities 11 9
-------- --------
Net cash provided by (used for) operating activities (14,571) 10
-------- --------
INVESTING ACTIVITIES:
Withdrawal from restricted cash 14,584 --
-------- --------
Net cash provided by investing activities 14,584 --
-------- --------
FINANCING ACTIVITIES:
Distribution to partners -- --
-------- --------
Net cash provided by financing activities -- --
-------- --------
Increase in cash and cash equivalents 13 10
Cash and cash equivalents at beginning of period 299 286
-------- --------
Cash and cash equivalents at end of period $ 312 $ 296
======== ========
</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, 2000
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, 2000 have been included. The results of
operations for the three and nine month periods ended September 30, 2000 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, 1999. 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 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 was amortized over a six-year period commencing
December 15, 1993 and ending December 15, 1999. Interest is payable in cash
semi-annually in arrears on June 15 and December 15 commencing on June 15, 2000.
Interest paid on June 15, 2000 was $14.6 million. The carrying value of the
Notes is the same as the principal at maturity of $218 million. 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 $21.9 million and
$19.7 million in the first nine months of 2000 and 1999, respectively, and was
$7.3 million and $6.8 million in the third quarter of 2000 and 1999,
respectively.
In accordance with an Indenture relating to the issuance of the Notes (the Notes
Indenture) certain dividends received from Transtar were paid into an escrow
account. Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make certain
payments permitted under the Notes Indenture, purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. On June 15, 2000 in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $14.6 million to pay interest
on the Notes. As of September 30, 2000, the escrow balance is $37.4 million.
Interest earned on the escrow balance was $2.1 million and $1.8 million in the
first nine months of 2000 and 1999, respectively, and was $0.6 million and $0.7
million in the third quarter of 2000 and 1999, respectively.
NOTE 3: PARTNERS' EQUITY (DEFICIT)
In the first nine months of 1999, Holdings recorded an adjustment to Partners'
Equity (Deficit) of $(1.6) million. This adjustment was recorded as a result of
changes in ownership related to treasury stock transactions of Transtar with its
Management Stock Trusts.
NOTE 4: SUBSEQUENT EVENTS
On October 4, 2000, Holdings announced that it has entered into a Reorganization
and Exchange Agreement (the Reorganization Agreement) with USX Corporation (USX)
and Transtar regarding the organization of Transtar. In this reorganization,
Holdings will exchange all of its shares in Transtar for 100% of the ownership
of four direct Transtar subsidiaries - Bessemer and Lake Erie Railroad Company;
the Duluth, Missabe and Iron Range Railway Company; the Pittsburgh & Conneaut
Dock Company; and USS Great Lakes Fleet, Inc. and their subsidiaries
(collectively, the "Holdings Companies"). As a result of this transaction, USX
will become the sole owner of Transtar and its remaining direct subsidiaries -
the Birmingham Southern Railroad Company; the Elgin, Joliet and
6
<PAGE> 7
Eastern Railway Company; the Lake Terminal Railroad Company; the McKeesport
Connecting Railroad Company; the Mobile River Terminal Company, Inc.; the Union
Railroad Company; the Warrior and Gulf Navigation Company; and Tracks Traffic
and Management Services, Inc., and their subsidiaries. Currently Holdings' only
business activity is its investment in Transtar. Immediately after the
consummation of the reorganization, Holdings' only business activity will be
its investment in the Holdings Companies.
Consummation of the reorganization is conditioned upon (i) receipt of required
approvals of the Surface Transportation Board, (ii) receipt of applicable
antitrust clearances and (iii) receipt by Holdings of the proceeds of a
financing in an amount sufficient to refinance the Notes and the Holdings
Companies' allocable portion of certain indebtedness of Transtar and of
financing commitments in an amount sufficient to fund the working capital needs
of the Holdings Companies. In addition, the reorganization is subject to other
conditions customary for similar transactions of its type.
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, Inc.
