<PAGE>   1
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                       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, 1998

                                       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 033-73270
                  Commission File Number 033-73270-1

                             TRANSTAR HOLDINGS, L.P.
                          TRANSTAR CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

                    DELAWARE                              13-3486874
                    DELAWARE                              13-3745313
          (State or other jurisdiction      (I.R.S. Employer Identification No.)
        of 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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<PAGE>   2



                             TRANSTAR HOLDINGS, L.P.
                          TRANSTAR CAPITAL CORPORATION
                                    FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           ----
<S>                                                                                                        <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 ....................................   17

Item 8.   Financial Statements and Supplementary Data ..................................................   18

Item 9.   Changes In and Disagreements with Accountants on Accounting and Financial Disclosure .........   47


PART III

Item 10.  Directors and Executive Officers of Registrant ...............................................    48

Item 11.  Executive Compensation .......................................................................    50

Item 12.  Security Ownership of Certain Beneficial Owners and Management ...............................    54

Item 13.  Certain Relationships and Related Transactions ...............................................    55

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..............................    58
</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 salt water/fresh water dock facility-Mobile River Terminal
(MRT). The Railroad Group and Marine Group accounted for approximately 70% and
30% of revenues, respectively, in 1998.

          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 57% of
its revenues in 1998 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
19% of revenues, resulting in the steel industry accounting for 76% of
Transtar's revenues in 1998. Movements of coal to utilities and other customers
accounted for 13% of Transtar's revenues in 1998, while miscellaneous traffic
accounted for the remaining 11%.

          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 704 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
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.

          Prior to December 1988, 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
<PAGE>   4


RAILROAD GROUP

          Each rail subsidiary is a regional or switching railroad with
individual specialties. Revenues from USX represented approximately 53% of the
Railroad Group's revenues in 1998. 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 Ispat Inland Mining. 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. The DMIR also hauls taconite for interchange
to long haul railroads.

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. The
EJ&E provides trackage rights and haulage for other railroads.

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 provided
USS/Kobe with in-plant switching services as well as maintenance of track and
equipment during 1998. USS/Kobe awarded the in-plant switching and maintenance
of track and equipment to a competing company at the end of 1998.

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 65% of the
Marine Group's revenues in 1998. The following paragraphs 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 248 barges (of which 183 are leased) and 20 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 $497.8 million in 1998. 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 1996 through 1998.


<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                    ------------------------------------------------------------------------------
                                                 1998                      1997                      1996
                                              ----------                ----------                ----------
                                           $             %of         $           % of            $         % of
                                        (mil.)          total      (mil.)        total        (mil.)       total
                                        ------          -----      ------        -----        ------       -----
   <S>                                  <C>             <C>        <C>           <C>          <C>          <C> 
   Iron Ore                              $200.1          40.2       $219.9         41.8       $206.1         40.5
   Coal                                    61.4          12.3         58.5         11.1         61.0         12.0
   Coke                                    39.4           7.9         43.6          8.3         39.3          7.7
   Steel & General Merch.                 142.8          28.7        148.1         28.2        146.2         28.7
   Dock Handling                           26.7           5.4         23.3          4.4         23.5          4.6
   Trucking                                 1.3            .3          1.3           .2          1.0          0.2
   All other revenues                      26.1           5.2         31.4          6.0         32.0          6.3
                                         ------         -----       ------        -----       ------        -----
                                                                                   
      Total Revenues                     $497.8         100.0       $526.1        100.0       $509.1        100.0
                                         ======         =====       ======        =====       ======        =====
</TABLE>


EMPLOYEES

          Transtar employed an average of 3,346 employees in 1998, virtually the
same as 1997. Approximately 85% of Transtar's employees are covered by
collective bargaining agreements.

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.



                                       3
<PAGE>   6



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,
                                             --------------------------------------
                                                 1998          1997        1996
                                                 ----          ----        ----
      <S>                                        <C>          <C>          <C>
      Track miles of rail laid ...........        108           79           87
      Ties inserted (thousands) ..........        128          137          142
      Track miles resurfaced .............        509          411          506
</TABLE>


          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 ...................................            115          33         20          27        135          32
  Switcher ...............................            109          33          4          27        113          32
                                                      ---          --         --          --        ---          --
    Total Locomotives ....................            224          33         24          27        248          32
                                                      ===          ==         ==          ==        ===          ==
Freight Cars:
  Box ....................................             69          21         --          --         69          21
  Gondola ................................          3,641          27        987          20      4,628          25
  Hopper .................................          8,217          44        924          19      9,141          41
  Flat ...................................            502          36         95          29        597          35
                                                   ------          --      -----          --     ------          --
    Total Freight Cars ...................         12,429          38      2,006          20     14,435          35
                                                   ======          ==      =====          ==     ======          ==
</TABLE>



                                       4
<PAGE>   7

          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,
                                     -----------------------------
                                      1998        1997        1996
                                      ----        ----        ----
<S>                                  <C>         <C>         <C>
Roadway and structures .....         $15.5       $12.7       $11.6
Railroad equipment:
  Locomotives ..............           1.0         0.7         0.4
  Freight cars .............           5.7         5.8         2.1
Other ......................           3.3         5.1         3.6
                                       ---         ---         ---
    Total ..................         $25.5       $24.3       $17.7
                                     =====       =====       =====
</TABLE>

          Capital expenditures for the Railroad Group for 1999 are expected to
be approximately $17.4 million, of which approximately $9.8 million are
anticipated for roadway and structures and approximately $3.4 million are for
railroad equipment.

          The following table shows the Railroad Group's expenses for ongoing
maintenance and repairs of roadway, structures and railroad equipment (including
administrative and inspection costs) for the periods indicated.


                        Railroad Maintenance Expenditures
                              (dollars in millions)


<TABLE>
<CAPTION>                                        
                                        Year Ended December 31,
                                     -----------------------------
                                      1998        1997        1996
                                      ----        ----        ----
<S>                                  <C>         <C>         <C>
Roadway and structures .....         $37.0       $41.9       $38.0
Railroad equipment:
  Locomotives ..............          23.4        23.2        21.4
  Freight cars .............          21.9        22.9        21.6
Other ......................          10.0         8.3         8.4
                                     -----       -----       -----
  Total ....................         $92.3       $96.3       $89.4
                                     =====       =====       =====
</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 362,900 gross tons (GT) at mid-summer draft.

          Included in this fleet are four large beam vessels, the Roger Blough,
the Edwin H. Gott, the Edgar B. Speer, and the Presque Isle. 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. The Edgar B.
Speer and the Presque Isle are under long-term charter.


                                       5
<PAGE>   8



          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.

          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         62,200             1978           2,378
  Speer(4) ...............       1,004         62,200   (3)       1980           2,378
  Presque Isle(4) ........       1,000         52,000             1973           1,930
  Blough .................         858         44,000   (3)       1972           1,914
  Anderson ...............         767         25,300             1952           1,048
  Callaway ...............         767         25,300             1952           1,048
  Clarke .................         767         25,300             1952           1,048
Stone Fleet
-----------
  Munson .................         768         25,600             1952           1,867
  Sloan ..................         620         15,600             1943           1,087
  Calcite II .............         604         12,900             1929             964
  Taylor .................         603         12,500             1929           1,005
                                              -------                           ------
  Total ..................                    362,900                           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 20 towboats and 65 barges and operates another 183 barges
utilizing long-term lease arrangements.

          Capital expenditures for the Marine Group were $0.9 million in 1998
and are expected to be approximately $3.3 million in 1999.





                                       6
<PAGE>   9



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
1998.



                                       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,
                                                            --------------------------------------------------------
                                                             1998         1997       1996         1995         1994
                                                             ----         ----       ----         ----         ----
                                                                            (dollars in millions)
<S>                                                         <C>          <C>        <C>          <C>          <C>
Statement of Income Data:
  Income from equity in earnings of Transtar ........       $31.3        $36.3      $37.6        $31.1        $28.4
  Interest and other financial expense ..............       (24.1)       (21.3)     (18.8)       (16.6)       (14.7)
  Income from continuing operations .................         9.6         17.1       19.6         13.8         13.0
Balance Sheet Data:
  Investment in Transtar ............................       $54.3        $23.8      $ 0.5       $(15.4)      $(16.9)
  Total assets ......................................       105.5         74.1       50.9         14.0         (9.4)
  Long-term debt ....................................       192.7        169.3      148.8        130.7        114.8
  Partners' equity (deficit) ........................       (87.4)       (95.4)     (98.6)      (117.3)      (124.9)
</TABLE>




                                       8
<PAGE>   11



<TABLE>
<CAPTION>
                                                                              Transtar, Inc.
                                                                 As of and for the year ended December 31,
                                                        ------------------------------------------------------------
                                                             1998        1997        1996        1995         1994
                                                             ----        ----        ----        ----         ----
                                                                           (dollars in millions)

<S>                                                        <C>         <C>         <C>         <C>          <C>
Statement of Income Data:
  Operating revenues ..................................     $497.8      $526.1      $509.1      $494.5       $478.5
  Operating expenses (excluding item shown below)(1) ..      367.5       376.3       360.4       352.1        331.7
  Depreciation and amortization .......................       25.5        26.8        26.4        26.7         27.7
                                                            ------      ------      ------      ------       ------
    Operating income ..................................      104.8       123.0       122.3       115.7        119.1
  Other income (expense) ..............................        2.3         3.9         1.7         1.1         (8.7)
  Interest income .....................................        1.5         1.0         1.0         1.2          1.0
  Interest and other financial expense ................      (12.9)      (17.4)      (21.3)      (24.1)       (25.3)
                                                            ------      ------      ------      ------       ------
    Income before income taxes ........................       95.7       110.5       103.7        93.9         86.1
  Provision for income taxes ..........................       36.7        42.1        32.8        35.2         32.4
                                                            ------      ------      ------      ------       ------
  Income from continuing operations ...................      $59.0       $68.4       $70.9       $58.7       $ 53.7
                                                            ======      ======      ======      ======       ======
Other Data:
  Consolidated Cash Flow(2) ...........................     $138.0      $160.5      $152.5      $148.6       $149.9
  Cash provided by operating activities ...............       91.9       106.0       113.8        94.0         99.8
  Cash provided by (used for) investing activities ....      (21.2)      (19.9)      (15.8)      (16.9)         1.2
  Cash used for financing activities ..................      (73.6)      (86.4)      (83.9)      (87.0)       (99.1)
  Capital expenditures ................................       26.4        25.6        19.6        20.3         13.7
  Dividends paid ......................................         --        24.1        40.9        55.8           --
  Non-cash interest(3) ................................        0.6         0.7         0.7         0.8          1.0
  Consolidated Cash Flow to cash interest .............       11.2x        9.6x        7.4x        6.4x         6.2x
  Fixed charge coverage ratio(4) ......................       10.7x        9.2x        7.2x        6.2x         5.9x
  Ratio of earnings to fixed charges(5) ...............        5.6x        5.4x        4.6x        4.1x         3.7x
Balance Sheet Data:
  Cash and cash equivalents ...........................      $21.4       $24.3       $24.7      $ 10.6       $ 20.5
  Total assets ........................................      502.8       522.0       515.1       513.7        530.6
  Long-term debt less current portion .................       66.3       128.8       196.4       265.2        329.0
</TABLE>

(1)  Operating expenses include non-recurring charges (credits) of $3.5 million,
     $7.0 million, $(1.0) million and $(1.7) million for the years ended
     December 31, 1998, 1997, 1996, and 1994, 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 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.

