<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, 1997
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......................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....................................... 7
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters...................... 8
Item 6. Selected Financial Data................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................ 15
Item 8. Financial Statements and Supplementary Data............................................... 16
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure...... 43
PART III
Item 10. Directors and Executive Officers of Registrant............................................ 44
Item 11. Executive Compensation.................................................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 50
Item 13. Certain Relationships and Related Transactions............................................ 52
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 53
</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%
voting and 53% economic interest in Transtar. Transtar Capital Corporation
(TCC), a Delaware corporation, is a wholly owned subsidiary of Holdings. TCC has
nominal assets and does not conduct any operations. TCC was formed in connection
with an offering of 13-3/8% Senior Discount Notes. Separate consolidated
financial statements of Transtar are included in this 10-K because Transtar is a
majority owned subsidiary of Holdings which is not consolidated in the
consolidated financial statements of Holdings. Holdings' earnings are derived
primarily from its 53% economic interest in Transtar. Blackstone Transportation
Company, Inc. (BTC), a Delaware corporation, is Holdings' sole general partner.
THE COMPANY
Transtar is a transportation holding company composed of two business
groups: The Railroad Group and the Marine Group. The Railroad Group is composed
of seven railroads-Duluth, Missabe and Iron Range Railway Company (DMIR), Elgin,
Joliet and Eastern Railway Company (EJ&E), Bessemer and Lake Erie Railroad
Company (B&LE), Union Railroad Company (Union), The Lake Terminal Railroad
Company (Lake Terminal), McKeesport Connecting Railroad Company (McKeesport),
Birmingham Southern Railroad Company (Birmingham Southern), one dock
facility-Pittsburgh & Conneaut Dock Company (P&C Dock) and one in-plant rail
operation-Fairfield Southern Company, Inc. The Marine Group is composed of two
shipping operations-Great Lakes Fleet (GLF) and Warrior and Gulf Navigation
Company (WGN) and one freshwater/saltwater dock facility-Mobile River Terminal
(MRT). The Railroad Group and Marine Group accounted for approximately 68% and
32% of revenues, respectively, in 1997.
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 59% of
its revenues in 1997 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 77% of
Transtar's revenues in 1997. Movements of coal to utilities and other customers
accounted for 10% of Transtar's revenues in 1997, while miscellaneous traffic
accounted for the remaining 13%.
The shareholders of Transtar are Holdings, which owns a 51% voting and
a 53% economic interest, USX, which owns a 49% voting and a 46% economic
interest, and Transtar's management which owns a 1% economic interest.
Management's direct interest has been reduced since Transtar's formation due to
repurchases of 732 shares of nonvoting stock from retiring managers. Certain
shares have been allocated to promoted managers in a stock option program.
Including the effect of this program, economic ownership of management would be
approximately 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 54% of the
Railroad Group's revenues in 1997. 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 the taconite is loaded onto vessels for delivery to USX's Gary Works and
Mon Valley facilities and other lower lake steel plants including the USS/Kobe's
Lorain, Ohio facility.
EJ&E
The EJ&E is a belt railroad that encircles Chicago, Illinois. It is
the sole serving carrier for USX's Gary, Indiana steel facility and transports
inbound coal, coke and scrap and outbound semi-finished and finished steel. The
EJ&E performs certain in-plant switching functions within the Gary Plant. It
also provides rail services to numerous other customers in the Chicago area.
B&LE
The B&LE services western Pennsylvania and northeastern Ohio and
transports coal, ore and limestone. Its principal northbound traffic is steam
coal destined for utility customers. The B&LE also delivers ore pellets via the
Union to USX's Edgar Thomson Works.
UNION
The Union is located in the Mon Valley, approximately 12 miles east of
Pittsburgh, Pennsylvania. It is the sole serving carrier for three USX
facilities: the Clairton Coke Works, the Edgar Thomson Works and the Irvin
Works. The Union transports coal, coke, ore, scrap and finished and
semi-finished steel products. In addition, it provides USX with in-plant
switching services at its Clairton Coke Works and maintenance services on USX's
own rolling stock and track at its Mon Valley plants. The Union also handles
coal for a variety of other customers at its river-to-rail transfer facility at
Duquesne, Pennsylvania.
LAKE TERMINAL
The Lake Terminal is located in Lorain, Ohio and is the sole-serving
rail carrier to the USS/Kobe facility there. The Lake Terminal also 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. Fairfield
Southern, a Birmingham Southern subsidiary, provides all of the in-plant
switching at Fairfield Works.
MARINE GROUP
The Marine Group is comprised of a Great Lakes shipping fleet and an
inland barge operation. Revenues from USX represented approximately 70% of the
Marine Group's revenues in 1997. The following papagraphs describe Transtar's
marine subsidiaries and their operations.
2
<PAGE> 5
GLF
The GLF owns nine lake vessels and operates two other vessels under
long-term charter agreements. They operate in a market area throughout the five
Great Lakes, extending from the western end of Lake Superior to the eastern end
of Lake Ontario.
WGN/MRT
WGN, headquartered in Chickasaw, Alabama, operates on the Black
Warrior-Tombigbee waterway and the Tennessee-Tombigbee waterway, utilizing a
fleet of 219 barges (of which 149 are leased) and 22 towboats. MRT, WGN's
subsidiary is a salt water/fresh water transfer facility located at Mobile,
Alabama.
OPERATING REVENUES
Transtar's total operating revenues were $526.1 million in 1997. These
revenues were primarily earned from the transportation of freight. The revenues
incorporate traffic originated, terminated, and switched by rail operations as
well as commodities transported by marine operations. Dock handling revenues
were earned by both the rail and the marine operations.
Set forth below are freight revenues of Transtar by commodity groups
for the years 1995 through 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -------------------
$ % of $ % of $ % of
(mil.) total (mil.) total (mil.) total
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Iron Ore.................... $219.9 41.8 $206.1 40.5 $201.1 40.7
Coal........................ 58.5 11.1 61.0 12.0 63.4 12.8
Coke........................ 43.6 8.3 39.3 7.7 38.8 7.8
Steel & General Merch....... 148.1 28.2 146.2 28.7 146.0 29.5
Dock Handling............... 23.3 4.4 23.5 4.6 20.1 4.1
Trucking.................... 1.3 .2 1.0 .2 0.8 0.2
All other revenues.......... 31.4 6.0 32.0 6.3 24.3 4.9
------ ----- ------ ----- ------ -----
Total Revenues........... $526.1 100.0 $509.1 100.0 $494.5 100.0
====== ===== ====== ===== ====== =====
</TABLE>
EMPLOYEES
Transtar employed an average of 3,312 employees in 1997, virtually the
same as 1996. Approximately 85% 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 marine
operations are subject to regulation by the U.S. Coast Guard. Additional
regulation, changes in regulation, re-regulation and certain types of
de-regulation of the industry through legislative, administrative, judicial or
other action could materially affect the Company.
COMPETITION
The Company faces competition from railroads, motor carriers, shipping
companies and inland barge operations depending upon the market served. The
ability to compete for freight traffic is dependent upon rates charged, as well
as the quality and reliability of the services provided.
ITEM 2. PROPERTIES
THE RAILROAD GROUP
Roadway, Yards and Structures
The Railroad Group has approximately 1,600 miles of track in
operation, consisting of approximately 600 miles of first main track (route
miles) and approximately 1,000 miles of additional main track, passing track,
way switching track and yard switching track.
Principal railroad yard facilities owned by the Railroad Group are
located at Two Harbors, Proctor, and Keenan, Minnesota; Joliet, Illinois; Gary,
Indiana; Conneaut, Ohio; and Greenville, Pennsylvania.
The following table summarizes the Railroad Group's track and roadway
activities for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Track miles of rail laid.......................................... 79 87 68
Ties inserted (thousands)......................................... 137 142 101
Track miles resurfaced............................................ 411 506 486
</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 33 20 26 140 32
Switcher.................................. 119 32 4 26 123 32
------ -- ----- -- ------ --
Total Locomotives....................... 239 32 24 26 263 32
====== == ===== == ====== ==
Freight Cars:
Box....................................... 69 21 - - 69 21
Gondola................................... 3,631 26 988 19 4,619 24
Hopper.................................... 8,437 43 987 18 9,324 40
Flat...................................... 506 35 95 28 601 34
------ -- ----- -- ------ --
Total Freight Cars...................... 12,643 37 2,070 19 14,613 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,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Roadway and structures................................ $12.7 $11.6 $11.0
Railroad equipment:
Locomotives......................................... 0.7 0.4 0.4
Freight cars........................................ 5.8 2.1 3.2
Other................................................. 5.1 3.6 3.0
----- ----- -----
Total............................................. $24.3 $17.7 $17.6
===== ===== =====
</TABLE>
Capital expenditures for the Railroad Group for 1998 are expected to
be approximately $26.4 million, of which approximately $13.2 million are
anticipated for roadway and structures and approximately $9.3 million are for
railroad 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.
<TABLE>
<CAPTION>
Railroad Maintenance Expenditures
(dollars in millions)
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Roadway and structures................................ $42.9 $38.0 $36.4
Railroad equipment:
Locomotives......................................... 23.2 21.4 21.4
Freight cars........................................ 22.9 21.6 20.5
Other................................................. 8.3 8.4 8.2
----- ----- -----
Total............................................... $97.3 $89.4 $86.5
===== ===== =====
</TABLE>
Future maintenance programs will be determined by track, locomotive
and car requirements necessary to provide quality service at projected business
levels. The Railroad Group maintains full service car and locomotive shops in
Proctor, Minnesota; Joliet, Illinois; Gary, Indiana; and Greenville,
Pennsylvania.
THE MARINE GROUP
The GLF owns nine vessels and leases two additional vessels under
long-term charter agreements. All of the vessels are self-unloaders, with a
total cargo capacity of 362,308 gross tons (GT) at mid-summer draft.
Included in this fleet are 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 GATX Third Aircraft
Corporation.
It also owns four intermediate size self-unloading carriers which are
the John G. Munson, with a forward deck-mounted boom, the Arthur M. Anderson,
the Cason J. Callaway and the Philip R. Clarke.
The remaining vessels are three smaller, self-unloading vessels. These
include the George A. Sloan, the Calcite II and the Myron C. Taylor, which are
the three shortest vessels in the fleet at just over 600 feet in length with a
60-foot beam. These vessels serve some of the smaller volume cargoes in the
Great Lakes trade.
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<PAGE> 9
A list of the GLF'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)
------ ------------- -------- -------- ----------
Ore Fleet
- ---------
<S> <C> <C> <C> <C>
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) Leased vessels.
WGN owns 22 towboats and 70 barges and operates another 149 barges
utilizing long-term lease arrangements.
Capital expenditures for the Marine Group were $1.3 million in 1997
and are expected to be approximately $0.9 million in 1998.
ITEM 3. LEGAL PROCEEDINGS
There have been no legal proceedings involving Holdings since its
formation. Transtar and certain of its operating subsidiaries are defendants in
lawsuits and actions incident to the normal conduct of its business. While the
results of these lawsuits and actions cannot be predicted with certainty,
Transtar believes the ultimate outcomes will not have a material adverse effect
on the operations, liquidity, capital resources and financial position of
Transtar.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1997.
7
<PAGE> 10
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,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Income from equity in earnings of Transtar........... $36.3 $37.6 $31.1 $28.4 $5.1
Interest and other financial expense................. (21.3) (18.8) (16.6) (14.7) (0.9)
Income from continuing operations.................... $17.1 $19.6 $13.8 $13.0 $4.1
Balance Sheet Data:
Investment in Transtar............................... $23.8 $ 0.5 $(15.4) $(16.9) $(44.7)
Total assets......................................... 74.1 50.9 14.0 (9.4) (35.2)
Long-term debt....................................... 169.3 148.8 130.7 114.8 100.9
Partners' equity (deficit)........................... (95.4) (98.6) (117.3) (124.9) (137.2)
</TABLE>
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<TABLE>
<CAPTION>
Transtar, Inc.
As of and for the year ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Operating revenues..................................... $526.1 $509.1 $494.5 $478.5 $437.0
Operating expenses (excluding item shown below)(1)..... 376.3 360.4 352.1 331.7 332.2
Depreciation and amortization.......................... 26.8 26.4 26.7 27.7 33.8
------ ------ ------ ------ ------
Operating income..................................... 123.0 122.3 115.7 119.1 71.0
Other income (expense)................................. 3.9 1.7 1.1 (8.7) 1.7
Interest income........................................ 1.0 1.0 1.2 1.0 1.1
Interest and other financial expense................... (17.4) (21.3) (24.1) (25.3) (47.8)
------ ------ ------ ------ ------
Income before income taxes........................... 110.5 103.7 93.9 86.1 26.0
Provision for income taxes............................. 42.1 32.8 35.2 32.4 10.2
Income from continuing operations...................... $ 68.4 $ 70.9 $ 58.7 $ 53.7 $ 15.8
====== ====== ====== ====== ======
Other Data:
Consolidated Cash Flow(2).............................. $160.5 $152.5 $148.6 $149.9 $128.8
Cash provided by operating activities.................. 106.0 113.8 94.0 99.8 68.8
Cash provided (used) by investing activities........... (19.9) (15.8) (16.9) 1.2 (6.4)
Cash (used) by financing activities.................... (86.4) (83.9) (87.0) (99.1) (64.4)
Capital expenditures................................... 25.6 19.6 20.3 13.7 11.2
Dividends paid......................................... 24.1 40.9 55.8 -- --
Non-cash interest(3)................................... 0.1 0.1 0.1 0.1 15.7
Consolidated Cash Flow to cash interest................ 9.3x 7.2x 6.2x 5.9x 4.0x
Fixed charge coverage ratio(4)......................... 9.2x 7.2x 6.2x 5.9x 2.7x
Ratio of earnings to fixed charges(5).................. 5.4x 4.6x 4.1x 3.7x 1.5x
Balance Sheet Data:
Cash and cash equivalents.............................. $ 24.3 $ 24.7 $ 10.6 $ 20.5 $ 18.6
Total assets........................................... 517.2 515.1 513.7 530.6 560.9
Long-term debt less current portion.................... 128.8 196.4 265.2 329.0 390.2
</TABLE>
(1) Operating expenses include non-recurring charges (credits) of $7.0
million, $(1.0) million, $(1.7) million, and $17.3 million for the
years ended December 31, 1997, 1996, 1994, and 1993, respectively.
These items relate to non-recurring labor costs, permanent impairments
of certain assets and environmental credits.
(2) Consolidated Cash Flow represents earnings before interest
expense, provision for income taxes, extraordinary item, cumulative
effect of change in accounting principle, depreciation, amortization,
special charges and non-cash SFAS 106 expenses related to other
post-retirement benefits. Consolidated Cash Flow is a non-GAAP measure
of performance and should not be considered as an alternative to net
income, or any other GAAP measure of performance, or to cash flows
from operating, investing or financing activities as a measure of
liquidity. Consolidated Cash Flow is presented because it is a defined
term in an indenture and because management believes it provides
useful information regarding the Company's ability to service and/or
incur debt.
