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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, 1998
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
incorporation or organization) No.)
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 require-
ments 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 19, 1999 was
$7,328,723 (based upon $2.42 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 31, 1999, 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 1999 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 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. Trailer Bridge is the only company serving markets
governed by the Jones Act which exclusively operates 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 from 266 to 416 48' equivalent truckload units.
Trailer Bridge increased its vessel capacity again in 1998 when it
took delivery of four 403' long container carrying barges designed specifically
for the Company's integrated truckload marine transportation system and bearing
the Company's Triplestack Box Carrier(TM) trade name. The first Triplestack Box
Carrier(TM) was delivered to the Company in January 1998. A fifth vessel was
delivered in February, 1999. The Triplestack Box Carriers(TM) are versatile,
low-draft vessels that have a capacity of 213 53' containers, stacked three-high
on a single deck. The first three vessels have been deployed in the Company's
existing Puerto Rico freight operation and a Newark , New Jersey - Jacksonville,
Florida coastwise service. The fourth Triplestack Box Carrier was utilized to
provide a third sailing on alternate weeks between Jacksonville, Florida and San
Juan, Puerto Rico during the fourth quarter of 1998. The fifth Triplestack Box
Carrier has not yet entered service.
OPERATIONS
At December 31, 1998, Trailer Bridge operated a fleet of 148
tractors, 1,869 high-cube trailers, 2,134 53' high cube containers and 1,668 53'
chassis which transport truckload freight between the Company's Jacksonville
port facility and inland points in the U.S. 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. The Company
maintains a centralized dispatch and customer service operation at its
Jacksonville headquarters to schedule pickup and delivery of customer freight.
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, 1998, Trailer Bridge operated two 736' triple-deck,
roll-on/roll-off (ro/ro) ocean-going barges and four 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 for additional equipment and
sailings and has led to ongoing relationships with customers such as
DaimlerChrysler, General Motors, K Mart, WalMart, Hanes/Sara Lee, Georgia
Pacific, Baxter Healthcare, General Electric and DuPont.
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. Typical coastwise shipments include paper
products, household goods, foodstuffs and tires. 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. Although
a contract typically runs for a specified term of at least one year, it
generally may be terminated by either party upon 30 days' notice. The penalties
for a shipper for breach of contract are minimal.
VESSELS
At December 31, 1998, the Company operated two 736' by 104'
triple-deck roll-on/roll-off barges. Each deck has ten lanes which 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
approximately 11 cars to fit in the space previously used for one 48' unit. The
trailers are secured on the vessel by attachment to pullman stands which are
engaged and disengaged with specially configured yard tractors used to pull the
trailers into position on the vessel.
At December 31, 1998 the Company operated four Triplestack Box
Carriers(TM) that are single deck barges designed to carry 53' containers. The
first of the Triplestack Box Carriers was delivered to the Company in January
1998 and the fifth and final Triplestack Box Carrier was delivered in February,
1999. These vessels utilize the same port facilities as the ro/ro barge vessels.
Wheeled vehicles known as reach-stackers carry and load the containers. 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 loading and unloading method.
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 two floating ramp
structures under the charter agreement, with an affiliate, for the two 736' by
104' triple-deck roll-on/roll-off barges.
SAN JUAN
In September 1998, Hurricane Georges struck Puerto Rico causing
extensive damage on the island. During this storm, the floating loading ramp
used by the Company was damaged. The Company contracted for the ramp to be
re-floated and repaired. The top section of the structure was partially removed.
In January 1999 the ramp was successfully re-floated. The ramp was repaired and
returned to active cargo operations for the first two decks in March, 1999. The
top section is expected to be reinstalled in early April, 1999 at which time
normal operations will resume on all three decks. The cost of re-floating the
ramp structure and its repair was insured and the Company expects to receive
reimbursement of these expenses, less a $50,000 deductible.