                            1998 VERSUS 1997 AND 1996

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 $31.3 million in 1998 compared to $36.3 million
in 1997 and $37.6 million in 1996. 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 1998, Holdings' net income totaled $9.6 million, a decrease of $7.5
million from $17.1 million in 1997 and a $10.0 million decrease from the $19.6
million recorded in 1996.

REVENUES AND EXPENSES

          Holdings did not produce any revenues in 1998, 1997, or 1996.
Holdings' operating expenses of $0.2 million in 1998 remained unchanged from
1997, and are $0.3 million less than the $0.5 million incurred in 1996. As a
result of the accretion of certain discount notes sold by Holdings in December
1993, interest and other financial expenses grew from $18.8 million in 1996, to
$21.3 million in 1997, and $24.1 million in 1998.

                         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.

          Transtar declared no dividends during 1998.

          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 its 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 relating to the issuance of the Notes (the
Notes Indenture), both dividend payments were deposited into an escrow account.

          In February 1998 and 1997, 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 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.



                                       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 certain payments
permitted under the Notes Indenture, purchase or optionally redeem Notes or to
pay administrative expenses of Holdings. As of December 31, 1998 the escrow
balance is $47.3 million. Interest earned on the escrow balance amounted to $2.6
million, $2.4 million, and $1.4 million in 1998, 1997 and 1996, 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 the
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.

                                1998 VERSUS 1997

OVERALL

          Transtar reported net income of $59.0 million in 1998, compared to net
income of $68.4 million in 1997. Transtar's results in 1998 were driven by
weakening of the domestic steel industry due to lower priced imported steel and
by revenue concessions granted in recently approved long-term Transportation
Services Agreements with USX and USS/Kobe.

OPERATING REVENUES

          Operating revenues in 1998 totaled $497.8 million, or $28.3 million
less than in 1997. Revenue decreases of $9.0 million and $19.3 million were
reported by the Railroad Group and Marine Group, respectively. The softening of
the domestic steel market due to the increase of imported foreign steel, coupled
with implementation of new Transportation Services Agreements in 1998 severely
impacted revenues. Revenues generated by the transportation and handling of raw
materials used in the steel production process, such as ore and coke, as well as
outbound steel products all showed decreases from 1997 amounting to $34.9
million. Approximately one-third of this change was driven by rate reductions
granted in the new Transportation Services Agreements. Demurrage revenues,
resulting primarily from industry retention of railroad freight cars, increased
$2.3 million. In spite of rate reductions included in the new Transportation
Services Agreements, coal and associated dock handling revenues improved by $7.8
million, due to the increased demand for coal deliveries to Great Lakes
customers and increased shipments from Alabama origins destined for export.

OPERATING EXPENSES

          Operating expenses decreased $10.1 million from 1997 levels to $393.0
million in 1998. Contributing to the overall cost decrease were: 1) lower diesel
fuel prices which contributed to a $7.0 million reduction in fuel expense; 2)
favorable property tax adjustments recorded in 1998 which reduced state and
local taxes by $1.2 million; 3) changes in asset lives which resulted in
decreased depreciation expense of $1.3 million; 4) recognition in 1997 of $7.0
million of expense associated with a limited early retirement program and an
accounting department consolidation; 5) increased recovery in 1998 of
maintenance expenses which are shared with third parties in the amount of $2.7
million; 6) decreases in casualty expense and liability insurance of $2.3
million; 7) a $1.2 million reduction in shifting and towing expense and mobile
equipment rentals on the barge lines; and 8) increased allocation of labor
forces to capital improvement projects which reduced operating expenses by $1.5
million. Partially offsetting these cost decreases were: 1) increased labor
expense of $6.3 million reflecting contractual wage increases, additional hours
worked and higher health insurance costs; 2) additional lease cost of $0.8
million reflecting new leases of freight cars and barges commencing during 1998;
3) reduced net car hire earnings (a contra-cost) of $1.1 million due to the
weakened domestic steel market and fewer off-line loadings for a large portion
of Transtar's gondola freight car fleet; and 4) recognition of $3.5 million of
expense associated with a partial curtailment of services provided by the Lake
Terminal Railroad due to a reduction in business at USS/Kobe, and further
accounting department consolidation.


                                       12
<PAGE>   15







                                 TRANSTAR, INC.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS -- (CONTINUED)

OTHER INCOME AND EXPENSE

          Transtar's net interest expense decreased by $4.9 million in 1998 from
1997. This decrease is primarily attributed to the retirement of $72.0 million
of term debt during 1998. Fewer land sales agreements by the Railroad Group in
1998 and decreased equity income recorded by the Marine Group resulted in a
reduction of $1.5 million in other income.

PROVISION FOR INCOME TAXES

          Transtar's provision for income taxes in 1998 was $36.7 million or a
decrease of $5.4 million from 1997, and is directly related to the decline in
before tax profit in 1998.


                                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 Railroad 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 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.




                                       13
<PAGE>   16



                                 TRANSTAR, INC.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS -- (CONTINUED)


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.


                         LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

          Transtar ended 1998 with cash and cash equivalents totaling $21.4
million, which was $2.9 million less than the $24.3 million it had at year end
1997. During 1998, Transtar retired $72.0 million of its term loan obligations
compared to $62.0 million retired during 1997. Transtar paid no dividends in
1998 and paid dividends of $24.1 million to its shareholders in 1997. A 1997
amendment to its Credit Agreement permitted Transtar to pay dividends during
1997 not to exceed $25.0 million.

          At December 31, 1998, Transtar had $124.0 million term loan
obligations remaining, including $57.7 million due in June and December 1999.
Transtar expects to repay its 1999 obligation from its operating cash flow.

          On August 1, 1999, USX and USS/Kobe, along with several major steel
companies, face the expiration of their labor agreements with the United
Steelworkers of America. Their ability to negotiate an acceptable labor contract
is essential to maintaining the level of Transtar's ongoing operations. A
prolonged labor interruption at USX could have a material adverse effect on
Transtar's operations, financial results and cash flow.

          Contractual commitments in the amount of $45.0 million and $14.7
million have been made to acquire a tug barge vessel and to acquire components
for the assembly of 280 freight cars, respectively, at December 31, 1998.
Acquisition of the freight car components is in response to a commitment under
the new Transportation Services Agreement with USX to spend up to $20.0 million
to assure the continuance of in-plant coke movements at its Gary Works. It is
anticipated that the freight cars and the tug barge will be financed by
operating leases.

          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 1998 of $21.2 million was
$1.3 million more than 1997. This change reflects increased capital spending in
1998 of $0.8 million and a $0.5 million decrease in proceeds from disposition of
assets.



                                       14
<PAGE>   17



                                 TRANSTAR, INC.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS -- (CONTINUED)


          Cash used for financing activities in 1998 decreased $12.9 million
from 1997. Cash used for term loan debt payments increased by $10.0 million from
1997. In 1998, Transtar repaid $72.0 million of its term debt obligations versus
the $62.0 million it repaid in 1997 and the $23.0 million it repaid in 1996. In
1998, no dividends were paid to stockholders, compared with $24.1 million in
1997 and $40.9 million in 1996.

CAPITAL EXPENDITURES

          Transtar's capital requirements during 1999 are forecasted to be
approximately $20.7 million. Internally generated funds from operations are
expected to be sufficient to fund Transtar's mandatory debt payments as well as
future capital requirements.

          In 1998, capital expenditures of $26.4 million increased $0.8 million
from 1997. Capital expenditures in 1997 totaled $25.6 million, or $6.0 million
more than in 1996. In addition to these capital expenditures, the Company spent
$113.2 million in 1998, $117.6 million in 1997, and $110.6 million in 1996 for
repair and maintenance of its facilities and equipment.

                              ENVIRONMENTAL MATTERS

          Transtar is subject to federal, state, and local laws and regulations
relating to the environment. These laws regulate discharges into the
environment, as well as the handling, storage, transportation, and disposal of
waste and hazardous materials. These laws also require responsible parties to
undertake remediation of hazardous waste disposal sites. Transtar provides for
remediation costs and penalties when the responsibility to remediate is probable
and the amount of associated costs is reasonably determinable. Certain Transtar
operating subsidiaries have been identified as potentially responsible parties
under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and are required to share the cost to remediate certain Superfund sites
identified by the Environmental Protection Agency (EPA). In those instances
where the probable costs of cleanup are estimable, Transtar has recorded a
liability. At December 31, 1998 and 1997, 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
1998, actual cash payments associated with environmental expense have totaled
$10.2 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 $10.2 million
expended since 1988, $7.8 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. Management continues to
execute a plan which addresses mainframe information systems, non-information
technology systems and third parties. A plan to identify and address Year 2000
issues as they apply to mainframe information systems was completed in mid-1997.
An outside contractor was hired to assist in the implementation of the plan
during 1997, 1998 and 1999. Transtar expects to spend approximately $4.1 million
on



                                       15
<PAGE>   18



                                 TRANSTAR, INC.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS -- (CONTINUED)


mainframe applications, of which $3.2 million has already been incurred.
Management believes that Transtar has made substantial progress in determining
outside vendor Year 2000 compliance on all acquired software, and in formulating
plans for ensuring that compliant versions of vendor code are implemented prior
to the year 2000. The last component of the mainframe arena is hardware.
Transtar has assessed the compliance of its mainframe components and, based on
ongoing internal testing and review of information received from its vendors,
believes that vendor compliance will meet its requirements. Comprehensive tests
are scheduled for mid-1999, where hardware, system software and applications
software will be combined in an advanced date scenario at Transtar's disaster
recovery facility.

          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 compliance 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 substantially
completed and recommendations have been made for upgrades and replacement, if
necessary, to ensure Year 2000 compliance. Including non-information technology
systems, Transtar expects to spend in excess of $5.1 million to become Year 2000
ready.

          In order to ensure that third party vendors will be Year 2000
compliant, 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 approximately three-fourths are either compliant or
in the process of ensuring compliance. Transtar believes that alternate sources
are available to replace those vendors who are unable to perform due to Year
2000 problems. Additionally, Transtar has modified the language of its purchase
orders to require that all products with electrical/electronic elements come
equipped with Year 2000 certified components.

