<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 033-73270
-----------------
Commission File Number 033-73270-1
-----------------
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3486874
DELAWARE 13-3745313
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
345 PARK AVENUE
NEW YORK, NY 10154
(Address and zip code of principal executive offices)
(212) 935-2626
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
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<PAGE> 2
Transtar Holdings, L.P.
Transtar Capital Corporation
Form 10-Q
Quarterly Period Ended September 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
A. TRANSTAR HOLDINGS, L.P.
Consolidated Balance Sheet 3
Consolidated Statements of Income and Partners' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Quantitative and Qualitative Disclosures About Market Risk 7
B. TRANSTAR, INC.
Consolidated Balance Sheet 8
Consolidated Statements of Income and Retained Earnings 9
Consolidated Statement of Cash Flows 10
Notes to Consolidated Financial Statements 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION 16
SIGNATURE 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
A. TRANSTAR HOLDINGS, L.P.
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
(dollars in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 296 $ 286
Other current assets -- 8
--------- ---------
Total current assets 296 294
Restricted cash 49,157 47,328
Investment in Transtar 71,406 54,258
Other assets 3,075 3,629
--------- ---------
Total assets $ 123,934 $ 105,509
========= =========
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities $ 358 $ 205
Long-term debt 212,460 192,736
--------- ---------
Total liabilities 212,818 192,941
PARTNERS' EQUITY (DEFICIT) (88,884) (87,432)
--------- ---------
Total liabilities and partners' equity $ 123,934 $ 105,509
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- -----------------------------------
1999 1998 1999 1998
-------------- ------------- -------------- -----------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and administrative expenses 57 47 161 154
-------- -------- -------- --------
Operating (loss) (57) (47) (161) (154)
Interest income 667 673 1,839 1,967
Interest and other financial expenses (7,019) (6,190) (20,277) (17,883)
-------- -------- -------- --------
(Loss) before equity in earnings of Transtar (6,409) (5,564) (18,599) (16,070)
Equity in earnings of Transtar 10,158 11,145 18,773 25,101
-------- -------- -------- --------
Net income $ 3,749 $ 5,581 $ 174 $ 9,031
======== ======== ======== ========
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
(UNAUDITED)
Partners' equity (deficit), beginning of period $(92,212) $(93,453) $(87,432) $(95,370)
Distribution to partners -- -- -- (745)
Net income 3,749 5,581 174 9,031
Other adjustments to partners' equity (421) -- (1,626) (788)
-------- -------- -------- --------
Partners' equity (deficit), end of period $(88,884) $(87,872) $(88,884) $(87,872)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------------
1999 1998
------------ -------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 174 $ 9,031
Adjustments to reconcile to net cash provided by
(used for) operating activities:
Non-cash interest and other financial expenses 20,277 17,883
Non-cash interest income (1,830) (1,944)
Equity in earnings of Transtar (18,773) (25,101)
Changes in:
Accounts payable 153 (35)
Other assets and liabilities 9 (11)
-------- --------
Net cash provided by (used for) operating activities 10 (177)
-------- --------
INVESTING ACTIVITIES:
Net cash provided by investing activities -- --
-------- --------
FINANCING ACTIVITIES:
Distribution to partners -- (745)
Withdrawal from restricted cash -- 945
-------- --------
Net cash provided by financing activities -- 200
-------- --------
Increase in cash and cash equivalents 10 23
Cash and cash equivalents at beginning of period 286 260
-------- --------
Cash and cash equivalents at end of period $ 296 $ 283
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1: BASIS OF FINANCIAL STATEMENT PRESENTATION:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal recurring adjustments considered
necessary for a fair statement of the results of operations for the three and
nine-month periods ended September 30, 1999 have been included. The results of
operations for the three and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results of operations for the full year. When
reading the financial information contained in this quarterly report, reference
should be made to the financial statements, schedules and notes contained in
Transtar Holdings, L.P.'s (Holdings) Annual Report on Form 10-K for the year
ended December 31, 1998. Transtar Capital Corporation (TCC), a subsidiary of
Holdings, is a shell corporation which has nominal assets and no liabilities,
operations or cash flows. Accordingly, the financial statements of TCC are not
presented because they do not provide material information to investors.