JACKSONVILLE
In May 1998, the Company ceased using the floating ramp structure in
Jacksonville when it was replaced by a land based ramp structure built by the
Jacksonville Port Authority. The Company retained the unused floating ramp
structure in Jacksonville, Florida to be used as an alternative and to explore
its use at other ports. In December, 1998 the Jacksonville floating ramp
structure suffered a casualty and became submerged in Jacksonville. The
Company's naval engineers and the representatives of the insurer insuring the
ramp structure determined that the structure had suffered irreparable damage.
The Company, with the consent of the owner of the ramp structure contracted for
the removal of the ramp structure as a wreck. The Company believes the cost of
such removal is covered by the Company's liability insurance. The ramp structure
was insured for insured perils of the sea. The Company intends to file a claim
under this policy for the $3.7 million insured value of the ramp structure. It
is unknown whether this claim will be accepted by the insurer in whole or part,
however, the owner of the ramp structure has agreed that any recovery under the
policy will be assigned to the Company.
REVENUE EQUIPMENT
Trailer Bridge's equipment strategy is to operate modern tractors
and trailers in order to (i) reduce fuel, maintenance and parts costs, (ii)
increase reliability, and (iii) help attract and retain drivers. At December 31,
1998, the Company had 148 tractors. These power units are conventional tractors
which, among other amenities preferred by drivers, include the pro sleeper
package. The Company's practice is to trade or replace its tractors on a
450,000-mile cycle which generally occurs during the fourth year.
The Company has designed and built units to transport automobiles on
its vessels. These units designated by the Company as Vehicle Transport
Modules(TM), or VTM's(TM), can hold up to three vehicles and provide an
efficient unit for loading and unloading. The Company built 304 of these units
and has applied for patent protection on the design of the units.
At December 31, 1998, the Company operated 1,869 dry van trailers,
1,340 of which were 48' x 102" models and 529 of which were 53' x 102" models.
At December 31, 1998 the Company operated 2,134 53' containers and 1,668
chassis. At December 31, 1998 the Company operated 304 Vehicle Transportation
Modules. The Company's current practice is to trade or replace owned trailers on
a seven-year cycle and replace leased trailers with owned trailers as leases
expire.
The Company performs preventative maintenance on equipment at its
Jacksonville operations center, with major maintenance and repairs handled by
outside contractors.
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 dedicated routes and regional positions to support operations, while
providing more predictable home time for its drivers. The Company believes its
driver turnover of 31.0% in 1998 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 Jacksonville at a
nearby fuel facility during cargo loading operations. By negotiating directly
with fuel vendors and offering volume contracts for its marine fuel needs, the
Company has obtained better prices than it would have otherwise been able to
attain.
Trailer Bridge does not engage in any fuel hedging activities.
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 five 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, San Juan and Newark. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000".
COMPETITION
The Company currently competes with four carriers for freight moving
between the U.S. and Puerto Rico where its market share at December 31, 1998 was
approximately 10%. The current operators in the Puerto Rico trade are Navieras
de Puerto Rico ("NPR"), Sea-Land Service, Inc., Crowley American Transport, Sea
Star Line and Trailer Bridge. Based on available industry data for 1998, NPR,
has approximately 33% of the market and operates four container vessels
configured to carry primarily 40' marine containers. Sea-Land Service, Inc., a
subsidiary of CSX Corporation, has approximately 24% of the market and operates
five container vessels that also carry mainly 40' containers. Crowley American
Transport, a subsidiary of privately held Crowley Maritime Corp., has
approximately 27% of the market and operates eleven roll-on/roll-off barges in
various services between the U.S. and Puerto Rico. Although Crowley now uses
some 48' and 53' trailers, its main equipment size is 45' trailers. Sea Star
Line has approximately 6% of the market with one combination ro/ro container
vessel and two container barges that primarily carry 40' marine containers.
