SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2001
Commission file number 0-15087
TRAILER BRIDGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3617986
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10405 New Berlin Road E., Jacksonville, FL 32226
(904) 751-7100
(Address and telephone number of Principal executive offices)
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act:
$0.01 Par Value
Common Stock
Indicate by check mark whether the registrant (1) has filed all report 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 the registrant's definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the shares of the registrant's $0.01 par value
common stock held by non-affiliates of the registrant as of March 28, 2002 was
$3,795,400 (based upon $1.35 per share being the average of the closing bid and
asked price on that date as reported by NASDAQ). In making this calculation the
issuer has assumed, without admitting for any purpose, that all executive
officers and directors of the registrant are affiliates.
As of March 28, 2002, 9,777,500 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 2002 annual meeting of
stockholders that will be filed no later than 120 days after the end of the year
to which this report relates.
PART I
Item 1. Business
BUSINESS OVERVIEW
Trailer Bridge, headquartered in Jacksonville, Florida, is an
integrated trucking and marine freight carrier that provides truckload freight
transportation primarily between the continental U.S. and Puerto Rico. Founded
in 1991 as a Delaware corporation by transportation pioneer Malcom P. McLean,
the Company combines an efficient and dedicated motor carrier with a low cost
barge and tug marine transportation system. Mr. McLean died in May 2001. Trailer
Bridge was the first company serving markets governed by the Jones Act to
exclusively operate marine vessels fully configured to carry 48' and 53' long,
102" wide, "high-cube" equipment. This configuration enables the Company to
achieve equipment utilization rates and other operating efficiencies not readily
available to traditional ocean carriers that primarily use smaller capacity
equipment, such as 40' containers.
Trailer Bridge's differentiated service quickly gained the acceptance
of U.S. to Puerto Rico shippers, leading to rapid growth and high equipment
utilization. In 1993, the Company's first full year of operation, Trailer Bridge
achieved a 93% outbound (continental U.S. to Puerto Rico) vessel utilization
rate and captured 5% of the continental U.S. to Puerto Rico marine freight
market. In response to the rapid market share gains experienced by Trailer
Bridge, in 1996 the Company increased its vessel capacity by 56% by inserting
midsections ("mid-bodies") into its two existing barges, increasing the capacity
of each barge to 405 53' equivalent truckload units.
Trailer Bridge increased its vessel capacity again in 1998 and 1999
when it took delivery of five 408' long container carrying barges designed
specifically for the Company's integrated truckload marine transportation system
and bearing the Company's Triplestack Box Carrier(R) trade name. The Triplestack
Box Carriers are versatile, low-draft vessels that have a capacity of 265 53'
containers, stacked three-high on a single deck. During the fourth quarter of
2000 and throughout 2001, the Company provided a weekly sailing directly between
Newark, New Jersey and San Juan, Puerto Rico. This service was discontinued in
December 2001. The Company currently utilizes two mid-bodied roll-on roll-off
vessels and two Triplestack Box Carriers to provide twice weekly sailings
directly between Jacksonville, Florida and San Juan, Puerto Rico. Three
Triplestack Box Carriers are currently laid up and available for short or long
term charter. During 2001 one Triplestack Box Carrier was chartered for a
portion of the year under short-term charters.
OPERATIONS
At December 31, 2001, Trailer Bridge operated a fleet of 138 tractors,
852 high-cube trailers, 2,798 53' high cube containers and 2,028 53' chassis
that transport truckload freight between the Company's Jacksonville port
facility and inland points in the U.S. During the fourth quarter 2001 and the
first quarter 2002 the Company either through sale or termination of lease
agreements, reduced the equipment it operates. In the fourth quarter of 2001 and
the first quarter of 2002 the Company sold 20 tractors and off hired 475
high-cube 48' trailers. The Company also provides full truckload service between
interior points within the continental U.S., primarily to increase equipment
utilization, minimize empty miles and maximize revenue while repositioning
equipment to carry Puerto Rico bound freight.
2
The Company maintains a centralized dispatch and customer service center at its
Jacksonville headquarters to coordinate the movement of customer freight
throughout our system. The operations center features a fully integrated
computerized dispatch and customer service network. Customer service
representatives solicit and accept freight, quote freight rates and serve as the
primary contact with customers. Dispatch and customer service personnel work
together to coordinate Puerto Rico and non-Puerto Rico freight to achieve the
most optimum load balance and minimize empty miles within the Company's
truckload operation.
At December 31, 2001, Trailer Bridge operated two 736' triple-deck,
roll-on/roll-off (ro/ro) ocean-going barges and two 408' Triplestack Box
Carriers. Loading of the ro/ro barges is performed with small maneuverable yard
tractors operated by stevedores hired by an outside contractor. Each ro/ro
vessel is towed at approximately 9 knots by one 7,200 horsepower diesel-powered
tug. Each Triplestack Box Carrier is towed at approximately 9 knots by one 4,000
horsepower diesel-powered tug. The tugs are time-chartered and are manned by
employees of two unaffiliated tug owners. Compared to a self-propelled vessel, a
towed barge has reduced Coast Guard manning requirements and higher fuel
efficiency. Similarly, the large number of U.S. tugs available for charter
provides the Company with a reliable source for towing services.
MARKETING AND CUSTOMERS
The Company's sales and marketing function is led by senior management
and sales professionals based in Jacksonville, San Juan and other key strategic
U.S. cities. These sales personnel aggressively market Trailer Bridge to
shippers as a customer-oriented provider of value-priced and dependable service.
The Company targets major shippers with high volume, repetitive shipments whose
freight lends itself to integrated trucking and marine service.
The Company believes that price is the primary determinant in the
freight lanes in which it is involved. Nonetheless, the Company also believes
that it provides enhanced service that results from its single company control
of the entire freight movement over land and water. This service frees the
customer from the operational complexities of coordinating the interface between
over-the-road and marine service. The Company's customer service philosophy has
generated increased demand from existing customers and has led to ongoing
relationships with customers such as DaimlerChrysler, General Motors, K Mart,
WalMart, Hanes/Sara Lee, JC Penney, Home Depot, Georgia Pacific, General
Electric, Procter & Gamble, Whirlpool, SC Johnson, Walgreen's and Toys `R' Us.
The Company has a diversified customer base. Typical shipments to
Puerto Rico include furniture, consumer goods, toys, new and used cars and
apparel. Typical shipments from Puerto Rico include health products,
electronics, shoes and scrap aluminum. Management intends to continue the
Company's efforts both to increase business with existing customers and add new
core carrier relationships.
The Company has written contracts with the majority of its customers.
These contracts generally specify service standards and rates, eliminating the
need for negotiating the rate for individual shipments. A contract typically
requires a minimum tender of cargo during a specified term in return for a set
rate during the period.
The continental United States/Puerto Rico trade lane in which the
Company operates is imbalanced with approximately 80% of the freight moving
southbound. The Company's core business is southbound trailers but it also moves
new automobiles, used automobiles, non-containerized, or freight not in trailers
("NITs") and freight moving in shipper owned or leased equipment ("SOLs").
3
VESSELS
At December 31, 2001, the Company operated two 736' by 104' triple-deck
roll-on/roll-off barges. Each deck has ten lanes that are accessed from the
stern of the vessel via ramp structures in Jacksonville and San Juan that have
been built specifically for the Company. Four lanes on each vessel have been
converted to carry new and used automobiles on car decks that allow up to 11
cars to fit in the space previously used for one 53' unit. The trailers are
secured on the vessel by attachment to pullman stands that are engaged and
disengaged with specially configured yard tractors used to pull the trailers
into position on the vessel. These vessels are chartered from an affiliate,
Kadampanattu Corp. under long-term leases until at least 2010.
At December 31, 2001, the Company operated two Triplestack Box Carriers
that are single deck barges designed to carry 53' containers. These vessels
utilize the same port facilities as the ro/ro barge vessels in Jacksonville and
San Juan. Wheeled vehicles, known as reach-stackers, carry and load the
containers onto the vessels. These highly maneuverable vehicles are also used by
railroads to load containers on rail cars for intermodal transportation. The
reach-stackers are significantly less expensive than the cranes typically
required for loading and unloading containers from the holds of large cargo
ships and instead directly access the deck of the vessel via simple and movable
linear planks. The Company has filed for patent protection for its unique system
consisting of the vessels and their related loading and unloading method.
During the fourth quarter of 2000 and throughout 2001, the Company
utilized two Triplestack Box Carriers in a service between Newark, New Jersey
and San Juan, Puerto Rico (The "Northeast Service"). That service was
discontinued in December 2001. Currently, three of the Triplestack Box Carriers
are not in service and available for charter.
VESSELS OWNED OR OPERATED BY THE COMPANY
VESSEL NAME OWNED/CHARTERED TYPE CAPACITY SERVICE
- ----------- --------------- ---- -------- -------
SAN JUAN JAX BRIDGE Chartered1 Ro/Ro 405 53' units Jax/San Juan
JAX SAN JUAN BRIDGE Chartered1 Ro/Ro 405 53' units Jax/San Juan
ATLANTA BRIDGE Owned2 TBC 265 53' units Jax/San Juan
CHARLOTTE BRIDGE Owned2 TBC 265 53' units Jax/San Juan
MEMPHIS BRIDGE Owned2 3 TBC 265 53' units Laid up
CHICAGO BRIDGE Owned2 3 TBC 265 53' units Laid up
BROOKLYN BRIDGE Owned2 3 TBC 265 53' units Laid up
1 Chartered until 2010 with Company options until 2018. 736' x 104' tripledeck
roll on/roll off barge.
2 Built by the Company between 1998 and 2000. 400' x 100' single deck barge.
3 Available for charter.
RAMP STRUCTURES
The loading and unloading of the Company's two 736' by 104' triple-deck
roll-on/roll-off barges is accomplished through the use of separate ramp
structures. The Company has the exclusive right to use a floating ramp structure
in San Juan under the charter agreement, with its affiliate Kadampanattu Corp.,
4
for the two 736' by 104' triple-deck roll-on/roll-off barges. In Jacksonville,
the Company has the preferential right to use a land-base ramp structure built
and owned by the Jacksonville Port Authority.
REVENUE EQUIPMENT
At December 31, 2001, the Company had 138 line haul tractors and 5 day
cabs. The line haul power units are conventional tractors. The day cabs are used
for local delivery work in Jacksonville.
The Company has designed and built units to transport automobiles on
its vessels. These units, designated by the Company as Vehicle Transport
Modules(R), or VTM's(TM), can hold up to three vehicles and provide an efficient
unit for loading and unloading. The Company built 303 of these units and has
applied for patent protection on the design of the units.
At December 31, 2001, the Company operated dry van trailers, 615 of
which were 48' x 102" models and 237 of which were 53' x 102" models. At
December 31, 2001, the Company operated 2,798 53' containers and 2,028 chassis.
At December 31, 2001, the Company operated 303 Vehicle Transport Modules. During
the fourth quarter of 2001 and the first quarter of 2002, the Company has sold
20 line haul tractors and off-hired 475 trailers.
The Company performs preventative maintenance on equipment at its
Jacksonville operations center, with major maintenance and repairs handled by
outside contractors. The Company had $1.2 million in capital expenditures in
2001 primarily involving the purchase of previously leased container equipment
in early 2001 and the purchase of trailers at the termination of long-term
leases.
DRIVER RECRUITING AND RETENTION
The Company offers competitive compensation and full health care
benefits differentiating it from many truckload operators. Management also
promotes driver retention by assigning drivers a tractor for the life of the
unit. Drivers are assigned a single dispatcher, regardless of geographic area,
awarding supporting line-haul operations positions, while providing more
predictable home time for its drivers. The Company believes its driver turnover
of 38% in 2001 is well below that typically reported by other truckload carriers
despite an industry-wide driver shortage and vigorous competition for drivers.
FUEL AVAILABILITY AND COST
The Company actively manages its fuel costs by requiring drivers to
fuel in Jacksonville at an offsite fuel facility where the Company has
established a bulk purchasing arrangement. Whenever possible in route, drivers
are required to fuel at truck stops and service centers with which the Company
has established volume purchasing arrangements. The Company offers
fuel-conservation bonuses to its drivers based on achieving miles per gallon
goals.
Although the Company pays for the marine fuel used by the large tugs it
charters, the actual fuel loading is controlled by tug crew personnel employed
by the tug owner. The fuel is purchased and loaded in each of the ports served
by the Company, primarily Jacksonville, Florida, at nearby fuel facilities
during cargo loading operations.
Trailer Bridge does not engage in any fuel hedging activities.
In 2001 due to the increased cost of fuel, the Company instituted fuel
surcharges to its customers, pursuant to its tariff. The fuel surcharges for
domestic truck movements are charged on a per mile basis
5
and are triggered through the Company's tariff at predetermined levels based
upon the price of fuel. At December 31, 2001 the price of fuel was below the
triggering price and therefore there was no fuel surcharge for domestic truck
movements. The fuel surcharges on movements to and from Puerto Rico are assessed
on a per move basis. The fuel surcharges are still in effect for Puerto Rico
moves and have substantially offset the increases in fuel prices. Neither fuel
surcharge is distinguished from freight revenues and both are reported in the
Company's revenues. This has the effect of increasing revenue rather than
offsetting fuel expense.