(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 nonvoting stock of Transtar. BTP was renamed Transtar
Holdings, L. P. in November 1993. Holdings' net earnings are derived primarily
from its 54.0 percent economic interest in Transtar and interest expense related
to certain Senior Discount Notes (Notes) issued in 1993. The following
discussion should be read in conjunction with Holdings' Consolidated Financial
Statements and the notes related hereto included within this filing.
Transtar Holdings L.P. Results
For the Three and Nine Months ended September 30, 2000
Compared to the
Three and Nine Months ended September 30, 1999
Overall
Holdings recorded net income of $4.0 million for the third quarter of 2000, and
$1.3 million during the first nine months of 2000. This represents a $0.2
million favorable change from the $3.8 million net income recorded during the
third quarter of 1999 and a $1.1 million favorable change from the $0.2 million
net income reported for the first nine months of 1999. Holdings' results include
its equity investment in Transtar and interest and other financial expenses. 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 2000 or 1999. Holdings' selling,
general and administrative expenses of $0.1 million during the first nine months
of 2000 were essentially the same as what was incurred during the same period of
1999. During the first nine months of 2000 equity in earnings of Transtar and
interest income improved from 1999 levels by $2.9 million and $0.3 million,
respectively. Interest and other financial expense increased by $0.5 million
during the third quarter of 2000 to $7.5 million, and by $2.2 million in the
first nine months to $22.4 million.
Liquidity and Capital Resources
In accordance with an Indenture relating to the issuance of the Notes (the Notes
Indenture) certain dividends received from Transtar in years prior to 1999 were
paid into an escrow account. Transtar declared no dividends during 1999 or the
first nine months of 2000. The previous dividend payments and interest earned
thereon have been the source of all of the money currently on deposit in the
escrow account. During the third quarter of 2000, Holdings earned $0.6 million
in interest from the balance in the escrow account, versus $0.7 million earned
in the third quarter of 1999.
Funds in the escrow account are invested in cash equivalents and may only be
released to pay interest and principal on the Notes, make certain payments
permitted under the Notes Indenture, purchase or optionally redeem Notes or to
pay administrative expenses of Holdings. In June 2000, Holdings withdrew from
the escrow account $14.6 million to make the first cash interest payment due for
the period commencing December 15, 1999 and ending on June 15, 2000. Cash
interest will thereafter be payable semi-annually in arrears on June 15 and
December 15 of each year. As of September 30, 2000 the balance in the escrow
account is $37.4 million. Funds currently in the escrow account will be
sufficient to make the next two semi-annual interest payments on the Notes. When
funds in the escrow account have been expended, Holdings will be required to
seek additional sources of funds in order to make future interest payments on
the Notes. Holdings cannot give any assurances that they will be able to obtain
additional funds in order to make such interest payments. Future dividends of
Transtar are governed by Transtar's bylaws that require unanimous approval by
the Company's directors and the Reorganization Agreement (see Note 4:
Subsequent Events in Holdings' Notes to Consolidated Financial Statements)
prohibits Transtar from paying any dividends prior to the earlier of the
consummation of the transactions contemplated by the Reorganization Agreement
and the termination of the Reorganization Agreement without the consent of each
of Holdings and USX.
The consummation of the transactions contemplated by the Reorganization
Agreement will result in the occurrence of a change in control under the Notes,
which, if it occurs, will require Holdings to offer to repurchase the Notes at
an aggregate price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereof. The consummation of the transactions
contemplated by the Reorganization Agreement is conditioned on, among other
things, the receipt of financing in an amount sufficient to refinance the Notes.
8
<PAGE> 9
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This pronouncement, as amended by SFAS 137