NOTE 2: LONG-TERM DEBT:
On December 7, 1993, Holdings and TCC (Issuers) issued $218 million aggregate
principal of 13.375% Senior Discount Notes due December 15, 2003 (Notes). The
Notes are the joint and several obligations of the Issuers. An original issue
discount of $118 million is being amortized over a six-year period commencing
December 15, 1993 and ending December 15, 1999. Interest will be payable in cash
semi-annually in arrears on June 15 and December 15 commencing on June 15, 2000.
The Notes have a principal at maturity of $218 million. The carrying value
represents the principal at maturity less the unamortized discount. The Notes
are not guaranteed by Transtar, Inc. (Transtar) or any of its subsidiaries and
are subordinated to all existing and future liabilities of the Issuers'
subsidiaries. Interest expense attributable to the Notes was $19.7 million and
$17.3 million in the first nine months of 1999 and 1998, respectively, and was
$6.8 million and $6.0 million in the third quarter of 1999 and 1998,
respectively.
In accordance with an Indenture relating to the issuance of the Notes (the Notes
Indenture) certain dividends received from Transtar in 1997 were paid into an
escrow account. In February 1998, in accordance with the Notes Indenture,
Holdings offered to repurchase a portion of the Notes at an offer price equal to
101% of the accreted value of such Notes on the date of purchase. The offer to
purchase the Notes was made by a notice to holders of the Notes and was held
open for 20 business days. No notes were tendered for repurchase. In March 1998,
in accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $0.7 million to distribute to
its partners and $0.2 million to pay certain administrative expenses.
Funds in the escrow account are invested in cash equivalents and may only be
released to pay interest and principal on the Notes, make certain payments
permitted under the Notes Indenture, purchase or optionally redeem Notes or to
pay administrative expenses of Holdings. As of September 30, 1999 the escrow
balance is $49.0 million. Interest earned on the escrow balance was $1.8 million
and $1.9 million in the first nine months of 1999 and 1998, respectively, and
was $0.7 million and $0.6 million in the third quarter of 1999 and 1998,
respectively.
NOTE 3: PARTNERS' EQUITY (DEFICIT)
In the first nine months of 1999 and 1998, Holdings recorded adjustments to
Partners' Equity (Deficit) of $(1.6) million and $(0.8) million, respectively.
These adjustments were recorded as a result of changes in ownership related to
Transtar treasury stock transactions with its Management Stock Trusts.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes an analysis of Holdings' equity investment in Transtar, Inc.
(Transtar). Holdings is a Delaware limited partnership. It was originally formed
in 1988 as Blackstone Transportation Partners L. P. (BTP) for the sole purpose
of holding voting and nonvoting stock of Transtar. BTP was renamed Transtar
Holdings, L. P. in November 1993. Holdings net earnings are derived primarily
from its 53.0 percent economic interest in Transtar and interest expense related
to certain Senior Discount Notes (Notes) issued in 1993. The following
discussion should be read in conjunction with Holdings' Consolidated Financial
Statements and the notes related hereto included within this filing.
Transtar Holdings L.P. Results
For the Three and Nine Months ended September 30, 1999
Compared to the
Three and Nine Months ended September 30, 1998
Overall
Holdings recorded net income of $3.7 million and $0.2 million for the third
quarter and year to date in 1999, respectively. This represents unfavorable
changes of $1.9 million and $8.8 million from the $5.6 million and $9.0 million
recorded during the respective periods of 1998. Holdings' results include its
equity investment in Transtar, interest expense and other financial expenses,
all of which were unfavorable when compared to 1998 results. For a discussion of
results of operations of Transtar, see Management's Discussion and Analysis of
Financial Condition and Results of Operations for Transtar, Inc.