SAFETY AND INSURANCE
Trailer Bridge emphasizes safety in all aspects of its operations. The
Company maintains its own strict standards for recruiting drivers, including a
minimum of three years of verifiable commercial driving experience, a safe
driving history and a successful physical examination, including drug and
alcohol testing. Its ongoing driver safety program includes an initial
orientation for all new drivers, 100% log monitoring and strong adherence to all
speed and weight regulations.
The Company bids annually for both marine and land insurance policies.
Major coverages include hull and protection indemnity, pollution, excess
liability, marine cargo, truckers' liability, workers' compensation and
commercial property.
TECHNOLOGY
The Company utilizes an IBM AS-400 computer system to handle its
accounting and operations requirements. The computer system links Company
headquarters, the truck operations center, the San Juan office and the marine
terminals in Jacksonville and San Juan. The system enhances the Company's
operating efficiency by providing cost effective access to detailed information
concerning available equipment, loads, shipment status and specific customer
requirements, and permits the Company to respond promptly and accurately to
customer requests.
The Company's electronic data interchange ("EDI") capability allows
customers to tender loads, receive load confirmation, check load status and
receive billing information via computer. The Company's EDI system also is
designed to accelerate receivables collection. The Company's largest customers
require EDI service from their core carriers. Management believes that advanced
technology will be required by an increasing number of large shippers as they
reduce the number of carriers they use in favor of core carriers.
COMPETITION
The Company currently competes with four carriers for freight moving
between the U.S. and Puerto Rico where its market share during 2001 was
approximately 13%. The current operators in the Puerto Rico trade are Navieras
de Puerto Rico ("NPR"), CSX Lines, Inc., Crowley Liner Services, Trailer Bridge
and Sea Star Line. Based on available industry data for 2001, NPR has
approximately 27% of the market and operates three container vessels configured
to carry primarily 40' marine containers. CSX Lines, Inc., a subsidiary of CSX
Corporation, has approximately 22% of the market and operates four container
vessels that also carry mainly 40' containers. Crowley Liner Services, a
subsidiary of privately held Crowley Maritime Corporation, has approximately 27%
of the market and operates roll-on/roll-off barges in various services between
the U.S. and Puerto Rico. Sea Star Line, owned primarily by Matson Navigation
Company, Inc. and Saltchuk Resources, Inc., parent of Totem Ocean Trailer
Express, Inc. has approximately 11% of the market with two combination ro/ro
container vessels. NPR filed for Chapter 11 bankruptcy protection on March 21,
2001 but has continued to operate its scheduled services to Puerto
6
Rico. A reduction in capacity either by NPR or other competitors of the Company
would likely have a beneficial effect on the Company.
The competition in the trade lane served by the Company during 2001 was
continuous and severe, characterized by depressed freight rates and significant
over capacity. The contraction in freight rates was exacerbated by the operation
of NPR under bankruptcy protection. The depressed freight rates and over
capacity in the Northeast to Puerto Rico trade lane during 2001 prompted the
Company to discontinue service on that trade lane in December 2001.
Puerto Rico shippers select carriers based primarily upon price. To a
lesser extent, criteria such as frequency, transit time, consistency, billing
accuracy and claims experience are considered. The Company faces vigorous price
competition from competitors in the Puerto Rico market, two of which are part of
larger transportation organizations that possess greater financial resources
than the Company. While the Company believes it is one of the lower cost per
unit operators in the Puerto Rico traffic lane, it does not always offer the
lowest effective price as certain operators at times engage in a practice of
freight rate discounting.
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the market. The
Company's non-Puerto Rico domestic truckload operations, which are used
primarily to balance its core Puerto Rico service, compete with a number of
trucking companies as well as private truck fleets used by shippers to transport
their own products. Truckload carriers compete primarily on the basis of price.
The Company's truck freight service also competes to a limited extent with rail
and rail-truck intermodal service, but the Company attempts to limit this
competition by seeking more time and service-sensitive freight. There are other
trucking companies, including diversified carriers with larger fleets and
substantially greater financial resources than the Company.
REGULATION
As a common and contract motor carrier, the Company is regulated by the
Surface Transportation Board (the successor federal agency to the Interstate
Commerce Commission) and various state agencies. The Company's drivers,
including owner-operators, also must comply with the safety and fitness
regulations promulgated by the Department of Transportation, including those
relating to drug testing and hours of service.
The Company's operations are subject to various federal, state and
local environmental laws and regulations, implemented principally by the
Environmental Protection Agency and similar state regulatory agencies. These
regulations govern the management of hazardous wastes, discharge of pollutants
into the air, surface and underground waters, and the disposal of certain
substances. Management is not aware of any water or land fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current environmental laws and
regulations.
The Company's marine operations are conducted in the U.S. domestic
trade. A set of federal laws known as the Jones Act requires that only U.S.
built, owned and crewed vessels move freight between ports in the U.S.,
including the noncontiguous areas of Puerto Rico, Alaska, Hawaii and Guam. These
marine operations are subject to regulation by various federal agencies,
including the Surface Transportation Board, the U.S. Maritime Administration and
the U.S. Coast Guard. These regulatory authorities have broad powers governing
activities such as operational safety, tariff filings of freight rates, certain
mergers, contraband, environmental contamination and financial reporting.
Management believes that its operations are in material compliance with current
marine laws and regulations, but there can be no assurance that current
regulatory requirements will not change.
7
EMPLOYEES
At December 31, 2001, Trailer Bridge had 273 employees, 127 of which
were truck drivers. In January 2002, the Company implemented a reduction in
workforce that reduced the number of employees to 251, consisting of 128 truck
drivers and 123 executive and administrative personnel.
Item 2. Properties
Trailer Bridge is headquartered in Jacksonville, Florida, where it owns
a 16,000 square foot office building adjacent to its truck operations center.
This facility allows 75 Jacksonville personnel to be centralized in one
location. The office building has also been designed so that additions can be
constructed to serve the Company's future needs. The truck operations center
property consists of 17.8 acres near Interstate 95, approximately 2 miles from
the Company's marine terminal on Blount Island. In addition to the office
building, the property includes an 11,400 square foot tractor maintenance shop
where oil changes and light preventative maintenance are performed, a trailer
washing facility, drivers' lounge and parking space for tractors and trailers.
In 2000, the Company sold a contiguous parcel of undeveloped property consisting
of approximately 9.2 acres to Kadampanattu Corp. an affiliate of the Company.
The Company maintains small sales office facilities in North Carolina,
Illinois, Ohio and New Jersey that are utilized by sales personnel. The Company
also rents a 2,600 square foot office in San Juan where 13 Puerto Rico
administrative and sales personnel are based.
PORT FACILITIES
The Company utilizes port facilities in Jacksonville and San Juan where
its vessels are loaded and freight is stored awaiting further movement by either
vessel or truck. Trailer Bridge's terminal in Jacksonville is located on Blount
Island and consists of a berthing area and approximately 25 acres leased from
the Jacksonville Port Authority. The lease, which expires in 2013, allows the
Company to use the berthing area on a preferential, although non-exclusive,
basis and the land area on an exclusive basis. Included in the lease is a $3.6
million triple deck loading ramp funded by the Jacksonville Port Authority that
the Company uses to load and unload its triple-deck roll-on/roll-off barges. The
Company pays the Jacksonville Port Authority a monthly rental payment plus a
wharfage payment based upon total cargo volume with a minimum guarantee of
approximately $1.6 million per year. The Company's financial performance has
resulted in violation of the terms of the lease with the Jacksonville Port
Authority and the Company is currently renegotiating this lease. The Company
expects to retain the preferential berthing right and exclusive use of the land
area under such renegotiated lease. The Company's marine terminal in San Juan
consists of two berthing areas and 39 acres that the Company utilizes on a
preferential basis under a stevedoring services agreement with the contractor
who provides cargo-handling services. This agreement, which expires in 2006,
calls for the Company to make fixed payments as well as payments based upon
total cargo volume and the prevailing wharfage rates of the Puerto Rico Ports
Authority. The Company terminated its marine operations in Newark, New Jersey in
December 2001. The Company believes its present port facilities are sufficient
for its current operations.
Item 3. Legal Proceedings
The Company commenced an action against one of its competitors at the
Surface Transportation Board ("STB") in July 1999. The complaint alleges that
Sea Star Line, LLC, a competitor of the Company
8
in the Puerto Rico trade, is being operated in a manner constituting an unfair
practice under the ICC Termination Act, 49 U.S.C. Section 14701. The Company
reached a settlement in the company's favor this matter in March 2002 and will
be dismissing the case.
The Company commenced a joint action at the Federal Maritime Commission
("FMC") against the Puerto Rico Ports Authority ("PRPA") with Crowley Liner
Services, a competitor in the Puerto Rico trade, in January 2000. The complaint
alleged that the PRPA is improperly charging the Company dockage and wharfage
charges based upon a new tonnage measurement that effectively triples the
Company's tonnage from historical amounts. The parties to this proceeding have
reached a settlement agreement that will be presented to the FMC for approval.
The settlement agreement provides that the PRPA will not seek to charge the
Company dockage and wharfage charges based upon a new tonnage measurement but
instead will use the previous measurement plus twenty percent. The Company
believes this is in conformance with amount paid by its competitors for similar
services.
The Municipality of Guaynabo, Puerto Rico has obtained a judgment
against the Company for a tax deficiency for $280,000. The Company believes that
this amount is incorrect in a number of respects, including claims for certain
years that have been extinguished by the statute of limitations. Applicable case
law has found that the tax in question is violative of the Constitution of the
United States since it does not provide a mechanism for apportioning the tax
among different jurisdictions. The Company has appealed this decision. The
Company has expensed the amount of the judgment and posted a bond for the full
amount of the deficiency.
The Company has joined as a plaintiff in a lawsuit brought by other
tenants against the Jacksonville Port Authority seeking declaratory relief from
ad valorem taxes that Duval County, Florida seeks to assess against the
Jacksonville Port Authority which in turn seeks to collect from the Company as
one of its tenants. The plaintiffs in the action, including the Company contend
that the Jacksonville Port Authority is immune from the imposition of such taxes
because the Jacksonville Port Authority is in the nature of an agency of a
county and therefore immune from taxation under the Florida State Constitution.
The Jacksonville Port Authority has filed a counterclaim against the Plaintiffs,
including the Company, for breach of contract for failing to pay such tax
pursuant to leases with the Jacksonville Port Authority. The amount in
controversy totals $68,000 for the years 1998, 1999 and 2000, $35,000 was
expensed and paid in 2001 and the balance of $33,000 was accrued as Taxes and
License expense. For the year 2001 the Company accrued $35,000 as Taxes and
License expense. The Company intends to fully accrue for ad valorem and sales
taxes during the pendency of this action.
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims
related to personnel matters or for personal injury and property damage incurred
in the transportation of freight. The Company presently is a party to litigation
arising from former employees, vehicle accidents or cargo damage, and management
is not aware of any claims or threatened claims that reasonably would be
expected to exceed insurance limits or have a material adverse effect upon the
Company's operations or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 2001.
9
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock began trading on the Nasdaq National Market
tier of The Nasdaq Stock Market on July 29, 1997 under the symbol: TRBR.
The following table represents the high and low sales price for the
past two years.
2000 High Low
---- ---- ---
First Quarter 1.81 1.03
Second Quarter 3.87 .68
Third Quarter 3.50 1.43
Fourth Quarter 2.50 1.12
2001 High Low
---- ---- ---
First Quarter 2.97 1.31
Second Quarter 2.69 1.44
Third Quarter 2.20 1.51
Fourth Quarter 1.85 1.20
The Company has never paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. Certain of the Company's loan
documents prevent the payment of cash dividends under certain circumstances.
As of March 28, 2002 there were 50 stockholders of record in addition
to approximately 1,100 stockholders whose shares were held in nominee name. See
RISKS RELATED TO TRAILER BRIDGE, INC. - NASDAQ LISTING REQUIREMENTS below.
Item 6. Selected Financial Data
The selected financial data set forth below has been derived from the
financial statements of the Company. The selected financial information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere in this report.
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $ 66,389 $ 77,241 $ 88,552 $ 91,706 $ 81,568
Operating loss........................ (1,816) (3,046) (120) (4,392) (26,082)
Net loss (pro forma for
1997) (1)........................... (2,416) (2,516) (2,136) (10,342) (29,420)
Net loss (pro forma for
1997) per common share............... (.30) (.26) (.22) (1.06) (3.01)
BALANCE SHEET DATA:
Working capital (deficit)............. 13,980 3,963 613 3,159 (21,373)
Total assets.......................... 76,894 89,229 88,063 82,640 67,724
Long-term debt, capitalized leases
and due to affiliate(2)............. 37,335 44,056 47,101 52,473 61,153
Stockholders' equity (deficit)........... 33,860 31,344 29,208 18,866 (8,745)
10
______________
(1) Until the Company's initial public offering the Company operated as an
S Corporation under the Internal Revenue Code and the laws of the
states that recognize S Corporation status. As a result, the Company's
taxable earnings were taxed directly to the Company's then-existing
stockholders. Pro forma net income assumes that the Company was subject
to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods. See
Notes to the Financial Statements. Effective July 29, 1997, the Company
became subject to federal and state income taxes.