(3) Non-cash interest represents 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.
9
<PAGE> 12
ITEM 7. TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is presented as an analysis of Transtar Holdings, L.P.'s
(Holdings) equity investment in Transtar, Inc. (Transtar). Holdings' earnings
are derived primarily from its 53% economic interest in Transtar. The following
discussion should be read in conjunction with Holdings' Consolidated Financial
Statements and Transtar's Consolidated Financial Statements and the related
notes thereto included in Item 8 of Part II of this 10-K.
1997 VERSUS 1996 AND 1995
OVERALL
Substantially all of the earnings of Holdings consists of Holdings'
share in the earnings of Transtar accounted for by the equity method. Holdings'
equity earnings of Transtar were $36.3 million in 1997 compared to $37.6 million
in 1996 and $31.1 million in 1995. 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 1997, Holdings' net income totaled $17.1 million, a decrease of
$2.5 million from $19.6 million in 1996 and a $3.3 million increase from the
$13.8 million recorded in 1995.
REVENUES AND EXPENSES
Holdings did not produce any revenues in 1997, 1996, or 1995.
Holdings' operating expenses decreased in 1997 to $0.2 million, or $0.3 million
less than the $0.5 million in 1996, and $0.5 million less than the $0.7 million
incurred in 1995. As a result of a December 1993 offering of debt, interest and
other financial expenses grew from $16.6 million in 1995, to $18.8 million in
1996, and $21.3 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
On December 7, 1993, Holdings and Transtar Capital Corporation (TCC)
issued $218 million aggregate principal amount of 13 3/8% Series A Senior
Discount Notes due December 15, 2003. In 1994, Holdings and TCC exchanged the
Series A Notes for Series B Notes (Notes). The first cash interest payment on
the Notes is due on June 15, 2000.
On both October 30 and December 19, 1997, Transtar declared cash
dividends in the amount of $625 per share on both its Class A Voting Common
Stock and it Class B Nonvoting Common stock to holders of record of the stock on
October 28 and December 17, 1997, respectively. During 1997, Holdings received
$12.8 million representing its 53% economic interest in the Transtar dividends.
Pursuant to an Indenture Agreement relating to the issuance of the Notes (the
Notes Indenture), both dividend payments were deposited into an escrow account.
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 the Notes Indenture, both dividend payments were deposited
into the escrow account.
In February 1998, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Notes at a price equal to 101 % of the
accreted value of such Notes on the date of purchase. The offer to purchase the
Notes was made by a notice to holders of the Notes and was held open for 20
business days. During 1997, in accordance with the Notes Indenture and an
agreement governing the escrow account, Holdings withdrew from the escrow
account $13.7 million to distribute to its partners and $0.3 million to pay
certain administrative expenses.
10
<PAGE> 13
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on Notes, make 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 $2.4 million, $1.4 million, and $0.1 million in 1997, 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.
11
<PAGE> 14
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar, Inc. (Transtar or the Company) is a holding company
consisting of two business groups, the Railroad Group and the Marine Group.
1997 VERSUS 1996
OVERALL
Transtar reported net income of $68.4 million in 1997, compared to net
income of $70.9 million in 1996. Transtar's results in 1997 were driven by the
economy's continued strength, particularly within the domestic steel industry,
which shipped at record levels. Transtar's income before taxes in 1997 totaled
$110.6 million or $6.9 million more than was earned in 1996. The decline in net
income between years was a result of a $7.1 million reduction of prior years tax
reserves that had been recognized in 1996.
OPERATING REVENUES
Operating revenues in 1997 totaled $526.1 million, or $17.0 million
greater than in 1996. Revenue increases achieved by the Rail Group and Marine
Group were $10.4 million and $6.6 million, respectively. Domestic steel
shipments increased by 3.8 percent in 1997 and Transtar shared in this
improvement. Raw materials used in the steel production process, such as ore and
coke, as well as outbound steel products all showed increases over 1996. Ore
revenues improved by $13.8 million, coke revenues improved by $4.3 million and
steel and general merchandise revenues improved by $1.9 million. Coal revenues
decreased by $2.5 million primarily due to the diversion of certain shipments
originating in Alabama to destinations not served by Transtar carriers.
OPERATING EXPENSES
Operating expenses increased $16.3 million from 1996 levels to $403.2
million in 1997. Contributing to cost increases were: 1) increased labor expense
of $2.8 million reflecting contractual wage increases and increased operating
labor and maintenance requirements; 2) increased repair and maintenance
materials' expense of $3.4 million; 3) increases in state and local taxes of
$1.6 million associated with increased earnings and favorable property tax
adjustments recorded in 1996; 4) a lease cost increase of $0.9 million
reflecting new leases involving freight cars, locomotives and barges commencing
in late in 1996 and during 1997; 5) a $7.0 million recognition of expense
associated with a limited early retirement program and an accounting department
consolidation; and 6) a $1.0 million reduction to cost recorded in the second
quarter of 1996 resulting from the settlement of environmental litigation.
Partially offsetting these cost increases was a decrease in diesel fuel prices
which contributed to a $1.9 million reduction in fuel expense.
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $4.0 million in 1997 from
1996. This decrease is primarily attributed to the retirement of $62.0 million
of term debt during 1997. Land sales in 1997 by the Railroad Group generated an
additional $2.0 million of the before tax income.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1997 was $42.1 million, or an
increase of $9.4 million over 1996. In 1996, Transtar completed a review of its
tax reserves and concluded that certain reserves were no longer necessary. This
decrease in reserve requirements resulted in a credit of $7.1 million to the
1996 tax provision.
12
<PAGE> 15
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
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 of $12.0 million and $2.6 million,
respectively, were achieved by the Railroad Group and the Marine Group. Domestic
steel shipments increased by 4.2 percent in 1996 and helped produce additional
business volumes for Transtar. Approximately 40 percent of the overall revenue
improvement was related to the movement of ore and associated dock handling
which increased $5.9 million versus 1995. The strong demand for iron ore pellets
required the 1995 shipping season on the Great Lakes to be extended into the
first quarter of 1996. This resulted in 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 cost increases were: 1) repair and maintenance
materials of $2.2 million, reflecting increased traffic volumes, 2) fuel cost
increases of $5.5 million, reflecting additional consumption due to traffic
volumes but primarily as a result of continually escalating prices, and 3)
long-term lease expense increases of $1.8 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 moderately increased operating expense. Partially offsetting these
increases were reduced state tax reserves of $1.0 million coupled with the
recognition of a $1.0 million credit for the settlement of environmental
litigation.
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $2.7 million in 1996 from
1995. This decrease is equally attributable to the reduction 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.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1996 was $32.8 million or a
decrease of $2.5 million from 1995. During 1996, Transtar completed a review of
its tax reserves and concluded that certain reserves were no longer necessary.
Accordingly, the current year provision for income taxes includes a credit of
$7.1 million to recognize the reversal of these liabilities. Transtar believes
its present tax reserves adequately reflect the liabilities of the company.
13
<PAGE> 16
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Transtar ended 1997 with cash and cash equivalents totaling $24.3
million, which was $0.4 million less than the $24.7 million it had at year end
1996. During 1997, Transtar repaid $62.0 million of its term loan obligations.
During 1996, Transtar repaid $23.0 million of its term loan obligations and
$20.0 million it had previously drawn against its revolving line of credit. A
1997 amendment to its Credit Agreement permitted Transtar to pay dividends
during 1997 not to exceed $25.0 million. A 1995 amendment to its Credit
Agreement permitted payment of dividends in 1996 not to exceed Transtar's net
income. Transtar paid dividends of $24.1 million to its shareholders in 1997
compared to $40.9 million of dividends paid in 1996.
At December 31, 1997, Transtar had $196.0 million term loan
obligations remaining, including $68.4 million due June and December 1998.
Transtar expects to repay its 1998 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 used for investing activities in 1997 of $19.9 million was
$4.1 million more than 1996. This change reflects increased capital spending in
1997 of $6.0 million offset by a $1.9 million increase in proceeds from
disposition of assets.
Cash used for financing activities in 1997 increased $2.5 million from
1996. Cash used for term loan debt payments increased by $39.0 million from
1996. In 1997, Transtar repaid $62.0 million of its term debt obligations versus
the $23.0 million it repaid in 1996. Transtar retired $20.0 million of revolving
credit loans in 1996 which were incurred in 1995. In 1997, dividends of $24.1
million were paid to stockholders, compared with $40.9 million in 1996 and $55.8
million in 1995.
CAPITAL EXPENDITURES
Transtar's capital requirements during 1998 are forecasted to be
approximately $27.3 million. Contractual commitments to acquire fourteen barges,
via operating lease, have also been made. Internally generated funds from
operations are sufficient to fund Transtar's mandatory debt payments as well as
future capital requirements.
In 1997, capital expenditures of $25.6 million represented a $6.0
million increase from 1996. Capital expenditures in 1996 totaled $19.6 million,
or $0.6 million less than in 1995. In addition to these capital expenditures,
the Company spent $118.6 million in 1997, $110.6 million in 1996, and $107.5
million in 1995 for repair and maintenance of its facilities and equipment.
14
<PAGE> 17
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
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, 1997 and 1996, accrued liabilities for remediation
totaled $0.4 million. The Company has considered the other potentially
responsible parties in determining this accrual. For the period 1989 through
1997, actual cash payments associated with environmental expense have totaled
$10.0 million.
Transtar and USX have entered into an environmental indemnification
agreement, whereby USX has agreed to indemnify Transtar against 75 percent of
certain environmental claims, losses, liabilities, obligations, damages,
deficiencies, costs, and expenses (collectively, Environmental Liabilities) in
excess of $10 million. This environmental indemnification agreement covers
Environmental Liabilities relating to certain assets and properties transferred
by USX to Transtar upon the formation of Transtar, which Environmental
Liabilities existed or occurred prior to such formation. Of the $10.0 million
expended since 1988, $7.7 million is applicable to the $10 million threshold.
Although it is not presently possible to estimate the ultimate amount of all
remediation and compliance costs that might be incurred or the penalties that
may be imposed, management does not believe these potential costs will have a
material adverse effect on the Company.
YEAR 2000
Transtar is committed to addressing the Year 2000 issue that could
impact its existing computer and operating systems. In 1996, a task force of
internal staff, as well as consultants, was assigned to a research project to
determine the scope of the Year 2000 issue as it relates to internally developed
systems. A plan to identify and correct Year 2000 problems was completed in
mid-1997, and an outside contractor was hired to progress the project during
1997 and 1998. Transtar expects to spend approximately $3.8 million to make the
Company Year 2000 compliant. Additionally, Transtar continues to work with its
software and hardware vendors to ensure that their products will be Year 2000
compliant by 1999. Transtar has contacted owners of outside systems with which
they interface to confirm the existence of an action plan that assures those
systems will be Year 2000 compliant.
While Transtar management believes that it will succeed in its plan to
make Transtar, a Year 2000 compliant company, there is no guarantee that it will
be completely successful. Transtar has limited or no control over the actions of
proprietary software vendors and other entities with which it interacts.
Transtar's management believes it is too difficult to determine at this time
what impact partial non-compliance would have on the operating results of
Transtar.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
15
<PAGE> 18
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 ....................................................... 17
Consolidated Balance Sheet as of December 31, 1997 and 1996 ............................. 18
Consolidated Statement of Income for the Years Ended December 31, 1997, 1996 and 1995 ... 19
Consolidated Statement of Partners' Equity for the Years Ended December 31, 1997, 1996
and 1995 ................................................................................ 19
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 20
Notes to Consolidated Financial Statements .............................................. 21
TRANSTAR, INC
Report of Independent Accountants ....................................................... 25
Consolidated Balance Sheet as of December 31, 1997 and 1996 ............................. 26
Consolidated Statement of Income for the Years Ended December 31, 1997, 1996 and 1995 ... 27
Consolidated Statement of Retained Earnings for the Years Ended December 31, 1997, 1996
and 1995 ................................................................................ 27
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997, 1996
and 1995 ................................................................................ 28
Notes to Consolidated Financial Statements .............................................. 29
Financial Statement Schedules ........................................................... 53
</TABLE>
16
<PAGE> 19
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 16 of the Annual
Report on Form 10-K, present fairly, in all material respects, the financial
position of Transtar Holdings, L.P. and its subsidiary, Transtar Capital
Corporation (TCC), (together, "Holdings") at December 31, 1997, and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, 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 23, 1998
17
<PAGE> 20
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) .................................................. $ 260 $ 386
Other current assets ................................................................ -- 329
--------- ---------
Total current assets .............................................................. 260 715
Restricted cash (Note 4) .............................................................. 45,694 44,579
Investment in Transtar ................................................................ 23,825 491
Other assets (Note 2) ................................................................. 4,367 5,105
--------- ---------
Total assets ...................................................................... $ 74,146 $ 50,890
========= =========
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities ...................................... $ 186 $ 729
Long-term debt (Note 3) ............................................................... 169,330 148,767
--------- ---------
Total liabilities ................................................................. 169,516 149,496
PARTNERS' EQUITY (DEFICIT) ........................................................ (95,370) (98,606)
--------- ---------
Total liabilities and partners' equity (deficit) .................................. $ 74,146 $ 50,890
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE> 21
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues.......................................................... $ -- $ -- $ --
-------- --------- ---------
Operating expenses:
Selling, general and administrative expenses.................. 236 551 736
-------- --------- ---------
Operating (loss).......................................... (236) (551) (736)
Interest income................................................... 2,369 1,399 81
Interest and other financial expenses............................. (21,301) (18,832) (16,626)
-------- --------- ---------
(Loss) before equity in earnings of Transtar.................. (19,168) (17,984) (17,281)
Equity in earnings of Transtar.................................... 36,267 37,584 31,082
-------- --------- ---------
Net income.................................................... $ 17,099 $ 19,600 $ 13,801
======== ========= =========
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
Partners' equity (deficit), beginning of year..................... $(98,606) $(117,306) $(124,907)
Distribution to partners (Note 4)................................. (13,692) (900) (6,200)
Net income........................................................ 17,099 19,600 13,801
Other adjustments to partners' equity (Note 5).................... (171) -- --
-------- --------- ---------
Partners' equity (deficit), end of year........................... $(95,370) $ (98,606) $(117,306)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE> 22
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 17,099 $ 19,600 $ 13,801
Adjustments to reconcile net income to net cash used by
operating activities:
Amortization ....................................................... 345 380 517
Non-cash interest and other financial expenses ..................... 21,301 18,832 16,604
Non-cash interest income ........................................... (2,358) (1,393) (76)
Equity in earnings of Transtar ..................................... (36,267) (37,584) (31,082)
Changes in:
Accounts payable ................................................. (543) 114 (96)
All other changes - net .......................................... (3) (343) (398)
-------- -------- --------
Net cash used for operating activities ......................... (426) (394) (730)
-------- -------- --------
INVESTING ACTIVITIES:
Dividends received ................................................... 12,750 21,675 29,580
-------- -------- --------
Net cash provided by investing activities ...................... 12,750 21,675 29,580
-------- -------- --------
FINANCING ACTIVITIES:
Restricted cash ...................................................... (12,750) (21,675) (29,580)
Distribution to partners ............................................. (13,692) (900) (6,200)
Withdrawal from restricted cash ...................................... 13,992 1,585 6,560
-------- -------- --------
Net cash used for financing activities ......................... (12,450) (20,990) (29,220)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ....................... (126) 291 (370)
Cash and cash equivalents at beginning of period ....................... 386 95 465
-------- -------- --------
Cash and cash equivalents at end of period ............................. $ 260 $ 386 $ 95
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
20
<PAGE> 23
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 percent of the voting shares and 53 percent of the
economic interest in the capital stock of Transtar.