Revenues and Expenses
Holdings did not record any revenues in either 1999 or 1998. Holdings' selling,
general and administrative expenses of $0.2 million during the first nine months
of 1999 were essentially the same as that incurred during the same period of
1998. Interest income in the third quarter of 1999 was unchanged at $0.7 million
as compared to the third quarter of 1998, and decreased by $0.1 million to $1.8
million in the nine months ended September 30, 1999 as compared to $1.9 million
in the same period of 1998. Interest and other financial expense increased by
$0.8 million to $7.0 million during the third quarter and by $2.4 million to
$20.3 million in the first nine months of 1999 when compared to the same periods
of 1998. Equity in earnings of Transtar declined from 1998 levels by $1.0
million and $6.3 million to $10.2 million and $18.8 million in the third quarter
and first nine months, respectively.
Liquidity and Capital Resources
In accordance with an Indenture relating to the issuance of the Notes (the Notes
Indenture) certain dividends received from Transtar in 1995, 1996 and 1997 were
paid into an escrow account. Transtar declared no dividends during the first
nine months of either 1998 or 1999. In March of 1998, Holdings withdrew from the
escrow account $0.7 million to make distributions to its partners and $0.2
million to pay administrative expenses. As of September 30, 1999 the balance in
the escrow account is $49.0 million. During the first nine months of 1999,
Holdings earned $1.8 million in interest from the balance in the escrow account,
similar to the amount earned in the first nine months of 1998.
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
cash interest payment is due on the Notes on June 15, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
7
<PAGE> 8
B. TRANSTAR, INC.
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,751 $ 21,428
Accounts receivable from related parties 19,816 14,499
Accounts receivable from others 59,005 46,778
Other current assets 11,437 10,181
--------- ---------
Total current assets 111,009 92,886
Property, plant, and equipment,
less accumulated depreciation 418,522 379,287
Operating parts and supplies 15,556 14,930
Other assets 20,223 15,701
--------- ---------
Total assets $ 565,310 $ 502,804
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 76,337 $ 64,560
Payroll and benefits payable 38,402 38,614
Accrued taxes 15,101 6,215
Accrued interest 886 1,146
Current portion of long-term debt 48,100 57,700
Revolving credit agreement -- --
Other current liabilities 2,043 1,498
--------- ---------
Total current liabilities 180,869 169,733
Long-term debt less current portion 81,900 66,300
Postretirement benefits other than pensions 112,362 110,425
Deferred credits and other liabilities 56,119 53,704
--------- ---------
Total liabilities 431,250 400,162
STOCKHOLDERS' EQUITY
Common stock 1,000 1,000
Paid-in capital 24,279 23,417
Retained earnings 121,003 85,577
Treasury stock (12,222) (7,352)
--------- ---------
Total stockholders' equity 134,060 102,642
--------- ---------
Total liabilities and stockholders' equity $ 565,310 $ 502,804
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE> 9
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues from related parties $ 63,875 $ 79,784 $ 174,503 $ 218,212
Revenues from others 63,333 59,420 164,551 161,904
--------- --------- --------- ---------
Total revenues 127,208 139,204 339,054 380,116
--------- --------- --------- ---------
Operating expenses (excluding items shown below) 83,532 93,596 247,020 267,681
Selling, general, and administrative expenses 4,393 3,534 10,371 9,272
Depreciation 6,654 6,313 19,243 19,701
--------- --------- --------- ---------
Total operating expenses 94,579 103,443 276,634 296,654
--------- --------- --------- ---------
Operating income 32,629 35,761 62,420 83,462
Other income 709 661 1,738 2,040
Interest income 177 296 477 1,336
Interest and other financial expenses (2,623) (2,985) (6,955) (10,235)
--------- --------- --------- ---------
Income before income taxes 30,892 33,733 57,680 76,603
Less provision for income taxes 11,752 12,758 22,254 29,355
--------- --------- --------- ---------
Net income $ 19,140 $ 20,975 $ 35,426 $ 47,248
========= ========= ========= =========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(UNAUDITED)
Retained earnings beginning of period $ 101,863 $ 52,811 $ 85,577 $ 26,538
Net income 19,140 20,975 35,426 47,248
--------- --------- --------- ---------
Retained earnings end of period $ 121,003 $ 73,786 $ 121,003 $ 73,786