(2) Includes current maturities.
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
RESULTS OF OPERATIONS
Year ended December 31, 2001 Compared to Year ended December 31, 2000
Operating revenues decreased $10.1 million, or 11.1%, to $81.6 million
during 2001 from $91.7 million during 2000. This decrease was due to a $10.3
million or 12.2% decrease in total Puerto Rico revenue to $73.9 million due to
decreased volume and rate deterioration in the Puerto Rico market and a decrease
of $224,327 in non-Puerto Rico domestic revenue, partially offset by an increase
in fuel surcharges and other revenue of $199,412. Core trailer volume to Puerto
Rico decreased 1.4% in 2001 compared to 2000, and total car and other volume
decreased 22.7% compared to 2000. As a result, core trailer revenue to Puerto
Rico decreased 5.6% and car and other revenue decreased 26.6% compared to 2000.
Revenue from shipper owned or leased equipment moving to Puerto Rico decreased
37.0% from 2000. Revenue from northbound shipments from Puerto Rico decreased
7.0% from 2000. The overall market to Puerto Rico, particularly with regard to
the movement of used automobiles, not in trailers and shipper owned or leased
movements, was characterized by overcapacity and intense rate competition. The
Company's fuel surcharge of $3.4 million is included in the Company revenues for
2001 and increased from $2.9 million included in revenue in 2000.
The Company's overall volume to and from Puerto Rico decreased 10.1% in
2001, while related revenue decreased $9.3 million or 9.4% compared to 2000
implying, an overall yield reduction of 2.3%. Vessel capacity deployed on the
core continental U.S. to Puerto Rico traffic lane increased 8.1% during 2001
compared to 2000, due to the upgrade to weekly service from Newark, New Jersey
from the bi-weekly service offered in 2000. Effective in the end of the fourth
quarter of 2001 the Company discontinued this service. See further discussion
below. Vessel capacity utilization on the core continental U.S. to Puerto Rico
traffic lane was 67.9% during 2001, compared to 78.9% during 2000.
The market to and from Puerto Rico in 2001 was again characterized by
increasing competitive activity throughout the year. The excess vessel capacity
in the market was exacerbated by market volume reductions that resulted in
overall market volume of trailers and containers declining 1.4% in 2001 with the
largest decline in the northbound segment. The Company decreased its overall
market share of freight moving in trailers or containers in both directions to
13.3% in 2001 from 13.6% in 2000, with all of that decrease coming from reduced
share of market in the northbound segment. For 2001, the Company's market share
was 13.1% southbound and 14.1% northbound compared to 13.1% southbound and 15.3%
northbound in 2000. All of these market share figures are based on freight
moving in trailers and containers and exclude cars and other wheeled vehicles
moving southbound where the Company has a market share generally above 30%. The
highly competitive market conditions resulted in a 2.3%
11
reduction in yield. On March 21, 2001, the largest participant in the Puerto
Rico market, NPR/Navieras, which had a 29.4% market share in 2000, in
conjunction with its parent and affiliates, filed for Chapter 11 bankruptcy
protection in the Delaware Bankruptcy Court in Wilmington, Delaware. Despite the
bankruptcy filing NPR/Navieras continued to operate its regular service through-
out 2001 placing additional downward pressure on rates. Through March 31, 2002,
NPR/Navieras continues to operate its regular service.
At the end of the fourth quarter of 2001 the company discontinued its
weekly Northeast service between Newark, New Jersey and San Juan, Puerto Rico
and implemented other operational changes to improve its performance. These
changes primarily relate to concentrating the Company's mainland vessel
operations in Jacksonville and discontinuing direct vessel service from the
Northeast (Newark, NJ). Certain key customers that utilized the Northeast
sailing have transitioned cargo previously handled from the Northeast to the
Company's Jacksonville service. The direct Northeast sailing represented
approximately 28% of the Company's total vessel capacity, but was significantly
less in terms of actual volume and revenue. Of the three weekly sailings to
Puerto Rico operated by the Company during the first nine months of 2001, the
Northeast segment was the most under-utilized with southbound and northbound
capacity utilization of 51% and 8%, respectively, compared to 75% and 24%,
respectively, for the Company's Jacksonville sailings.
Operating expenses increased $11.6 million, or 12.0% from $96.0 million
in 2000 to $107.6 million for 2001. This increase was due to an increase in
salary, wages and benefits of $967,021 due to increases in healthcare expense
and workers compensation insurance; an increase in purchased transportation of
$518,962 primarily due to increased tug charter hire expense related to the
additional tug required for the weekly Newark service; an increase in operation
and maintenance of $3.2 million primarily due to the dry docking expense
associated with the two roll-on roll-off barges. The Company elected to fully
expense the cost of the dry-dockings in the first and second quarter of 2001
totaling $1.3 million rather than capitalize such expenses and amortize them
over the period between dry-dockings. While the Company believes that this
conservative treatment is the preferred method under SEC guidelines, it may not
be the prevailing industry standard used by other shipping companies, including
competitors of the Company. Operation and maintenance expense was also affected
by increased maintenance expense on Company owned trucks, partially offset by
less stevedoring expense due to lower volumes.
Operating expenses were further affected by asset impairments
consisting of $3.0 million in vessel related charges; write down of $721,181
goodwill of and $99,240 of revenue equipment charges. Operating expenses were
also impacted by restructuring charges for the Northeast Service shutdown of
$1.1 million, an increase in taxes and licenses of $625,175 due to increased
intangible tax on equipment and an accrual for the settlement of a sales tax
dispute in Puerto Rico; an increase in insurance and claims of $277,059
primarily due to increased premiums for Hull and Machinery and Personal Injury
insurance; an increase in other operating expenses of $1.4 million primarily the
result of an increase of $2.9 million in bad debt expense; partially offset by a
decrease of $419,309 in fuel expense due to reduced fuel prices. As a result,
the Company's operating ratio increased to 132.0% during 2001 from 104.8% during
2000.
Interest expense (net) decreased to $3.2 million in 2001 from $3.4
million in 2000 primarily due to lower interest rates on the Company's floating
rate indebtedness.
As a result of the factors described above the Company reported a net
loss of $29.4 million for 2001 compared to net loss of $10.3 million in 2000.
Known Trends During First Quarter of 2002.
12
As previously discussed, during the fourth quarter of 2001 the Company
discontinued its Northeast service. Additionally, the Company has off-hired or
sold excess tractor and trailer equipment and reduced headcount. The Company now
focuses all of its vessel capacity over Jacksonville, Florida, which has
significantly reduced its operating expenses. Preliminary monthly operating
results for 2002 indicate both increased volume and revenue compared to Company
expectations. In addition, those preliminary results indicate a reduction in
operating expenses in excess of the Company's initial estimate of such cost
reductions. As a result the Company expects first quarter 2002 results from
operations to be a significantly reduced loss as compared to both the first
quarter of 2001 and the fourth quarter of 2001.
Year ended December 31, 2000 Compared to Year ended December 31, 1999
Operating revenues increased $3.2 million, or 3.6%, to $91.7 million
during 2000 from $88.6 million during 1999. This increase was due to a $2.9
million or 3.4% increase in total Puerto Rico revenue to $87.0 million through
the utilization of additional capacity in the Puerto Rico market. Non-Puerto
Rico domestic revenue increased $349,717 or 9.7% compared to 1999. Core trailer
volume to Puerto Rico increased 14.1% in 2000 compared to 1999, and total car
and other volume decreased 6.7% compared to 1999. As a result, core trailer
revenue to Puerto Rico increased 9.6% and car and other revenue decreased 12.9%
compared to 1999. Revenue from shipper owned or leased equipment moving to
Puerto Rico decreased 27.9% from 1999. Revenue from northbound shipments from
Puerto Rico decreased 7.0% from 1999.
While overall volume to and from Puerto Rico increased 13.2% in 2000,
related revenue increased only $639,466 million or .8% compared to 1999,
implying an overall yield reduction of 11.0%. This significant yield
deterioration was the result of continuing rate pressure as the competitive
conditions in the U.S. to Puerto Rico traffic lane intensified. These intense
competitive conditions are the result of excess vessel capacity serving the
trade. The over capacity in the trade has been exacerbated by a 4.0% contraction
in volume in the overall market during 2000. Vessel capacity deployed on the
core continental U.S. to Puerto Rico traffic lane increased 20.9% during 2000
compared to 1999. Vessel capacity utilization on the core continental U.S. to
Puerto Rico traffic lane was 78.9% during 2000, compared to 83.3% during 1999.
The market to and from Puerto Rico in 2000 was characterized by
increasing competitive activity throughout the year. The excess vessel capacity
in the market was exacerbated by market volume reductions that resulted in
overall market volume declining 4.0% in 2000. While the Company increased its
overall market share of freight moving in trailers or containers to 13.6% in
2000 from 11.6% in 1999, the highly competitive market conditions resulted in an
11.0% reduction in yield. On March 21, 2001, the largest participant in the
Puerto Rico market, NPR/Navieras, which had a 29.0% market share in 2000, in
conjunction with its parent and affiliates, filed for Chapter 11 bankruptcy
protection in the Delaware Bankruptcy Court in Wilmington, Delaware.
At the beginning of the fourth quarter of 2000 a fourth Triplestack Box
Carrier was utilized to provide weekly service for the Northeast Service.
Operating expenses for 2000 increased $7.4 million or 8.3% from $88.7
million in 1999 to $96.0 million. This increase was due to an increase in
expenses associated with an overall 13.2% increase in Puerto Rico volume,
including the expansion of the Company's northeast service. The increase in
overall volume leads to additional variable costs associated with handling such
volume. The expansion of the Company's northeast service required the use of an
additional tug/barge unit with a concomitant increase in fuel and operating and
maintenance expenses. The combination of additional volume and an additional
tug/barge unit in operation resulted in a $4.3 million increase in operating and
maintenance expenses and a $4.5 million increase in fuel expense, partially
offset by a $2.9 million increase in fuel surcharges
13
included in revenue, and a $2.4 million reduction in other operating expenses.
All operating expenses were affected by the increase in volume and the addition
of an additional tug/barge unit in service to expand the Company's northeast
service. As a result, the Company's operating ratio increased to 104.8% during
2000 from 100.1% during 1999.
Interest expense (net) increased to $3.4 million in 2000 from $3.3
million in 1999.
The Company has recorded various deferred tax assets in prior years.
Realization is dependent on generating sufficient taxable income in future
years. As a result of the net losses incurred in recent years, a 100% valuation
allowance has been established based on the provisions of SFAS No. 109. The
establishment of this reserve resulted in income tax expense in 2000 of $3.1
million compared to an income tax benefit of $1.2 million in 1999.
To provide the Company with additional liquidity, during 2000, the
Company sold an affiliate a piece of land for $750,000. A gain of $336,818 was
recognized on this transaction.
During the year ended December 31, 2000, the Company changed its method
of accounting for periodic vessel dry-docking. Prior to the change, the Company
accrued estimates of future vessel dry docking costs. The Company now will
expense these costs as incurred. This change resulted in a gain of $127,100, net
of income taxes of $77,900 for the year ended December 31, 2000.
As a result of the factors described above the Company reported a net
loss of $10.3 million for 2000 compared to net loss of $2.1 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $11.0 million in 2001 compared to net
cash used by operations of $3.4 million in 2000. This represented a
deterioration of $7.6 million from 2000. Net cash provided by investing
activities of $341,465 in 2001 reflects $1.2 million in proceeds from the sale
of older trailer equipment, partially offset by $810,830 of capital
expenditures, which were primarily attributable to payments for additional
containers and chassis. Net cash provided from financing activities was $10.3
million compared to $5.0 million in 2000 representing an increase of $5.3
million. Net cash provided from financing activities of $10.3 million consisted
of $12.3 million in notes payable to an affiliate, consisting of $6.8 million in
cash advances and $5.5 million in deferred charterhire, borrowings of $700,580
on notes payable under the Company's borrowing facility, partially offset by
payments of $2.6 million on notes payable.
At December 31, 2001, cash amounted to $441,320, working capital was a
negative $21.4 million, including $15.6 million of the Company's borrowings that
are subject to acceleration and therefore shown as current liabilities, and
stockholders' equity was a negative $8.7 million.
Due to the Company's financial performance in 2001, it is currently in
default under financial and other covenants contained in its credit agreement
with its senior lender. While the senior lender continues to fund draws under
the Company's revolving line of credit and the Company is in discussions with
the senior lender regarding the revolving line of credit, no assurance can be
made that the lender will continue to do so. The Company depends on its secured
revolving line of credit to maintain its liquidity, therefore continued access
to the revolving line of credit is critical to the Company's cash flow needs and
denial of access to such funds would have a material adverse effect on the
Company's ability to operate and its financial condition by denying the Company
necessary liquidity to fund its operations.
As of December 31, 2001, the Company had $6.0 million drawn under the
credit facility against a borrowing base of $6.9 million that is secured by net
receivables of $10.5 million. Additionally, a default
14
to the Company's senior lender would result in cross-defaults in other loan
and/or lease documents that could result in acceleration of such debts or return
of leased assets. See RISKS RELATED TO TRAILER BRIDGE, INC. - COVENANT DEFAULTS
UNDER CERTAIN LOAN AGREEMENTS below.