and 138, requires all derivative instruments to be reported at fair value on the
balance sheet; depending on the nature of the derivative instrument, changes in
fair value will be recognized either in net income or as an element of other
comprehensive income. SFAS 133 is effective for fiscal years beginning after
June 15, 2000. The Company has not engaged in significant activity with respect
to derivative instruments or hedging activities in recent years. Management of
the Company has not yet determined the impact, if any, of the adoption of SFAS
133 on the Company's financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
9
<PAGE> 10
B. TRANSTAR, INC.
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
--------- ---------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,385 $ 14,274
Accounts receivable from related parties 20,060 20,921
Accounts receivable from others 52,912 62,017
Other current assets 13,027 11,049
--------- ---------
Total current assets 107,384 108,261
Property, plant, and equipment,
less accumulated depreciation 416,794 417,902
Operating parts and supplies 16,136 14,344
Other assets 17,265 21,690
--------- ---------
Total assets $ 557,579 $ 562,197
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 67,937 $ 75,047
Payroll and benefits payable 35,935 39,059
Accrued taxes 12,769 13,447
Accrued interest 865 1,299
Current portion of long-term debt 71,000 110,000
Other current liabilities 2,534 1,560
--------- ---------
Total current liabilities 191,040 240,412
Long-term debt less current portion -- --
Postretirement benefits other than pensions 116,287 112,589
Deferred credits and other liabilities 57,838 57,281
--------- ---------
Total liabilities 365,165 410,282
STOCKHOLDERS' EQUITY
Common stock 1,000 1,000
Paid-in capital 28,601 28,601
Retained earnings 180,241 139,742
Treasury stock (17,428) (17,428)
--------- ---------
Total stockholders' equity 192,414 151,915
--------- ---------
Total liabilities and stockholders' equity $ 557,579 $ 562,197
========= =========
</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,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues from related parties $ 79,063 $ 63,875 $ 202,581 $ 174,503
Revenues from others 60,340 63,333 176,739 164,551
--------- --------- --------- ---------
Total revenues 139,403 127,208 379,320 339,054
--------- --------- --------- ---------
Operating expenses (excluding items shown below) 97,986 83,532 282,173 247,020
Selling, general, and administrative expenses 3,473 4,393 9,709 10,371
Depreciation 7,068 6,654 21,024 19,243
--------- --------- --------- ---------
Total operating expenses 108,527 94,579 312,906 276,634
--------- --------- --------- ---------
Operating income 30,876 32,629 66,414 62,420
Other income 3,214 709 4,365 1,738
Interest income 266 177 578 477
Interest and other financial expenses (1,852) (2,623) (6,434) (6,955)
--------- --------- --------- ---------
Income before income taxes 32,504 30,892 64,923 57,680
Less provision for income taxes 12,248 11,752 24,424 22,254
--------- --------- --------- ---------
Net income $ 20,256 $ 19,140 $ 40,499 $ 35,426
========= ========= ========= =========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Retained earnings beginning of period $ 159,985 $ 101,863 $ 139,742 $ 85,577
Net income 20,256 19,140 40,499 35,426
--------- --------- --------- ---------
Retained earnings end of period $ 180,241 $ 121,003 $ 180,241 $ 121,003
========= ========= ========= =========
</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,
-----------------------------
2000 1999
-------- --------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 40,499 $ 35,426
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21,023 19,243
Amortization 427 300
Deferred taxes 2,851 3,401
Gain on sale of assets (4,213) (467)
Changes in other assets and liabilities (519) (3,473)
-------- --------
Net cash provided by operating activities 60,068 54,430
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (21,284) (60,750)
Proceeds from the sale of assets 7,327 3,710
-------- --------
Net cash used for investing activities (13,957) (57,040)
-------- --------
FINANCING ACTIVITIES:
Short-term debt net -- 45,000
Repayment of debt (39,000) (39,000)
Payments to acquire Treasury Stock -- (4,067)
-------- --------
Net cash provided by (used for) financing activities (39,000) 1,933
-------- --------
Increase (Decrease) in cash and cash equivalents 7,111 (677)
Cash and cash equivalents at beginning of period 14,274 21,428
-------- --------
Cash and cash equivalents at end of period $ 21,385 $ 20,751
======== ========
</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, 2000
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, 2000 have been included. The results of
operations for the three and nine-month periods ended September 30, 2000 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, 1999. Certain reclassifications of prior years' data have been made to
conform to 2000 classifications.
NOTE 2: OPERATING SEGMENTS:
Transtar consists of two reportable segments: Railroad Group and Marine Group.