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
9
<PAGE> 10
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------------
1999 1998
---------- ----------
(dollars in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 35,426 $ 47,248
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,243 19,701
Amortization 300 371
Deferred taxes 3,401 3,673
Gain on sale of assets (467) (879)
Changes in other assets and liabilities (3,473) (1,692)
-------- --------
Net cash provided by operating activities 54,430 68,422
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (60,750) (21,050)
Proceeds from the sale of assets 3,710 3,624
-------- --------
Net cash used for investing activities (57,040) (17,426)
-------- --------
FINANCING ACTIVITIES:
New long-term debt 45,000 --
Repayment of long-term debt (39,000) (53,000)
Payments to acquire Treasury Stock (4,067) (1,557)
-------- --------
Net cash provided by (used for) financing activities 1,933 (54,557)
-------- --------
Decrease in cash and cash equivalents (677) (3,561)
Cash and cash equivalents at beginning of period 21,428 24,316
-------- --------
Cash and cash equivalents at end of period $ 20,751 $ 20,755
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 11
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1: BASIS OF FINANCIAL STATEMENT PRESENTATION:
Separate consolidated financial statements of Transtar are included in this 10-Q
because Transtar is a majority owned subsidiary of Holdings which is not
consolidated in the consolidated financial statements of Holdings. The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all normal recurring adjustments considered
necessary for a fair statement of the results of operations for the three and
nine-month periods ended September 30, 1999 have been included. The results of
operations for the three and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results of operations for the full year. When
reading the financial information contained in this quarterly report, reference
should be made to the Transtar financial statements, schedules and notes
contained in Holdings' Annual Report on Form 10-K for the year ended December
31, 1998.
NOTE 2: OPERATING SEGMENTS:
Transtar consists of two reportable segments: Railroad Group and Marine Group.
Summarized financial information concerning reportable segments is shown on the
following table. The "Other" column includes non-allocated corporate related
items and the elimination of inter-business unit transactions.
<TABLE>
<CAPTION>
Railroad Marine
Group Group Other Total
----- ----- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
For the three months ended September 30, 1999
Revenues - external customers $ 90,850 $ 36,358 $ -- $127,208
Income before income taxes 25,570 5,310 12 30,892
For the nine months ended September 30, 1999
Revenues - external customers $254,067 $ 84,987 $ -- $339,054
Income before incomes taxes 54,117 3,531 32 57,680
As of September 30, 1999
Total Assets $424,462 $162,862 $(22,014) $565,310
For the three months ended September 30, 1998
Revenues - external customers $ 90,460 $ 48,744 $ -- $139,204
Income before income taxes 19,345 14,379 9 33,733
For the nine months ended September 30, 1998
Revenues - external customers $269,158 $110,958 $ -- $380,116
Income before income taxes 58,050 18,515 38 76,603
As of December 31, 1998
Total assets $405,212 $119,191 $(21,599) $502,804
</TABLE>
11
<PAGE> 12
NOTE 3: LONG-TERM DEBT:
On June 29, 1999 Transtar entered into a Short Term Credit Agreement (Short Term
Credit Facility) with a bank which enabled Transtar to borrow, on an unsecured
term basis, an aggregate principal amount of $30 million. The Short Term Credit
Facility was used by Transtar to finance a portion of the purchase price of the
Tug/Barge Presque Isle, which previously was operated by Transtar under a
long-term lease. Interest accrued at variable rates based on either an alternate
base rate or an adjusted London Interbank Offered Rate. The effective interest
rate for this facility was 7.0 percent. Transtar periodically selected from
these debt instruments to determine the variable rates of the loan. Interest
rates were available in multiples of $1 million in durations ranging from 1 day
to 6 months. This Short Term Credit Facility included certain restrictions on
capital spending, levels of new indebtedness, and the payment of dividends, as
well as certain financial covenant requirements. On June 29, 1999, Transtar
borrowed $15 million from its revolving credit facility to finance the remainder
of the purchase price of the Tug/Barge Presque Isle.