Due to the Company's financial performance during 2001 and the
resulting lack of liquidity the Company is beyond its historical payment terms
with many of its vendors and lessors. See RISKS RELATED TO TRAILER BRIDGE, INC.
- - VENDOR RELATIONSHIPS below.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required, and
ultimately to attain successful operations. The Company's projected cash flows
from operations combined with continued funding of its revolving credit line,
maintenance of its vendor relationships and liquidity assistance from certain of
its affiliates are all necessary to produce sufficient available liquidity to
maintain its current level of operations through calendar 2002. Such projections
include certain agreements with affiliates of the Company to assist the Company
in meeting its 2002 cash flow requirements. Additionally, the Company intends to
seek certain principal deferrals by the Company's lenders. No assurance can be
made that the Company will be able to obtain such agreements with its affiliates
or with its lenders. Therefore, there is substantial doubt as to the Company's
ability to continue as a going concern. See RISKS RELATED TO TRAILER BRIDGE,
INC. - ASSISTANCE FROM AFFILIATES below.
INFLATION
Inflation has had a minimal effect upon the Company's profitability in
recent years. Most of the Company's operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operation. The Company
expects that inflation will affect its costs no more than it affects those of
other truckload and marine carriers.
SEASONALITY
The Company's marine operations are subject to the seasonality of the
Puerto Rico freight market where shipments are generally reduced during the
first calendar quarter and increased during the fourth calendar quarter of each
year in anticipation of Christmas. This seasonality was not as pronounced in
2001 and 2000 as it had been in previous years.
At the end of the fourth quarter of 2001, the Company began
implementing the termination of the weekly Northeast Service. The non-recurring
operating expenses associated with such termination was $1.1 million and is
included in restructuring expenses. For the three months ending December 31,
2001, operating revenues decreased $4.2 million or 18.1% from $23.5 million in
2000 to $19.2 million in 2001 as a result of decreased volume and lower rates.
Total operating expenses for the three months ended December 31, 2001, increased
$3.2 million to $31.8 million in 2001 from $28.6 million in 2000. Salary, wages
and benefits decreased $259,191 as a result of reduced temporary labor, less
overtime and less driver accessorial pay; purchased transportation decreased
$1.6 million as a result of lower volume and improved utilization of Company
owned trucks; fuel decreased $1.2 million as a result of lower fuel prices and
less consumption; taxes and licenses increased significantly from $120,793 in
2000 to $507,629 in 2001 as a result of increased property taxes on owned and
leased equipment and an accrual for a tax settlement in Puerto Rico; asset
impairments charges of $3.8 million recorded in 2001 due to a $3.0 write down of
certain vessels based upon independent appraisals, a $721,181 write down of
goodwill, and a $99,240 write down of damaged revenue equipment.
15
The Company's overall volume to and from Puerto Rico for the fourth
quarter of 2001 decreased 15.8%, and related revenue decreased $4.2 million or
17.8% compared to the fourth quarter of 2000, implying an overall yield
reduction of 2.5%. Vessel capacity deployed on the core continental U.S. to
Puerto Rico traffic lane was 66.1% during 2001, compared to 79.5% during 2000.
For the three months ended December 31, 2001 the Company's net loss was
$13.3 compared to the same period in 2000 when the Company had a net loss of
$9.6 million, including a non-recurring 100% valuation allowance for its
deferred tax asset totaling $5.9 million.
The following table sets forth certain unaudited financial information
for the Company for each of the last eight quarters (in thousands except per
share amounts):
2000 2001
---- ----
By Quarter
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
Operating revenues........... $21,333 $23,765 $23,152 $23,456 $20,637 $21,659 $20,052 $19,220
Operating (loss) income...... (903) 1,303 340 (5,132) (4,532) (4,132) (4,851) (12,566)
Net (loss) income........... (1,151) 628 (210) (9,608) (5,374) (5,161) (5,598) (13,286)
This 10-K contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The matters discussed in this Report include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to the future operating performance of the Company.
Investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. Without limitation, these risks and
uncertainties include the risks of the Company maintaining or securing
sufficient liquidity to operate its business, continued support of its lenders,
vendors and employees, economic recessions, severe weather, changes in demand
for transportation services offered by the Company, and changes in rate levels
for transportation services offered by the Company.
RISKS RELATED TO TRAILER BRIDGE, INC.
COMPANY LIQUIDITY
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required, and
ultimately to attain successful operations. The Company's projected cash flows
from operations combined with continued funding of its revolving credit line,
maintenance of its vendor relationships and liquidity assistance from certain of
its affiliates are all necessary to produce sufficient available liquidity to
maintain its current level of operations through calendar 2002. Such projections
include certain agreements with affiliates of the Company to assist the Company
in meeting its 2002 cash flow requirements. Additionally, the Company intends to
seek certain principal deferrals by the Company's lenders. No assurance can be
made that the Company will be able to obtain such agreements with its affiliates
or with its lenders. Therefore, there is substantial doubt as to the Company's
ability to continue as a going concern.
16
COVENANT DEFAULTS UNDER CERTAIN LOAN AGREEMENTS.
The operating performance of the Company has resulted in a number of
covenant defaults under certain of the Company's loan agreements. The Company is
current on all principal and interest payments to its lenders but the violation
of the financial covenants, unless waived by the lenders, can result in
acceleration of all amounts outstanding. In such an event the Company would be
unable to pay all amounts outstanding without additional financing and no
assurance can be given that the Company could secure such refinancing. Therefore
acceleration by any of the Company's lenders could have a material adverse
effect on the Company's business and operation as well as the price of the
Company's stock.
The Company's primary sources of working capital are cash flows from
operations and borrowings under its revolving credit facility. There were $6.0
million in borrowings outstanding under our $15 million revolving credit
facility December 31, 2001. This was effectively all that was available under
the credit facility's borrowing base. The Company has consistently borrowed all
that was available under the credit facility's borrowing base since the
inception of the credit facility and continues to do so on a weekly or daily
basis. Due to the performance of the Company, the Company is in violation of
both its financial covenants under the revolving credit facility and the related
term loan, under which $10.7 million was outstanding at December 31, 2001. The
Company is in violation of both the Fixed Charge Coverage Ratio and the Minimum
Tangible Net Worth covenant. The Company continues to work with the lender to
obtain waivers of past defaults and in setting of new covenants that the Company
can comply with and the lender continues to advance funds under the revolving
credit facility despite the covenant violations described above. No assurance
can be made that such negotiations will be successful and that such advances
will continue to be made. Refusal of the lender to honor advance requests of the
Company would have a material adverse affect on the Company's business and
threaten the Company's ability to continue operations.
ASSISTANCE FROM AFFILIATES
The Company has engaged and continues to engage in transactions with
two affiliates - Kadampanattu Corp. and the Estate of Malcom P. McLean. Since
inception, the Company has chartered its two ro/ro vessels from Kadampanattu
Corp. under long term charters at a fixed daily price. At various times during
the Company's existence the Company has borrowed funds from Kadampanattu Corp.
on an unsecured basis, deferred charterhire or forgiven charterhire. For the
year ended December 31, 2001, the Company accrued $5.5 million in charterhire
net of the forgiveness of charterhire of $1.8 million in the first quarter of
2001 related to expenses incurred due to the required periodic drydocking of
both ro/ro vessels. During 2001, Kadampanattu Corp. deferred $5.5 million of
charterhire and advanced $6.8 million in unsecured loans to the Company. During
the first quarter of 2002, the Company accrued $1.8 million of charterhire due
to Kadampanattu Corp. and made cash payments of $1.1 million and deferred
$700,000.
At December 31, 2001, the outstanding payable amount to Kadampanattu
Corp. was $18.8 million all of which was subordinated to the rights of the
Company's lender under the revolving credit facility and related term loan and
cannot be repaid until that facility is paid in full. However, such payable
amount to Kadampanattu Corp. is due by its terms at January 1, 2003, and unless
rescheduled or refinanced the Company would be unable to pay such amounts. The
Company does not anticipate any unsecured borrowings or charter hire forgiveness
from Kadampanattu Corp. through the remainder of calendar 2002 but may utilize
deferrals similar to that granted in the first quarter of 2002. No assurances
can be made that Kadampanattu Corp. or any successor to Kadampanattu Corp. will
agree to the any deferrals beyond 2002.
During the first quarter of 2002, the Company entered in to a Loan and
Security Agreement with the Estate of M. P. McLean under which the Company
borrowed $3.0 million to be repaid in two years.
17
The loan was secured primarily by unencumbered trailer equipment. The Estate of
M. P. McLean owns approximately 54% of the outstanding shares of the Company's
stock. In addition, it owns 100% of the common stock of Kadampanattu Corp.
John D. McCown, Chairman and Chief Executive Officer of the Company, is a co-
executor of the Estate of M. P. McLean. No assurance can be made that the Estate
of M. P. McLean will provide additional support to the Company.
During the first quarter of 2002, all officers of the Company entered
into a voluntary salary reduction agreement with the Company whereby each pay
period such officer's salary is reduced by 5% and treated as a loan to the
Company. The CEO of the Company has agreed to a 50% reduction. Such amounts are
to be repaid no later than December 20, 2002.
VENDOR RELATIONSHIPS
Due to the Company's financial performance during 2001 and the
resulting lack of liquidity the Company is currently beyond its historical
payment terms with many of its vendors and lessors. The Company expects to make
continuing progress through the calendar year 2002. The loss of certain of these
vendors would have a detrimental effect on the ability of the Company to conduct
its operations.
NASDAQ LISTING REQUIREMENTS
Due to the Company's financial performance during 2001 and its current
per share market price the Company is not in compliance with either of NASDAQ's
maintenance standards necessary for continued listing on the NASDAQ National
Market. The Company has been notified by NASDAQ that if it cannot demonstrate
compliance with either of the maintenance standards by May 15, 2002 its staff
will provide written notification that the Company's common stock will be
delisted from the NASDAQ National Market. Upon such notification the Company
could appeal such determination to the Listing Qualification Panel.
Prior to May 15, 2002, the Company will work with NASDAQ to attain
compliance or take additional necessary steps to move toward compliance.
Alternatively, the Company could apply for listing on the NASDAQ SmallCap Market
and if in compliance with its standards, continue trading on that market. No
assurance can be given that the Company will be successful in either remaining
on the NASDAQ National Market or transferring to the NASDAQ SmallCap Market.
Failure to trade on either of those exchanges could result in adverse
consequences to the Company and its shareholders, including but not limited to,
reduced stock price and trading activity.
MARKET CONDITIONS.
The market in which the Company operates, the United States to Puerto
Rico trade lane, remains hyper-competitive with significant over capacity.
Beginning in 2002, the Company reduced its capacity by ceasing to operate its
Northeast Service. The Company's competitors have not reduced their capacity.
One of the Company's competitors, NPR, has been under Chapter 11 bankruptcy
protection since March 2001 and continues to operate its normal schedule of
three sailings per week. Published reports indicate that CSX Lines, another of
the Company's competitors, is actively being offered for sale. The over capacity
in the Puerto Rico trade results in lower vessel utilization and lower freight
rates. No assurance can be made that market conditions will improve or that
competitive pressures will not increase.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES.
The preparation of financial statements in conformity with accounting
generally accepted in the United states of America principles requires the
appropriate application of certain accounting policies,
18
many of which require us to make estimates and assumptions about future events
and their impact on amounts reported in our financial statements and related
notes. Since future events and their impact cannot be determined with certainty,
the actual results will inevitably differ from our estimates. Such differences
could be material to the financial statements.
We believe application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting policies and
estimates are constantly reevaluated, and adjustments are made when facts and
circumstances dictate a change. Historically, we have found our application of
accounting policies to be appropriate, and actual results have not differed
materially from those determined using necessary estimates.
Our accounting policies are more fully described in Note 1 to the
financial statements. We have identified certain critical accounting policies
which are described below.
Revenue Recognition. Revenue is recognized on a percentage of
completion basis.
Long-lived assets. In evaluating the fair value and future benefits of
long-lived asset, we perform an analysis of the anticipated undiscounted future
net cash flows of the related long-lived assets. Due to the continued operating
losses independent appraisals were used to determine the appropriateness of the
carrying values.
Derivative Financial Instrument. The Company has entered into an
interest rate swap for interest rate risk exposure management that is accounted
for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS No. 138, an amendment to SFAS No. 133. SFAS No. 133 and
SFAS No. 138 are collectively referred to herein as "SFAS No. 133". The
accounting for hedge effectiveness measured at least quarterly based on the
relative change in fair value between the derivative contract and the hedged
item over time. Any change in fair value resulting from ineffectiveness, as
defined by SFAS No. 133, is recognized immediately into earnings. The Company's
interest rate swap does not qualify as an effective fair value hedge, therefore
the ineffective portion of the hedged transaction has been recognized into
earnings.
The differential to be paid or received under these agreements is
accrued consistently with the terms of the agreement and is recognized in
interest expense over the term of the related debt.
Income taxes. Generally accepted accounting principles require that we
record a valuation allowance against the deferred tax asset associated with this
NOL if it is "more likely than not" that we will not be able to utilize it to
offset future taxes. Due to the size of the Company's net operating loss
carryforward in relation to our history of unprofitable operations, we have not
recognized any of this net deferred tax asset. We currently provide for income
taxes only to the extent that we expect to pay cash taxes (primarily state taxes
and the federal alternative minimum tax) for current income.