Summarized financial information concerning reportable segments is shown on the
following table. The "Other" column includes non-allocated corporate related
items and the elimination of inter-business unit transactions.
<TABLE>
<CAPTION>
Railroad Marine
Group Group Other Total
-------- -------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
For the three months ended September 30, 2000
Revenues - external customers $ 88,253 $ 51,150 $ -- $139,403
Income before income taxes 23,988 8,499 17 32,504
For the nine months ended September 30, 2000
Revenues - external customers $258,606 $120,714 $ -- $379,320
Income before income taxes 53,424 11,429 70 64,923
As of September 30, 2000
Total Assets $418,900 $160,335 $(21,656) $557,579
For the three months ended September 30, 1999
Revenues - external customers $ 90,850 $ 36,358 $ -- $127,208
Income before income taxes 25,570 5,310 12 30,892
For the nine months ended September 30, 1999
Revenues - external customers $254,067 $ 84,987 $ -- $339,054
Income before income taxes 54,117 3,531 32 57,680
As of December 31, 1999
Total assets $423,634 $163,754 $(25,191) $562,197
</TABLE>
13
<PAGE> 14
NOTE 3: CURRENT PORTION OF LONG-TERM DEBT:
Transtar's Credit Agreement, as amended and restated on August 26, 1999 (the
Restated Credit Agreement) provided for Term Loans in the aggregate principal
amount of $130 million, all of which are collateralized by the stock of the
Transtar subsidiaries. As of September 30, 2000, Transtar has a remaining
balance of $71 million on its term loan obligations. Under the terms of the
Restated Credit Agreement, the entire $71 million is scheduled for payment on
December 31, 2000. Transtar is negotiating a refinancing which would entail
entering into a new credit agreement or obtaining an extension of the existing
Restated Credit Agreement for approximately $42 million of these obligations. It
would also provide for an extension or replacement of the existing $25 million
revolving credit facility.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar, Inc. Results
For the Three and Nine Months ended September 30, 2000
Compared to the
Three and Nine Months ended September 30, 1999
Overall
Transtar is a transportation holding company composed of two segments: the
Railroad Group and the Marine Group. Transtar's net income of $20.3 million for
the quarter ending September 30, 2000 was an improvement of $1.1 million
compared with the same period of 1999. Operating income of $30.9 million
recorded in the third quarter of 2000 was $1.8 million less than the comparable
period of 1999. Net income for the nine months ended September 30, 2000 was
$40.5 million, a $5.1 million increase from the first nine months of 1999.
Operating income of $66.4 million generated during the first nine months of 2000
was $4.0 million more than the same period of 1999. Increased business volume,
additional employment costs, and continued escalation in fuel prices impacted
Transtar's third quarter and first nine months operating results as compared to
similar periods of the previous year.
Operating Revenues
Operating revenues totaled $139.4 million in the third quarter of 2000, an
increase of $12.2 million from the third quarter of 1999. The Railroad Group's
operating revenues declined by $2.6 million while the Marine Group's revenues
increased by $14.8 million in the third quarter of 2000 when compared to the
same period of 1999. In the first nine months of 2000, Transtar's operating
revenues improved to $379.3 million, a $40.3 million increase over the
comparable period of 1999. During this period, both groups' operating revenues
were greater than 1999, $4.5 million for the Railroad Group and $35.7 million
for the Marine Group. The operating revenue increase between these two periods
resulted from increased participation in the transportation of raw materials for
steel production. Also contributing to the revenue gain was transportation of
additional coal tonnages for export to Asian markets, coupled with increased
consumption of coal by domestic utilities served by Transtar.