The consolidated financial statements presented herein reflect the
ownership by Holdings of the outstanding shares of Transtar capital stock
formerly held by Blackstone. Since Holdings and BCP are under common control,
the contribution of BCP's Transtar shares to Holdings has been accounted for in
a manner similar to a pooling of interests.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
of Holdings include the accounts of Holdings and TCC, a wholly owned subsidiary.
The investment in Transtar, over which Holdings has significant influence in
management and control, is accounted for using the equity method and is carried
in the investment account at Holdings' share of net assets plus advances. A
proportionate share of Transtar's income is included as equity in earnings of
Transtar.
Cash and Cash Equivalents -- Cash and cash equivalents includes cash
on hand and time deposits, certificates of deposit, high-grade commercial paper,
and government securities, all purchased with maturities of three months or
less, and all of which are carried at cost which approximates market.
Income Taxes -- No current or deferred United States federal income
taxes or state income taxes have been provided for Holdings since, as a
partnership, Holdings is not subject to such taxes.
Deferred Debt Issue Costs -- Deferred debt issue costs represent the
unamortized portion of capitalized fees and expenses relating to issuance of the
Notes on December 7, 1993. At that time, fees and expenses amounting to $7.0
million were capitalized. During 1994, additional fees amounting to $0.3 million
were capitalized.
21
<PAGE> 24
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: (CONTINUED)
Use of Estimates -- Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses during the year.
NOTE 3: LONG-TERM DEBT
<TABLE>
<CAPTION>
Interest December 31, December 31,
Rate (%) Maturity 1997 1996
-------- -------- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Series B Senior Discount Notes.................... 13.375 2003 $169,330 $148,767
Less amount due within one year................. -- --
-------- --------
Long-term debt due after one year............... $169,330 $148,767
======== ========
</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, 1997 and 1996 was $198.5
million and $168.8 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 $20.6
million, $18.1 million and $15.9 million in 1997, 1996 and 1995, respectively.
The Issuers will be dependent on sales of, or dividends or
distributions on, Holdings' Transtar stock in order to meet their obligations
under the Notes or new notes as applicable. Except as noted below, Transtar's
December 7, 1993 Credit Agreement (the Credit Agreement) prohibits the payment
of dividends exceeding $1.5 million annually by Transtar until the sixth
anniversary of the issuance of the Notes or new notes, as applicable. Commencing
on the sixth anniversary of the issuance of the Notes or new notes, the Credit
Agreement will permit the payment of dividends sufficient to fund the next cash
interest payment on the Notes or new notes so long as no default with respect to
that Credit Agreement has occurred and is continuing at such time or would
result from the payment of such dividends. Transtar's by-laws require unanimous
approval of Transtar's directors to declare a dividend or other distribution
(absent a decision by an independent consultant breaking a deadlocked vote).
Holdings and USX each have the right, pursuant to a Stockholders Agreement dated
as of December 28, 1988, as amended (the Stockholders Agreement), to designate
certain directors to the board of directors of Transtar. As such, Holdings'
ability to cause Transtar to declare and pay a dividend or other distribution is
dependent upon the concurrence of USX.
On October 9, 1997, Transtar and the lending institutions that are
party to the Credit Agreement approved an amendment that permitted Transtar to
pay dividends during the fiscal year ending December 31, 1997 in an amount not
to exceed $25.0 million. (See Note 4)
22
<PAGE> 25
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 October 27, 1997, Transtar declared a cash dividend in the amount
of $625 per share on both its Class A Voting Common Stock (Voting Stock) and its
Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the
stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture Agreement relating to the issuance of the Notes (the Notes Indenture),
the dividend payment was paid into an escrow account. On December 16, 1997
Transtar declared a cash dividend of $625 per share on both its Voting Stock and
its Nonvoting Stock to holders of record of the stock on December 16, 1997.
Holdings received $6.4 million on December 19, 1997, representing its 53%
economic interest in the Transtar dividend. In accordance with the Notes
Indenture, this dividend was paid into the escrow account.
On August 29, 1996, Transtar declared a cash dividend in the amount of
$850 per share on both its Voting Stock and its 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 the Notes Indenture, the dividend payment was paid into the 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 and January 1996, 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 offers to purchase the Notes were made by notices to holders of
the Senior Discount Notes and were 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 optimally redeem Notes
or to pay administrative expenses of Holdings. In 1997, 1996 and 1995, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $13.7 million, $0.9 million
and $6.2 million, respectively, to distribute to its partners, and withdrew $0.3
million,$0.7 million and $0.4 million, respectively, to pay certain
administrative expenses. Interest earned on the escrow balance amounted to $2.4
million, $1.4 million and $76 thousand in 1997, 1996 and 1995, respectively.
NOTE 5: PARTNERS' EQUITY
In 1997, Holdings recorded an adjustment to Partners Equity of $(0.2)
million. This adjustment was recorded as a result of a change in ownership
related to a Transtar repurchase of treasury stock from its Management Stock
Trust.
23
<PAGE> 26
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: SUBSEQUENT EVENTS
In February 1998, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Notes at an offer price equal to 101% of
the accreted value of such Notes on the date of purchase. The offer to purchase
the Notes was made by a notice to holders of the Notes and was held open for 20
business days.
24
<PAGE> 27
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 16 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, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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 23, 1998
25
<PAGE> 28
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-----------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) .............................................. $ 24,316 $ 24,691
Accounts receivable from related parties (Note 13) .............................. 16,274 18,611
Accounts receivable from trade customers ........................................ 56,459 46,335
Other current assets (Note 6) ................................................... 4,464 5,513
--------- ---------
Total current assets .......................................................... 101,513 95,150
Property, plant, and equipment,
less accumulated depreciation (Note 7) .......................................... 382,635 385,637
Operating parts and supplies ...................................................... 17,517 15,896
Other assets (Note 8) ............................................................. 15,548 18,452
--------- ---------
Total assets .................................................................. $ 517,213 $ 515,135
========= =========
LIABILITIES
Current liabilities:
Accounts payable ................................................................ $ 73,663 $ 66,030
Payroll and benefits payable .................................................... 38,456 37,318
Accrued taxes ................................................................... 12,143 10,328
Accrued interest ................................................................ 2,177 2,906
Current portion of long-term debt (Note 9) ...................................... 68,464 61,603
Other current liabilities ....................................................... 1,096 1,526
--------- ---------
Total current liabilities ..................................................... 195,999 179,711
Long-term debt less current portion (Note 9) ...................................... 128,766 196,400
Postretirement benefits other than pensions (Note 4) .............................. 106,270 102,707
Deferred credits and other liabilities (Note 11) .................................. 41,108 35,412
--------- ---------
Total liabilities ............................................................. 472,143 514,230
STOCKHOLDERS' EQUITY
Common stock (Note 12) ............................................................ 1,000 1,000
Paid-in capital (Note 12) ......................................................... 23,979 24,000
Retained earnings (deficit) ....................................................... 26,538 (17,822)
Treasury stock (Note 12) .......................................................... (6,447) (6,273)
--------- ---------
Total stockholders' equity .................................................... 45,070 905
--------- ---------
Total liabilities and stockholders' equity .................................... $ 517,213 $ 515,135
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
26
<PAGE> 29
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues from related parties (Note 13) ....................................... $309,206 $293,601 $279,291
Revenues from others .......................................................... 216,909 215,525 215,242
-------- -------- --------
Total revenues .............................................................. 526,115 509,126 494,533
-------- -------- --------
Operating expenses (excluding items shown below) .............................. 363,784 348,188 340,163
Selling, general, and administrative expenses ................................. 12,558 12,190 11,925
Depreciation .................................................................. 26,820 26,483 26,716
-------- -------- --------
Total operating expenses .................................................... 403,162 386,861 378,804
-------- -------- --------
Operating income .......................................................... 122,953 122,265 115,729
Other income .................................................................. 3,899 1,703 1,118
Interest income ............................................................... 1,085 1,060 1,212
Interest and other financial expenses ......................................... (17,358) (21,314) (24,144)
-------- -------- --------
Income before income taxes .................................................. 110,579 103,714 93,915
Less provision for income taxes (Note 5) ...................................... 42,134 32,783 35,256
-------- -------- --------
Net income ................................................................... $ 68,445 $ 70,931 $ 58,659
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Retained earnings (deficit), beginning of period.............................. $(17,822) $(47,847) $(50,681)
Dividends paid (Note 12)...................................................... (24,085) (40,906) (55,825)
Net income.................................................................... 68,445 70,931 58,659
-------- -------- --------
Retained earnings (deficit), end of period.................................... $26,538 $(17,822) $(47,847)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
27
<PAGE> 30
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 68,445 $ 70,931 $ 58,659
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ........................................................... 26,820 26,483 26,716
Non cash interest expense .............................................. 652 731 816
Deferred taxes ......................................................... 5,879 (459) 8,959
Loss (gain) on sale of assets .......................................... (2,676) (399) 9
Non cash postretirement benefits expense (Note 4) ...................... 3,781 4,759 6,114
Changes in:
Accounts receivable .................................................. (7,787) 286 2,333
Accounts payable ..................................................... 7,633 14,648 (8,624)
Deferred credits ..................................................... (183) (4,708) 3,236
All other changes - net .............................................. 3,387 1,526 (4,178)
--------- --------- --------
Net cash provided by operating activities ............................ 105,951 113,798 94,040
--------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................................... (25,644) (19,634) (20,267)
Proceeds from the sale of assets ....................................... 5,730 3,828 3,344
--------- --------- --------
Net cash provided by (used for) investing activities ................. (19,914) (15,806) (16,923)
--------- --------- --------
FINANCING ACTIVITIES:
Repayment of long-term borrowings ...................................... (62,002) (23,013) (51,138)
Borrowings (repayments) - revolver ..................................... -- (20,000) 20,000
Dividends paid ......................................................... (24,085) (40,906) (55,825)
Payments to acquire treasury stock ..................................... (325) -- --
--------- --------- --------
Net cash used for financing activities ............................... (86,412) (83,919) (86,963)
--------- --------- --------
Increase (decrease) in cash and cash equivalents ......................... (375) 14,073 (9,846)
Cash and cash equivalents at beginning of period ......................... 24,691 10,618 20,464
--------- --------- --------
Cash and cash equivalents at end of period ............................... $ 24,316 $ 24,691 $ 10,618
========= ========= ========
SUPPLEMENTAL INFORMATION:
Income taxes paid ...................................................... $ 35,537 $ 32,443 $ 25,595
Interest paid .......................................................... $ 17,394 $ 22,003 $ 22,672
NONCASH INVESTING AND FINANCING ACTIVITIES:
New long-term borrowings - capital leases .............................. $ 1,230 $ -- $ --
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 31
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 two primary operations -- railroad
operations and marine operations. A significant part of its operations are with
related parties. (See Note 13)
BTP was originally formed in 1988 for the sole purpose of holding
voting stock and nonvoting stock in Transtar. In November 1993, BTP was renamed
Transtar Holdings, L.P., a Delaware limited partnership (Holdings), which
assumed ownership of BTP's then 51.8 percent economic interest and 51 percent
voting interest in the capital stock of Transtar. Holdings has no operations of
its own.
Since its formation, Transtar has repurchased certain shares of
nonvoting stock from its management stock trusts and has recorded these shares
as Treasury Stock. As of December 31, 1997, Holdings owns 53 percent economic
interest and 51 percent voting interest in the capital stock of Transtar; USX
owns 46 percent economic interest and 49 percent voting interest; and the
management stock trust holds the remaining 1 percent economic interest.
The Transtar transaction was accounted for as a purchase transaction
prescribed by Accounting Principles Board Opinion (APB) No. 16 as modified by
the Financial Accounting Standards Board's Emerging Issues Task Force Consensus
No. 86-16, "Carryover of Predecessor Cost in Leveraged Buyout Transactions"
(EITF 86-16). EITF 88-16, "Basis in Leveraged Buyout Transactions," subsequently
superseded EITF 86-16. However, this transaction was completed prior to the
effective date of EITF 88-16.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of
Transtar include the accounts of Transtar and its subsidiaries. All significant
intercompany transactions and balances have been eliminated from the
consolidated financial statements.
Cash and Cash Equivalents -- Cash and cash equivalents include cash on
hand and time deposits, certificates of deposit (CD), high-grade commercial
paper, or government securities, all purchased with maturities of 3 months or
less, and all of which are carried at cost which approximates market.
Operating Parts and Supplies -- Operating parts and supplies consist
primarily of repair and replacement materials for railroad and marine equipment
and facilities, and are carried at the lower of average cost or market, defined
as replacement cost.
29
<PAGE> 32
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
Fuel Oil Hedging -- Transtar from time to time enters into agreements
to hedge exposure to price fluctuations in connection with the purchase of fuels
for propulsion. Such transactions are accounted for as part of the commodity
being hedged and are settled on a monthly basis. (See additional information in
Note 10.)
Interest Rate Hedging -- Transtar from time to time is party to
interest rate protection agreements with several financial institutions to
reduce the potential impact of increases in variable interest rates associated
with the December 7, 1993, Credit Agreement and an amendment to the Credit
Agreement dated March 12, 1997. If required, interest expense associated with
these agreements is accrued monthly and settled quarterly. 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 -- Properties acquired by Transtar at
December 28, 1988 are stated at a combination of historical cost and fair value
as a result of the accounting for the purchase transaction prescribed by APB 16,
as modified by EITF 86-16. Subsequent property acquisitions are recorded at
cost. Depreciation is generally computed on the straight-line method, utilizing
a composite or grouped asset approach, based on estimated lives of the assets,
which are generally from 3 to 50 years. Proceeds from the sale of those
facilities depreciated on a group basis are credited to the depreciation
reserve, which is subject to periodic adjustments through depreciation studies
performed on a scheduled basis.
When facilities depreciated on an individual basis are sold, the
difference between the selling price and the remaining undepreciated value is
reflected in income. When nondepreciable assets are sold, any gain or loss is
reflected in income.