It is possible, however, that we could be profitable in the future at
levels which cause management to conclude that it is more likely than not that
we will realize all or a portion of the NOL carryforward. Upon reaching such a
conclusion, we would immediately record the estimated net realizable value of
the deferred tax asset at that time and would then provide for income taxes at a
rate equal to our combined federal and state effective rates, which would
approximate 38% under current tax rates. Subsequent revisions to the estimated
net realizable value of the deferred tax asset could cause our provision for
income taxes to vary significantly from period to period, although our cash tax
payments would remain unaffected until the benefit of the NOL is utilized.
New Accounting Pronouncments. In 2001, SFAS No. 142, Goodwill and Other
Intangible Assets, was issued. Under the provisions of Statement 142, goodwill
and other indefinite lived intangible assets are no
19
longer amortized but are reviewed for impairment on a periodic basis. The
company will adopt this standard in the first quarter of 2002. Its indefinite
lived intangible assets relate to costs to obtain a trademark on the Vehicle
Modular Transport "VTM". The company believes there to be no material effect as
a result of SFAS 142.
The above listing is not intended to be a comprehensive list of all of
our accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgement in their application. There
are also areas in which management's judgement in selecting any available
alternative would not produce a materially different result. See our audited
consolidated financial statements and notes thereto which begin on page F-1 of
this Annual Report on Form 10-K which contain accounting policies and other
disclosures required by generally accepted accounting principles.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates.
For its debt instruments, a change in interest rates affects the amount of
interest expense incurred.
The Company entered into an interest rate contract to manage its
exposure to changes in interest rates and to make fixed the overall cost of one
of its variable rate financings. The contract is carried at fair value and
changes in the fair value are recognized in earnings.
The contract/notional amount and estimated fair value of the Company's financial
instrument as of December 31, 2001 and 2000 are as follows:
2001 2000
----------------------------------- ------------------------------------
Contact/Notional Fair Contact/Notional Fair
Amount Value Amount Value
----------------- ---------------- ------------------- ---------------
Interest rate swap agreement $ 812,000 $ (35,592) $ 980,000 $ (5,127)
This contract expires in October 2006.
The following tables summarize the Company's debt obligations at
December 31, 2001 and 2000, presenting principal cash flows and related interest
rates by expected fiscal year of maturity. Variable interest rates represent the
weighted-average rates of the portfolio at December 31, 2001 and 2000. The
Company estimates that the carrying value of its debt instruments is not
materially different from its fair value.
20
Expected Fiscal Year of Maturity at December 31, 2001
(Dollars in thousands)
2002 2003 2004 2005 2006 Thereafter
----------------------------------------------------------------------------
Fixed Rate $ 1,097 1,646 1,097 1,097 1,097 17,896
Average Interest Rate 6.7% 6.7% 6.7% 6.7% 6.7% 6.7%
Variable Rate $ 17,550 -
Average Interest Rate 5.5% -
Expected Fiscal Year of Maturity at December 31, 2000
(Dollars in thousands)
2001 2002 2003 2004 2005 Thereafter
----------------------------------------------------------------------------
Fixed Rate $ 1,723 1,097 1,097 1,097 1,097 18,893
Average Interest Rate 8.0% 6.8% 6.8% 6.8% 6.8% 6.8%
Variable Rate $ 1,454 1,882 1,882 12,715 168 140
Average Interest Rate 9.1% 9.1% 9.1% 9.3% 8.0% 8.0%
Item 8. Financial Statements and Supplementary Data
TRAILER BRIDGE, INC.
Financial Statements for the Three Years in the Period Ended
December 31, 2001 and Independent Auditors' Report
* * * * * *
21
TRAILER BRIDGE, INC.
Financial Statements for the Three Years
in the Period Ended December 31, 2001
and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Trailer Bridge, Inc.
Jacksonville, Florida
We have audited the accompanying balance sheets of Trailer Bridge, Inc. (the
"Company") as of December 31, 2001 and 2000, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Trailer Bridge, Inc. as of December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company's recurring losses from operations, difficulty
in generating sufficient cash flow to meet its obligations and sustain its
operations and stockholders' deficit raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for periodic vessel dry-docking in 2000.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
March 29, 2002
TRAILER BRIDGE, INC.
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 441,320 $ 865,167
Marketable securities 61,403
Trade receivables, less allowance for doubtful
accounts of $1,118,083 and $1,713,825 10,547,863 15,083,235
Other receivables 34,272 104,271
Due from affiliate 2,007
Prepaid expenses 1,258,125 1,673,117
Assets held for sale 305,873
-------------
Total current assets 12,648,856 17,727,797
PROPERTY AND EQUIPMENT, net 53,616,664 62,572,147
GOODWILL, less accumulated amortization
of $404,880 in 2000 764,062
OTHER ASSETS 1,458,225 1,576,059
---------- ------------
TOTAL ASSETS $ 67,723,745 $ 82,640,065
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,622,215 $ 7,494,174
Accrued liabilities 4,824,789 3,514,657
Current portion of long-term debt 18,742,140 3,266,755
Unearned revenue 832,898 292,795
------------- ------------
Total current liabilities 34,022,042 14,568,381
DUE TO RELATED PARTIES 19,577,513 9,038,075
LONG-TERM DEBT, less current portion 22,833,420 40,167,855
DERIVATIVE FINANCIAL INSTRUMENT 35,952
------------- ------------
TOTAL LIABILITIES 76,468,927 63,774,311
------------- ------------
COMMITMENTS (Notes 4, 6 and 11)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 20,000,000 authorized
shares; 9,777,500 shares outstanding 97,775 97,775
Additional paid-in capital 39,791,818 37,982,818
Accumulated deficit (48,634,775) (19,214,839)
------------- ------------
Total stockholders' (deficit) equity (8,745,182) 18,865,754
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY $ 67,723,745 $ 82,640,065
============= ============
See notes to financial statements.
-2-
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
OPERATING REVENUES $ 81,567,732 $ 91,706,164 $ 88,552,088
OPERATING EXPENSES:
Salaries, wages, and benefits 17,615,602 16,648,581 16,222,059
Rent and purchased transportation:
Related party 7,336,500 7,356,600 7,336,500
Other 27,006,429 26,487,467 26,148,311
Fuel 10,751,623 11,157,500 6,659,189
Operating and maintenance (exclusive of
depreciation shown separately below) 24,702,099 21,503,909 17,230,798
Taxes and licenses 1,122,191 497,016 596,241
Insurance and claims 2,650,245 2,373,186 1,962,541
Communications and utilities 677,243 662,026 820,735
Depreciation and amortization 4,928,489 4,840,965 4,731,153
Other operating expenses 5,984,223 4,570,616 6,964,911
Asset impairments 3,820,421
Restructuring expenses (Note 2) 1,054,410
-------------
107,649,475 96,097,866 88,672,438
------------- -------------- -------------
OPERATING LOSS (26,081,743) (4,391,702) (120,350)
NONOPERATING INCOME (EXPENSE):
Interest expense, net (3,225,079) (3,357,936) (3,339,382)
(Loss) gain on sale of equipment, net:
Related party 336,818
Other (160,692) 93,398 81,499
Other, net 25,449
-------------
(3,360,322) (2,927,720) (3,257,883)
------------- -------------- -------------
LOSS BEFORE BENEFIT (EXPENSE) FOR INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (29,442,065) (7,319,422) (3,378,233)
INCOME TAX BENEFIT (EXPENSE) 22,129 (3,149,432) 1,241,814
------------- --------------- -------------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (29,419,936) (10,468,854) (2,136,419)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF TAX OF $77,900 (Note 1) 127,100
------------- --------------
NET LOSS $ (29,419,936) $ (10,341,754) $ (2,136,419)
============= ============== =============
LOSS PER COMMON SHARE (BASIC AND DILUTED):
Loss before cumulative effect of accounting change $ (3.01) $ (1.07) $ (0.22)
Cumulative effect of accounting change 0.01
------------- -------------- -------------
Net loss per common share $ (3.01) $ (1.06) $ (0.22)
============= ============== =============
See notes to financial statements.
-3-
TRAILER BRIDGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
Retained
Additional Earnings
Common Stock Paid-in (Accumulated
Shares Amount Capital Deficit) Total
---------------- ---------------- ------------------- -------------------- -------------------
BALANCE, JANUARY 1, 1999 9,777,500 $ 97,775 $ 37,982,818 $ (6,736,666) $ 31,343,927
Net loss (2,136,419) (2,136,419)
---------------- ---------------- ------------------- -------------------- -------------------
BALANCE, DECEMBER 31, 1999 9,777,500 97,775 37,982,818 (8,873,085) 29,207,508
Net loss (10,341,754) (10,341,754)
---------------- ---------------- ------------------- -------------------- -------------------
BALANCE, DECEMBER 31, 2000 9,777,500 97,775 37,982,818 (19,214,839) 18,865,754
Capital contribution from charter
hire relief (Note 4) 1,809,000 1,809,000
Net loss (29,419,936) (29,419,936)
---------------- ---------------- ------------------- -------------------- -------------------
BALANCE, DECEMBER 31, 2001 9,777,500 $ 97,775 $ 39,791,818 $ (48,634,775) $ (8,745,182)
---------------- ---------------- ------------------- -------------------- -------------------
See notes to financial statements.
-4-
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
OPERATING ACTIVITIES:
Net loss $ (29,419,936) $ (10,341,754) $ (2,136,419)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,928,489 4,840,965 4,731,153
Asset impairment 3,820,421
Provision for uncollectible accounts 4,737,308 1,805,130 2,001,439
Loss (gain) on sale of equipment 160,692 (430,216) (81,499)
Loss on derivative instruments 35,952
Deferred income taxes 3,227,332 (1,241,814)
Stock received in demutualization of
insurance carrier (61,403)
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables (201,936) (4,353,227) (1,045,126)
Other receivables 69,999 (27,773) 1,300,078
Due from affiliate 2,007 2,748,193 (2,198,066)
Prepaid expenses 414,992 (470,674) (361,556)
Other assets 117,834 41,184 81,258
Increase (decrease) in:
Accounts payable 2,128,041 33,404 119,629
Accrued liabilities 1,690,682 (279,228) (2,223,223)
Unearned revenue 540,103 (206,711) 28,822
------------ ------------ -------------
Net cash used in operating activities (11,036,755) (3,413,375) (1,025,324)
------------ ------------ -------------
INVESTING ACTIVITIES:
Purchases and construction of property and equipment (810,830) (5,648,398) (6,548,900)
Proceeds from the sale of equipment 1,152,295 1,799,205 1,039,370
Decrease in restricted cash and investments 691,419 499,499
------------ -------------
Net cash provided by (used in) investing
activities 341,465 (3,157,774) (5,010,031)
------------ ------------ -------------
FINANCING ACTIVITIES:
Proceeds from borrowings on notes payables 12,000,000
Net borrowings (repayments) on revolving line
of credit 700,580 (10,288,713) 7,000,000
Payments on notes payable (2,626,640) (5,294,636) (4,008,880)
Proceeds from borrowings from affiliate 12,348,438 9,038,075
Debt issue costs (381,150)
Payments on capital lease obligations (150,935) (83,010) (72,011)
------------ ------------ -------------
Net cash provided by financing activities 10,271,443 4,990,566 2,919,109
------------ ------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (423,847) (1,580,583) (3,116,246)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 865,167 2,445,750 5,561,996
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 441,320 $ 865,167 $ 2,445,750
============ ============ =============
SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for state income taxes $ 3,275 $ 11,055 $ 25,673
============ ============ =============
Cash paid for interest, net of amount capitalized $ 2,374,819 $ 4,097,954 $ 2,982,349
============ ============ =============
Equipment acquired under capital lease agreements $ 217,945 $ 125,631
============ =============
Capital contribution from related party debt
forgiveness $ 1,809,000
============
See notes to financial statements.
-5-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Trailer Bridge, Inc. (the "Company") is a domestic trucking
and marine transportation company with contract and common carrier
authority. Highway transportation services are offered in the continental
United States, while marine transportation is offered primarily between
Newark, New Jersey, Jacksonville, Florida and San Juan, Puerto Rico.
Cash and Cash Equivalents - The Company considers cash on hand and amounts
on deposit with financial institutions with original maturities of three
months or less to be cash equivalents.
Marketable Securities - The Company classifies its marketable securities,
as trading securities as they are expected to be sold in the near term.
The securities consist of equity securities, which are stated at fair
value, with net unrealized gains or losses on the securities recorded in
operations. Quoted market prices are used to determine the fair value of
trading securities.
Allowance for Doubtful Accounts - The Company provides an allowance for
doubtful accounts on trade receivables based upon estimated collectibility
and collection experience.
Property and Equipment - Property and equipment are stated at cost and the
capitalized interest costs associated with significant capital additions
less accumulated depreciation. Property and equipment are depreciated on a
straight-line method based on the following estimated useful lives:
Years
Buildings and structures 40
Office furniture and equipment 6-10
Freight equipment 4-25
Leasehold improvements 2-5
Equipment under capital leases 5
Tires on revenue equipment purchased are capitalized as part of the
equipment cost and depreciated over the life of the vehicle. Replacement
tires are expensed when placed in service.