          While Transtar 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. Transtar's management has not
yet quantified the impact of partial non-compliance or a likely worst case
scenario on the operating results of Transtar. Formal contingency plans are
being developed for those potential Year 2000 failures which would pose the
greatest risks to Transtar's operations. No assurance can be given that the
effect of any such partial non-compliance will not have a material adverse
effect on the operating results of Transtar.

                   TRANSPORTATION SERVICES AGREEMENTS WITH USX

          On June 30, 1998 Transtar reached agreement in principle with USX on
new Transportation Services Agreements with final agreement reached December 21,
1998. (See Note 13 to Consolidated Financial Statements). The new Agreements
were approved by the lending institutions who participate in Transtar's Credit
Agreement on February 12, 1999. These agreements generally extend through
December 31, 2004, and ensure Transtar's position as a participant at all of the
US Steel and US Steel Mining facilities it presently services. Third parties
will be permitted to handle certain volumes of selected commodities. The new
Transportation Services Agreements rate reductions, including a $6.25 million
revenue refund recorded in June 1998, reduced Transtar's operating revenues and
operating income by $14.4 million in 1998. These revenue reductions are
anticipated to have an approximate $15.0 million per year impact on future years
operating revenues and operating income based on currently expected volume
levels.




                                       16
<PAGE>   19






                                 TRANSTAR, INC.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS -- (CONTINUED)


                              USS/KOBE STEEL MILLS

          Since 1895, the Lake Terminal Railroad (a Transtar subsidiary) has
performed intra-plant switching of hot metal and other steel products within the
USS/Kobe Steel mill, maintained the rail line that operates inside and around
this facility, and provided maintenance services to USS/Kobe's freight car and
locomotive fleet. In 1998 USS/Kobe elected to terminate the in-plant switching
services provided by the Lake Terminal Railroad on tracks owned by USS/Kobe, as
well as the maintenance services. As of December 29, 1998 under the terms of a
new Transportation Services Agreement which extends through December 31, 2008,
the Lake Terminal Railroad will provide interchange service between linehaul
carriers and the in-plant rail provider for this facility. As a result, it is
anticipated that Transtar will experience an annual decrease of approximately
$8.0 million in revenues, with no material impact on operating income.

                           FORWARD-LOOKING STATEMENTS

          Statements in this report that are not historical (including, but not
limited to, statements regarding the future impact of the Transportation
Services Agreements) are forward-looking statements subject to risk and
uncertainties that could cause actual results to differ materially. Such risk
and uncertainties include fluctuations in economies worldwide, in general, and
the industries that Transtar serves, in particular, fluctuations in Transtar's
customer demand for transportation and related services, changes in
relationships with key customers (including the loss of certain major
customers), changes in variations in weather and climatic patterns, competitive
pressure from other carriers, changes in governmental regulations, changes in
terms from lenders, ability to retain key management and to reach agreement on
labor issues, or other factors identified in this report.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not applicable.





                                       17
<PAGE>   20



ITEM 8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                             TRANSTAR HOLDINGS, L.P.

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                         <C>
Report of Independent Accountants ........................................................................    19

Consolidated Balance Sheet as of December 31, 1998 and 1997 ..............................................    20

Consolidated Statement of Income for the Years Ended December 31, 1998, 1997 and 1996 ....................    21

Consolidated Statement of Partners' Equity for the Years Ended December 31, 1998, 1997 and 1996 ..........    21

Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ................    22

Notes to Consolidated Financial Statements ...............................................................    23


                                             TRANSTAR, INC.

Report of Independent Accountants ........................................................................    26

Consolidated Balance Sheet as of December 31, 1998 and 1997 ..............................................    27

Consolidated Statement of Income for the Years Ended December 31, 1998, 1997 and 1996 ....................    28

Consolidated Statement of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 .........    28

Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ................    29

Notes to Consolidated Financial Statements ...............................................................    30
</TABLE>



                                       18
<PAGE>   21






                        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 18 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, 1998, and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, 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.

          Transtar, Inc. is a significant equity investment of Holdings (as
described in Note 1, page 23); accordingly, the financial statements of
Transtar, Inc. should be read in connection with the consolidated financial
statements of Holdings.




PricewaterhouseCoopers  LLP
600 Grant Street
Pittsburgh, PA 15219



February 22, 1999



                                       19
<PAGE>   22






                             TRANSTAR HOLDINGS, L.P.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                    ------------------------
                                                                       1998           1997
                                                                     (dollars in thousands)

<S>                                                                 <C>             <C>  
    ASSETS
Current assets:
  Cash and cash equivalents (Note 2) .........................         $ 286          $ 260
  Other current assets .......................................             8             --
                                                                    --------        -------
    Total current assets .....................................           294            260
Restricted cash (Note 4) .....................................        47,328         45,694
Investment in Transtar .......................................        54,258         23,825
Other assets .................................................         3,629          4,367
                                                                    --------        -------
    Total assets .............................................      $105,509        $74,146
                                                                    ========        =======
    LIABILITIES
Current liabilities:
  Accounts payable and other current liabilities .............        $  205          $ 186
Long-term debt (Note 3) ......................................       192,736        169,330
                                                                     -------        -------
    Total liabilities ........................................       192,941        169,516
    PARTNERS' EQUITY (DEFICIT) ...............................       (87,432)       (95,370)
                                                                    --------        -------
    Total liabilities and partners' equity (deficit) .........      $105,509        $74,146
                                                                    ========        =======
</TABLE>





              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       20
<PAGE>   23



                             TRANSTAR HOLDINGS, L.P.
<TABLE>
<CAPTION>

                                        CONSOLIDATED STATEMENT OF INCOME

                                                                              For the year ended December 31,
                                                                          ----------------------------------------
                                                                            1998            1997           1996
                                                                            ----            ----           ----
                                                                                    (dollars in thousands)

<S>                                                                        <C>           <C>            <C>
Revenues .......................................................          $     --        $     --       $      --
                                                                          --------        --------       ---------
Operating expenses: 
    Selling, general and administrative expenses ...............               198             236             551
                                                                          --------        --------       ---------
        Operating (loss) .......................................              (198)           (236)           (551)
Interest income ................................................             2,604           2,369           1,399
Interest and other financial expenses ..........................           (24,143)        (21,301)        (18,832)
    (Loss) before equity in earnings of Transtar ...............           (21,737)        (19,168)        (17,984)
Equity in earnings of Transtar .................................            31,349          36,267          37,584
                                                                          --------        --------       ---------
    Net income .................................................          $  9,612        $ 17,099       $  19,600
                                                                          ========        ========       =========

                                    CONSOLIDATED STATEMENT OF PARTNERS' EQUITY

Partners' equity (deficit), beginning of year ..................          $(95,370)       $(98,606)      $(117,306)
Distribution to partners (Note 4) ..............................              (745)        (13,692)           (900)
Net income .....................................................             9,612          17,099          19,600
Other adjustments to partners' equity (Note 5) .................              (929)           (171)             --
                                                                          --------        --------       ---------
Partners' equity (deficit), end of year ........................          $(87,432)       $(95,370)      $( 98,606)
                                                                          ========        ========       =========
</TABLE>





              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       21
<PAGE>   24


                             TRANSTAR HOLDINGS, L.P.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             For the year ended December 31,
                                                                       --------------------------------------------
                                                                          1998              1997             1996
                                                                          ----              ----             ----
                                                                                  (dollars in thousands)
<S>                                                                    <C>               <C>              <C>      
OPERATING ACTIVITIES:
  Net income ...................................................       $   9,612         $  17,099        $  19,600
  Adjustments to reconcile net income to net cash used
   by operating activities:
    Amortization ...............................................              --               345              380
    Non-cash interest and other financial expenses .............          24,143            21,301           18,832
    Non-cash interest income ...................................          (2,578)           (2,358)          (1,393)
    Equity in earnings of Transtar .............................         (31,349)          (36,267)         (37,584)
    Changes in:
      Accounts payable .........................................              19              (543)             114
      All other changes - net ..................................             (21)               (3)            (343)
                                                                       ---------         ---------        ---------
        Net cash used for operating activities .................            (174)             (426)            (394)
                                                                       ---------         ---------        ---------
INVESTING ACTIVITIES:
  Dividends received ...........................................              --            12,750           21,675
                                                                       ---------         ---------        ---------
        Net cash provided by investing activities ..............              --            12,750           21,675
                                                                       ---------         ---------        ---------
FINANCING ACTIVITIES:
  Restricted cash ..............................................              --           (12,750)         (21,675)
  Distribution to partners .....................................            (745)          (13,692)            (900)
  Withdrawal from restricted cash ..............................             945            13,992            1,585
                                                                       ---------         ---------        ---------
        Net cash used for financing activities .................             200           (12,450)         (20,990)
                                                                       ---------         ---------        ---------
Increase (decrease) in cash and cash equivalents ...............              26              (126)             291
Cash and cash equivalents at beginning of period ...............             260               386               95
                                                                       ---------         ---------        ---------
Cash and cash equivalents at end of period .....................       $     286         $     260        $     386
                                                                       =========         =========        =========
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       22
<PAGE>   25



                             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. 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. Transportation
Services Agreements with USX and other related parties which existed at the time
of the transaction were renegotiated in 1998 (See Note 13 of the Transtar, Inc.
Financial Statements for additional details).

          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.


                                       23
<PAGE>   26



                             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         1998               1997
                                                   --------     --------         ----               ----
                                                                     (dollars in thousands)
<S>                                                <C>          <C>           <C>               <C>
Series B Senior Discount Notes ................      13.375        2003         $192,736          $169,330
  Less amount due within one year .............                                       --                --
                                                                                --------          --------
  Long-term debt due after one year ...........                                 $192,736          $169,330
                                                                                ========          ========
</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, 1998 and 1997 was $214.8
million and $198.5 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 $23.4
million, $20.6 million and $18.1 million in 1998, 1997 and 1996, 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)





                                       24
<PAGE>   27



                             TRANSTAR HOLDINGS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


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 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.

          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 February 1997, in accordance with the Notes Indenture and related
to certain dividends paid into the escrow account in 1996, Holdings offered to
repurchase a portion of the Notes at an offer price equal to 101% of the
accreted value of such Notes on the date of purchase. The offer to purchase the
Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.

          Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make certain
payments permitted under the Notes Indenture, purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $0.7 million, $13.7 million
and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2
million,$0.3 million and $0.7 million, respectively, to pay certain
administrative expenses. Interest earned on the escrow balance amounted to $2.6
million, $2.4 million and $1.4 million in 1998, 1997 and 1996, respectively.

NOTE 5: PARTNERS' EQUITY

          In 1998 and 1997, Holdings recorded adjustments to Partners Equity of
$(0.9) million and $(0.2) million, respectively. These adjustments were recorded
as a result of changes in ownership related to Transtar repurchases of treasury
stock from its Management Stock Trust.




                                       25
<PAGE>   28



                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Shareholders of 
TRANSTAR, INC.