Ordinary maintenance and repairs are charged to expense as incurred.
Deferred Dry Dock Costs -- USS Great Lakes Fleet, Inc. (a Transtar
subsidiary) is required by the U.S. Coast Guard to inspect and perform certain
maintenance on each of its lake-going vessels every 5 years. Costs to perform
this operation (dry dock costs) are deferred and amortized on a straight-line
basis over 60 months from the time each vessel is dry docked.
Deferred Lump-Sum Compensation -- Certain Transtar labor contracts
contain provisions for compensation in the form of lump-sum payments. Lump-sum
compensation that is determined to benefit future periods is deferred and
amortized over the period of the contract in accordance with the provisions of
EITF 88-23, "Lump-Sum Payments Under Union Contracts."
Acquisition Debit -- The Transtar transaction was accounted for as a
business combination following the requirements of APB 16, as modified by EITF
86-16. These principles were used to determine the cost basis of Transtar. The
difference between the purchase price and the new cost basis of Transtar
resulted in the recognition of a $17.4 million acquisition debit in retained
earnings in the consolidated financial statements.
Revenue Recognition -- Revenues are generally recognized upon
completion of a service, usually a transportation movement.
30
<PAGE> 33
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
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. Costs resulting from noninsured losses are charged against
income upon occurrence.
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.
Accounting Standards -- The Financial Accounting Standards Board has
issued three new accounting standards:
SFAS No. 130, "Reporting Comprehensive Income" requires that companies
report all recognized changes in assets and liabilities that are not the result
of transactions with owners, including those that are not reported in net
income. Transtar plans to adopt the standard, effective with its 1998 financial
statements, as required.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" introduces a "management approach" for identifying reportable
industry segments of an enterprise. Transtar plans to adopt the standard,
effective with its 1998 financial statements, as required.
SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises employers' disclosures about pensions and other
postretirement benefits plans. Transtar plans to adopt the standard, effective
with its 1998 financial statements, as required.
Reclassifications -- Certain reclassifications of prior years' data
have been made to conform to 1997 classifications.
31
<PAGE> 34
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>
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cost of benefits earned during the period ...................................... $ 6,508 $ 6,413 $ 5,323
Interest cost on projected benefit obligation .................................. 8,826 7,829 6,807
Actual return on assets ........................................................ (16,404) (8,769) (11,798)
Amortization of unrecognized net obligation and deferral of gains .............. 10,336 5,160 9,737
-------- -------- --------
Net periodic pension cost ...................................................... $ 9,266 $ 10,633 $ 10,069
======== ======== ========
</TABLE>
As a result of programs of early retirements and separations, Transtar
recognized a curtailment loss of $4.0 million in 1997.
32
<PAGE> 35
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, 1997 December 31, 1996
-------------------------------------- ---------------------------------------
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
ABO Assets Total ABO Assets Total
------ ------- ----- ------ ------- -----
Actuarial present value of (dollars in thousands)
benefit obligations:
<S> <C> <C> <C> <C> <C> <C>
Vested benefit obligation ............... $ (87,288) -- $ (87,288) $ (70,613) -- $ (70,613)
========= ========= ========= ========= ======= =========
Accumulated benefit obligation (ABO) .... $ (91,647) $ (1,462) $ (93,109) $ (73,955) $(1,118) $ (75,073)
========= ========= ========= ========= ======= =========
Projected benefit obligation ............ (135,355) (1,770) (137,125) (112,826) (1,393) (114,219)
Plan assets at fair value .................. 97,551 -- 97,551 79,808 -- 79,808
--------- -------- --------- --------- ------- ---------
Projected benefit obligation in
excess of plan assets ................... (37,804) (1,770) (39,574) (33,018) (1,393) (34,411)
Unrecognized prior service cost ............ 3,136 363 3,499 2,993 452 3,445
Unrecognized net loss ...................... 31,978 458 32,436 25,998 301 26,299
Unrecognized net obligation
at inception of plan .................... 3,945 -- 3,945 4,603 -- 4,603
--------- -------- --------- --------- ------- ---------
Pension asset (liability)
recognized on the balance sheet ............ $ 1,255 $ (949) $ 306 $ 576 $ (640) $ (64)
========= ========= ========= ========= ======= =========
</TABLE>
The assumed discount rate used to measure the benefit obligations of
major plans was 7.0 percent at December 31, 1997, and 7.5 percent at December
31, 1996. 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 both 1997 and 1996 and 10 percent for 1995.
Transtar participates in certain defined benefit multi-employer plans
of maritime unions. Expenses related to these plans amounted to $1.0 million in
1997, and $1.1 million in both 1996 and 1995.
The Company also sponsors certain defined contribution pension plans.
Participation in these plans is available to substantially all salaried
employees and to certain groups of hourly employees. Company contributions to
the salary plan are based on matching of employee contributions up to certain
limits specified by the provisions of the plan. The cost of this plan was $1.5
million in 1997, $1.4 million in 1996 and $1.1 million in 1995.
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 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.
33
<PAGE> 36
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: (CONTINUED)
Net periodic postretirement benefit cost for 1997, 1996, and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cost of benefits earned during the period ......................................... $ 1,777 $ 1,954 $ 2,200
Interest cost on accumulated postretirement benefit obligation (APBO) ............. 6,639 6,486 7,299
Amortization of gains ............................................................. (866) (498) (95)
Amortization of prior service cost ................................................ 247 247 484
Expected return on assets ......................................................... (12) (10) (11)
------- ------- -------
Net periodic postretirement benefit cost ........................................ $ 7,785 $ 8,179 $ 9,877
======= ======= =======
</TABLE>
In 1997, 1996, and 1995, the incremental effect on postretirement
benefit expense as the result of adoption of SFAS No. 106 was an increase of
$3.8 million, $4.8 million, and $6.1 million, respectively.
The following table sets forth the amounts included in Transtar's
consolidated balance sheet:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
APBO attributable to:
Retirees ................................................................................... $ (42,102) $ (40,242)
Fully eligible plan participants ........................................................... (13,549) (12,010)
Other active plan participants ............................................................. (36,198) (36,530)
--------- ---------
Total APBO ............................................................................ (91,849) (88,782)
Unrecognized net gain ...................................................................... (19,766) (19,267)
Unrecognized prior service costs ........................................................... 993 1,257
Plan assets at fair value .................................................................. 215 176
--------- ---------
Accrued postretirement benefit obligation included in the balance sheet .................... $(110,407) $(106,616)
========= =========
</TABLE>
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.0 percent at December 31, 1997, and 7.5
percent at December 31, 1996. The assumed health care cost trend rate in 1998
and thereafter is 5 percent.
A one percentage point increase in the assumed health care cost trend
rate would have increased the 1997 net periodic postretirement benefit cost by
$1.5 million, and would have increased the APBO as of December 31, 1997, by
$12.0 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.
34
<PAGE> 37
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Current federal .............................................................. $32,307 $ 29,316 $22,884
Current state, local, and foreign ............................................ 3,948 3,926 3,412
Deferred taxes ............................................................... 5,879 (459) 8,960
------- -------- -------
Total ........................................................................ $42,134 $ 32,783 $35,256
======= ======== =======
</TABLE>
The reconciliation of the U.S. statutory income tax rate to the total
provision is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- --------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate applied to income
before tax ........................ $38,703 35.00% $ 36,300 35.00% $ 32,870 35.00%
State income tax after federal income
tax impact ........................ 3,259 2.95 3,458 3.33 3,120 3.32
Revision of prior years tax provision
estimates ......................... -- -- (7,126) (6.87) (836) (.89)
Other, net .......................... 172 .15 151 .15 102 .11
------- ----- -------- ----- -------- -----
Total ............................... $42,134 38.10% $ 32,783 31.61% $ 35,256 37.54%
======= ===== ======== ===== ======== =====
</TABLE>
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------- --------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Accrual differences ................................................... $ 5,573 $ -- $ 8,013 $ --
Postretirement benefits ............................................... 43,776 -- 42,806 --
PP&E basis differences ................................................ -- 70,212 -- 65,803
------- ------- ------- -------
Total ................................................................. $49,349 $70,212 $50,819 $65,803
======= ======= ======= =======
Net balance ........................................................... $20,863 $14,984
======= =======
</TABLE>
35
<PAGE> 38
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: OTHER CURRENT ASSETS
December 31,
------------
1997 1996
---- ----
(dollars in thousands)
Prepaid insurance ............................. $1,278 $2,233
Deferred compensation ......................... 1,111 981
Supplies - current ............................ 1,536 1,442
Other current assets .......................... 539 857
------ ------
Total ......................................... $4,464 $5,513
====== ======
NOTE 7: PROPERTY, PLANT, AND EQUIPMENT
December 31,
------------
1997 1996
---- ----
(dollars in thousands)
Railroad equipment ............................ $ 398,291 $ 384,726
Marine vessels and related equipment .......... 88,535 88,320
Barges, tows, and related equipment ........... 35,855 41,474
Buildings ..................................... 29,300 26,975
Other ......................................... 11,678 7,543
--------- ---------
Subtotal - depreciable property ............. 563,659 549,038
Less - accumulated depreciation ............. (228,668) (211,972)
--------- ---------
Net depreciable property ...................... 334,991 337,066
Land .......................................... 47,644 48,571
--------- ---------
Property, plant, and equipment,
less accumulated depreciation ............... $ 382,635 $ 385,637
========= =========
The above amounts include equipment leased under capital leases of $1.2
million and $42 thousand at December 31, 1997 and 1996, respectively. For these
assets, depreciation expense for the years ended December 31, 1997, 1996, and
1995 was $2 thousand, $8 thousand, and $136 thousand, respectively. Accumulated
depreciation at December 31, 1997 and 1996 was zero and $36 thousand,
respectively. Transtar leases a variety of facilities and equipment, including
marine vessels, railroad equipment, barges, office equipment, and office space.
Some of these leases contain purchase and renewal options and a residual value
guarantee at the end of their lease term. Rent expense for operating leases was
$26.8 million, $25.6 million, and $26.4 million for 1997, 1996, and 1995,
respectively.
36
<PAGE> 39
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: (CONTINUED)
Total commitments under capital and operating leases are as follows:
Year Capital Operating
---- ------- ---------
(dollars in thousands)
1998........................................ $ 221 $ 20,582
1999........................................ 222 19,839
2000........................................ 221 18,209
2001........................................ 222 16,010
2002........................................ 221 14,602
Later years................................. 1,107 90,916
------ --------
Total minimum lease payments.............. 2,214 $180,158
------ ========
Less imputed interest..................... 984
------
Total obligations under capital leases... $1,230
======
NOTE 8: OTHER ASSETS
December 31,
---------------------
1997 1996
---- ----
(dollars in thousands)
Long-term receivables and other investments............ $ 5,879 $ 6,193
Deferred lease costs................................... 4,201 4,183
Deferred dry dock costs................................ 2,734 3,706
Deferred debt issue costs.............................. 952 1,603
Deferred compensation.................................. 450 1,111
Other deferred charges................................. 1,332 1,656
------- -------
Total................................................ $15,548 $18,452
======= =======
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.
37
<PAGE> 40
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
Interest -----------------------
Rates (%) Maturity 1997 1996
--------- -------- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Term loan (a)........................................... (b) 2000 $196,000 $258,000
Capital leases.......................................... 2007 1,230 3
-------- --------
Total long-term debt (c)........................... 197,230 258,003
Less amount due within 1 year...................... (68,464) (61,603)
-------- --------
Long-term debt due after 1 year.................... $128,766 $196,400
======== ========
</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 1997, voluntary or asset sales
prepayments of $62 million were applied to payments scheduled for June
30, 1997, December 31, 1997, and June 30, 1998. In 1996, voluntary or
asset sales prepayments of $23 million were applied to payments
scheduled for December 31, 1996 and June 30, 1997. 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 1997, 1996, and 1995 was $16.3
million, $20.2 million, $23.0 million, respectively. The average
effective rates for the comparable periods were 7.2 percent, 7.1
percent, and 7.6 percent, respectively. As required by the December 7,
1993 Credit Agreement, Transtar protected the variable interest rate on
at least 40 percent of the outstanding term debt balance through March
12, 1997. An amendment to the Credit Agreement dated March 12, 1997
eliminated the interest rate protection covenant. Transtar had no
interest rate protection agreements in place at December 31, 1997.
During 1997, 1996 and 1995, there was no interest expense attributable
to rate protection agreements.
(c) Required payments of long-term debt, including capital leases, for
1999 through 2002 are $61.4 million, $66.4 million, $0.1 million and
$0.1 million, respectively.
Transtar has a revolving credit agreement with a consortium of banks.
This loan facility of up to $25 million is available for working capital and
letter of credit purposes through December 31, 2000 and to pay dividends in
certain fiscal years. 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 $0.9 million and $0.8
million at December 31, 1997 and 1996, respectively. In 1996, Transtar repaid
the $20 million of borrowings under the revolving credit facility and did not
borrow from this facility in 1997.
The above debt agreements contain certain restrictions on capital
spending, levels of new indebtedness, and the payment of dividends, as well as
certain financial covenant requirements.
38
<PAGE> 41
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: (CONTINUED)
On October 9, 1997, Transtar and the lending institutions that are
party to the Credit Agreement approved an amendment that permitted Transtar to
pay dividends during the fiscal year ending December 31, 1997 in an amount not
to exceed $25.0 million. (See Note 12)
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 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 such dividends. (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,
------------------------------------------------
1997 1996
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............ $ 24,316 $ 24,316 $ 24,691 $ 24,691
Noncurrent receivables ............... 3,081 3,081 3,854 3,854
Liabilities:
Current maturities of long-term debt . 68,464 68,464 61,603 61,603
Long-term debt ....................... 128,766 128,766 196,400 196,400
Off-balance-sheet financial instruments:
Interest rate protection ............. -- -- -- --
Fuel oil hedges ...................... -- -- -- --
</TABLE>
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.
<PAGE> 42
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: (CONTINUED)
Cash and cash equivalents - The carrying amount for cash and cash
equivalents approximates fair value.
Noncurrent receivables - The carrying amount for noncurrent receivables
approximates fair value.
Current debt and long-term debt - The carrying amount of Transtar's
borrowings under the credit facility and capital leases approximates fair value,
because most of Transtar's borrowings have variable rates of interest.
Interest rate agreements - The fair value of interest rate protection
agreements is the amount that Transtar would receive or pay to terminate the
agreements, considering interest rates and remaining maturities based on quoted
market prices or discounted cash flow methods, or the cost to replace the
agreement. Transtar had no interest rate protection agreements in place at
December 31, 1997. Interest rate protection agreements in place at December 31,
1996 had no value.
Fuel oil hedges - Transtar had no fuel oil hedging agreements in place
at December 31, 1997 or 1996. Transtar generated no income or expense in 1997,
income of $0.4 million in 1996, and no income or expense in 1995 as a result of
fuel oil hedges.