Leasehold improvements and equipment under capital leases are amortized
over the lesser of the estimated lives of the asset or the lease terms.
Maintenance and repairs which do not materially extend useful life and
minor replacements are charged to earnings as incurred.
The Company periodically reviews property and equipment for potential
impairment. If this review indicates that the carrying amount of these
assets may not be recoverable, the Company estimates the future cash flows
expected with regards to the asset and its eventual disposition. If the
sum of these future cash flows (undiscounted and without interest charges)
is less than the carrying amounts of the assets, the Company records an
impairment loss based on the fair value of the asset.
Goodwill - The Company has historically amortized goodwill using the
straight-line method over twenty-five years, and periodically reviews
goodwill for potential impairment. In 2001, the Company determined that
goodwill was impaired and recorded an impairment loss of approximately
$721,000, representing the remaining carrying value of goodwill.
-6-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
Other Assets - Other assets consist mainly of debt issuance costs which
are amortized on a straight-line basis over the life of the associated
debt.
Insurance - The Company is self-insured for employee medical coverage
above deductible amounts. Reinsurance is obtained to cover losses in
excess of certain limits. Provisions for losses are determined on the
basis of claims reported and an estimate of claims incurred but not
reported.
Derivative Instrument - The Company uses an interest rate swap agreement
to manage its exposure to changes in interest rates and to make fixed the
overall cost of one of its variable rate financings. In accordance with
Statement of Financial Accounting Standard ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 138,
derivatives are carried at fair value and the changes in the fair value of
the derivative are recognized in earnings.
Revenue Recognition - Common carrier operations revenue is recorded on the
percentage-of-completion basis and direct costs are expensed as incurred.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. Valuation allowances are provided
against deferred tax assets for amounts that are considered "more likely
than not" to be realized.
Earnings Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution of securities that could share in the earnings.
Stock-Based Compensation - In accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation", ("SFAS No. 123") the Company has elected to
continue to account for its employee stock compensation plans under APB
Opinion No. 25 with pro forma disclosures of net earnings and earnings per
share, as if the fair value based method of accounting defined in SFAS No.
123 had been applied. Under the intrinsic value based method, compensation
cost is the excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee must pay
to acquire the stock. Under the fair value based method, compensation cost
is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
New Accounting Standards - In July of 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and
Other Intangible Assets". SFAS No. 141 establishes accounting and
reporting standards for business combinations. This Statement eliminates
the use of the pooling-of-interests method of accounting for business
combinations, requiring future business combinations to be
-7-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
accounted for using the purchase method of accounting. The provisions of
this Statement apply to all business combinations initiated after June 30,
2001. This Statement also applies to all business combinations accounted
for using the purchase method of accounting for which the date of
acquisition is July 1, 2001 or later. The Statement will not have an
impact on the Company's financial position and results of operations.
SFAS No. 142 establishes accounting and reporting standards for goodwill
and other intangible assets. With the adoption of this Statement, goodwill
is no longer subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value based test. SFAS No. 142 is required
to be adopted for fiscal years beginning after December 15, 2001. As the
Company currently has no goodwill, the adoption of the Statement will not
have an impact on the Company's financial position and results of
operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred and requires that the amount recorded as a liability
be capitalized by increasing the carrying amount of the related long-lived
assets. Subsequent to initial measurement, the liability is accreted to
the ultimate amount anticipated to be paid, and is also adjusted for
revisions to the timing or amount of estimated cash flows. The capitalized
cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143
is required to be adopted for fiscal years beginning after June 15, 2002,
with earlier application encouraged. The Company is currently assessing,
but has not yet determined the impact, of SFAS No. 143 on its financial
position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement
of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. SFAS No. 144
is effective for fiscal years beginning after December 15, 2001. The
Company is currently assessing, but has not yet determined the impact, of
SFAS No. 144 on its financial position and results of operations.
Accounting Change - During the year ended December 31, 2000, the Company
changed its method of accounting for periodic vessel dry-docking. Prior to
the change, the Company accrued estimates of future vessel dry-docking
costs. The Company now will expense these costs as incurred. This change
resulted in a gain of $127,100, net of income taxes of $77,900 for the
year ended December 31, 2000.
Reclassifications - Certain reclassifications have been made to the 2000
and 1999 financial statements to conform with the presentation adopted in
2001.
-8-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
2. RESTRUCTURING EXPENSES
In the quarter ended December 31, 2001, the Company recorded restructuring
expenses of $1,054,410 from continuing operations, resulting from the
decision to discontinue its weekly Northeast service between Newark, New
Jersey and San Juan, Puerto Rico. The restructuring charge is comprised of
the following:
Fixed asset impairments $ 380,550
Remaining lease obligations and penalties 599,074
Employee severance and termination benefit costs 74,786
----------
$ 1,054,410
==========
The Company began implementing its restructuring plan during January,
2002. The Company expects to complete the plan during the first six months
of 2002. As part of its restructuring plan, the Company terminated 17
employees working in the Northeast service operation in January, 2002.
The actions to complete the exit plan consist primarily of completing the
off-hire of approximately 619 leased trailers which are expected to be
completed by June 30, 2002.
As of December 31, 2001, $305,873, net of an impairment charge of $380,550
was included in assets held for sale representing the net realizable value
of equipment to be sold and $673,860 was included in accrued liabilities,
representing the portion of the charges not yet expended.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 and 2000 consist of the
following:
2001 2000
Land $ 504,703 $ 504,703
Buildings and structures 2,578,361 2,578,361
Office furniture and equipment 3,553,678 3,771,584
Freight equipment 63,811,047 64,060,307
Leasehold improvements 1,926,572 1,644,539
Equipment under capital leases 606,681 388,736
Construction in progress 4,816,057
Less accumulated depreciation and amortization (19,364,378) (15,192,140)
------------- ------------
Fixed assets, net $ 53,616,664 $ 62,572,147
============= ============
Depreciation and amortization expense on property and equipment and
equipment under capital leases was $4,885,608, $4,794,186 and $4,684,374
in 2001, 2000 and 1999, respectively. Interest cost of $108,866 was
capitalized during 1999. There was no interest cost capitalized during
2001 or 2000.
In the fourth quarter of 2001, the Company determined that certain vessels
were impaired and recorded an impairment loss of $3,000,000 based upon
independent appraisals of the vessels. Additionally, in the fourth quarter
of 2001, the Company recorded an impairment loss of approximately $99,000
relating to damaged trailers.
-9-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
4. TRANSACTIONS WITH RELATED PARTIES
The Company leases two roll-on/roll-off barge vessels and the use of a
ramp system from an affiliate under operating lease agreements. The lease
payments are $10,050 per day for each vessel. The leases expire September
1, 2010. The leases provide the Company the option to extend the leases
through September 1, 2018 for total payments of $11,000 per vessel per day
or, alternatively, the Company may purchase the vessels at their then fair
market values. During the first quarter of 2001, the Company was provided
$1,809,000 in charter hire relief, that was recorded as a capital
contribution. In addition, the Company deferred certain charter hire
payments to the affiliate for the remainder of 2001. Such deferral has
been recorded as an increase in due to related parties. Total lease
expense under these leases from affiliate totaled $7,336,500, $7,356,600
and $7,336,500 in 2001, 2000 and 1999, respectively.
The Company received net advances from an affiliate totaling $6,035,188
and $9,038,075 in 2001 and 2000, respectively. These advances were used to
meet the Company's cash flow requirements. These advances have been
classified as non-current liabilities.
In addition, during 2001, the Company received an advance of $60,750 from
an officer. Such advance was also used to meet the Company's cash flow
requirements. Such amount is included in the total amount due to related
parties.
During 2000, the Company sold an affiliate a piece of land for $750,000. A
gain of $336,818 was recognized on this transaction.
In December 2001, the Company entered into a loan and security agreement
with a related party providing for a $3 million revolving credit facility.
The purpose of the loan is for working capital and other general corporate
purposes. Interest accrues at 4.40% above the asked rate for the U.S.
government bond or note having a maturity closest to two years from the
date of each advance as published in the Wall Street Journal (7.55% at
December 31, 2001), and is payable quarterly beginning in February 2002.
Principal is due in full in November 2003. At December 31, 2001, $725,000
is outstanding under the agreement. Available borrowings at December 31,
2001 amounted to $2.275 million.
In December 1999, the Company recovered from the affiliate $3,710,000 of
excess operating and maintenance expenses incurred during the period that
the Company had limited use of the floating ramp system. In return, the
Company waived any right to any insurance proceeds from the casualty to
the floating ramp system. The Company received $1,000,000 in December 1999
and the balance was received in February and March 2000. Additional
amounts included in due from affiliate in 1999 include prepaid barge
charter hire lease rent and reimbursable miscellaneous repair payments
made by the Company related to assets of the affiliate.
-10-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
5. LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 2001 and 2000:
2001 2000
Ship-financing bonds and notes (Title XI) maturing on March 30, 2023; payable in
semi-annual installments of principal and interest; interest is fixed at 6.52%;
collateralized by vessels with a carrying value of $16,863,580 at December 31,
2001; amount is guaranteed by The United States of America under
the Title XI Federal Ship Financing Program $ 14,887,840 $ 15,226,200
Ship-financing bonds and notes (Title XI) maturing on September 30, 2022;
payable in semi-annual installments of principal and interest; interest is fixed
at 7.07%; collateralized by vessels with a carrying value of $10,507,156 at
December 31, 2001; amount is guaranteed by The United States of America under
the Title XI Federal Ship Financing Program 9,042,900 9,253,200
Term loan under $29 million credit facility maturing between April 1, 2001 and
January 31, 2004; payable in quarterly installments of principal and interest;
interest at a rate of 4.25% above the 30-day dealer commercial paper rate (6.27%
at December 31, 2001); collateralized by trailers with a carrying value of
$17,622,893 at December 31, 2001 10,714,286 12,000,000
Revolving line of credit under $29 million credit facility; interest at a rate
of 3.75% above the 30-day dealer commercial paper rate (5.77% at December 31,
2001); collateralized by accounts receivable 5,123,129 5,261,287
Revolving line of credit under $29 million credit facility; interest at a rate
of 6.00% above the 30-day dealer commercial paper rate (8.02% at December 31,
2001); collateralized by accrued receivable 838,738
Notes payable to finance company totaling $4,957,569 maturing from June to
October 2001; payable in 60 monthly installments of principal and interest;
interest at fixed rates ranging from 8.87% to 9.29%; collateralized by trailers
with a carrying value of $2,575,007 at December 31, 2000 624,266
-11-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
2001 2000
Note payable to bank maturing October 2006; payable in monthly installments of
principal and interest; interest is fixed at 7.95%; collateralized by land and
buildings and structures with a carrying value of $2,152,332 at
December 31, 2001 $ 812,000 $ 980,000
Capital lease obligations maturing in 2002; payable in
monthly installments of principal and interest; interest
at 10.00%; collateralized by computer equipment 3,686 89,657
Capital lease obligation maturing in 2002; payable in
monthly installments of principal and interest; interest
at 4.90%; collateralized by trailers 152,981
-------------
41,575,560 43,434,610
Less current portion (18,742,140) (3,266,755)
------------- -------------
$ 22,833,420 $ 40,167,855
============= =============
In December 2000, the Company entered into a loan and security agreement
consisting of a $15 million revolving credit facility, a $12 million term
loan and a $2 million capital expenditure loan. The revolving credit
facility is limited to 85% of eligible accounts receivable plus 75% of
eligible accrued receivables, as defined in the agreement (as amended),
not to exceed $15 million. Additional borrowings available under the
revolving credit facility and the capital expenditure loan at December 31,
2001 amounted to approximately $978,000 and $2 million, respectively.
The loan and security agreement contains certain restrictive covenants,
including, but not limited to, requirements to maintain tangible net
worth, as defined in the credit agreement, and a fixed charge coverage
ratio. As of December 31, 2001, the Company is in default of these debt
covenants. Since the lender can demand payment of the full amount
outstanding as a result of the default, debt under the loan and security
agreement has been classified as a current liability.
The note payable collateralized by land and buildings has provisions which
allow the lender to call the note if the Company is out of compliance with
covenants of other debt agreements. Accordingly, the note payable has been
classified as a current liability.
In December 2001, the two ship-financing bonds and notes (Title XI) debt
agreements were amended to defer the September, 2001 and March, 2002
principal payments until September, 2002 and March, 2003. As of December
31, 2001, the Company is in default of the financial covenants contained
in the Title XI debt agreements and as a result is prohibited from certain
financial activities that would impact the financial position of the
Company including withdrawing capital, redeeming common stock, paying
dividends, making loans and investments in securities of any affiliate.
The Company is in compliance with these financial restrictions and as a
result, the debt continues to be classified as long term.
-12-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
Following are maturities of long-term debt at December 31, 2001:
2002 $ 18,742,140
2003 1,645,980
2004 1,097,320
2005 1,097,320
2006 1,097,320
Thereafter 17,895,480
-----------
$ 41,575,560
-----------
6. OPERATING LEASES
The Company has various operating lease agreements, principally for tug
charter, office facilities, terminals and equipment. Certain of the leases
contain provisions calling for additional contingent rentals based on
volume of transportation activity.