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 the lowest cost per unit
operator 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 Company's coastwise service competes primarily with large
railroads that move intermodal freight and, to a lesser extent, trucking
companies. Intermodal freight service competes primarily on the basis of price.
Although trucking companies serving the same routes as the Company's coastwise
service typically target a customer base that requires faster delivery times,
such trucking companies also compete primarily on the basis of price. Many of
the Company's competitors are significantly larger and possess substantially
greater financial resources than the Company. The Company competes by offering
customers value-based pricing derived from its lower linehaul cost per unit. The
Company targets customers with less time sensitive-freight whose priority is
reducing freight costs rather than obtaining the shortest possible transit
times.
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
possessing 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.
The Maritime Security Act of 1996 implemented the Maritime Security
Program (the "MSP") under which vessel operators can receive subsidy payments
from the United States government relating to their operation of vessels in
foreign service. Payments under the MSP are not made in relation to service
between the mainland of the United States and Puerto Rico. As a condition of
participation in the MSP, recipients of subsidy must agree to limit their
service in the noncontiguous domestic trades, including Puerto Rico, to
historical levels. The Company does not receive payments under the MSP and is
not under any restriction. Two of the Company's competitors in the Puerto Rico
trade received MSP payments in 1998 and were constrained in increasing their
service between the mainland United States and Puerto Rico.
EMPLOYEES
At December 31, 1998, Trailer Bridge had 274 employees, 137 of whom
were drivers.
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 a 11,400 square foot tractor maintenance shop
where oil changes and light preventative maintenance are performed, a trailer
washing facility, a drivers lounge and parking space for tractors and trailers.
The Company maintains small sales office facilities in Georgia,
North Carolina, Illinois, Ohio and New Jersey which are utilized by sales
personnel. The Company also rents a 2,600 square foot office in San Juan where
11 Puerto Rico administrative and sales personnel are based.
PORT FACILITIES
The Company utilizes port facilities in Jacksonville, San Juan and
Port Newark, New Jersey 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
17 acres leased from the Jacksonville Port Authority. The lease, which expires
in 2002, allows the Company to use the berthing area on a preferential, although
non-exclusive, basis and the land area on an exclusive basis. The Company pays
the Jacksonville Port Authority a monthly rental payment plus a wharfage payment
based upon total cargo volume. The Company's marine terminal in San Juan
consists of berthing areas and 31 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's marine operations in Newark, New Jersey consist of five
acres utilized pursuant to a service agreement with a third party.
Item 3. Legal Proceedings
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
for personal injury and property damage incurred in the transportation of
freight. The Company presently is not a party to any legal proceeding other than
litigation arising from 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. The Company is subject to numerous taxing
jurisdictions. The Company is presently contesting a tax assessed by the
jurisdiction of Guaynabo, Puerto Rico arising out of the Company's operations in
that jurisdiction. The Company believes that it will be successful in reducing
the amount of the tax claimed by the jurisdiction and that such tax will not
have a material adverse effect upon the Company's operations or financial
condition.
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 1998.
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 since
its initial trading date.
1997 High Low
---- ---- ---
Third Quarter (from July 29) 14 10 1/4
Fourth Quarter 13 3/4 8 3/8
1998
----
First Quarter 10 7/8 6 3/4
Second Quarter 10 3/8 3 1/2
Third Quarter 5 1/8 1 25/32
Fourth Quarter 2 7/8 1 1/2
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 19, 1999 there were 39 stockholders of record in
addition to approximately 1,500 stockholders whose shares were held in nominee
name.
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.