On August 26, 1999, Transtar amended and restated its Credit Agreement dated
December 7, 1993 (the Original Credit Agreement) to provide for certain lenders
to make additional term loans to Transtar in an amount not to exceed $45
million, the proceeds of which were used to refinance indebtedness in the
aggregate principal amount of $30 million of loans outstanding under the Short
Term Credit Facility, and to repay $15 million of revolving credit loans. The
Credit Agreement as amended and restated (the Restated Credit Agreement)
provides for Tranche A Term Loans in the aggregate principal amount of $85
million (the aggregate principal amount outstanding as of August 26, 1999 under
the Original Credit Agreement) from lenders committed in the Original Credit
Agreement, and Tranche B Term Loans in the aggregate principal amount of $45
million, all of which are secured by the stock of the Transtar subsidiaries.
Tranche A principal payments are scheduled for December 31, 1999 ($18.7
million), June 30, 2000 ($26.4 million) and December 31, 2000 ($39.9 million).
Tranche B principal payments are scheduled for December 31, 1999 ($1.0 million),
June 30, 2000 ($2.0 million) and December 31, 2000 ($42.0 million). 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
loans. Interest rates are available in multiples of $1.0 million of borrowings
in durations ranging from 1 day to 6 months. The average effective rates for
September 1999 were 6.8 percent and 7.0 percent for Tranche A Term Loans and
Tranche B Term Loans, respectively. The Restated Credit Agreement includes
certain restrictions on capital spending, levels of new indebtedness, and the
payment of dividends, as well as certain financial covenant requirements.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar Inc. Results
For the Three and Nine Months ended September 30, 1999
Compared to the
Three and Nine Months ended September 30, 1998
Overall
Transtar is a transportation holding company comprised of two business groups:
the Railroad Group and the Marine Group. Transtar's net income for the quarter
ending September 30, 1999 totaled $19.1 million, or a decline of $1.8 million
compared with the same period of 1998. Operating income of $32.6 million
recorded for the third quarter of 1999 was $3.1 million less than the comparable
period of 1998. Net income for the nine months ended September 30, 1999 was
$35.4 million, an $11.8 million decrease from the first nine months of 1998.
Operating income of $62.4 million during the first nine months of 1999 was $21.0
million less than the same period of 1998. The third quarter and first nine
months of 1999 operating results were adversely impacted by decreased revenues
driven by cutbacks in production at taconite pellet plants and declines in coal
exports to depressed Asian markets.
Operating Revenues
Operating revenues totaled $127.2 million for the third quarter of 1999, or a
decrease of $12.0 million from the third quarter of 1998. During the first nine
months of 1999, Transtar's operating revenues were $339.1 million, reflecting a
decline of $41.1 million from the comparable period of 1998. The operating
revenue decline experienced in 1999 has been caused by: lower volumes of ore,
coke and steel and general merchandise products resulting from excess imported
steel; reduced coal volumes primarily on the Marine Group as the demand for
export coal remained weak; and the December 1998 termination of in-plant rail
services provided at the former USS/Kobe Steel facilities in Lorain, Ohio.