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year as
of December 31, 2001 are as follows:
2002 $ 20,371,934
2003 16,918,806
2004 9,904,461
2005 4,997,266
2006 3,564,634
Thereafter 7,330,056
-----------
Total minimum payments required $ 63,087,157
===========
Lease expense for all operating leases, including leases with terms of
less than one year, was $24,912,304, $23,540,198 and $23,484,809 for 2001,
2000 and 1999.
7. ACCRUED LIABILITIES
Accrued liabilities consists of the following at December 31, 2001 and
2000:
2001 2000
Fringe benefits $ 469,268 $ 473,196
Marine expense 722,053 1,470,151
Salaries and wages 423,279 388,114
Interest 1,295,365 444,596
Other 1,240,964 738,600
Restructuring 673,860
---------- ------------
$ 4,824,789 $ 3,514,657
=========== ============
-13-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
8. INCOME TAXES
The provision for income tax benefit (expense) is comprised of the
following as of December 31, 2001, 2000 and 1999:
2001 2000 1999
Current:
Federal
State $ 22,129
-----------
22,129
-----------
Deferred:
Federal 9,960,787 $ 2,437,415 $ 1,111,051
State 1,171,857 286,755 130,763
---------- ------------ -----------
11,132,644 2,724,170 1,241,814
Valuation allowance (11,132,644) (5,873,602)
----------- ------------
$ 22,129 $ (3,149,432) $ 1,241,814
=========== ============ ===========
Income tax benefit (expense) for the years ended December 31, 2001, 2000
and 1999 differs from the amounts computed by applying the statutory
Federal corporate rate to loss before income taxes and cumulative effect
of accounting change. The differences are reconciled as follows:
2001 2000 1999
Tax benefit at statutory Federal rate $ 10,010,301 $ 2,488,605 $ 1,148,599
Increase in deferred tax asset
valuation allowance (11,132,644) (5,873,602)
Nondeductible expenses (55,339) (57,212) (41,914)
State income taxes, net of federal benefit 1,199,811 292,777 135,129
Other
Total income tax benefit (expense) $ 22,129 $ (3,149,432) $ 1,241,814
============ ============ ============
-14-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
The components of the Company's net deferred tax asset at December 31,
2001 and 2000 is as follows:
2001 2000
Deferred tax assets:
Employee stock option $ 3,240,895 $ 3,240,895
Net operating loss 23,540,681 13,001,552
Asset impairment charge 1,451,760
Restructuring charge 400,524
Goodwill 158,017
Allowance for bad debts 424,871 651,253
Other 13,661
-------------
Gross deferred assets 29,230,409 16,893,700
Deferred tax liabilities:
Fixed asset basis 11,223,931 10,017,395
Other 22,332 102,703
------------- ------------
Gross deferred tax liabilities 11,246,263 10,120,098
Deferred tax asset valuation allowance 17,984,146 6,773,602
------------- ------------
Net deferred tax asset $ - $ -
============= ============
The Company has recorded various deferred tax assets as reflected above.
Realization is dependent on generating sufficient taxable income in future
years. As a result of the net losses incurred in recent years, a valuation
allowance of $11,132,644 and $5,873,602 was established at December 31,
2001 and 2000, respectively.
At December 31, 2001, the Company had available net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $61,949,165
which expire beginning in 2018.
9. COMMON STOCKHOLDERS' EQUITY
Earnings Per Share:
The weighted average number of shares used to calculate basic loss per
share was 9,777,500 for the years ended December 31, 2001, 2000 and 1999.
Outstanding options to purchase shares of common stock of 1,100,687,
1,100,687 and 711,258 were excluded from the computation to arrive at
diluted EPS because the options' exercise prices exceeded the average
market price of the common shares for the years ended December 31, 2001,
2000 and 1999, respectively.
Stock Options:
In 1997, the Company's Board of Directors and stockholders authorized the
establishment of an Incentive Stock Plan (the "Plan"). The purpose of the
Plan is to promote the interests of the Company and its shareholders by
retaining the services of outstanding key management members and employees
and encouraging them to have a greater financial investment in the Company
and increase their personal
-15-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
interest in its continued success. The Company initially reserved 785,000
shares of common stock for issuance pursuant to the Plan to eligible
employees under the Plan. In July 2000, the Board of Directors authorized
an increase of 515,000 shares of common stock reserved under the Plan.
Awarded options that expire unexercised or are forfeited become available
again for issuance under the Plan. The options vest equally over a period
of five years.
In July 2000, the Company's Board of Directors and its stockholders
authorized the establishment of the Non-Employee Director Stock Incentive
Plan (the "Director Plan"). The purpose of the Director Plan is to assist
the Company in attracting and retaining highly competent individuals to
serve as non-employee directors. The Company has reserved 50,000 shares of
common stock for issuance pursuant to the Director Plan. Awarded options
that expire unexercised or are forfeited become available again for
issuance under the Director Plan. The exercise price per share of options
granted under the Director Plan shall not be less than 100% of the fair
market value of the common stock on the date of grant.
There were no options granted under either stock option plan for the year
ended December 31, 2001.
A summary of the status of options under the Company's stock-based
compensation plans at December 31, 2001, 2000 and 1999 is presented below:
2001 2000 1999
------------------------------- ------------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at beginning of year 1,100,687 $ 5.95 711,258 $ 7.70 521,182 $ 10.00
Granted 437,500 2.84 212,600 2.25
Forfeited (48,071) 3.45 (22,524) 9.60
---------- ---------
Outstanding at end of year 1,100,687 5.95 1,100,687 5.95 711,258 7.70
========== ========== =========
Grants exercisable at year-end 538,354 318,216 178,923
Weighted-average fair value of
options granted during the year $ 2.32 $ 1.87
The following table summarizes information about the outstanding grants at
December 31, 2001:
Weighted-Average
Exercise Options Remaining Options
Price Outstanding Contractual Life Exercisable
$ 10.00 495,527 5.8 years 375,422
2.25 209,500 7.2 years 83,800
2.84 395,660 8.6 years 79,132
--------- -------
1,100,687 538,354
========= =======
-16-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
Remaining non-exercisable options as of December 31, 2001 become
exercisable as follows:
2002 220,137
2003 142,032
2004 121,032
2005 79,132
-------
562,333
Had compensation expense for stock options been determined based upon the
fair value at the grant date, consistent with the methodology prescribed
under SFAS No. 123, the Company's net earnings and net earnings per share
would have changed to the pro forma amounts indicated below.
2001 2000 1999
As reported
Net loss $ (29,419,936) $ (10,341,754) $ (2,136,419)
Net loss per share - basic and diluted (3.01) (1.06) (0.22)
Pro forma for SFAS No. 123
Net loss $ (30,364,478) $ (10,863,118) $ (2,649,307)
Net loss per share - basic and diluted (3.11) (1.11) (0.27)
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made. The following assumptions were applied in
determining the pro forma compensation cost:
Years ended December 31 2000 1999
Risk-free interest rate 6.20% 5.34%
Expected dividend yield 0% 0%
Expected option life 7 years 7 years
Expected stock price volatility 91.01% 96.17%
10. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan which covers substantially all employees in
the United States. Participants are allowed to make contributions of up to
15% of their compensation not to exceed certain limits. The Company makes
matching contributions to the Plan at a rate not in excess of 3.0% of
compensation. The Company contributed approximately $199,000, $213,000 and
$175,000 to the Plan during 2001, 2000 and 1999.
In addition, the Company has a 165(e) Plan that covers substantially all
employees in Puerto Rico. The Company made contributions of approximately
$25,000, $20,000 and $18,000 to the Plan during 2001, 2000, and 1999.
In March 1998, the Board of Directors authorized an Employee Stock
Purchase Plan which covers substantially all employees. The Plan allows
employees to invest up to 10% of their base compensation through payroll
deductions. The purchase price will be 15% less than the fair market value
on the last day of the purchase period. The Company made contributions of
approximately $11,000, $15,000 and $15,000 to the Plan during 2001, 2000
and 1999, respectively.
-17-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
The Company has a Profit Sharing Plan; however, there have been no
contributions to the Plan during the three years ended December 31, 2001.
11. CONTINGENCIES
Legal:
The Company is involved in litigation on a number of matters and is
subject to certain claims which arise in the normal course of business,
none of which, in the opinion of management, are expected to have a
materially adverse effect on the Company's financial statements.
Leases:
The Company's financial performance has resulted in violation of the terms
of the lease with the Jacksonville Port Authority and the Company is
currently renegotiating this lease. The Company expects to retain the
preferential berthing right and exclusive use of the land area under such
renegotiated lease.
Company Liquidity and Management's Further Contingency Plans:
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, during the years ended December 31, 2001, 2000
and 1999, the Company incurred net losses of $29,419,936, $10,341,754 and
$2,136,419, respectively. As of December 31, 2001, the Company's current
liabilities significantly exceeded its current assets and total
liabilities exceeded its total assets by $8,745,182. These factors among
others may indicate that the Company may be unable to continue as a going
concern for a sufficient period of time to realize the value of its
assets.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. As described in Note 5,
the Company is in default with respect to the majority of its outstanding
long-term debt agreements and the balance, with the exception of the Title
XI debt, has been classified as a current liability.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain additional financing or refinancing as may be
required, and ultimately to attain successful operations. The Company's
projected cash flows from operations combined with continued funding of
its revolving line of credit, maintenance of its vendor relationships and
liquidity assistance from certain of its affiliates are all necessary to
produce sufficient available liquidity to maintain its current level of
operations through calendar 2002. Such projections include certain
agreements with affiliates to assist the Company in meeting its 2002 cash
flow requirements. Additionally, the Company intends to seek certain
principal deferrals by the Company's lenders. No assurance can be made
that the Company will be able to obtain such agreements with its
affiliates or with its lenders. Therefore, there is substantial doubt as
to the Company's ability to continue as a going concern.
-18-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Notes Payable - Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used
to estimate fair value for debt instruments. The Company believes the
carrying amount is a reasonable estimate of such fair value.
Marketable Securities - Fair market values of marketable securities are
based on quoted market prices.
Derivative Instruments - Fair values of derivative instruments are based
on quoted market prices, if available. If quoted market prices are not
available, fair values are determined based on a cash flow model using
market assumptions.
The contract/notional amount and estimated fair value of the Company's
derivative financial instrument are as follows:
2001 2000
----------------------------------- ----------------------------------
Contact/Notional Fair Contact/Notional Fair
Amount Value Amount Value
----------------- ---------------- ----------------- ---------------
Interest rate swap agreement $ 812,000 $ (35,952) $ 980,000 $ (5,127)
In the normal course of business, the Company uses an interest rate swap
agreement, to manage its interest rate risk for purposes other than
trading. The Company does not use derivative financial instruments for
speculative purposes. As is customary for these types of instruments, the
Company does not require collateral or other security from other parties
to these instruments. By their nature all such instruments involve risk,
including the credit risk of nonperformance by counterparties. However, at
December 31, 2001, in management's opinion there was no significant risk
of loss in the event of nonperformance of the counterparties to these
financial instruments.
13. SEGMENTS
The Company's primary business is to transport freight from its
origination point in the continental United States to San Juan, Puerto
Rico and from San Juan, Puerto Rico to its destination point in the
continental United States. The Company provides a domestic trucking system
and a barge vessel system, which work in conjunction with each other to
service its customers. The Company would not employ either system
separately; therefore segment reporting was not necessary.
-19-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
- --------------------------------------------------------------------------------
14. SUBSEQUENT EVENTS (UNAUDITED)
Effective January 1, 2002, all officers of the Company entered into a
voluntary salary reduction agreement with the Company whereby each pay
period, such officer's salary is reduced by 5% and treated as a loan to
the Company. The CEO of the Company has agreed to a 50% salary reduction.
Such amounts are to be repaid no later than December 20, 2002.
During January 2002, the Company sold the assets included in assets held
for sale for $305,873.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31, June 30, September 30, December 31,
Quarter Ended 2001 2001 2001 2001
-------------------- --------------------- ---------------------- ----------------------
Operating revenues $ 20,636,713 $ 21,659,184 $ 20,052,136 $ 19,219,699
Operating loss (4,532,175) (4,131,848) (4,851,420) (12,566,300)(1)
Net loss before
income tax (5,374,154) (5,160,945) (5,620,547) (13,286,419)
Net loss (5,374,154) (5,160,945) (5,598,418) (13,286,419)
Net loss per share -
basic and diluted (0.55) (0.53) (0.57) (1.36)
March 31, June 30, September 30, December 31,
Quarter Ended 2000 2000 2000 2000
--------------------- --------------------- -------------------- --------------------
Operating revenues $ 21,333,405 $ 23,764,889 $ 23,151,664 $ 23,456,206
Operating (loss) income (903,031) 1,302,713 340,337 (5,131,721)
Net (loss) income before
income tax and cumulative
effect of accounting change (1,836,265) 824,551 (440,600) (5,867,108)
Net (loss) income before
cumulative effect of
accounting change (1,150,927) 500,624 (210,257) (9,608,294)(2)
Net (loss) income (1,150,927) 627,724 (210,257) (9,608,294)
Net (loss) income per share
before cumulative effect of
accounting change - basic
and diluted (0.12) 0.05 (0.02) (0.98)
(1) Operating loss includes $3,820,421 in asset impairment charges,
$1,054,410 in restructuring expenses and an additional provision
for uncollectible accounts receivable of $701,000.