Year Ended December 31,
-----------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Operating revenues............. $ 72,192 $ 62,531 $ 63,148 $ 66,389 $ 77,241
Operating income(loss)......... $ 6,175 $ 8,778 $ 44,425 ($ 1,816) ($ 3,046)
Net income (loss)
(pro forma for
1994 to 1997)(1)............... $ 2,343 $ 4,360 $ 2,073 ($ 2,416) ($ 2,516)
Net income (loss)
(pro forma for 1994 to 1997)
per common share .............. $ .30 $ .65 $ .31 ($ .30) ($ .26)
BALANCE SHEET DATA:
Working capital
(deficit)...................... ($ 10,188) ($ 4,697) ($ 1,719) $ 13,980 $ 3,963
Total assets................... $ 23,521 $ 20,226 $ 24,764 $ 76,894 $ 89,229
Long-term debt,
capitalized leases and
due to affiliate(2)............ $ 20,776 $ 13,461 $ 13,879 $ 37,335 $ 44,056
Stockholders' equity
(deficit)...................... ($ 2,856) $ 2,673 $ 6,045 $ 33,860 $ 31,344
- - ------------------------------
(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, 1998 Compared to Year ended December 31,
1997
Operating revenues increased $10.8 million, or 16.3%, to $77.2
million during 1998 from $66.4 million during 1997. This increase was due to a
$11.8 million or 19.4% increase in total Puerto Rico revenue to $72.8 million
through the utilization of additional capacity in the Puerto Rico market, offset
by a $1.0 million or 18.5% decrease in non-Puerto Rico revenue. Core trailer
volume to Puerto Rico increased 38.8% in 1998 compared to 1997, and total car
and other volume increased 20.6% compared to 1997. As a result, core trailer
revenue to Puerto Rico increased $9.5 million or 27.6% and car and other revenue
increased $1.5 million or 10.6% compared to 1997. Revenue from shipper owned or
leased equipment moving to Puerto Rico increased $796,187 or 19.3% from 1997.
Revenue from northbound shipments from Puerto Rico increased $65,591 or .8% from
1997.
While trailer volume to and from Puerto Rico increased 30.0% in
1998, related revenue increased only $11.8 million or 19.4% compared to 1997
implying, an overall yield reduction of 8.1%. Vessel capacity deployed on the
core continental U.S. to Puerto Rico traffic lane increased 47.3% during 1998
compared to 1997. Vessel capacity utilization on the core continental U.S. to
Puerto Rico traffic lane was 75.1% during 1998, compared to 84.1% during 1997.
In September 1998, Hurricane Georges struck Puerto Rico causing
extensive damage on the island. During this storm, the Company's floating
loading ramp was damaged. The Company contracted for the ramp to be re-floated
and repaired. The top section of the structure was partially removed. In January
1999 the ramp was successfully re-floated. The ramp was repaired and returned to
active cargo operations for the first two decks in March, 1999. The top section
is expected to be reinstalled in late March or early April, 1999 at which time
normal operations will resume on all three decks. The cost of re-floating the
ramp structure and its repair was insured and the Company expects to receive
reimbursement of these expenses, less a $50,000 deductible.
The owner of the San Juan ramp structure waived $600,000 in charter
hire payments in the third quarter of 1998 to partially offset the expected
additional costs incurred by the company due to the unavailability of the San
Juan ramp structure.
The Company reported an operating loss of $3.0 million for 1998
compared to operating income, excluding the nonrecurring, non-cash charge for
compensation, of $6.7 million for 1997. The Company recorded a nonrecurring,
non-cash charge for compensation and a credit to paid-in capital of $8.5 million
during 1997. This charge represented the difference between the exercise price
of the option and the initial public offering price of $10.00 per share.
Operating income was negatively impacted by $3.4 million of
additional costs related to the disruption caused by the loss of use of the San
Juan ramp structure resulting from Hurricane Georges. The $3.4 million of
estimated additional costs included $1,622,613 in additional operating and
maintenance costs (comprised primarily of stevedoring and port related items),
$1,450,427 in additional rent and purchased transportation expense (comprised
primarily of terminal equipment rental, trucking expense in San Juan and the
U.S. and revenue equipment rental), $117,954 in salaries and wages, $102,374 in
insurance and claims and $67,715 in communications and other operating expenses.