NOTE 11: DEFERRED CREDITS AND OTHER LIABILITIES
December 31,
----------------------
1997 1996
---- ----
(dollars in thousands)
Deferred taxes................................ $20,863 $14,984
Personal injuries............................. 14,588 13,673
Deferred credits - leases..................... 2,013 1,920
Other......................................... 3,644 4,835
------- -------
Total.................................... $41,108 $35,412
======= =======
NOTE 12: EQUITY
As of December 31, 1997 and 1996, 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 268 shares of the Nonvoting Stock are held by
management stock trusts. An additional 732 shares of the Nonvoting Stock,
previously repurchased from the management stock trusts, are being held as
Treasury Stock at cost.
On October 27, 1997, Transtar declared a cash dividend of $625 per
share on both its Voting Stock and its Nonvoting Stock to holders of record of
the stock on October 27, 1997. The dividend of $12.0 million was paid on October
30, 1997. On December 16, 1997 Transtar declared a cash dividend of $625 per
share on its Voting Stock and its Nonvoting Stock to holders of record of the
stock on December 16, 1997. The dividend of $12.0 million was paid on December
19, 1997.
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.
40
<PAGE> 43
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: (CONTINUED)
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, unless
vesting is waived by Transtar's Compensation Committee. 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.
In 1997, 48 shares were exercised. As of December 31, 1997, there were 558
options vested and exercisable and 144 not vested under the plan.
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. 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 (ii) above, USS/Kobe
Steel Company, on December 21, 1997, solicited bids from parties interested in
providing in-plant switching services at their Lorain, Ohio facility effective
December 29, 1998. USS/Kobe has not purchased or otherwise obtained any Transtar
track at this facility. In-plant switching services provided by parties other
than Transtar would be performed on tracks currently owned by USS/Kobe. On
February 19, 1998, the Lake Terminal Railroad Company (a Transtar subsidiary)
submitted a bid to continue providing these services. Transtar has since been
advised that the Lake Terminal Railroad is not the low bidder. In the event that
the Lake Terminal Railroad is not the successful bidder, Transtar would
experience an annual decrease of approximately $8.7 million in revenue.
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.
41
<PAGE> 44
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13: (CONTINUED)
Transtar is currently in the process of negotiating new agreements with
USX and USS/Kobe Steel with respect to all of the services referred to in clause
(i) through (iv) above. Transtar believes that new agreements will be in place
prior to the expiration of the existing Transportation Services Agreements, but
there can be no assurances that new Transportation Services Agreements will be
reached or that the terms of such agreements, if reached, will be as favorable
to Transtar as the terms of the existing Transportation Services Agreements. The
re-negotiation of new Transportation Services Agreements with terms
significantly less favorable to Transtar than the terms of the existing
Transportation Services Agreements or the failure to reach such agreements at
all, will likely result in a material adverse effect on Transtar.
Transtar earns a significant portion of its revenues from
transportation and related services provided to USX. For 1997, 1996, and 1995,
transactions with USX represented 59 percent, 58 percent, and 56 percent of
total revenues, respectively. Receivables from USX as of December 31, 1997 and
1996 represented 22 percent and 29 percent of total receivables, respectively.
Terms of these transactions are similar to those of nonrelated customers.
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 $19 million, $20 million, and $21 million in 1997, 1996, and 1995,
respectively. Transtar and USX are currently in arbitration to resolve certain
items involving the composition and development of these fixed costs as well as
other issues for both the 1995 and 1996 sailing seasons. Transtar has no reason
to expect an adverse decision, however, if it should occur it would not have a
material adverse impact on the operating results of the Company.
Transtar provides maintenance services to USX. Proceeds from services
provided amounted to $6.4 million, $7.2 million, and $8.4 million for 1997,
1996, and 1995, respectively.
USX provided several corporate services associated with ongoing
business activities of Transtar. Total expenses for these services were $ 0.6
million, $0.6 million, and $0.5 million for 1997, 1996, and 1995, respectively.
Transtar purchased materials from USX amounting to $1.1 million, $0.5
million, and $0.3 million, in 1997, 1996, and 1995, respectively. USX purchased
materials from Transtar amounting to $0.7 million, $0.8 million and $1.2 million
in 1997, 1996 and 1995, respectively.
Pursuant to an Asset Purchase Agreement related to the formation of
Transtar in December 1988, Transtar reimbursed USX $1.1 million, $1.4 million,
and $1.5 million for certain benefits paid to Transtar retirees by USX in 1997,
1996, and 1995, respectively.
In 1997, Transtar paid USX $0.5 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.
Transtar pays, to USX and a Blackstone affiliate, a monitoring fee of
0.15 percent of consolidated revenue. Total monitoring fees (0.3 percent of
revenue) paid and accrued were $1.6 million, $1.5 million, and $1.5 million in
1997, 1996, and 1995, respectively. These fees were accounted for as operating
expense.
42
<PAGE> 45
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14: COMMITMENTS AND OTHER CONTINGENCIES
Transtar is subject to federal, state, local, and foreign laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites. Penalties
may be imposed for noncompliance. Transtar provides for remediation costs and
penalties when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. At December 31, 1997 and 1996,
accrued liabilities for remediation totaled $0.4 million. For the period 1989
through 1996 actual cash payments associated with environmental expense have
totaled $10.0 million.
Transtar and USX have entered into an environmental indemnification
agreement, whereby USX has agreed to indemnify Transtar against 75 percent of
certain environmental claims, losses, liabilities, obligations, damages,
deficiencies, costs, and expenses (collectively, Environmental Liabilities) in
excess of $10 million. This environmental indemnification agreement covers
Environmental Liabilities relating to certain assets and properties transferred
by USX to Transtar upon the formation of Transtar, which Environmental
Liabilities existed or occurred prior to such formation. Of the $10.0 million
expended since 1988, $7.7 million is applicable to the $10 million threshold. It
is not presently possible to estimate the ultimate amount of all remediation
costs that might be incurred or the penalties that may be imposed.
At year end 1997 and 1996, certain Transtar subsidiaries had purchase
commitments in the amount of $3.9 million and $6.6 million, respectively, 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.
43
<PAGE> 46
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 39, Director since November 1993 and President since November 1993; a
President Member of Blackstone Group Holdings (BGH) L.L.C.; a General Partner of BGH L.P.
and Director 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 71, 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, 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 51, 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 Great Lakes Dredge &
Dock Corporation.
Howard A. Lipson age 34, 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., Graham
Packaging, Allied Waste Industries, 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............................................... 59 President and Chief Executive Officer
Frank J. Habic................................................. 58 Vice President-Operations
Joseph W. Schulte.............................................. 56 Vice President-Finance and Chief Financial Officer
George E. Steins............................................... 62 Vice President-Administration, retired effective 2/28/98
James P. Bobich................................................ 53 Vice President-Administration, effective 3/1/98
Rade Vignovic.................................................. 63 Vice President-Marketing
Robert N. Gentile.............................................. 46 Vice President-Law, General Counsel and Secretary
</TABLE>
44
<PAGE> 47
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 32 years includes
positions as Manager-Audit Division, Manager of Marketing, and Dock
Superintendent with DM&IR, and Superintendent in the Transportation Department
with EJ&E. Prior experience with the firm of Ernst & Ernst, Pittsburgh, Pa.,
1960-1965. Mr. Rosati is a Director of the Transtar subsidiaries and is a member
of the Pennsylvania Institute of Certified Public Accountants. He is a graduate
of the University of Pittsburgh, BBA-1961 and attended the Graduate Business
Program at the University of Minnesota-Duluth, 1976-1979.
Mr. Habic was elected Vice President-Operations of Transtar on July 1,
1993. He is responsible for the operations of all Transtar subsidiaries. His
railroad experience encompasses 33 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 38 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. Steins retired effective February 28, 1998.
Mr. Bobich was elected Vice President-Administration of Transtar on
March 1, 1998. He began his career on the Bessemer and Lake Erie Railroad in the
Information Systems Department and since then has held positions of increasing
responsibility in accounting and information systems. In 1986, Mr. Bobich was
named Treasurer of the Railroad subsidiaries and in 1989 was named Treasurer of
Transtar, Inc. On July 1, 1997, he was appointed Assistant to President. He is a
Director of the Transtar subsidiaries and is a 1966 graduate of Ohio University
with a BBA in Accounting.
Mr. Vignovic is Vice President-Marketing of Transtar. Mr. Vignovic
began his railroad career on the B&LE as a Cost Analyst in 1964. From 1967 on,
Mr. Vignovic held a series of marketing positions within the Railroads. He was
appointed Vice President-Marketing of all of the Railroads in 1994. Mr. Vignovic
is a Director of all of the Transtar subsidiaries and is a member of the
National Freight Traffic Association and the Traffic Clubs of Chicago and
Pittsburgh. He holds a B.S. from Carnegie Mellon University and an MBA from the
University of Chicago.
Mr. Gentile is General Counsel and Secretary of Transtar, and all of
its subsidiaries, a position he has held since December 28, 1988. He is also
Vice President-Law of Transtar, a position he has held since May 1, 1995. Mr.
Gentile began his career with the Railroad Group in March 1979, holding
positions of increasing importance within the Legal Department. He was appointed
General Claim Agent in 1984, named Senior General Claim Agent in 1986. Mr.
Gentile is a Director of all of the Transtar subsidiaries. Prior to joining the
Railroad Group, Mr. Gentile was in private practice as a trial lawyer. Mr.
Gentile is a member of the American, Pennsylvania and Allegheny County Bar
Associations and American Corporate Counsel Association. He is a graduate of the
University of Pittsburgh, BA-1973 (summa cum laude, Phi Beta Kappa), University
of Pittsburgh, JD-1976, LaRoche College, MS-1984, University of Pittsburgh, MBA
(Beta Sigma Gamma)-1989.
45
<PAGE> 48
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, 1997, December 31, 1996, and
December 31, 1995:
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 .......... 1997 275,000 300,000 575,000 8,763 0 0 0 31,445
President & Chief 1996 250,000 250,000 500,000 8,273 0 0 0 28,912
Executive Officer 1995 230,000 210,000 440,000 10,609 0 0 0 23,570
F. J. Habic ........... 1997 196,000 160,000 356,000 5,874 0 0 0 22,058
Vice President- 1996 190,000 154,000 344,000 3,780 0 0 0 22,434
Operations 1995 180,000 146,000 326,000 6,490 0 0 0 19,110
J. W. Schulte ......... 1997 170,000 124,000 294,000 4,452 0 0 0 17,654
Vice President- 1996 160,000 115,000 275,000 3,501 0 0 0 16,713
Finance and Chief 1995 150,000 108,000 258,000 6,102 0 0 0 14,582
Financial Officer
G. E. Steins (3) ...... 1997 160,000 117,000 277,000 5,470 0 0 0 18,704
Vice President- 1996 155,000 112,000 267,000 5,751 0 0 0 19,223
Administration 1995 148,000 102,000 250,000 6,985 0 0 0 17,267
R. N. Gentile ......... 1997 157,000 115,000 272,000 5,346 0 0 0 14,186
Vice President-Law, 1996 152,000 109,000 261,000 6,694 0 0 0 14,323
General Counsel and 1995 147,000 106,000 253,000 6,651 0 0 0 12,475
Secretary
</TABLE>
- -------------------
(1) Includes health additive; executive tax assistance and financial planning;
imputed income for automobiles; and income associated with relocation
reimbursement.
(2) This column includes amounts contributed or accrued in 1997 under the
Transtar Salaried Savings Fund Plan and the related Supplemental Savings
Plans ($14,498, $10,011, $8,031, $8,015, and $7,856 for Messrs. Rosati,
Habic, Schulte, Steins and Gentile, respectively); annual imputed income
associated with executive life insurance policies in 1997 ($1,727, $2,104,
$902, $2,207, and $556 for Messrs. Rosati, Habic, Schulte, Steins and
Gentile, respectively); and annual amounts attributable to split-dollar
life insurance provided by Transtar in 1997 ($15,220, $9,943, $8,721,
$8,482, and $5774 for Messrs. Rosati, Habic, Schulte, Steins and Gentile,
respectively).
(3) Retired effective February 28, 1998.
46
<PAGE> 49
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 $8,364.05, and each exercised
option, under certain conditions, will be repurchased by the Company at a price
calculated using a formula set forth in the stock option plan.
AGGREGATED 1997 OPTION EXERCISES
AND DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF EXERCISABLE/
NO. OF EXERCISABLE/ UNEXERCISABLE
NO. OF UNEXERCISABLE IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
NAME EXERCISED REALIZED ($) DECEMBER 31, 1997 DECEMBER 31, 1997($)
---- --------- ------------ ------------------ --------------------
<S> <C> <C> <C> <C>
R. S. Rosati 0 0 160/40 1,012,160/253,040
F. J. Habic 0 0 80/20 506,080/126,520
J. W. Schulte 0 0 80/20 506,080/126,520
R. N. Gentile 0 0 40/10 253,040/63,260
G. E. Steins 18 $194,865 2/5 25,802/64,505
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors and executive officers of BTC (Holdings' sole general
partner) and TCC receive no compensation. See 'Management--Compensation of
Directors and Executive Officers.'
James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman serve as
directors of BTC (Holdings' sole general partner) and TCC. Transtar pays a
monitoring fee of 0.15% of its consolidated revenue to Blackstone Management
Partners L.P. James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman are
partners of Blackstone Management Partners L.P. Monitoring fees paid were
approximately $789,000 for 1997, $765,000 for 1996, and $740,000 for 1995.
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, 1997, Messrs. Rosati, Habic, Schulte, Steins, and Gentile
have 32, 33, 31, 38, and 18 credited years of service, respectively.
47
<PAGE> 50
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 $56,180 for Mr. Rosati, $47,950 for Mr. Habic, $44,380 for Mr.
Schulte, $34,820 for Mr. Steins, and $58,700 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>
48
<PAGE> 51
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 $1.6 million for 1997, $1.5 million for 1996 and
$1.5 million for 1995.
On October 27, 1997, Transtar declared a cash dividend in the amount of
$625 per share on both its Class A Voting Common Stock (Voting Stock) and its
Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the
stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture Agreement relating to the issuance of the Notes (the Notes Indenture),
the dividend payment was paid into an escrow account. On December 16, 1997
Transtar declared a cash dividend of $625 per share on both its Voting Stock and
its Nonvoting Stock to holders of record of the stock on December 16, 1997.
Holdings received $6.4 million on December 19, 1997, representing its 53%
economic interest in the Transtar dividend. In accordance with the Notes
Indenture, this dividend was paid into the escrow account.
On August 29, 1996, Transtar declared a cash dividend in the amount of
$850 per share on both its Voting Stock and its 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 the Notes Indenture, the dividend payment was paid into the 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 1998, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Notes at an offer price equal to 101% of
the accreted value of such Notes on the date of purchase. The offer to purchase
the Notes was made by a notice to holders of the Notes and was held open for 20
business days.