          In our opinion, the consolidated financial statements of Transtar,
Inc., as listed in the accompanying index on page 18 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, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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.









PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, PA 15219


February 22, 1999



                                       26
<PAGE>   29



                                 TRANSTAR, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                              --------------------------
                                                                                1998               1997
                                                                                ----               ----
                                                                                 (dollars in thousands)
<S>                                                                           <C>                <C>
  ASSETS
Current assets:
  Cash and cash equivalents (Note 2) ...................................      $ 21,428           $ 24,316
  Accounts receivable from related parties (Note 13) ...................        14,499             16,274
  Accounts receivable from trade customers .............................        48,368             56,459
  Other current assets (Note 6) ........................................        10,181              9,726
                                                                              --------           --------
    Total current assets ...............................................        94,476            106,775
Property, plant, and equipment,
  less accumulated depreciation (Note 7) ...............................       377,697            384,118
Operating parts and supplies ...........................................        14,930             15,551
Other assets (Note 8) ..................................................        15,701             15,548
                                                                              --------           --------
    Total assets .......................................................      $502,804           $521,992
                                                                              ========           ========

  LIABILITIES
Current liabilities:
  Accounts payable .....................................................      $ 64,560           $ 73,663
  Payroll and benefits payable .........................................        38,614             38,456
  Accrued taxes ........................................................         6,215             12,143
  Accrued interest .....................................................         1,146              2,177
  Current portion of long-term debt (Note 9) ...........................        57,700             68,464
  Other current liabilities ............................................         1,498              1,096
                                                                              --------           --------
    Total current liabilities ..........................................       169,733            195,999
Long-term debt less current portion (Note 9) ...........................        66,300            128,766
Postretirement benefits other than pensions (Note 3) ...................       110,425            106,270
Deferred credits and other liabilities (Note 11) .......................        53,704             45,887
                                                                              --------           --------
    Total liabilities ..................................................       400,162            476,922


  STOCKHOLDERS' EQUITY
Common stock (Note 12) .................................................         1,000              1,000
Paid-in capital (Note 12) ..............................................        23,417             23,979
Retained earnings (deficit) ............................................        85,577             26,538
Treasury stock (Note 12) ...............................................        (7,352)            (6,447)
                                                                              --------           --------
    Total stockholders' equity .........................................       102,642             45,070
                                                                              --------           --------
    Total liabilities and stockholders' equity .........................      $502,804           $521,992
                                                                              ========           ========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       27
<PAGE>   30


                                 TRANSTAR, INC.

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                  For the year ended December 31,
                                                                  -------------------------------
                                                                1998           1997            1996
                                                                ----           ----            ----
                                                                      (dollars in thousands)
<S>                                                          <C>            <C>             <C>      
Revenues from related parties (Note 13) .................    $ 281,338      $ 309,206       $ 293,601
Revenues from others ....................................      216,479        216,909         215,525
                                                             ---------      ---------       ---------
  Total revenues ........................................      497,817        526,115         509,126
                                                             ---------      ---------       ---------
Operating expenses (excluding items shown below) ........      355,146        363,784         348,188
Selling, general, and administrative expenses ...........       12,370         12,558          12,190
Depreciation ............................................       25,519         26,820          26,483
                                                             ---------      ---------       ---------
  Total operating expenses ..............................      393,035        403,162         386,861
                                                             ---------      ---------       ---------
    Operating income ....................................      104,782        122,953         122,265
Other income ............................................        2,380          3,899           1,703
Interest income .........................................        1,537          1,085           1,060
Interest and other financial expenses ...................      (12,942)       (17,358)        (21,314)
                                                             ---------      ---------       ---------
  Income before income taxes ............................       95,757        110,579         103,714
Less provision for income taxes (Note 5) ................       36,718         42,134          32,783
                                                             ---------      ---------       ---------
 Net income .............................................    $  59,039      $  68,445       $  70,931
                                                             =========      =========       =========



                               CONSOLIDATED STATEMENT OF RETAINED EARNINGS


Retained earnings (deficit), beginning of period ........    $  26,538      $ (17,822)      $ (47,847)
Dividends paid (Note 12) ................................           --        (24,085)        (40,906)
Net income ..............................................       59,039         68,445          70,931
                                                             ---------      ---------       ---------
Retained earnings (deficit), end of period ..............    $  85,577      $  26,538       $ (17,822)
                                                             =========      =========       =========
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       28
<PAGE>   31






                                 TRANSTAR, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the year ended December 31,
                                                                              -------------------------------------
                                                                               1998          1997            1996
                                                                               ----          ----            ----
                                                                                     (dollars in thousands)
<S>                                                                          <C>           <C>             <C>
OPERATING ACTIVITIES:
Net income ...............................................................   $ 59,039      $ 68,445        $ 70,931
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation ...........................................................     25,519        26,820          26,483
  Non cash interest expense ..............................................        554           652             731
  Deferred taxes .........................................................      5,740         5,879            (459)
  Gain on sale of assets .................................................     (1,141)       (2,676)           (399)
  Non cash postretirement benefits expense (Note 3) ......................      4,253         3,781           4,759
  Changes in:
    Accounts receivable ..................................................      9,866        (7,787)            286
    Accounts payable .....................................................     (9,103)        7,633          14,648
    Deferred credits .....................................................      2,195          (183)         (4,708)
    All other changes - net ..............................................     (5,017)        3,387           1,526
                                                                             --------      --------       --------- 
    Net cash provided by operating activities ............................     91,905       105,951         113,798
                                                                             --------      --------       --------- 
INVESTING ACTIVITIES:
  Capital expenditures ...................................................    (26,414)      (25,644)        (19,634)
  Proceeds from the sale of assets .......................................      5,178         5,730           3,828
                                                                             --------      --------       --------- 
    Net cash used for investing activities ...............................    (21,236)      (19,914)        (15,806)
                                                                             --------      --------       --------- 
FINANCING ACTIVITIES:
  Repayment of long-term borrowings ......................................    (72,000)      (62,002)        (23,013)
  Repayments - revolver ..................................................         --            --         (20,000)
  Dividends paid .........................................................         --       (24,085)        (40,906)
  Payments to acquire treasury stock .....................................     (1,557)         (325)             --
                                                                             --------      --------       --------- 
    Net cash used for financing activities ...............................    (73,557)      (86,412)        (83,919)
                                                                             --------      --------       --------- 
Increase (decrease) in cash and cash equivalents .........................     (2,888)         (375)         14,073
Cash and cash equivalents at beginning of period .........................     24,316        24,691          10,618
                                                                             --------      --------       --------- 
Cash and cash equivalents at end of period ...............................   $ 21,428      $ 24,316       $  24,691
                                                                             ========      ========       =========

SUPPLEMENTAL INFORMATION:
  Income taxes paid ......................................................   $ 36,006      $ 35,537       $  32,443
  Interest paid ..........................................................   $ 13,242      $ 17,394       $  22,003
NONCASH INVESTING AND FINANCING ACTIVITIES:
  New long-term borrowings - capital leases ..............................   $ (1,230)     $  1,230       $      --
                                                                             ========      ========       =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.





                                       29
<PAGE>   32



                                 TRANSTAR, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: FORMATION OF HOLDING COMPANY AND RELATED PARTIES

         On December 28, 1988, agreements were executed to form a new holding
company, Transtar, Inc. (Transtar). Transtar, in turn, purchased certain former
directly or indirectly wholly owned subsidiaries (the transportation
subsidiaries) of USX Corporation (USX). As a result of these agreements,
Blackstone Capital Partners, L.P. and Blackstone Transportation Partners, L.P.
(BTP), investment partnerships (collectively, Blackstone) controlled by their
general partner Blackstone Management Associates, L.P. (BMA), owned a 51 percent
economic and voting interest in Transtar. USX held a 44 percent economic and 49
percent voting interest, and the remaining 5 percent of Transtar's equity was
held as nonvoting shares by a management stock trust. 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. Transportation
Services Agreements with USX and other related parties which existed at the time
of the transaction were renegotiated in 1998. A significant part of Transtar's
operations are with related parties (See Note 13). Transtar's operations are
conducted in two business segments -- railroad operations and marine operations.

         BTP was originally formed in 1988 for the sole purpose of holding
voting stock and nonvoting stock in Transtar. In November 1993, BTP was renamed
Transtar Holdings, L.P., a Delaware limited partnership (Holdings), which
assumed ownership of BTP's then 51.8 percent economic interest and 51 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, 1998 and 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.



                                       30
<PAGE>   33



                                 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. (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.

         Pension and Other Postretirement Benefits 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



                                       31
<PAGE>   34






                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2: (CONTINUED)

costs in accordance with Statement of Financial Accounting Standards (SFAS) No.
87, "Employers' Accounting for 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."

         In 1998, the Company adopted SFAS No. 132 "Employers Disclosures about
Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132
revise employers disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of these plans.

         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.

         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.

         New Accounting Standards -- The Financial Accounting Standards Board
has issued a new accounting standard:

         SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" requires that companies recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Transtar plans to adopt the standard, effective with
its first quarter 2000 financial statements, as required.

         Reclassifications -- Certain reclassifications of prior years' data
have been made to conform to 1998 classifications.

NOTE 3: PENSIONS AND OTHER POSTRETIREMENT BENEFITS

         Effective January 1, 1989, Transtar adopted a noncontributory defined
benefit plan covering substantially all employees and a defined benefit plan
covering salary employees. 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. Assets of the
plans generally consist of corporate debt and equity securities and government
obligations.

         Transtar provides certain medical and life insurance benefits to
eligible retired employees and their dependents under defined benefit plans. 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. Assets of the plan generally consist of high
quality corporate and government obligations.



                                       32
<PAGE>   35






                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3: (CONTINUED)

         The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans.