(2) Net loss includes a $5.95 million valuation allowance recorded for
deferred income taxes.
* * * * * *
-20-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2001
BALANCE AT CHARGED TO
BEGINNING COSTS AND DEDUCTIONS BALANCE AT
YEAR OF YEAR EXPENSES (CHARGEOFFS) END OF YEAR
---- ------- -------- ------------ -----------
Allowance for Doubtful Accounts
- -------------------------------
1999 $1,093,403 $2,001,439 ($1,726,328) $1,368,514
2000 1,368,514 1,805,130 (1,459,819) 1,713,825
2001 $1,713,825 4,737,308 (5,333,050) 1,118,083
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Incorporated by Reference
The information called for by Item 10 -- "Directors and Executive
Officers of the Registrant", Item 11 -- "Executive Compensation", Item 12 --
"Security Ownership of Certain Beneficial Owners and Management" and Item 13 --
"Certain Relationships and Related Transactions" is incorporated herein by this
reference to the Company's definitive proxy statement for its annual meeting of
stockholders scheduled to be held in May 2002, which definitive proxy statement
is expected to be filed with the Commission not later than 120 days after the
end of the fiscal year to which this report relates.
22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) Documents Filed as Part of this Report
3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
*3.1 -- Form of Amended and Restated Certificate of
Incorporation of the Registrant
*3.2 -- Form of Amended and Restated Bylaws of the
Registrant
*4. -- See Exhibits 3A and 3B for provisions of the
Certificate of Incorporation and Bylaws of the
Registrant defining the rights of holders of the
Registrant's Common Stock
#*10.1 -- Form of Indemnification Agreement with Directors
and Executive Officers
*10.2 -- Bareboat Charter Party dated February 1992
*10.2.1 -- Amendment to Bareboat Charter Party dated December
31, 1994
*10.2.2 -- Second Amendment to Bareboat Charter Party dated
October 1995
*10.2.3 -- Third Amendment to Bareboat Charter Party dated
March 1, 1997
*10.2.4 -- Form of Fourth Amendment to Bareboat Charter Party
**10.2.5 -- Fourth Amendment to Bareboat Charter Party dated
June 30, 1997
*10.3 -- Promissory Note dated January 1, 1997 payable to
Kadampanattu Corp. in the principal amount of
$4,569,131
*10.4 -- Construction and Term Loan Agreement dated as of
October 13, 1995 between the Registrant,
23
Kadampanattu Corp. and The First National Bank of
boston, as Agent
*10.4.1 -- First Amendment to Construction and Term Loan
Agreement dated as of May 9, 1996
*10.4.2 -- Second Amendment to Construction and Term Loan
Agreement dated as of July 10, 1996
*10.4.3 -- Third Amendment to Construction and Term Loan
Agreement and Consent and Limited Waiver dated as
of January 1, 1997
*10.5 -- Chattel Mortgage Line of Credit Agreement dated as
of February 28, 1997
*10.6 -- Vessel Construction Contract dated as of December
30, 1996 between Coastal Ship, Inc. and Halter
Marine, Inc.
*10.6.1 -- Assignment of Vessel Construction Contract dated
March 24, 1997 between Coastal Ship, Inc. and the
Registrant
*10.6.2 -- Amendment No. 1 to Vessel Construction Contract
dated as of April 1997
*10.7 -- Real Estate Promissory Note dated April 18, 1996
between the Registrant and First Union National
Bank of Florida
*10.8 -- Commitment to Guarantee Obligations
*10.8.1 -- Trust Indenture
*10.8.2 -- United States Government Ship Financing Bond, 1997
Series in the amount of $10,515,000
*10.8.3 -- Title XI Reserve Fund and Financial Agreement
****10.8.4 -- Commitment to Guarantee Obligations
****10.8.5 -- Trust Indenture
****10.8.6 -- United States Government Ship Financing Bond, 1997
Series in the amount of $16,918,000
****10.8.7 -- Title XI Reserve Fund and Financial Agreement
1 10.8.8 United States Government Ship Financing Bond, 1997
Series Amended and Restated December 31, 2001 in
the amount of $10,515,000
24
1 10.8.9 -- Trust Indenture First Supplement to Special
Provisions
1 10.8.10 -- United States Government Ship Financing Bond, 1997
Series II Amended and Restated December 31, 2001
in the amount of $16,918,000
1 10.8.11 -- Trust Indenture First Supplement to Special
Provisions
*10.9 -- Agreement and Lease dated as of August 1, 1991
between the Registrant and the Jacksonville Port
Authority
*10.9.1 -- Amendment #5 to Exhibit B, Schedule of Fees and
Charges
#*10.11 -- Incentive Stock Plan
#*10.11.1 -- Form of Stock Option Award Agreement
#^10.11.2 -- Amendment No. 1 to Trailer Bridge, Inc. Stock
Incentive Plan
#^10.11.3 -- Trailer Bridge, Inc. Non-Employee Director Stock
Incentive Plan
#^10.11.4 -- Form of Non-Employee Director Stock Option Award
Agreement
***10.12 -- Trailer Bridge, Inc. Employee Stock Purchase Plan
****10.13 -- Revolving Credit and Term Loan Agreement dated as
of August 28, 1998 among Trailer Bridge, Inc.,
BankBoston, N.A. and BankBoston, N.A. as agent
*****10.13.1 -- First Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 30, 2000
*****10.13.2 -- Second Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 29, 2000
*****10.14 -- Agreement with Kadampanattu Corp. re ramp expenses
^10.15 -- Loan and Security Agreement dated as of December
27, 2000 Between General Electric Capital
Corporation as Lender and Trailer Bridge, Inc. as
Borrower
2 10.15.1 -- First Amendment Dated as of August ___, 2001 to
Loan and Security Agreement dated as of December
27, 2000 Between General Electric Capital
Corporation as Lender and Trailer Bridge, Inc. as
Borrower
25
1 10.16 -- Loan and Security Agreement Dated as of November
30, 2001 Between The Estate of M. P. McLean as
Lender and Trailer Bridge, Inc. as Borrower
1 10.17 -- First Amendment to Loan and Security Agreement
Dated as of November 30, 2001 Between The Estate
of M. P. McLean as Lender and Trailer Bridge, Inc.
as Borrower
^^ 18 -- Letter re Change in Accounting principles
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
** Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
*** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
**** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
***** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1999.
^ Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2000.
^ ^ Incorporated by reference to the indicated exhibit to the Company's
Form 10-K/A for the year ended December 31, 2000 filed December 14,
2001.
1 Incorporated by reference to the indicated exhibit to the Company's
Form 8-K filed January 2002.
2 Filed herewith.
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this report. The Company did file a Form
8-K in January 2002.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on this 1st day of April 2002.
TRAILER BRIDGE, INC.
By: /s/ John D. McCown
--------------------------------------
John D. McCown
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John D. McCown Chairman of the Board and
- ------------------------ Chief Executive Officer
John D. McCown and Director (Principal
Executive Officer) April 1, 2002
/s/ Mark A. Tanner Vice President --
- ------------------------ Administration and Chief
Mark A. Tanner Financial Officer
(Principal Financial and
Accounting Officer) April 1, 2002
/s/ William G. Gotimer, Jr. Director April 1, 2002
- ------------------------
William G. Gotimer, Jr.
________________________ Director April 1, 2002
Nickel van Reesema
/s/ Artis E. James Director April 1, 2002
- ------------------------
Artis E. James
________________________ Director April 1, 2002
Charles R. Cushing
27
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
*3.1 -- Form of Amended and Restated Certificate of
Incorporation of the Registrant
*3.2 -- Form of Amended and Restated Bylaws of the
Registrant
*4. -- See Exhibits 3A and 3B for provisions of the
Certificate of Incorporation and Bylaws of the
Registrant defining the rights of holders of the
Registrant's Common Stock
#*10.1 -- Form of Indemnification Agreement with Directors
and Executive Officers
*10.2 -- Bareboat Charter Party dated February 1992
*10.2.1 -- Amendment to Bareboat Charter Party dated December
31, 1994
*10.2.2 -- Second Amendment to Bareboat Charter Party dated
October 1995
*10.2.3 -- Third Amendment to Bareboat Charter Party dated
March 1, 1997
*10.2.4 -- Form of Fourth Amendment to Bareboat Charter Party
**10.2.5 -- Fourth Amendment to Bareboat Charter Party dated
June 30, 1997
*10.3 -- Promissory Note dated January 1, 1997 payable to
Kadampanattu Corp. in the principal amount of
$4,569,131
*10.4 -- Construction and Term Loan Agreement dated as of
October 13, 1995 between the Registrant,
28
Kadampanattu Corp. and The First National Bank of
boston, as Agent
*10.4.1 -- First Amendment to Construction and Term Loan
Agreement dated as of May 9, 1996
*10.4.2 -- Second Amendment to Construction and Term Loan
Agreement dated as of July 10, 1996
*10.4.3 -- Third Amendment to Construction and Term Loan
Agreement and Consent and Limited Waiver dated as
of January 1, 1997
*10.5 -- Chattel Mortgage Line of Credit Agreement dated as
of February 28, 1997
*10.6 -- Vessel Construction Contract dated as of December
30, 1996 between Coastal Ship, Inc. and Halter
Marine, Inc.
*10.6.1 -- Assignment of Vessel Construction Contract dated
March 24, 1997 between Coastal Ship, Inc. and the
Registrant
*10.6.2 -- Amendment No. 1 to Vessel Construction Contract
dated as of April 1997
*10.7 -- Real Estate Promissory Note dated April 18, 1996
between the Registrant and First Union National
Bank of Florida
*10.8 -- Commitment to Guarantee Obligations
*10.8.1 -- Trust Indenture
*10.8.2 -- United States Government Ship Financing Bond, 1997
Series in the amount of $10,515,000
*10.8.3 -- Title XI Reserve Fund and Financial Agreement
****10.8.4 -- Commitment to Guarantee Obligations
****10.8.5 -- Trust Indenture
****10.8.6 -- United States Government Ship Financing Bond, 1997
Series in the amount of $16,918,000
****10.8.7 -- Title XI Reserve Fund and Financial Agreement
1 10.8.8 United States Government Ship Financing Bond, 1997
Series Amended and Restated December 31, 2001 in
the amount of $10,515,000
29
1 10.8.9 -- Trust Indenture First Supplement to Special
Provisions
1 10.8.10 -- United States Government Ship Financing Bond, 1997
Series II Amended and Restated December 31, 2001
in the amount of $16,918,000
1 10.8.11 -- Trust Indenture First Supplement to Special
Provisions
*10.9 -- Agreement and Lease dated as of August 1, 1991
between the Registrant and the Jacksonville Port
Authority
*10.9.1 -- Amendment #5 to Exhibit B, Schedule of Fees and
Charges
#*10.11 -- Incentive Stock Plan
#*10.11.1 -- Form of Stock Option Award Agreement
#^10.11.2 -- Amendment No. 1 to Trailer Bridge, Inc. Stock
Incentive Plan
#^10.11.3 -- Trailer Bridge, Inc. Non-Employee Director Stock
Incentive Plan
#^10.11.4 -- Form of Non-Employee Director Stock Option Award
Agreement
***10.12 -- Trailer Bridge, Inc. Employee Stock Purchase Plan
****10.13 -- Revolving Credit and Term Loan Agreement dated as
of August 28, 1998 among Trailer Bridge, Inc.,
BankBoston, N.A. and BankBoston, N.A. as agent
*****10.13.1 -- First Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 30, 2000
*****10.13.2 -- Second Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 29, 2000
*****10.14 -- Agreement with Kadampanattu Corp. re ramp expenses
^10.15 -- Loan and Security Agreement dated as of December
27, 2000 Between General Electric Capital
Corporation as Lender and Trailer Bridge, Inc. as
Borrower
2 10.15.1 -- First Amendment Dated as of August ___, 2001 to
Loan and Security Agreement dated as of December
27, 2000 Between General Electric Capital
Corporation as Lender and Trailer Bridge, Inc. as
Borrower
30
1 10.16 -- Loan and Security Agreement Dated as of November
30, 2001 Between The Estate of M. P. McLean as
Lender and Trailer Bridge, Inc. as Borrower
1 10.17 -- First Amendment to Loan and Security Agreement
Dated as of November 30, 2001 Between The Estate
of M. P. McLean as Lender and Trailer Bridge, Inc.
as Borrower
^^ 18 -- Letter re Change in Accounting principles
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
** Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
*** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
**** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
***** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1999.
^ Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2000.
^ ^ Incorporated by reference to the indicated exhibit to the Company's
Form 10-K/A for the year ended December 31, 2000 filed December 14,
2001.
1 Incorporated by reference to the indicated exhibit to the Company's
Form 8-K filed January 2002.
2 Filed herewith.
# Management contract or compensatory plan or arrangement.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF TRAILER BRIDGE, INC. AS OF AND FOR THE ONE
YEAR ENDED DECEMBER 31, 2001 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
31