In February 1997 and January 1996, 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 offers to purchase the Notes were made by notices to holders of the Notes
and were 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 optimally redeem Notes
or to pay administrative expenses of Holdings. In 1997, 1996 and 1995, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $13.7 million, $0.9 million
and $6.2 million, respectively, to distribute to its partners, and withdrew $0.3
million,$0.7 million and $0.4 million, respectively, to pay certain
administrative expenses. Interest earned on the escrow balance amounted to $2.4
million, $1.4 million and $76 thousand in 1997, 1996 and 1995, respectively.
49
<PAGE> 52
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 of Economic
Name of Beneficial Owners Type of Interest 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. ("Tyler")(4) Limited Partnership 8.426% 8.342%
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.
50
<PAGE> 53
The following table sets forth the ownership of Transtar as of December 31,
1997:
<TABLE>
<CAPTION>
Voting Stock % of Voting Nonvoting % of Non-voting % of Total
Shareholder Owned Shares Stock Owned Shares Shares
----------- ------------ ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Transtar Holdings, L.P. ...... 5,100 51% 5,100 55% 53%
USX Corporation .............. 4,900 49 3,900 42 46
Management ................... -- -- 268 3 1
------ ---- ----- ---- ----
Total .................... 10,000 100% 9,268 100% 100%
====== ==== ===== ==== ====
</TABLE>
Management's direct interest has been reduced since Transtar's
formation due to repurchases of 732 shares of nonvoting stock from retiring
managers. Certain shares have been allocated to promoted managers in a stock
option program. Including the effect of this program, total economic ownership
of management would be approximately 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, 1997, all of the subsidiaries of Transtar were
wholly owned, directly or indirectly, by Transtar.
The Company's by-laws provide that certain matters presented to the
Board require unanimous approval of the directors, including, among other
things: (a) any proposal which, if approved, (i) would require any stockholder
entitled to vote (a "voting stockholder") to subscribe for additional shares of
capital stock of the Company or contribute additional capital to the Company or
would result in a diminution of any voting stockholder's proportionate voting
power among stockholders if such voting stockholder failed to contribute
additional capital voluntarily; (ii) would otherwise result in a diminution of a
voting stockholder's proportionate voting power among stockholders; or (iii)
results in the Company's subsidiaries being unable to perform adequately their
obligations under any of the Transportation Services Agreements; (b)
authorization or issuance of any shares of any equity security of the Company or
any option, warrant, right or instrument convertible into any equity security of
the Company or convertible or exchangeable into any option, warrant or right to
receive any such equity security; (c) redemption of any stock of the Company;
(d) any new borrowing by the Company or any subsidiary thereof (other than
borrowings to finance specific capital expenditures approved in the annual
capital budget), or the grant of any new lien, encumbrance or security interest
in connection therewith on any material assets of the Company or such subsidiary
not previously encumbered except in certain circumstances; (e) any merger,
consolidation, liquidation or dissolution of the Company or sale of
substantially all the assets thereof or sale of stock of any of the Company's
subsidiaries; (f) the sale or merger of any direct or indirect subsidiary of the
Company, or the sale of assets or discontinuance of operations of any direct or
indirect subsidiary of the Company which in either case results in such
subsidiary being unable to perform adequately its obligations under any of the
Transportation Services Agreements, except for certain subsidiaries; (g) any
amendment of any of the Transportation Services Agreements; (h) any expenditure
or commitment in excess of $5,000,000 for the acquisition by the Company or any
direct or indirect subsidiary thereof of any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity, or of any debt obligation of
any thereof; (i) any lease of real or personal property or any renewal thereof
except for certain circumstances; (j) any sale and lease-back or any refinancing
thereof; (k) any filing by the Company or any direct or indirect subsidiary
thereof of a petition for protection under Federal bankruptcy statutes; (1)
declaration of any dividend or other distribution to stockholders; and (m)
selection of an independent consultant (the "Consultant").
In the event the members of the Board of Directors fail to agree
unanimously on any matter for which unanimous approval is required, the by-laws
provide that the Consultant shall render a decision on such matter which shall
be binding, provided that the Consultant shall have no authority to render a
decision on any of the matters covered by clauses (a), (b), (d), (e), (f) and
(m) described above. If the Board of Directors fails to agree unanimously on any
of the matters covered by clauses (a), (b), (d), (e), (f) and (m), the Company's
by-laws do not specify how deadlocks are to be resolved. Therefore, the Board of
Directors could remain deadlocked and would be unable to take any action on
matters requiring unanimous approval.
51
<PAGE> 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEPENDENCE UPON USX
For the year 1997, approximately 59% 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 (ii) above, USS/Kobe
Steel Company, on December 21, 1997, solicited bids from parties interested in
providing in-plant switching services at their Lorain, Ohio facility effective
December 29, 1998. USS/Kobe has not purchased or otherwise obtained any Transtar
track at this facility. In-plant switching services provided by parties other
than Transtar would be performed on tracks currently owned by USS/Kobe. On
February 19, 1998, the Lake Terminal Railroad Company (a Transtar subsidiary)
submitted a bid to continue providing these services. Transtar has since been
advised that the Lake Terminal Railroad is not the low bidder. In the event that
the Lake Terminal Railroad is not the successful bidder, Transtar would
experience an annual decrease of approximately $8.7 million in revenue.
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 is currently in the process of negotiating new agreements with
USX and USS/Kobe Steel with respect to all of the services referred to in clause
(i) through (iv) above. Transtar believes that new agreements will be in place
prior to the expiration of the existing Transportation Services Agreements, but
there can be no assurances that new Transportation Services Agreements will be
reached or that the terms of such agreements, if reached, will be as favorable
to Transtar as the terms of the existing Transportation Services Agreements. The
re-negotiation of new Transportation Services Agreements with terms
significantly less favorable to Transtar than the terms of the existing
Transportation Services Agreements or the failure to reach such agreements at
all, will likely result in a material adverse effect on Transtar.
52
<PAGE> 55
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 16.
(a)(2). FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such
omitted schedules is set forth in the financial statements or the notes
thereto.
(a)(3). EXHIBITS
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital
Corporation, filed with the Secretary of State of the
State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone
Transportation Company, Inc., the controlling general
partner of Transtar Holdings, L.P. (Holdings), filed with
the Secretary of State of the State of Delaware on
November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc.,
the controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited
Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership
of Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13-3/8% Series B Senior Discount
Notes due 2003 (the Notes) (included in Exhibit 4.3
hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among
Holdings, TCC and the United States Trust Company of New
York, as trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
10.3.2 Amendment and Waiver dated as of March 12, 1997 to the
Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
10.3.3 Third Amendment and Waiver dated as of October 9, 1997 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28,
1988, by and among Blackstone Capital Partners L.P.,
Blackstone Transportation Partners L.P., USX Corporation
and Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and USX Corporation.
(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.
53
<PAGE> 56
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
(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.
10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1997.
10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1998.
10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective
January 1, 1994.
10.18 Transtar, Inc. Supplemental Thrift Program, effective
January 1, 1994.
10.19 Transtar, Inc. Supplemental Pension Program, effective
January 1, 1994.
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of
September 29, 1989, between PNC Leasing Corp and
Transtar, Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991,
between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between GATX
Leasing Corporation, successor to Gould Leasing Services,
Inc., and Bessemer and Lake Erie Railroad Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between the
Bessemer and Lake Erie Railroad Company and State Street
Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30,
1993, between The CIT Group/Equipment Financing, Inc. and
Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15, 1989,
between Elgin, Joliet & Eastern Railway Company and
Mellon Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred
Ship Mortgage, dated March 19, 1982, between The
Connecticut Bank and Trust Company, as Owner Trustee, and
Mercantile-Safe Deposit and Trust Company, as
Indenture Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The
Connecticut Bank and Trust Company and United States Steel
Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First
Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services Agreement,
dated as of July 1, 1981, between United States
Steel Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton
Industries, Inc. and Litton Industries Leasing Corporation
and United States Steel Corporation.
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great
Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox
Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX
Corporation to Litton Industries, Inc., Litton Credit
Corporation, Litton Great Lakes Corp. and Litton
Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement, dated
as of July 1, 1991, between United States Steel
Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS
Great Lakes Fleet, Inc. and Labovitz Enterprises.
54
<PAGE> 57
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
(a) 10.40 Assignment of Leases, dated as of May 31, 1984,
between Duluth, Missabe and Iron Range Railway Company and
Joel Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982,
between Duluth, Missabe and Iron Range Railway Company and
USS Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of
December 28, 1988, among USX Corporation, Transtar and
certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer
and Lake Erie Railroad Company and USX Corporation dated
October 6, 1994.
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994
between GATX Third Aircraft Corporation and Elgin, Joliet
and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX
Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of
December 28, 1995 between Birmingham Southern Railroad
company and Nationsbanc Leasing Corporation of North
Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of
December 28, 1995 between Duluth, Missabe and Iron Range
Railway company and Heller Financial Leasing, Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
(a) 21.1 Significant Subsidiaries of Transtar Holdings, L.P.
27 Financial Data Schedule.
- ---------------------
(a) Previously filed with Registration Statement No. 33-73270 under
corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
(b). REPORTS ON 8-K
Holdings and TCC did not file any reports on Form 8-K during the
quarter ended December 31, 1997.
(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.
55
<PAGE> 58
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 27th of March, 1998.
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 27, 1998.
SIGNATURES TITLE
---------- -----
/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
Howard A. Lipson BTC and TCC
/s/ STEPHEN A. SCHWARZMAN Director of BTC and TCC
-------------------------
Stephen A. Schwarzman
/s/ PETER G. PETERSON Director of BTC and TCC
---------------------
Peter G. Peterson
56
<PAGE> 59
INDEX TO EXHIBITS
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital
Corporation, filed with the Secretary of State of the
State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone
Transportation Company, Inc., the controlling general
partner of Transtar Holdings, L.P. (Holdings), filed with
the Secretary of State of the State of Delaware on
November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc.,
the controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited
Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership of
Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13 3/8% Series B Senior Discount
Notes due 2003 (the Notes) (included in Exhibit 4.3
hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among
Holdings, TCC and the United States Trust Company of New
York, as trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
10.3.2 Amendment and Waiver dated as of March 12, 1997 to the
Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
10.3.3 Third Amendment and Waiver dated as of October 9, 1997 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28,
1988, by and among Blackstone Capital Partners L.P.,
Blackstone Transportation Partners L.P., USX Corporation
and Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and USX Corporation.
(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.
10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1997.
10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1998.
10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective
January 1, 1994.
10.18 Transtar, Inc. Supplemental Thrift Program, effective
January 1, 1994.
10.19 Transtar, Inc. Supplemental Pension Program, effective
January 1, 1994.
<PAGE> 60
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of
September 29, 1989, between PNC Leasing Corp and Transtar,
Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991,
between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between
GATX Leasing Corporation, successor to Gould Leasing
Services, Inc., and Bessemer and Lake Erie Railroad
Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between
the Bessemer and Lake Erie Railroad Company and State
Street Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30,
1993, between The CIT Group/Equipment Financing, Inc. and
Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15,
1989, between Elgin, Joliet & Eastern Railway Company and
Mellon Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred
Ship Mortgage, dated March 19, 1982, between The
Connecticut Bank and Trust Company, as Owner Trustee,
and Mercantile-Safe Deposit and Trust Company, as
Indenture Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The
Connecticut Bank and Trust Company and United States Steel
Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First
Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services
Agreement, dated as of July 1, 1981, between United States
Steel Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton
Industries, Inc. and Litton Industries Leasing Corporation
and United States Steel Corporation.
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great
Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox
Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX
Corporation to Litton Industries, Inc., Litton Credit
Corporation, Litton Great Lakes Corp. and Litton
Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement,
dated as of July 1, 1991, between United States Steel
Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS
Great Lakes Fleet, Inc. and Labovitz Enterprises.
(a) 10.40 Assignment of Leases, dated as of May 31, 1984,
between Duluth, Missabe and Iron Range Railway Company and
Joel Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982,
between Duluth, Missabe and Iron Range Railway Company and
USS Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of
December 28, 1988, among USX Corporation, Transtar and
certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer
and Lake Erie Railroad Company and USX Corporation dated
October 6, 1994.
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994
between GATX Third Aircraft Corporation and Elgin, Joliet
and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX
Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of
December 28, 1995 between Birmingham Southern Railroad
company and Nationsbanc Leasing Corporation of North
Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of
December 28, 1995 between Duluth, Missabe and Iron Range
Railway company and Heller Financial Leasing, Inc.
<PAGE> 61
Footnote Exhibit
Ref. No. Description
- -------- ------- -----------
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.
- -----------------------
(a) Previously filed with Registration Statement No. 33-73270 under
corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
<PAGE> 1
EXHIBIT 10.3.2.
CONFORMED COPY
AMENDMENT AND WAIVER dated as of March 12, 1997, with
respect to the Credit Agreement dated as of December 7,
1993, as amended (the "Credit Agreement"), among TRANSTAR,
INC. (the "Borrower"), the lenders party thereto (the
"Lenders") and THE CHASE MANHATTAN BANK (as successor to
Chemical Bank), as administrative agent (in such capacity,
the "Administrative Agent") and as issuing bank (in such
capacity, the "Issuing Bank").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrower, and have agreed to extend credit to the Borrower, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrower has requested and the Required Lenders hereby
agree to eliminate the Interest Rate Protection covenant contained in Section
6.10 of the Credit Agreement.
C. The Borrower has requested and the Required Lenders hereby
agree to grant a limited waiver of Section 2.12(d) of the Credit Agreement and
thereby relieve the Borrower of its obligation to make an Excess Cash Flow
prepayment for the fiscal year ended December 31, 1996.
D. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendment to Section 6.10. Section 6.10 of the
Credit Agreement is hereby deleted in its entirety.
SECTION 2. Waiver. The undersigned Lenders hereby waive
compliance by the Borrower with the provisions of Section 2.12(d) of the Credit
Agreement to the extent (but only to the extent) necessary to excuse the
Borrower from its obligation to make a mandatory prepayment thereunder in
respect of Excess Cash Flow for the fiscal year ended December 31, 1996.
SECTION 3. Representations and Warranties. To induce the
Lenders to enter into this Amendment and Waiver, the Borrower represents and
warrants to the Lenders that, after giving effect to this Amendment and Waiver,
(a) the representations and warranties
<PAGE> 2
set forth in the Credit Agreement will be true and correct in all material
respects on and as of the date hereof as though made on and as of such date, and
(b) no Event of Default shall have occurred and be continuing.
SECTION 4. Conditions to Effectiveness. This Amendment and
Waiver shall become effective at such time as the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of the Borrower and the Required Lenders.