<TABLE>
<CAPTION>
                                                                                Other
                                                Pension Benefits        Postretirement Benefits
                                                ----------------        -----------------------
                                               1998          1997         1998           1997
                                               ----          ----         ----           ----
                                                          (dollars in thousands)

<S>                                          <C>          <C>            <C>           <C>
Change in benefit obligation:

Benefit obligation at January 1 .......      $137,125     $114,219       $91,849       $88,782

Service cost ..........................         7,377        6,508         1,771         1,777

Interest cost .........................         9,858        8,826         6,406         6,639

Amendments ............................         1,439        1,353            --            --

Curtailments ..........................         2,007        2,956            --            --

Actuarial (gain) loss .................         5,847       14,486          (168)       (1,355)

Benefits paid from plan assets ........       (10,935)     (11,223)           --           (10)

Benefits paid by company ..............            --           --        (3,243)       (3,984)
                                             --------     --------       -------       -------
Benefit obligation at December 31 .....      $152,718     $137,125       $96,615       $91,849
                                             ========     ========       =======       =======
</TABLE>


<TABLE>
<CAPTION>
                                                                                Other
                                                Pension Benefits        Postretirement Benefits
                                                ----------------        -----------------------
                                               1998          1997         1998           1997
                                               ----          ----         ----           ----
                                                          (dollars in thousands)

<S>                                          <C>          <C>            <C>            <C>
Change in plan assets:

Fair value of plan assets at
 January 1 ............................      $ 97,551     $ 79,808       $   214       $   176

Actual return on plan assets ..........        15,032       16,403            13            11

Company contributions .................        13,310       12,563            40            40

Benefits paid from plan assets ........       (10,935)     (11,223)           --           (10)

Administrative payments ...............            --           --            (3)           (3)
                                             --------     --------       -------       -------
Fair value of plan assets at
  December 31 .........................      $114,958     $ 97,551       $   264       $   214
                                             ========     ========       =======       =======
</TABLE>



                                       33
<PAGE>   36


                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3: (CONTINUED)


<TABLE>
<CAPTION>
                                                                                  Other
                                                Pension Benefits (a)      Postretirement Benefits
                                                --------------------      -----------------------
                                                 1998          1997         1998           1997
                                                 ----          ----         ----           ----
                                                            (dollars in thousands)

<S>                                            <C>          <C>          <C>           <C>
Funded status of the plans ...............     $(37,760)    $(39,574)    $ (96,351)    $ (91,635)

Unrecognized prior service cost ..........        3,188        3,499           746           993

Unrecognized net actuarial (gain) loss ...       33,156       32,436       (19,056)      (19,766)

Unrecognized net transition obligation ...        3,287        3,945            --            --
                                               --------     --------     ---------     --------- 
Prepaid (accrued) benefit cost ...........     $  1,871     $    306     $(114,661)    $(110,408)
                                               ========     ========     =========     ========= 
</TABLE>

(a)  Includes a small plan that has an accumulated benefit obligation in excess
     of plan assets:

     Accumulated benefit obligation             $(1,899)     $(1,462)
     Projected benefit obligation               $(2,119)     $(1,770)
     Plan assets                                     --           --


<TABLE>
<CAPTION>
                                                                                Other
                                                Pension Benefits        Postretirement Benefits
                                                ----------------        -----------------------
                                               1998          1997         1998           1997
                                               ----          ----         ----           ----
                                                          (dollars in thousands)

<S>                                            <C>           <C>        <C>              <C>
Weighted average assumptions 
   as of December 31:

Discount rate ............................      6.75%         7.0%         6.75%         7.0%

Expected return on plan assets ...........      11.0%        11.0%          6.0%         6.0%

Rate of compensation increase ............       3.6%         3.6%          4.0%         4.0%

Assumed health care cost trend rate ......        --           --           5.0%         5.0%
</TABLE>

The assumed health care cost trend rate in 1999 and thereafter is 5%





                                       34
<PAGE>   37


                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3: (CONTINUED)

         Net periodic pension and other postretirement benefit costs include the
following components:


<TABLE>
<CAPTION>
                                                                                          Other
                                                 Pension Benefits                 Postretirement Benefits
                                                 ----------------                 -----------------------
                                          1998        1997         1996         1998         1997        1996
                                          ----        ----         ----         ----         ----        ----
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>
Service cost ......................    $  7,377     $ 6,508      $ 6,413      $ 1,771      $ 1,777      $ 1,954
Interest cost .....................       9,858       8,826        7,829        6,406        6,639        6,486
Expected return on plan assets ....     (11,171)     (9,310)      (6,597)         (14)         (12)         (10)
Amortization and deferrals ........       4,052       3,242        2,988         (667)        (619)        (251)
                                       --------     -------      -------      -------      -------      -------
  Benefit cost ....................    $ 10,116     $ 9,266      $10,633      $ 7,496      $ 7,785      $ 8,179
                                       ========     =======      =======      =======      =======      =======
</TABLE>



Pension
-------

         As a result of a reduction in business at The Lake Terminal Railroad (a
Transtar subsidiary) Transtar, in addition to the benefit cost shown above,
recognized a curtailment loss of $2.6 million in 1998. Also in addition to the
benefits cost shown above, programs of early retirements and separations caused
recognition of a curtailment loss of $4.0 million in 1997.

         Transtar participates in certain defined benefit multi-employer plans
of maritime unions. Expenses related to these plans amounted to $0.2 million,
$1.0 million, and $1.1 million in 1998, 1997, and 1996, respectively. 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, $1.5 million
and $1.4 million in 1998, 1997 and 1996, respectively.

Other Postretirement Benefits
-----------------------------

         A one percentage point change in assumed health care cost trend rates
would have the following effects:

                                          1% increase     1% decrease
                                          -----------     -----------
                                                (in thousands)
Effect on total of service and
interest cost components .............      $ 1,242       $(1,000)
Effect on postretirement benefit  
obligation ...........................      $12,824       $(9,840)





                                       35
<PAGE>   38






                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4: OPERATING SEGMENTS

         Transtar adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998 which establishes new standards for
reporting information about its operating segments. Transtar consists of two
reportable segments: Railroad Group and Marine Group. The two reportable
segments provide different services, have different methods of distributing
their services and operate in different regulatory environments.

         Railroad Group - This segment is composed of nine business units which
are primarily railroad companies. The Railroad Group provides rail transport and
material handling services for nearly all of the steel making plants of USX
Corporation, servicing US Steel, USS Mining Co. and USS/Kobe Steel Company at
Lorain, Ohio. Some of the business units provide rail service to other steel
related customers, utilities, and miscellaneous other customers in the midwest,
south and eastern United States.

         Marine Group - This segment is composed of two shipping operations and
one fresh water/saltwater dock facility that provide primary water transport for
essentially the same USX facilities as the rail group, as well as utilities and
miscellaneous other customers.

         The accounting policies of the reportable segments are the same as
those disclosed in Note 2. Transtar evaluates the performance of its operating
segments based on the operating income of the respective business units.
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.


                                       36
<PAGE>   39



                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4: (CONTINUED)

<TABLE>
<CAPTION>
                                         Railroad     Marine
                                           Group       Group          Other         Total
                                           -----       -----          -----         -----

<S>                                      <C>          <C>          <C>           <C>     
1998
----
Revenues - external customers ......     $349,618     $148,199     $     --      $497,817
Operating income ...................       77,863       26,899           20       104,782
Depreciation .......................       19,895        5,624           --        25,519
Interest and other financial expense       10,532        2,739         (329)       12,942
Income tax expense .................       27,366        9,326           26        36,718
Total assets .......................      405,212      119,191      (21,599)      502,804
Capital expenditures ...............       25,522          892           --        26,414

1997
----
Revenues - external customers ......     $358,597     $167,518     $     --      $526,115
Operating income ...................       86,893       36,313         (253)      122,953
Depreciation .......................       20,070        6,750           --        26,820
Interest and other financial expense       13,904        3,684         (230)       17,358
Income tax expense .................       29,936       12,230          (32)       42,134
Total assets .......................      414,443      122,855      (15,306)      521,992
Capital expenditures ...............       24,387        1,257           --        25,644

1996
----
Revenues - external customers ......     $348,248     $160,878     $     --      $509,126
Operating income ...................       94,356       27,746          163       122,265
Depreciation .......................       19,674        6,809           --        26,483
Interest and other financial expense       16,972        5,078         (736)       21,314
Income tax expense .................       24,841        7,925           16        32,782
Total assets .......................      411,110      122,278      (13,018)      520,370
Capital expenditures ...............       17,688        1,946           --        19,634
</TABLE>


         The majority of revenues earned are attributed to customers located in
the United States and all assets are located in the United States. See Note 13
regarding information about major customers.




                                       37
<PAGE>   40



                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5: INCOME TAXES

         Components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                  1998         1997          1996
                                                  ----         ----          ----
                                                    (dollars in thousands)

<S>                                             <C>          <C>          <C>     
Current federal .............................   $ 27,239     $ 32,307     $ 29,316
Current state, local, and foreign ...........      3,739        3,948        3,926
Deferred taxes ..............................      5,740        5,879         (459)
                                                --------     --------     --------
Total .......................................   $ 36,718     $ 42,134     $ 32,783
                                                ========     ========     ========
</TABLE>



         The reconciliation of the U.S. statutory income tax rate to the total
         provision is as follows:


<TABLE>
<CAPTION>
                                                  1998                   1997                   1996
                                          ------------------     ------------------     -------------------
                                                                    (dollars in thousands)

<S>                                      <C>          <C>        <C>          <C>       <C>           <C>
Statutory rate applied to income
  before tax ........................       33,515     35.00%    $ 38,703     35.00%    $ 36,300      35.00%
State income tax after federal income
  tax impact ........................        3,021      3.15        3,259      2.95        3,458       3.33
Revision of prior years tax provision
  estimates .........................           --        --           --        --       (7,126)     (6.87)
Other, net ..........................          182       .19          172       .15          151        .15
                                          --------     -----     --------     -----     --------      ----- 
Total ...............................     $ 36,718     38.34%    $ 42,134     38.10%    $ 32,783      31.61%
                                          ========     =====     ========     =====     ========      ===== 
</TABLE>


         Deferred tax assets and liabilities are composed of the following:


<TABLE>
<CAPTION>
                              December 31, 1998          December 31, 1997
                              -----------------          -----------------
                            Assets     Liabilities     Assets    Liabilities
                            ------     -----------     ------    -----------
                                       (dollars in thousands)
<S>                         <C>          <C>           <C>         <C>
Accrual differences .....   $ 3,662      $    --       $ 5,573     $    --
Postretirement benefits..    45,338           --        43,776          --
PP&E basis differences...        --       75,638            --      70,212
                            -------      -------       -------     -------
Total ...................   $49,000      $75,638       $49,349     $70,212
                            =======      =======       =======     =======
Net balance .............                $26,638                   $20,863
                                         =======                   =======
</TABLE>



                                       38
<PAGE>   41


                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6: OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
                                                         December 31,
                                                       ----------------
                                                       1998        1997
                                                       ----        ----
                                                    (dollars in thousands)

<S>                                                   <C>         <C>    
Deferred tax asset ..............................     $ 4,661     $ 4,779
Supplies - current ..............................       1,670       1,536
Employee homes acquired .........................       1,341         483
Prepaid insurance ...............................       1,151       1,278
Deferred lease costs - current ..................         587          --
Deferred compensation ...........................         271       1,111
Other current assets ............................         500         539
                                                      -------     -------
Total ...........................................     $10,181     $ 9,726
                                                      =======     =======
</TABLE>




NOTE 7: PROPERTY, PLANT, AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                     ------------------
                                                                     1998          1997
                                                                     ----          ----
                                                                   (dollars in thousands)

<S>                                                               <C>            <C>      
Railroad equipment ..........................................     $ 413,264      $ 398,291
Lake vessels and related equipment ..........................        88,918         88,535
Barges, tows, and related equipment .........................        36,112         35,855
Buildings ...................................................        32,192         29,300
Other .......................................................         3,971         11,678
                                                                  ---------      ---------
  Subtotal - depreciable property ...........................       574,457        563,659
  Less - accumulated depreciation ...........................      (244,082)      (227,185)
                                                                  ---------      ---------
Net depreciable property ....................................       330,375        336,474
Land ........................................................        47,322         47,644
                                                                  ---------      ---------
Property, plant, and equipment, less accumulated depreciation     $ 377,697      $ 384,118
                                                                  =========      =========
</TABLE>


         The above amounts include equipment leased under capital leases of zero
and $1.2 million at December 31, 1998 and 1997, respectively. For capital lease
assets, depreciation expense for the years ended December 31, 1998, 1997, and
1996 was $27 thousand, $2 thousand, and $8 thousand, respectively. Accumulated
depreciation at December 31, 1998 and 1997 was zero. 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 $26.9 million, $26.8 million,
and $25.6 million for 1998, 1997, and 1996, respectively.