Operating Expenses
Transtar's operating expenses increased $13.9 million and $36.3 million,
respectively, during the third quarter and first nine months of 2000 when
compared to the same periods of 1999. The Railroad Group's operating expenses
totaled $67.1 million and $207.3 million during the third quarter and first nine
months of 2000, representing increases of $2.4 million and $10.6 million,
respectively. The Marine Group's operating expenses increased $11.6 million and
$25.9 million in the third quarter and first nine months of 2000, respectively,
when compared to the same periods of 1999. Transtar's increased costs were
driven by higher employment costs and fuel consumption associated with increased
business volumes, a 66 percent or $10.7 million year-to-date increase in fuel
prices, and additional usage by the Marine Group of charter service for the
movement of various products. Partially offsetting these increases was a $1.1
million or 11 percent year-to-date improvement in car hire earnings (a contra to
cost) as Transtar's freight car fleet was used in additional off-line loadings.
Other Expense, net
Transtar's other expense, net, improved by $3.2 million during the first nine
months of 2000 when compared with the same period of 1999. Interest and other
financial expenses recorded during the first nine months of 2000 were $6.4
million, or $0.5 million less than the same period in 1999. In the first nine
months of 2000, other miscellaneous income improved by $2.6 million primarily as
the result of asset sales.
15
<PAGE> 16
Provision for Income Taxes
Transtar's provision for income taxes increased by $0.5 million during the third
quarter and $2.2 million for the first nine months of 2000, when compared to the
same period of 1999, directly as a result of changes in before tax earnings.
Liquidity and Capital Resources
Transtar's cash and temporary investments were $21.4 million at September 30,
2000, or $7.1 million more than the balance at December 31, 1999. Cash flow from
operating activities during the nine months ended September 30, 2000 was $60.1
million or $5.6 million more than was generated during the same period of 1999.
The major contributor to this increase was a $5.1 million improvement in net
income. Gross capital expenditures were $21.3 million in the first nine months
of 2000, a decline of $39.5 million from the same period of 1999. Capital
expenditures in 1999 included the $45.0 million purchase of a tug barge lake
vessel. Proceeds from the disposition of assets were $3.6 million more in the
first nine months of 2000 than in the same period of 1999.
In August 1999 Transtar amended and restated its original Credit Agreement to
acquire additional term loans in the amount of $45.0 million to refinance
certain short-term borrowings used in June 1999 for the purchase of a tug barge
lake vessel that was previously operated under a long-term lease. This restated
term loan facility was collateralized by the stock of Transtar's subsidiaries.
During the first nine months of 2000, Transtar retired $39.0 million of debt,
the same as retired during the first nine months of 1999. Including the August
1999 borrowing, Transtar has a remaining balance of $71.0 million on its term
loan obligations. Only nominal letters of credit are currently outstanding
against Transtar's $25.0 million revolving credit facility.
Transtar's Credit Agreement, as amended and restated on August 26, 1999 (the
Restated Credit Agreement) provided for Term Loans in the aggregate principal
amount of $130 million, all of which are collateralized by the stock of the
Transtar subsidiaries. As of September 30, 2000, Transtar has a remaining
balance of $71 million on its term loan obligations. Under the terms of the
Restated Credit Agreement, the entire $71 million is scheduled for payment on
December 31, 2000. Transtar is negotiating a refinancing which would entail
entering into a new credit agreement or obtaining an extension of the existing
Restated Credit Agreement for approximately $42 million of these obligations. It
would also provide for an extension or replacement of the existing $25 million
revolving credit facility.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This pronouncement, as amended by SFAS 137
and 138, requires all derivative instruments to be reported at fair value on the
balance sheet; depending on the nature of the derivative instrument, changes in
fair value will be recognized either in net income or as an element of other
comprehensive income. SFAS 133 is effective for fiscal years beginning after
June 15, 2000. The Company has not engaged in significant activity with respect
to derivative instruments or hedging activities in recent years. Management of
the Company has not yet determined the impact, if any, of the adoption of SFAS
133 on the Company's financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
16
<PAGE> 17
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
three-month period ended September 30, 2000.
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 Current Reports on Form 8-K during the
quarter ended September 30, 2000. On October 4, 2000, Holdings and TCC
filed a Form 8-K announcing that it has entered into a Reorganization and
Exchange Agreement with USX Corporation and Transtar.
17
<PAGE> 18
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 13, 2000
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
By: /s/ Howard A. Lipson
--------------------------
Howard A. Lipson, Treasurer
18