SECTION 5. Effect of Amendment and Waiver. Except as expressly
set forth herein, this Amendment and Waiver shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
or remedies of the Lenders under the Credit Agreement or any other Loan
Document, and shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. Nothing herein shall
be deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances. This Amendment and Waiver shall
apply and be effective only with respect to the provisions of the Credit
Agreement set forth herein. Without limiting the generality of the foregoing,
this Amendment and Waiver shall not relieve the Borrower of its obligations
under Section 2.12(d) of the Credit Agreement with respect to prepayments in
respect of Excess Cash Flow for fiscal years ending December 31, 1997, and
thereafter.
SECTION 6. Counterparts. This Amendment and Waiver may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute a single
instrument. Delivery of an executed counterpart of a signature page of this
Amendment and Waiver by facsimile transmission shall be as effective as delivery
of a manually executed counterpart hereof.
SECTION 7. Applicable Law. THIS AMENDMENT AND WAIVER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 8. Headings. The headings of this Amendment and Waiver
are for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Waiver to be duly executed by their duly authorized officers, all
as of the date and year first above written.
TRANSTAR, INC.,
by /s/ J. W. SCHULTE
-----------------
Name: J.W. Schulte
Title: Vice President-Finance
THE CHASE MANHATTAN BANK,
individually, as Agent and as
Issuing Bank,
by /s/ JULIE S. LONG
-----------------
Name: Julie S. Long
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Co-Agent,
by /s/ RONALD E. MCKAIG
--------------------
Name: Ronald E. McKaig
Title: Vice President
BANK OF MONTREAL, as Co-Agent,
by /s/ BERNARD SILGARDO
--------------------
Name: Bernard J. Silgardo
Title: Director
<PAGE> 4
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as Co-Agent,
by /s/ TAKUYA HONJO
----------------
Name: Takuya Honjo
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., NEW YORK BRANCH, as Co-Agent,
by /s/ NOBORU KUBOTA
-----------------
Name: Noboru Kubota
Title: Deputy General Manager
THE NIPPON CREDIT BANK, LTD., as
Co-Agent,
by /s/ CLIFFORD ABRAMSKY
---------------------
Name: Clifford Abramsky
Title: Senior Manager
CIBC, INC.,
by /s/ STEPHANIE E. JOHNSON
------------------------
Name: Stephanie E. Johnson
Title: Authorized Signatory
CREDIT LYONNAIS NEW YORK BRANCH,
by /s/ VLADIMIR LABUN
------------------
Name: Vladimir Labun
Title:First Vice President
Manager
<PAGE> 5
FIRST BANK NATIONAL ASSOCIATION,
by /s/ OTILIA CHEUNG-BELMONT
-------------------------
Name: Otilia Cheung-Belmont
Title: Commercial Banking
Officer
FLEET NATIONAL BANK, N.A.,
by /s/ ROBERT J. LORD
------------------
Name: Robert J. Lord
Title: Vice President
MELLON BANK N.A.,
by /s/ RICHARD K. JAMES
--------------------
Name: Richard K. James
Title: Vice President
NATIONSBANK OF NORTH CAROLINA,
N.A.,
by /s/ RAJESH SOOD
---------------
Name: Rajesh Sood
Title: Vice President
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, GRAND CAYMAN BRANCH,
by /s/ KEVIN DOOLEY
----------------
Name: Kevin Dooley
Title: Vice President
by /s/ WILLIAM C. MAIER
--------------------
Name: William C. Maier
Title: VP-Group Manager
<PAGE> 6
BANQUE PARIBAS,
by /s/ DOUGLAS R. GOUCHUE
----------------------
Name: Douglas R.Gouchue
Title: Director
by /s/ EDWARD IRWIN
----------------
Name: Edward Irwin
Title:
BHF BANK,
by /s/ PERRY FORMAN
----------------
Name: Perry Forman
Title: VP
by /s/ THOMAS J. SCIFO
-------------------
Name: Thomas J. Scifo
Title: Assistant Vice
President
PHILADELPHIA NATIONAL BANK,
incorporated as CORESTATES
BANK, N.A.,
by /s/ BEVERLY J. COLLER
---------------------
Name: Beverly J. Coller
Title: Vice President
THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH
by /s/ SURAJ P. BHATIA
-------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
Manager, Corporate
Finance Dept.
<PAGE> 7
CERES FINANCE LTD.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as
Financial Manager,
by /s/ DERRIE BOGGESS
------------------
Name: Derrie Boggess
Title: Director
PARIBAS CAPITAL FUNDING LLC,
by /s/ M. STEVEN ALEXANDER
-----------------------
Name: M. Steven Alexander
Title:
<PAGE> 8
[NOT ON COPY]
CREDIT SUISSE FIRST BOSTON,
by /s/ ROBERT N. FINNEY
--------------------
Name: Robert N. Finney
Title: Managing Director
by /s/ THOMAS G. MUOIO
-------------------
Name: Thomas G. Muoio
Title: Associate
DG BANK,
by /s/ LEO VON REISSIG
-------------------
Name: Leo Von Reissig
Title: Assistant Vice
President
RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS B.V.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as
Portfolio Advisor,
by /s/STEPHEN M. ALFIERI
----------------------
Name: Stephen M. Alfieri
Title: Managing Director
RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2
(ROSA 2),
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as
Portfolio Advisor,
by /s/ STEPHEN M. ALFIERI
----------------------
Name: Stephen M. Alfieri
Title: Managing Director
<PAGE> 1
EXHIBIT 10.3.3
CONFORMED COPY
THIRD AMENDMENT AND WAIVER dated as of October 9,
1997 (this "Amendment"), to the Credit Agreement dated
as of December 7, 1993, as amended (the "Credit
Agreement"), among TRANSTAR, INC., a Delaware
corporation (the "Borrower"), the lenders party
thereto (the "Lenders") and THE CHASE MANHATTAN BANK,
as agent for the Lenders (in such capacity, the
"Agent") and as issuing bank (in such capacity, the
"Issuing Bank").
WHEREAS the Borrower has requested that the Lenders (such term
and each other capitalized term used but not defined herein having the meanings
assigned to such terms in the Credit Agreement) agree to waive the Margin
Adjustment due to become effective on the fourth anniversary of the Closing
Date;
WHEREAS the Lenders are willing, on the terms, subject to the
conditions and to the extent set forth below, to waive effectiveness of such
Margin Adjustment;
WHEREAS the Borrower has requested that the Required Lenders
agree to amend the Credit Agreement to permit the Borrower to pay certain
dividends in excess of those currently permitted by the Credit Agreement; and
WHEREAS the Required Lenders are willing, on the terms,
subject to the conditions and to the extent set forth below, to approve such
amendments.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the Borrower and the
undersigned Lenders hereby agree, on the terms and subject to the conditions set
forth herein, as follows:
Section 1. Waiver. The undersigned Lenders hereby agree to
waive the increase in the Margin Adjustment scheduled to take effect on the
fourth anniversary of the Closing Date pursuant to clause (i) of the definition
of "Margin Adjustment" in Article I of the Credit Agreement.
<PAGE> 2
Section 2. Amendments. The Credit Agreement shall be amended
as follows:
(a) Section 2.12(d) of the Credit Agreement shall be amended
by inserting at the end of such Section the following:
"Notwithstanding the foregoing, the amount of the prepayment
required pursuant to this Section 2.12(d) to be made within
90 days after the fiscal year ending December 31, 1997,
shall be reduced by the sum of (i) the aggregate amount of
dividends paid by the Borrower during the fiscal year ended
December 31, 1997, pursuant to clause (f)(i) of Section 7.08
and (ii) the amount of the dividends paid by the Borrower
during the 90-day period following the end of the Borrower's
fiscal year ending December 31, 1997, pursuant to clause
(f)(ii) of Section 7.08. Each certificate delivered by the
Borrower pursuant to the second sentence of this Section
2.12(d) shall set forth the amount of any reductions made
pursuant to the preceding sentence."
(b) Section 4.13 of the Credit Agreement shall be amended by
adding at the end of the proviso to the first sentence thereof the words "or
Section 7.08(f)."
(c) Section 6.08 of the Credit Agreement shall be amended by
adding at the end of the proviso thereof the words "or Section 7.08(f)."
(d) Section 7.08 of the Credit Agreement shall be amended by
(i) deleting the word "and" at the end of clause (d) thereof, (ii) deleting the
period at the end of clause (e) thereof and substituting "; and" therefor and
(iii) inserting after clause (e) thereof the following:
"(f) so long as there exists no Event of Default (both
before and after giving effect thereto) the Borrower may (i)
pay cash dividends from time to time during the fiscal year
ending December 31, 1997, not exceeding aggregate dividends
pursuant to this clause (f)(i) of $25,000,000; and (ii) pay
cash dividends at any time and from time to time prior to the
end of the 90-day period following the end of the Borrower's
fiscal year ending December 31, 1997; provided, that (A) the
aggregate dividends pursuant to clause (f)(ii) shall not
exceed an amount equal to the excess, if any, of (1) the
Borrower's Excess Cash Flow for the fiscal year of the
Borrower ending December 31, 1997 over (2) the aggregate
amount of all dividends theretofore paid pursuant to clause
(f)(i) above and (B) no such dividend
<PAGE> 3
shall be paid pursuant to clause (f)(ii) prior to the date
of delivery by the Borrower to the Agent of a certificate
signed by any Financial Officer of the Borrower setting
forth the calculation in reasonable detail of the amount of
Excess Cash Flow for the fiscal year ending December 31,
1997, demonstrating that the amount of such dividend is
permitted."
Section 3. Representations and Warranties. The Borrower
represents and warrants to each of the Lenders that this Amendment has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms (i) except as the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) subject to general principles of equity.
Section 4. Effectiveness. The Waiver referred to in Section 1
of this Amendment shall become effective as of the date when the Agent shall
have received copies hereof that, when taken together, bear the signatures of
the Borrower and all the Lenders. The Amendments referred to in Section 2 of
this Amendment shall become effective as of the date when the Agent shall have
received copies hereof that, when taken together, bear the signatures of the
Borrower and the Required Lenders.
Section 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6. No Other Amendments. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of any party
under the Credit Agreement, nor alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein.
Section 7. Counterparts. This Amendment may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one contract. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment.
Section 8. Headings. Section headings used herein are for
convenience of reference only, are not part of this
<PAGE> 4
Amendment and are not to affect the construction of, or to be taken into
consideration in interpreting, this Amendment.
Section 9. Expenses. The Borrower shall reimburse the Agent
for its reasonable out-of-pocket expenses incurred in connection with this
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Agent.
IN WITNESS WHEREOF, the Borrower and the undersigned Required
Lenders have caused this Amendment to be duly executed by their duly authorized
officers, all as of the date first above written.
TRANSTAR, INC.,
by /s/ J.W. SCHULTE
----------------
Name: J.W. Schulte
Title: Vice President-Finance
THE CHASE MANHATTAN BANK,
individually, as Agent and as
Issuing Bank,
by /s/ JULIE S. LONG
-----------------
Name: Julie S. Long
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Co-Agent,
by /s/ MICHAEL J. DILLON
---------------------
Name: Michael J. Dillon
Title: Managing Director
BANK OF MONTREAL, as Co-Agent,
by /s/ ELIZABETH F. TRAPP
----------------------
Name: Elizabeth F. Trapp
Title: Director
<PAGE> 5
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as Co-Agent,
by /s/ TAKUYA HONJO
----------------
Name: Takuya Honjo
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., NEW YORK BRANCH, as Co-Agent,
by /s/ HIROSHI KITADA
------------------
Name: Hiroshi Kitada
Title: Deputy General Manager
THE NIPPON CREDIT BANK, LTD., as Co-Agent,
by /s/ YOSHIKI TSHIZUKA
--------------------
Name: Yoshiki Tshizuka
Title: Vice President &
Assistant General
Counsel
NATEXIS BANQUE BFCE, formerly
Banque Francaise du Commerce
Exterieur, Grand Cayman Branch,
by /s/ KEVIN DOOLEY
----------------
Name: Kevin Dooley
Title: Vice President
by /s/ EVAN KRAUS
--------------
Name: Evan Kraus
Title: Associate
<PAGE> 6
BANQUE PARIBAS,
by /s/ DOUGLAS R. GOUCHUE
----------------------
Name: Douglas R. Gouchue
Title: Director
by /s/ ROSS A. CATLIN
------------------
Name: Ross A. Catlin
Title: A.V.P.
BHF-BANK AG,
by /s/ THOMAS J. SCIFO
-------------------
Name: Thomas J. Scifo
Title: A.V.P.
by /s/ JOHN SYKES
--------------
Name: John Sykes
Title: A.V.P.
CAPTIVA II FINANCE, LTD.
by /s/ JOHN H. CULLINANE
---------------------
Name: John H. Cullinane
Title: Director
CHASE SECURITIES INC., as agent for
The Chase Manhattan Bank,
by /s/ WILLIAM J. BOKOS
--------------------
Name: William J. Bokos
Title: Authorized Signatory
CIBC, INC.,
by /s/ WILLIAM J. KOSK JR.
-----------------------
Name: William J. Kosk Jr.
Title: Director
<PAGE> 7
COMMERCIAL LOAN FUNDING TRUST I,
LEHMAN COMMERICAL PAPER INC.
(not in its individual capacity,
but solely as administrative
agent),
by /s/ MICHELLE SWANSON
--------------------
Name: Michelle Swanson
Title: Authorized Signatory
CORESTATES BANK, N.A.,
by /s/ BEVERLY J. COLLER
---------------------
Name: Beverly J. Coller
Title: Vice President
CREDIT LYONNAIS, NEW YORK BRANCH,
by /s/ VLADMIMIR LABUN
-------------------
Name: Vladmimir Labun
Title: First Vice President
Manager
CREDIT SUISSE FIRST BOSTON (formerly
Credit Suisse),
by /s/ THOMAS G. MUOIO
-------------------
Name: Thomas G. Muoio
Title: Vice President
by /s/ CHRISTOPHER T. HORGAN
-------------------------
Name: Christopher T. Horgan
Title: Vice President
<PAGE> 8
DEUTSCHE GENOSSENSCHAFTSBANK,
by /s/ LINDA J. O'CONNELL
----------------------
Name: Linda J. O'Connell
Title: Vice President
by /s/ KAREN A. BRINKMAN
---------------------
Name: Karen A. Brinkman
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION,
by /s/ ELLIOT J. JAFFEE
--------------------
Name: Elliot J. Jaffee
Title: Vice President
MELLON BANK N.A.,
by /s/ RICHARD K. JAMES
--------------------
Name: Richard K. James
Title: Vice President
MORGAN STANLEY SENIOR FUNDING, INC.,
by /s/ CHRISTOPHER A. PUCILLO
--------------------------
Name: Christopher A. Pucillo
Title: Vice President
NATIONSBANK OF NORTH CAROLINA, N.A.,
by /s/ RAJESH SOOD
---------------
Name: Rajesh Sood
Title: Vice President
PARIBAS CAPITAL FUNDING LLC,
by /s/ ERIC A. GREEN
-----------------
Name: Eric A. Green
Title: Director
<PAGE> 9
FLEET BANK, N.A.,
by /s/ ROBERT J. LORD
------------------
Name: Robert J. Lord
Title: Vice President
THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH,
by /s/ SURAJ P. BHATIA
-------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
Manager, Corporate
Finance Dept.