                                       39
<PAGE>   42

                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7: (CONTINUED)

         Total commitments under operating leases are as follows: 
         (dollars in thousands)

<TABLE>
<CAPTION>
Year
----

<C>                                   <C>
1999 ..............................   $ 21,626
2000 ..............................     21,354
2001 ..............................     18,225
2002 ..............................     16,973
2003 ..............................     15,949
Later years .......................     89,476
                                      --------
  Total minimum lease payments ....   $183,603
                                      ========
</TABLE>

NOTE 8: OTHER ASSETS

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                        ------------
                                                                      1998        1997
                                                                      ----        ----
                                                                   (dollars in thousands)

<S>                                                                 <C>         <C>    
Long-term receivables and other investments ...................     $ 5,429     $ 5,879
Deferred lease costs ..........................................       4,188       4,201
Deferred dry dock costs .......................................       3,123       2,734
Deferred debt issue costs .....................................         398         952
Other deferred charges ........................................       2,563       1,782
                                                                    -------     -------
  Total .......................................................     $15,701     $15,548
                                                                    =======     =======
</TABLE>



         Deferred debt issue costs represent the unamortized portion of
capitalized fees and expenses relating to the term loan and revolving credit
facilities obtained in connection with a refinancing on December 7, 1993. Fees
and expenses amounting to $4.2 million were capitalized and are being amortized
over the life of the term loan.


                                       40


<PAGE>   43

                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9: LONG-TERM DEBT


<TABLE>
<CAPTION>
                                                                    December 31
                                                              -----------------------
                                         Interest
                                         Rates (%)  Maturity    1998           1997
                                         ---------  --------    ----           ----
                                                               (dollars in thousands)

<S>                                      <C>        <C>       <C>            <C>
Term loan (a) .........................    (b)        2000    $124,000       $196,000
Capital leases ........................                 --          --          1,230
                                                              --------       --------
     Total long-term debt (c) .........                        124,000        197,230
     Less amount due within 1 year ....                        (57,700)       (68,464)
                                                              --------       --------
     Long-term debt due after 1 year ..                       $ 66,300       $128,766
                                                              ========       ========
</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 1998, voluntary or asset sales
         prepayments of $72 million were applied to payments scheduled for June
         30, 1998, December 31, 1998, and June 30, 1999. 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.
         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 1998, 1997, and 1996 was $11.9
         million, $16.3 million, and $20.2 million, respectively. The average
         effective rates for the comparable periods were 7.2 percent, 7.2
         percent, and 7.1 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, 1998.
         During 1998, 1997 and 1996, there was no interest expense attributable
         to rate protection agreements.

(c)      Required payments of long-term debt for 1999 and 2000 are $57.7 million
         and $66.3 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. 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. Outstanding letters of
credit are $0.9 million at December 31, 1998 and 1997. Transtar did not borrow
from this facility in 1998 or 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.


                                       41
<PAGE>   44

                                 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)


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,
                                              --------------------------------------------------
                                                      1998                       1997
                                              ----------------------     -----------------------
                                                           Estimated                   Estimated
                                              Carrying       Fair        Carrying        Fair
                                               Amount        Value        Amount         Value
                                               ------        -----        ------         -----
                                                           (dollars in thousands)

<S>                                           <C>          <C>           <C>          <C>     
Assets:
  Cash and cash equivalents .............     $ 21,428     $ 21,428      $ 24,316     $ 24,316
  Noncurrent receivables ................        2,236        2,236         3,081        3,081
Liabilities:
  Current maturities of long-term debt ..       57,700       57,700        68,464       68,464
  Long-term debt ........................       66,300       66,300       128,766      128,766
Off-balance-sheet financial instruments:
  Interest rate protection ..............           --           --            --           --
  Fuel oil hedges .......................           --         (228)           --           --
</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.

         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.


                                       42
<PAGE>   45
                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10: (CONTINUED)

         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, 1998 or 1997.

         Fuel oil hedges - The fair value of fuel oil hedges is based on the
futures index for NYMEX No. 2. Transtar had a fuel oil hedging agreement in
place for 1.0 million gallons per month at December 31, 1998, and no fuel oil
hedging agreements in place at December 31, 1997. Transtar generated expense of
$0.3 million in 1998, no income or expense in 1997, and income of $0.4 million
in 1996 as a result of fuel oil hedges.


NOTE 11: DEFERRED CREDITS AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                                 December 31,
                                               -------------------
                                                1998        1997
                                                ----        ----
                                             (dollars in thousands)
<S>                                           <C>         <C> 
Deferred taxes ...........................     $31,299     $25,642
Personal injuries ........................      16,827      14,588
Deferred credits - leases ................       2,083       2,013
Other ....................................       3,495       3,644
                                               -------     -------
     Total ...............................     $53,704     $45,887
                                               =======     =======
</TABLE>


NOTE 12: EQUITY

         As of December 31, 1998 and 1997, 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 296 shares of the Nonvoting Stock are held by
management stock trusts. An additional 704 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.

         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 in 1994 was 750, all
of which were subject to a five-year vesting schedule commencing December 28,
1993, unless vesting was waived by Transtar's Compensation Committee. All
options granted in 1994 have an exercise price of


                                       43
<PAGE>   46

                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12: (CONTINUED)

$8,364.05, which was the estimated fair market value of the Company's common
stock at the date of grant. The options became exercisable up to 20 percent per
year and do not have an expiration date. Shares exercised were 103 and 48 in
1998 and 1997, respectively. As of December 31, 1998, there were 599 options
vested and exercisable under the 1994 grant.

         In 1996, Transtar adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The statement defines a fair-value-based method of accounting for
employee stock options, but allows companies to continue to record compensation
cost using currently accepted recognition principles. Companies electing to
continue using currently accepted recognition principles must make proforma
disclosures of net income as if the fair-value-based method of accounting had
been applied to options granted in fiscal years beginning after December 15,
1994. Transtar adopted the disclosure-only options under SFAS No. 123. In 1998,
105 options were granted under the plan, all of which are subject to a five-year
vesting schedule commencing December 28, 1997. All options granted in 1998 have
an exercise price of $24,687.80 which was the estimated fair market value of the
Company's common stock at the date of grant. These options become exercisable up
to 20 percent per year and do not have an expiration date. The effect on net
income that would have been reflected in the income statement if the
fair-value-based method of accounting had been used to account for the issuance
of these options is immaterial. There were no options granted during the years
1995 through 1997.


NOTE 13: RELATED-PARTY TRANSACTIONS

         The Transportation Services Agreements which existed at the formation
of Transtar provided 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 Services Agreements provided that such
services would continue indefinitely as long as a non-Transtar rail carrier had
not obtained access to the USX facility being served; with respect to the
services referred to in clause (ii) above, the agreements were exclusive through
1998 and provided that such services would continue indefinitely so long as USX
had not purchased from Transtar or otherwise obtained the Transtar track on
which such services were provided; with respect to the services referred to in
clause (iii) above, the agreements provided that such services would continue
for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other
USX facilities, which terms would have been automatically renewed for successive
one-year periods unless either USX or Transtar had given the other at least
three years prior written notice of termination; with respect to the services
described in clause (iv) above, the agreements provided that such services would
generally continue until December 28, 1998. The agreements also provided that
USX should 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 could,
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.



                                       44
<PAGE>   47

                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13: (CONTINUED)

         With respect to the services referred to in clause (ii) above, USS/Kobe
Steel Company elected to terminate in-plant switching services provided by the
Lake Terminal Railroad (a Transtar subsidiary) 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
will be performed on tracks currently owned by USS/Kobe. The annual impact on
Transtar will be a revenue reduction of approximately $8.0 million, with no
material impact on operating income.

         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.

         In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes
Fleet bulk commodity carrier service only) executed new Transportation Services
Agreements which, among other things, extend the time and exclusivity periods of
the original agreements. The new agreements were approved on February 12, 1999
by the lending institutions who participate in Transtar's Credit Agreement. The
new agreements were retroactively effective July 1, 1998 and will extend through
December 31, 2004 for the services referred to in clauses (i), (ii) and (iv)
above, with the exception of rail and rail related services at USS/Kobe Steel
(see below), and will extend through March 15, 2005 for the services referred to
in clause (iii) above. With respect to the services referred to in clause (i)
above, the new Transportation Services 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 2004 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. The new agreements cover all of the services currently
provided by Transtar, except that a third party may provide transportation
services for: with respect to the services referred to in clause (i) above, a
maximum per year of forty percent of blast furnace burden tonnage destined for
USX's Edgar Thomson facility in the Mon Valley; with respect to the services
referred to in clause (iii) above, a maximum of six hundred thousand gross tons
of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15,
1999, a maximum per year of ten percent of tonnage via the Great Lakes from
March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent
of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and
with respect to the services referred to in clause (iv) above, a maximum per
year of ten percent of imported iron ore and coke tonnage destined for USX's
Fairfield, Alabama facility, a maximum per year of ten percent of export coal
tonnage originating at US Steel's Concord Preparation Plant and a maximum per
year of ten percent of domestic coal tonnage via barge originating at US Steel's
Concord Preparation Plant. The agreements 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 31, 2004, request
that an independent arbitrator or mediator 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. Transtar is required to acquire certain
coke rail cars, not to exceed a maximum expenditure of $20 million. The
agreements also provide for certain price concessions and market based price
changes. USX is entitled to a refund of approximately $6.3 million (with an
equal reduction in Transtar's operating income which was recognized in June
1998) for services provided during the first half of 1998. Including this
refund, total price concessions for 1998 reduced Transtar's revenue and
operating income by $14.4 million.