Operating Expenses
Transtar's operating expenses decreased by $8.9 million and $20.0 million,
respectively during the third quarter and the first nine months of 1999 when
compared to the same periods of 1998. The Railroad Group's operating expenses
totaled $68.7 million and $208.3 million during the third quarter and first nine
months of 1999, which represents decreases of $4.2 million and $7.0 million,
respectively. The Marine Group's operating expenses declined $4.5 million and
$11.9 million to $30.0 million and $80.1 million in the third quarter and first
nine months of 1999, respectively when compared to the same periods of 1998. The
reductions in operating expenses for both groups were directly influenced by
lower business volumes which resulted in reduced employment costs, and lower
material and outside contractor expenditures than experienced in the previous
periods. Volume related declines in fuel consumption were somewhat negated by
fuel price increases. Additional declines have been experienced in casualty and
liability insurance expenses. Adversely impacting Railroad Group expenses was a
23 percent ($2.9 million) reduction in car hire earnings (a contra to cost) due
to fewer off-line loadings for a substantial portion of Transtar's freight car
fleet. A charge of $0.9 million was recorded in 1999 reflecting a refinement of
the estimate of pension expense that was recognized in the fourth quarter of
1998 relating to reduced services provided by the Lake Terminal Railroad at the
former USS/Kobe facility. During the third quarter of 1998, a $0.7 million
charge was recorded for the consolidation of the Accounting Department.
13
<PAGE> 14
Other Income, net
Transtar's other income, net improved by $0.3 million and $2.1 million,
respectively during the third quarter and the first nine months of 1999, when
compared to the same periods of 1998. Interest expense recognized in the first
nine months of 1999 was $7.0 million, or $3.3 million less than the same period
of 1998. The reduction in interest expense was attributable to lower outstanding
debt and lower interest rates during the first nine months of 1999.
Provision for Income Taxes
Primarily as a result of lower before-tax earnings in 1999, Transtar's provision
for income taxes decreased $1.0 million during the third quarter and $7.1
million during the first nine months, when compared to the same periods of 1998.
Liquidity and Capital Resources
Transtar's cash and temporary investments were $20.8 million at September 30,
1999 or $0.7 million less than the balance at the end of 1998 and the same as
the balance at September 30, 1998. Cash flow from operating activities during
the nine months ended September 30, 1999 was $54.4 million or $14.0 million less
than amounts generated during the same period of 1998. Influencing this decline
were lower business activity levels, which produced a $11.8 million reduction in
net income. Primarily due to increased capital expenditures in the first nine
months of 1999, cash flow used for investing activities totaled $57.0 million,
or $39.6 million more than was utilized during the same period of 1998.
On June 29, 1999, Transtar, Inc. purchased the Tug/Barge Presque Isle for $45.0
million. This acquisition utilized interim financing with a $15.0 million
borrowing under Transtar's revolving credit facility and a $30.0 million
borrowing under a new unsecured short term credit facility (Short Term Credit
Facility). On August 26, 1999, Transtar amended and restated its Credit
Agreement dated December 7, 1993 to provide for certain lenders to make
additional term loans to Transtar in an amount not to exceed $45.0 million, the
proceeds of which were used to refinance indebtedness in the aggregate principal
of $30.0 million of loans outstanding under the Short Term Credit Facility, and
to repay $15.0 million of revolving credit loans.
During the first nine months of 1999, Transtar retired $39.0 million of debt
associated with its December 1993 Credit Agreement, compared to $53.0 million
retired during the same period of 1998. As of September 30, 1999, the
outstanding balance on this restated facility is $130.0 million. In addition,
letters of credit totaling $1.1 million are currently outstanding.
Year 2000
Transtar is committed to addressing the Year 2000 issue that could impact its
existing computer systems. A plan to identify and address Year 2000 issues as
they apply to proprietary mainframe information systems was completed in
mid-1997. An outside contractor was hired to assist in the implementation of the
plan. All of Transtar's proprietary mainframe systems' lines of code have been
renovated, and approximately 97 percent have been tested and reintegrated with
the final 3 percent scheduled for completion during the fourth quarter of 1999.