<PAGE> 1
EXHIBIT 10.16.1
SECOND AMENDMENT
TO THE
TRANSTAR, INC.
SALARIED RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1989)
Effective January 1, 1997, the following revision is adopted by the
Transtar, Inc. Salaried Retirement Plan.
APPENDIX A, Subsection (a) shall be amended as follows:
(a) Normal wages and salaries for services performed, including
incentive, shift differential, out-of-line differential, and
Sunday, holiday and overtime premium payments applicable to
such services, but excluding any cost-of-living payment and
the amount resulting from a Cost-of-Living Adjustment included
in the base hourly or salary rates on or after May 1, 1974
other than the first thirty-nine cents ($.39) per hour for
hourly paid employees and the first sixty-eight dollars ($68)
per month for salaried employees. EFFECTIVE JANUARY 1, 1997,
PARTICIPANTS WHOSE ROLLED INTO BASE COST-OF-LIVING ADJUSTMENT
EXCLUDED FROM PENSIONABLE EARNINGS PRIOR TO JANUARY 1, 1997
EXCEEDS SIX HUNDRED DOLLARS ($600.00) PER MONTH SHALL HAVE
SUCH EXCLUSION REDUCED PROSPECTIVELY TO SIX HUNDRED DOLLARS
($600.00) PER MONTH. The preceding shall be modified for
Participants covered by a collective bargaining agreement that
provides for a deviation in the method of determining normal
wages and salaries. Effective August 11, 1986, the amount of
any temporary reduction in any Participant's salary will be
included in Pensionable Earnings for pension purposes;
provided, however, that the temporary reduction included in
Pensionable Earnings shall be reduced by any subsequent salary
increase.
IN WITNESS WHEREOF, Transtar, Inc. has caused this Amendment
to be executed by its duly authorized officers this 4th day of February, 1997.
ATTEST: TRANSTAR, INC.
By /s/ R. N. GENTILE By /s/ J. W. SCHULTE
------------------------- -----------------------
R. N. Gentile J. W. Schulte
<PAGE> 1
EXHIBIT 10.16.2
FIFTH AMENDMENT
TO THE
TRANSTAR, INC.
SALARIED RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1989)
Effective January 1, 1998, the following revision is adopted by the
Transtar, Inc. Salaried Retirement Plan.
APPENDIX A, Subsection (a) shall be amended as follows:
(a) Normal wages and salaries for services performed, including
incentive, shift differential, out-of-line differential, and
Sunday, holiday and overtime premium payments applicable to
such services, but excluding any cost-of-living payment and
the amount resulting from a Cost-of-Living Adjustment included
in the base hourly or salary rates on or after May 1, 1974
other than the first thirty-nine cents ($.39) per hour for
hourly paid employees and the first sixty-eight dollars ($68)
per month for salaried employees. Effective January 1, 1997,
Participants whose rolled into base Cost-of-Living Adjustment
excluded from Pensionable Earnings prior to January 1, 1997
exceeds six hundred dollars ($600.00) per month shall have
such exclusion reduced prospectively to six hundred dollars
($600.00) per month. EFFECTIVE JANUARY 1, 1998, PARTICIPANTS
WHOSE ROLLED INTO BASE COST-OF-LIVING ADJUSTMENT EXCLUDED FROM
PENSIONABLE EARNINGS PRIOR TO JANUARY 1, 1998 EXCEEDS FOUR
HUNDRED FIFTY DOLLARS ($450.00) PER MONTH SHALL HAVE SUCH
EXCLUSION REDUCED PROSPECTIVELY TO FOUR HUNDRED FIFTY DOLLARS
($450.00) PER MONTH. The preceding shall be modified for
Participants covered by a collective bargaining agreement that
provides for a deviation in the method of determining normal
wages and salaries. Effective August 11, 1986, the amount of
any temporary reduction in any Participant's salary will be
included in Pensionable Earnings for pension purposes;
provided, however, that the temporary reduction included in
Pensionable Earnings shall be reduced by any subsequent salary
increase.
IN WITNESS WHEREOF, Transtar, Inc. has caused this Amendment
to be executed by its duly authorized officers this 24th day of March, 1998.
ATTEST: TRANSTAR, INC.
By /s/ R. N. GENTILE By /s/ J. W. SCHULTE
-------------------- ---------------------
R. N. Gentile J. W. Schulte
<PAGE> 1
EXHIBIT 10.17
TRANSTAR, INC.
NON TAX-QUALIFIED PENSION PLAN
EFFECTIVE JANUARY 1, 1994
Transtar, Inc. shall pay a monthly amount from the general assets of
the Company to each individual whose pension benefits or survivor benefits are
limited as the result of the limitation on benefits provisions of the Transtar,
Inc. Non-Contributory Pension Plan and the Transtar, Inc. Salaried Retirement
Plan or that are required under the Internal Revenue Code. The amount payable
shall be equal to the difference between the benefits the individual actually
receives under the Pension Plan and the benefits which the individual would have
received under the Plan except for the limitation on benefits provisions and any
other limitations that are required under the Internal Revenue Code. Benefits
shall not be payable pursuant to the foregoing to or in respect of any
individual who terminates employment (other than by reason of death) prior to
attainment of age 60 without the consent of the Company.
Except as an individual elects, prior to the earlier of retirement or
death, to have both the benefits payable to him and the benefits payable to his
survivor paid on a monthly basis or to have the benefits payable to him (but not
the benefits payable to his survivor) paid on a monthly basis, he shall receive
a lump sum distribution of both the monthly pension and monthly survivor
benefits payable. The lump sum distribution shall be equal to the present value
of the amounts payable to the individual and the individual's spouse and/or
survivor based on the joint life expectancy of said individuals, using tables
adopted by the Company, or the life expectancy of the individual's spouse and/or
survivor in the event of the employee's death prior to retirement or in the
event that employee has elected to receive his monthly benefits in the form of
an annuity but has not made the same election on behalf of his spouse and/or
survivor with respect to survivor benefits, and the applicable interest rate
established under the Pension Benefit Guaranty Corporation regulations to
determine the present value of annuities in the event of plan termination. Any
lump sum distribution shall be payable within 60 days following retirement, or
death, and shall represent full and final settlement of all benefits provided
hereunder.
The Vice President-Administration is responsible for administration of
this program.
The Company may at any time, and from time to time, by action of its
Board of Directors modify or amend, in whole or in part, or terminate any or all
of these provisions.
<PAGE> 1
EXHIBIT 10.18
TRANSTAR, INC.
SUPPLEMENTAL THRIFT PROGRAM
Effective January 1, 1994
The term "Participant" as used herein means an employee of Transtar,
Inc. (the Company) who is a Director of any of the Transtar Operating Companies.
Effective January 1, 1994, a Participant may elect to place all or any
part of the matching company contribution amount which would have been deposited
in the Transtar, Inc. Savings Fund Plan for Salaried Employees (the Plan) into
the Transtar, Inc. Supplemental Thrift Program (Program) provided the
Participant is saving at least that amount in the Plan. Where a participant's
ability to save on a pre-tax and/or after-tax basis under the Plan at a rate at
least equal to the maximum rate of company contributions applicable to his
service is restricted by law (including the limitations under Internal Revenue
Code Sections 401 (a)(17), 401(k), 401(m), 402(g) and 415) or if savings at such
a rate would in the opinion of the Administrator have an adverse effect on any
other trust benefit, the full applicable matching company contributions will be
credited each month to the Participant's account under the Program regardless of
the rate of savings to the Plan.
The amount placed in the Program will be credited to each Participant's
account (book entry only) in the same manner as if the amount had been deposited
in the Plan for investment in a guaranteed fixed income investment. The Plan
rules for eligibility, beneficiary designation and vesting except as hereinafter
provided, will be applicable to this Program. At death, termination of
employment with five or more years of continuous service, or termination of
employment prior to attaining five years of continuous service with the consent
of the Company, the total value of the Participant's account will be paid to the
Participant at that time. Upon termination of employment under conditions other
than those described in the preceding sentence, the payment to the Participant
shall be limited to the value of the Participant's account which has vested.
The value of the Participant's account payable at death or retirement,
except in the case of a Participant who terminates employment prior to age 60
without the consent of the Corporation, will be increased, where applicable, to
an amount which will provide the Participant with an amount
<PAGE> 2
-2-
necessary to produce the net after-tax distribution, based on the maximum
individual tax rate in effect at date of distribution, which would have been
realized had the value of the Company contributions credited to the
Participant's account been included and distributed in cash with the
Participant's account under the Plan ignoring any election to defer distribution
or any rollover of the Plan distribution to an IRA or another qualified plan. In
determining the amount of increase, any favorable tax treatment the Participant
would be entitled to receive based solely on the total distribution from the
Plan will be recognized, while the effects, if any, of the additional early
withdrawal tax or the excise tax on excess distributions from the Plan will be
disregarded.
Benefits provided by this Program shall be paid in cash out of general
assets of the Participant's employing company.
The Vice President-Administration shall be responsible for
administration of this Program.
The Company may at any time, and from time to time, by action of its
Board of Directors, modify or amend, in whole or in part, or terminate any or
all of the provisions of the Program.
<PAGE> 1
EXHIBIT 10.19
TRANSTAR, INC.
SUPPLEMENTAL PENSION PROGRAM
EFFECTIVE JANUARY 1, 1994
The term "Executive" as used herein means the President & Chief
Executive Officer of Transtar, Inc. The term "Company" means Transtar, Inc.
The terms "continuous service", "allowed service", "accrued benefit",
and "surviving spouse" as used herein means Continuous Service, Allowed Service,
Accrued Benefit, and surviving spouse as determined under the Transtar, Inc.
Non-Contributory Pension Plan (hereinafter "the Plan").
If the Executive retires or otherwise terminates employment under
conditions of eligibility for an immediate pension pursuant to the provisions of
the Plan, excluding retirement without the consent of the Company prior to age
60 pursuant to the 30-year sole option provision, he will be eligible to receive
the supplemental pension provided under this Program. In no event shall the
supplemental pension provided under this Program be less than the Executive's
accrued benefit.
The surviving spouse of an Executive who has accrued at least 15 years
of continuous service and who dies (i) prior to retirement, or (ii) after
retirement under conditions of eligibility for an immediate pension pursuant to
the provisions of the Plan, excluding retirement without the consent of the
Company prior to age 60 pursuant to the 30-year sole option provisions, will be
eligible to receive the supplemental surviving spouse benefit provided under
this Program.
Average earnings as used herein shall be equal to the total bonuses
paid or credited to the Executive pursuant to the Transtar Incentive
Compensation Plan with respect to the three calendar years for which total bonus
payments or deferrals (or such other payments as shall have been designated as
creditable by the Board of Directors of the Company) were the highest out of the
last ten consecutive calendar years immediately prior to the calendar year in
which retirement or death occurs divided by thirty-six. Bonus payments or
deferrals (or such other payments) will be considered as having been made for
the calendar year in which the applicable services were performed rather than
for the calendar year in which the bonus payment was actually received.
The Average Earnings used in the determination of benefits under this
Program as of retirement will be recalculated using any bonus payable for the
calendar year in which retirement occurs if such bonus produces Average Earnings
greater than that determined at retirement.
<PAGE> 2
-2-
The Supplemental Pension provided under this program shall be
determined by multiplying Average Earnings by a percentage which shall be equal
to the sum of 1.54% for each year of continuous service and each year of allowed
service.
The Supplemental Surviving Spouse Benefit provided under this Program
shall be equal to 50% of the Supplemental Pension (i) that would have been
payable to the Executive had the Executive retired as of the date of death in
the case of death prior to retirement, or (ii) that was being paid to the
Executive in the case of death after retirement. Payments shall be payable
monthly for the life of the surviving spouse and shall commence with the month
following the month in which the Executive's death occurs.
Except if the Executive elects, prior to the earlier of retirement or
death, to have both the benefits payable to him and the benefits payable to his
surviving spouse paid on a monthly basis or to have the benefits payable to him
(but not the benefits payable to his surviving spouse) paid on a monthly basis,
he shall receive a lump sum distribution of both the monthly pension and monthly
surviving spouse benefits payable. The lump sum distribution shall be equal to
the present value of the amounts payable to the Executive and the Executive's
spouse based on the joint life expectancy of said individuals, using tables
adopted by the Company, or the life expectancy of the Executive's spouse in the
event of the Executive's death prior to retirement or in the event that the
Executive has elected to receive his monthly benefits in the form of an annuity
but has not made the same election on behalf of his spouse with respect to
surviving spouse benefits, and the interest rate established under the Pension
Benefit Guaranty Corporation regulations to determine the present value of
immediate annuities in the event of plan termination. Any lump sum distribution
shall be payable within 60 days following retirement, or death, and shall
represent full and final settlement of all benefits provided hereunder.
Benefits provided by this Program shall be paid out of general assets
of the Company.
The Vice President-Administration is responsible for administration of
this Program.
The Company may at any time, and from time to time, by action of its
Board of Directors, modify or amend, in whole or in part, or terminate any or
all of the provisions of this Program.
<PAGE> 1
Exhibit 12.1
TRANSTAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary item and change in
accounting principle ............................ $110,579 $103,714 $ 93,915 $ 86,102 $25,976
Fixed charges:
Interest expense and amortization of
debt issuance costs ............................. $ 17,358 $ 21,314 $ 24,144 $ 25,253 $47,838
Interest expense on rentals ....................... 7,976 7,854 6,057 6,225 6,956
-------- -------- -------- -------- -------
Total fixed charges ........................ $ 25,334 $ 29,168 $ 30,201 $ 31,478 $54,794
======== ======== ======== ======== =======
Earnings before income taxes,
extraordinary item, change in
accounting principle and fixed
charges ......................................... $135,913 $132,882 $124,116 $117,580 $80,770
======== ======== ======== ======== =======
Ratio of earnings to fixed charges ................ 5.36 4.56 4.11 3.74 1.47
======== ======== ======== ======== =======
</TABLE>
- ----------
Income for the years 1993, 1994, 1996 and 1997 includes non-recurring charges
(credits) of $17.3 million $(1.7) million, $(1.0) million, and $7.0 million,
respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 260
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,146
<CURRENT-LIABILITIES> 186
<BONDS> 169,330
0
0
<COMMON> 0
<OTHER-SE> (95,370)
<TOTAL-LIABILITY-AND-EQUITY> 74,146
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 236
<TOTAL-COSTS> 236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,301
<INCOME-PRETAX> 17,099
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,099
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