                                       45
<PAGE>   48

                                 TRANSTAR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13: (CONTINUED)

         On December 29, 1998, Transtar and USS/Kobe executed a new
Transportation Services Agreement for sole service carrier work including
absorbed switching, single line movements and other related transportation
services. This agreement was approved on February 12, 1999 by the lending
institutions who participate in Transtar's Credit Agreement. The new agreement
was effective December 29, 1998 and extends through December 31, 2008 for the
sole service carrier work. In-plant scrap handling via rubber tire vehicles is
under contract until July 31, 2000. The agreement provides that USS/Kobe shall
not, during the term of the agreement, 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 the USS/Kobe Works or (b) which would in any way
assist in and/or support any such rail carrier in any efforts to obtain such
access. The agreement provides for market based price changes and no price
concessions.

         Transtar earns a significant portion of its revenues from
transportation and related services provided to USX. For 1998, 1997, and 1996,
transactions with USX represented 57 percent, 59 percent, and 58 percent of
total revenues, respectively. Receivables from USX as of December 31, 1998 and
1997 represented 23 percent and 22 percent of total receivables, respectively.
Terms of these transactions are similar to those of nonrelated customers.

         On August 1, 1999, USX and USS/Kobe, along with several major steel
companies, face the expiration of their labor agreements with the United
Steelworkers of America. Their ability to negotiate an acceptable labor contract
is essential to maintaining the level of Transtar's ongoing operations. A
prolonged labor interruption at USX could have a material adverse effect on
Transtar's operations, financial results and cash flow.

         Transtar provides maintenance services to USX. Proceeds from services
provided amounted to $5.8 million, $6.4 million, and $7.2 million for 1998,
1997, and 1996, respectively.

         USX provided several corporate services associated with ongoing
business activities of Transtar. Total expenses for these services were $ 0.8
million, $0.6 million, and $0.6 million for 1998, 1997, and 1996, respectively.

         Transtar purchased materials from USX amounting to $0.6 million, $1.1
million, and $0.5 million, in 1998, 1997, and 1996, respectively. USX purchased
materials from Transtar amounting to $0.5 million, $0.7 million and $0.8 million
in 1998, 1997 and 1996, respectively.

         Pursuant to an Asset Purchase Agreement related to the formation of
Transtar in December 1988, Transtar reimbursed USX $1.0 million, $1.1 million,
and $1.4 million for certain benefits paid to Transtar retirees by USX in 1998,
1997, and 1996, respectively.

         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 $1.5 million, $1.6 million, $1.5 million in 1998
1997, and 1996, respectively. These fees were accounted for as operating
expense.





                                       46
<PAGE>   49

                                 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, 1998 and 1997,
accrued liabilities for remediation totaled $0.4 million. For the period 1989
through 1998 actual cash payments associated with environmental expense have
totaled $10.2 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 $10.2 million
expended since 1988, $7.8 million is applicable to the $10 million threshold. It
is not presently possible to estimate the ultimate amount of all remediation
costs that might be incurred or the penalties that may be imposed.

         At year end 1998, a Transtar subsidiary had a commitment in the amount
of $45 million to exercise its purchase option by March 29, 1999 on a lake
vessel currently operated under a Bareboat Charter. It is anticipated that this
vessel will be financed by operating lease.

         At year end 1997, certain Transtar subsidiaries had purchase
commitments in the amount of $3.9 million for the acquisition of rail and marine
equipment. In January 1997, a Transtar subsidiary entered into an agreement to
purchase 9.5 million net gallons of fuel oil per shipping season for the
shipping seasons of 1997, 1998 and 1999. The purchase price for the fuel oil
will be based upon market prices subject to certain minimum price provisions.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None.


                                       47
<PAGE>   50




                                    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.

         Name                   Age, Business Experience and Other Directorships
         ----                   ------------------------------------------------

James J. Mossman                  age 40, Director since November 1993 and
President and Director            President since November 1993; a Member of
                                  Blackstone Group Holdings (BGH) L.L.C.; a
                                  General Partner of BGH L.P. from 1990 to
                                  February 1996; Vice President of The
                                  Blackstone Group L.P. (The Blackstone Group)
                                  from 1987 to 1989. Mr. Mossman is a director
                                  of Collins & Aikman Corporation and Transtar.
                                    

Peter G. Peterson                 age 72, Director since November 1993;
Director                          Co-Founding Member of BGH L.L.C.; 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 and Transtar, and he is the Vice
                                  Chairman of 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 52, Director since November 1993;
Director                          Co-Founding Member of BGH L.L.C.; 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 and Transtar.

Howard A. Lipson                  age 35, Treasurer since November 1993; Mr.
Treasurer                         Lipson joined The Blackstone 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.

         The following table sets forth certain information concerning the
officers of Transtar.

<TABLE>
<CAPTION>
             NAME                      AGE             POSITION
             ----                      ---             --------

<S>                                   <C>   <C>
Robert S. Rosati...................    60   President and Chief Executive Officer
Frank J. Habic.....................    59   Vice President-Operations
Joseph W. Schulte..................    57   Vice President-Finance and
                                                Chief Financial Officer
James P. Bobich....................    54   Vice President-Administration
Rade Vignovic......................    64   Vice President-Marketing
Robert N. Gentile..................    47   Vice President-Law, General Counsel
                                                and Secretary
</TABLE>



                                       48
<PAGE>   51





         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 33 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 34 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. 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.



                                       49
<PAGE>   52



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, 1998, December 31, 1997, and
December 31, 1996:

                                  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 .........    1998     275,000     350,000     625,000      13,544           0           0           0      29,628
  President & Chief       1997     275,000     300,000     575,000       8,763           0           0           0      31,445
  Executive Officer       1996     250,000     250,000     500,000       8,273           0           0           0      28,912

F. J. Habic ..........    1998     204,000     156,000     360,000       3,893           0           0           0      21,162
  Vice President-         1997     196,000     160,000     356,000       5,874           0           0           0      22,058
  Operations              1996     190,000     154,000     344,000       3,780           0           0           0      22,434

J. W. Schulte ........    1998     182,000     124,000     306,000       7,505           0           0           0      18,019
  Vice President-         1997     170,000     124,000     294,000       4,452           0           0           0      17,654
  Finance and Chief       1996     160,000     115,000     275,000       3,501           0           0           0      16,713
   Financial Officer

R. Vignovic ..........    1998     166,000     140,000     306,000       5,193           0           0           0      17,112
  Vice President-         1997     155,000     113,000     268,000       5,121           0           0           0      17,907
  Marketing               1996     145,000     105,000     250,000       4,034           0           0           0      16,043

R. N. Gentile ........    1998     165,000     112,000     277,000       5,655           0           0           0      13,880
  Vice President-Law,     1997     157,000     115,000     272,000       5,346           0           0           0      14,186
  General Counsel and     1996     152,000     109,000     261,000       6,694           0           0           0      14,323
  Secretary
</TABLE>

-------------------
(1) Includes health additive; executive tax assistance and financial planning;
    and imputed income for automobiles. 

(2) This column includes amounts contributed or accrued in 1998 under the
    Transtar Salaried Savings Fund Plan and the related Supplemental Savings
    Plans ($14,892, $10,578, $9,662, $8,300, and $8,257 for Messrs. Rosati,
    Habic, Schulte, Vignovic and Gentile, respectively); annual imputed income
    associated with executive life insurance policies in 1998 ($1,951, $2,232,
    $1,031, $997, and $594 for Messrs. Rosati, Habic, Schulte, Vignovic and
    Gentile, respectively); and annual amounts attributable to split-dollar life
    insurance provided by Transtar in 1998 ($12,785, $8,352, $7,326, $7,815, and
    $5,029 for Messrs. Rosati, Habic, Schulte, Vignovic and Gentile,
    respectively).



                                       50
<PAGE>   53




                                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
were subject to a 5-year vesting schedule commencing December 28, 1993. These
options generally become exercisable at the vesting date and do not have an
expiration date. The option price per share is $8,364.05, and each exercised
option will be repurchased by the Company at a price calculated using a formula
set forth in the stock option plan.


<TABLE>
<CAPTION>
                                            AGGREGATED 1998 OPTION EXERCISES
                                           AND DECEMBER 31, 1998 OPTION VALUES
                                                                                        VALUE OF EXERCISABLE
                          NO. OF                                  NO. OF EXERCISABLE        IN-THE-MONEY
                          SHARES               VALUE                  OPTIONS AT             OPTIONS AT
  NAME                   EXERCISED           REALIZED ($)         DECEMBER 31, 1998      DECEMBER 31, 1998($)
  ----                   ---------           ------------         -----------------      --------------------

<S>                      <C>                 <C>                  <C>                    <C>
R. S. Rosati                  0                    0                         200               1,669,006
F. J. Habic                   0                    0                         100                 834,503
J. W. Schulte                 0                    0                         100                 834,503
R. Vignovic                   0                    0                         100               1,464,228
R. N. Gentile                 0                    0                          50                 417,252
</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 $747,000 for 1998, $789,000 for 1997, and $765,000 for 1996.

                                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, 1998, Messrs. Rosati, Habic, Schulte, Vignovic, and Gentile
have 33, 34, 32, 34, and 19 credited years of service, respectively.


                                       51
<PAGE>   54




                            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 $56,300 for Mr. Rosati, $48,430 for Mr. Habic, $45,070 for Mr.
Schulte, $31,530 for Mr. Vignovic, and $60,040 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>


                                       52
<PAGE>   55


                            EQUITY PARTICIPATION PLAN

         Key management employees of Transtar and its subsidiaries are eligible
to participate in Transtar's Equity Participation Plan. Under the Equity
Participation Plan, Transtar's Board of Directors appoints a compensation
committee with full power to administer the plan. Participants in the plan
receive awards of restricted common stock of Transtar as determined in the
discretion of the compensation committee.


                              CERTAIN TRANSACTIONS

         Transtar pays to each of USX and Blackstone Management Partners L.P. a
monitoring fee of 0.15% of Transtar's consolidated revenue. Total monitoring
fees paid were approximately $1.5 million for 1998, $1.6 million for 1997 and
$1.5 million for 1996.

         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 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.

         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 February 1997, in accordance with the Notes Indenture and related to
certain dividends paid into the escrow account in 1996, Holdings offered to
repurchase a portion of the Notes at an offer price equal to 101% of the
accreted value of such Notes on the date of purchase. The offer to purchase the
Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.

         Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make certain
payments permitted under the Notes Indenture, purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $0.7 million, $13.7 million
and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2
million,$0.3 million and $0.7 million, respectively, to pay certain
administrative expenses. As of December 31, 1998 the escrow balance is $47.3
million. Interest earned on the escrow balance amounted to $2.6 million, $2.4
million and $1.4 million in 1998, 1997 and 1996, respectively.





                                       53
<PAGE>   56



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

THE ISSUERS

         The following table and accompanying footnotes set forth the beneficial
ownership of partnership interests of Holdings. TCC is a wholly owned subsidiary
of Holdings.