Transtar has assessed the Year 2000 readiness of its information processing
infrastructure including mainframe hardware, non proprietary mainframe systems,
local area network, wide area network, information security, standard desktop
and server applications, and application development and maintenance platforms.
Based upon internal testing and review of information received from its vendors,
Transtar has determined that approximately 93 percent of such components are
either Year 2000 ready or that non-compliance will not materially affect
Transtar's operations. Transtar believes the remaining 7 percent will achieve
Year 2000 readiness prior to the end of 1999.
Transtar's mainframe operating systems and non-proprietary software products
were date-rollover tested during an August integrated test and Year 2000
readiness was validated. A final integrated test encompassing the remaining
systems was successfully completed in October 1999. Transtar has developed a
contingency plan which identifies potential Year 2000 failures and ranks them
according to risk to Transtar operations. Plans to set forth alternative
practices to be followed have been created and continue to be refined.
14
<PAGE> 15
An assessment of non-information technology systems that are an integral part of
Transtar's rail and marine operations was initiated during the fourth quarter of
1997 to determine the Year 2000 readiness status. This review encompassed train
and process control systems, navigation systems, communication systems, as well
as any other equipment in which embedded chip technology could create date
functionality problems. This assessment has been completed and recommendations
have been made for upgrades and replacements, if necessary, to ensure Year 2000
readiness. Crossing warning systems have been reviewed and certified as Year
2000 ready. Train dispatching systems at all locations with the exception of the
Elgin, Joliet and Eastern Railway Company (EJ&E) are Year 2000 ready. The EJ&E
has purchased a new Year 2000 ready system which is scheduled for installation
in the fourth quarter of 1999. Purchase orders for communication system upgrades
or replacements have been placed and are in progress for completion during the
fourth quarter of 1999. All Coast Guard Year 2000 requirements have been
implemented and radar systems on the Marine Group have been certified Year 2000
ready. Formal contingency plans for Transtar's critical operations have been
developed and will be further reviewed and refined during the fourth quarter of
1999.
In order to ensure that third party vendors will be Year 2000 ready, Transtar
initiated a vendor compliance survey program during the second quarter of 1998.
Follow-up contacts with major vendors have been completed and indicate that 75
percent of vendors are Year 2000 ready and 25 percent are in the process of
ensuring readiness. Year 2000 ready sources have been identified to replace
those vendors who may be unable to ensure readiness. In September 1998, Transtar
modified the language of its purchase orders to require that all products with
electrical/electronic elements come equipped with Year 2000 certified
components.
Transtar expects to spend approximately $7.0 million to become Year 2000 ready.
As of September 30, 1999, Transtar has spent $5.9 million on this effort. While
management believes that Transtar's critical information and operating systems
will be Year 2000 ready, there can be no guarantee that it will be completely
successful. The "most reasonably likely worst case" scenario would be failures
of systems or equipment of Transtar or third parties which would result in
reliance on manual contingency procedures that would reduce efficiency in the
performance of business activities or cause the temporary suspension of
operations and the consequent deferral of revenue until such failures have been
corrected. No assurance can be given that the effect of any such failures will
not have a material adverse effect on the operating results of Transtar.
This discussion includes forward-looking statements of Transtar's efforts and
management's expectations relating to Year 2000 readiness. Transtar's ability to
achieve Year 2000 readiness and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, vendors' ability
to install or modify remaining hardware and software and unanticipated problems
identified in the ongoing Year 2000 readiness review. Also, Transtar's ability
to mitigate Year 2000 risks could be adversely impacted by the effectiveness of
contingency plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Holdings and TCC had no reportable events of material pending legal proceedings
other than ordinary routine litigation incidental to the business during the
nine-month period ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on 8-K
On September 2, 1999 Holdings and TCC filed a report on Form 8K which
announced the retirement by December 31, 1999 of Robert S. Rosati,
President and Chief Executive Officer of Transtar, Inc.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 11, 1999
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
By: /s/Howard A. Lipson
-----------------------------
Howard A. Lipson, Treasurer
17
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