<TABLE>
<CAPTION>
                                                                                Percentage        Economic
  Name of Beneficial Owners                    Type of Interest                  of Class        Interest (1)
  -------------------------                    ----------------                   ------         ------------
<S>                                       <C>                                  <C>                <C>   
BTC(2)                                    General Partnership                    100.000%           1.000%
Blackstone entities(3)                    Limited Partnership                     91.574%          90.658%
Tyler Massachusetts L.P.                                                           8.426%           8.342%
("Tyler")(4)                              Limited Partnership
James J. Mossman(5)                       General and Limited Partnership              0                0
Peter G. Peterson(5)                      General and Limited Partnership              0                0
Stephen A. Schwarzman(5)                  General and Limited Partnership              0                0
Howard A. Lipson(5)                       General and Limited Partnership              0                0
All executive officers and directors 
as a group (4 persons)(5)                 General and Limited Partnership              0                0
</TABLE>

(1)      Represents percentage of total partnership interests (including general
         and limited partnership interests) in Holdings.

(2)      BTC holds the sole general partnership interest in Holdings. The
         address of BTC is 345 Park Avenue, New York, New York 10154.

(3)      The following Blackstone entities own 91.574% of the limited
         partnership interests in Holdings, which represents the following
         economic interests in Holdings: Blackstone Transportation Capital
         Partners L.P., 34.493%; Blackstone Domestic Capital Partners L.P.,
         33.880%; Blackstone Offshore Capital Partners L.P., 14.943%; 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.

     The following table sets forth the ownership of Transtar as of December 31,
1998:

<TABLE>
<CAPTION>
                             Voting Stock   % of Voting      Nonvoting        % of Non-         % of Total
     Shareholder               Owned           Shares       Stock Owned     voting Shares         Shares
     -----------               -----           ------       -----------     -------------         ------

<S>                          <C>             <C>            <C>             <C>                 <C>
Transtar Holdings, L.P. ..      5,100           51%            5,100              55%                53%
USX Corporation ..........      4,900           49             3,900              42                 46
Management ...............         --           --               296               3                  1
                               ------          ---             -----             ---                ---
    Total ................     10,000          100%            9,296             100%               100%
                               ======          ===             =====             ===                ===
</TABLE>


                                       54
<PAGE>   57





         Management's direct interest has been reduced since Transtar's
formation due to repurchases of 704 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 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, 1998, 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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

DEPENDENCE UPON USX

         For the year 1998, approximately 57% 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 certain 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. The Transportation
Services Agreements which existed at the formation of Transtar provided 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




                                       55
<PAGE>   58


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 Services Agreements provided that such
services would continue indefinitely as long as a non-Transtar rail carrier had
not obtained access to the USX facility being served; with respect to the
services referred to in clause (ii) above, the agreements were exclusive through
1998 and provided that such services would continue indefinitely so long as USX
had not purchased from Transtar or otherwise obtained the Transtar track on
which such services were provided; with respect to the services referred to in
clause (iii) above, the agreements provided that such services would continue
for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other
USX facilities, which terms would have been automatically renewed for successive
one-year periods unless either USX or Transtar had given the other at least
three years prior written notice of termination; with respect to the services
described in clause (iv) above, the agreements provided that such services would
generally continue until December 28, 1998. The agreements also provided that
USX should 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 could,
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.

         With respect to the services referred to in clause (ii) above, USS/Kobe
Steel Company elected to terminate in-plant switching services provided by the
Lake Terminal Railroad (a Transtar subsidiary) 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
will be performed on tracks currently owned by USS/Kobe. The annual impact on
Transtar will be a revenue reduction of approximately $8.0 million, with no
material impact on operating income.

         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.

         In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes
Fleet bulk commodity carrier service only) executed new Transportation Services
Agreements which, among other things, extend the time and exclusivity periods of
the original agreements. The new agreements were approved on February 12, 1999
by the lending institutions who participate in Transtar's Credit Agreement. The
new agreements were retroactively effective July 1, 1998 and will extend through
December 31, 2004 for the services referred to in clauses (i), (ii) and (iv)
above, with the exception of rail and rail related services at USS/Kobe Steel
(see below), and will extend through March 15, 2005 for the services referred to
in clause (iii) above. With respect to the services referred to in clause (i)
above, the new Transportation Services 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 2004 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. The new agreements cover all of the services currently
provided by Transtar, except that a third party may provide transportation
services for: with respect to the services referred to in clause (i) above, a
maximum per year of forty percent of blast furnace burden tonnage destined for
USX's Edgar Thomson facility in the Mon Valley; with respect to the services
referred to in clause (iii) above, a maximum of six hundred thousand gross tons
of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15,
1999, a maximum per year of ten percent of tonnage via the Great Lakes from
March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent
of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and
with respect to the services referred to in clause (iv) above, a maximum per
year of ten percent of imported iron ore and coke tonnage destined for USX's
Fairfield, Alabama facility, a maximum per year of ten percent of export coal
tonnage originating at US Steel's Concord Preparation Plant and a maximum per
year of ten percent of domestic coal tonnage via barge originating at US Steel's
Concord Preparation Plant. The agreements 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 31, 2004, request
that an independent arbitrator or mediator determine whether it is reasonable
and



                                       56
<PAGE>   59


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. Transtar is required to acquire certain
coke rail cars, not to exceed a maximum expenditure of $20 million. The
agreements also provide for certain price concessions and market based price
changes. USX is entitled to a refund of approximately $6.3 million (with an
equal reduction in Transtar's operating income which was recognized in June
1998) for services provided during the first half of 1998. Including this
refund, total price concessions for 1998 reduced Transtar's revenue and
operating income by $14.4 million.

         On December 29, 1998, Transtar and USS/Kobe executed a new
Transportation Services Agreement for sole service carrier work including
absorbed switching, single line movements and other related transportation
services. This agreement was approved on February 12, 1999 by the lending
institutions who participate in Transtar's Credit Agreement. The new agreement
was effective December 29, 1998 and extends through December 31, 2008 for the
sole service carrier work. In-plant scrap handling via rubber tire vehicles is
under contract until July 31, 2000. The agreement provides that USS/Kobe shall
not, during the term of the agreement, 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 the USS/Kobe Works or (b) which would in any way
assist in and/or support any such rail carrier in any efforts to obtain such
access. The agreement provides for market based price changes and no price
concessions.


                                       57
<PAGE>   60



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 18.

(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.

   (g)      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.

   (g)      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.

            10.5.1    Transportation Services Agreement, dated July 1, 1998,
                      between Transtar, Inc. and USX Corporation.

            10.5.2    Transportation Services Agreement, dated December 29,
                      1998, between Transtar, Inc. and USS/Kobe Steel Company.

   (a)      10.6      Transportation Agreement, dated March 16, 1988, between
                      USX Corporation and USS Great Lakes Fleet, Inc.




                                       58
<PAGE>   61

Footnote   Exhibit
  Ref.       No                                Description
  ----       --                                -----------

            10.6.1    Transportation Services Agreement, dated July 1, 1998
                      between USS Great Lakes Fleet, Inc. and USX Corporation
                      and USS/Kobe Steel Company.

   (a)      10.7      Transportation Services Agreement, dated December 28,
                      1988, between Transtar, Inc. and U.S. Steel Mining.

            10.7.1    Transportation Services Agreement, dated July 1, 1998,
                      between Transtar, Inc. and U.S. Steel Mining Co., LLC.

   (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.

   (g)      10.16.1   Second Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1997.

   (g)      10.16.2   Fifth Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1998.

            10.16.3   Sixth Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1999.

   (g)      10.17     Transtar, Inc. Non Tax-Qualified Pension Plan, effective
                      January 1, 1994.

   (g)      10.18     Transtar, Inc. Supplemental Thrift Program, effective
                      January 1, 1994.

   (g)      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.




                                       59
<PAGE>   62


Footnote   Exhibit
  Ref.       No                                Description
  ----       --                                -----------


   (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.

            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. 

   (g)   Previously filed with Form 10-K on March 27, 1998.

(B).     REPORTS ON 8-K

         Holdings and TCC did not file any reports on Form 8-K during the
         quarter ended December 31, 1998.

(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.





                                       60
<PAGE>   63

                                   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 25th of March, 1999.

                                 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 25, 1999.

<TABLE>
<CAPTION>
                  SIGNATURES                                           TITLE
                  ----------                                           -----


          <S>                                      <C>
          /s/ James J. Mossman                     Director and President (Principal Executive Officer)
          -------------------------------          of BTC and TCC
              James J. Mossman                     


          /s/ Howard A. Lipson                     Treasurer (Principal Financial Officer and Principal
          -------------------------------          Accounting Officer) of BTC and TCC
              Howard A. Lipson                     


          /s/ Stephen A. Schwarzman                Director of BTC and TCC
          -------------------------------
              Stephen A. Schwarzman


          /s/ Peter G. Peterson                    Director of BTC and TCC
          -------------------------------
              Peter G. Peterson
</TABLE>



                                       61
<PAGE>   64







             -----------------------------------------------------



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                      -----------------------------------



                                    EXHIBITS
                                   filed with
                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998




                       -----------------------------------




                             TRANSTAR HOLDINGS, L.P.
                          TRANSTAR CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)
                                      6719
                                      6719
                          (Primary Standard Industrial
                           Classification Code Number)








             -----------------------------------------------------








<PAGE>   65



                                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.

   (g)      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.

   (g)      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.

            10.5.1    Transportation Services Agreement, dated July 1, 1998,
                      between Transtar, Inc. and USX Corporation.

            10.5.2    Transportation Services Agreement, dated December 29,
                      1998, between Transtar, Inc. and USS/Kobe Steel Company.

   (a)      10.6      Transportation Agreement, dated March 16, 1988, between
                      USX Corporation and USS Great Lakes Fleet, Inc.

            10.6.1    Transportation Services Agreement, dated July 1, 1998
                      between USS Great Lakes Fleet, Inc. and USX Corporation
                      and USS/Kobe Steel Company.

   (a)      10.7      Transportation Services Agreement, dated December 28,
                      1988, between Transtar, Inc. and U.S. Steel Mining.

            10.7.1    Transportation Services Agreement, dated July 1, 1998,
                      between Transtar, Inc. and U.S. Steel Mining Co., LLC.

   (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.




<PAGE>   66



FOOTNOTE   EXHIBIT
  REF.       NO                        DESCRIPTION
  ----       --                        -----------

   (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.

   (g)      10.16.1   Second Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1997.

   (g)      10.16.2   Fifth Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1998.

            10.16.3   Sixth Amendment to the Transtar, Inc. Salaried Retirement
                      Plan, effective January 1, 1999.

   (g)      10.17     Transtar, Inc. Non Tax-Qualified Pension Plan, effective
                      January 1, 1994.

   (g)      10.18     Transtar, Inc. Supplemental Thrift Program, effective
                      January 1, 1994.

   (g)      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.

   (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.



<PAGE>   67



FOOTNOTE   EXHIBIT
  REF.       NO                        DESCRIPTION
  ----       --                        -----------

   (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. 

   (g)   Previously filed with Form 10-K on March 27, 1998.