The inability to utilize the San Juan ramp structure necessitated
alternative methods of discharging and re-loading the two ro/ro vessels. Instead
of typical cargo operations of between 14 and 16 hours at the Company's San Juan
terminal, the two ro/ro vessels utilized other terminals where total cargo
operations required between 48 and 50 hours. While the ramp was out of service,
the middle deck of the ro/ro vessels remained inaccessible to trailers and could
be used only for vehicles, which resulted in sub-optimum utilization of
one-third of vessel space.
The additional time required to service the ro/ro vessels in San
Juan resulted in schedule tightness that required most cargo operations to be
performed during weekends where higher overtime rates applied. This schedule
tightness and the resultant uncertainty affected costs in addition to those
directly related to San Juan cargo operations, including trucking costs on the
mainland. The Company's goal during this period of disruption, which lasted
longer than expected, was to continue to provide a high level of service to
customers despite certain adverse cost consequences. The Triplestack Box
Carriers(TM) do not utilize the floating ramp structure and were not adversely
affected by Hurricane Georges.
Operating expenses for 1998 increased $20.6 million or 34.5% from
1997 exclusive of the charge for compensation in 1997 discussed above. This
increase was due to an increase in expenses associated with an overall 30.0%
increase in Puerto Rico volume, and the $3.4 million in additional costs related
to the inefficiency of servicing the ro/ro vessels while the San Juan ramp
structure was out of service and the impact of the commencement of the new
coastwise service. As a result, the Company's operating ratio increased to
103.9% during 1998 from 89.9% during 1997 exclusive of the charge for
compensation in 1997.
Interest expense (net) increased $487,138 or 88.8% to $1.1 million
in 1998 from $548,631 in 1997 due to increased average long-term debt
outstanding, increased amounts outstanding under the Company's revolving line of
credit and less interest income earned on short-term investments.
As a result of the factors described above including the charge for
compensation in 1997 and after application of income taxes, the Company reported
a net loss of $2.5 million for 1998 compared to pro forma net loss of $2.4
million in 1997.
Year ended December 31, 1997 Compared to Year ended December 31,
1996
Operating revenues increased $3.2 million, or 5.1%, to $66.4 million
during 1997 from $63.1 million during 1996. This increase was due to a $5.0
million (8.9%) increase in Puerto Rico revenue to $61.3 million through the
utilization of a portion of the additional capacity resulting from the mid-body
project, offset by a 25.8% decrease in non-Puerto Rico revenue as available
tractor capacity was targeted further towards Puerto Rico revenue. While core
trailer volume to Puerto Rico increased 27.3% in 1997 compared to 1996, total
car volume was down 8.8% compared to 1996. As a result, core trailer revenue to
Puerto Rico increased $6.4 million or 22.8% and car revenue decreased $1.7
million or 9.5% compared to 1996. This reduction in car volume was most
pronounced in used car shipments during the second half of the year as sales of
used cars in Puerto Rico were soft due to several factors, including attractive
new car and repossessed car pricing. Presently, approximately two-thirds of
Trailer Bridge's car volume is represented by new cars. Revenue from shipper
owned equipment and other vehicles increased $.8 million or 13.7% in 1997
compared to 1996. While trailer volume from Puerto Rico increased 3.0% in 1997,
related revenue decreased $.4 million or 4.6% compared to 1996 due to rate
pressure on the limited volumes moving inbound from Puerto Rico. Vessel capacity
utilization on the core continental U.S. to Puerto Rico traffic lane was 84.1%
during 1997, compared to 87.9% during 1996 when a smaller substitute vessel was
utilized.
In connection with the grant of an option by the Company's principal
stockholder to its Chairman and CEO, the Company recorded a nonrecurring,
non-cash charge for compensation and a credit to paid-in capital of $8.5 million
during 1997. This charge represented the difference between the exercise price
of the option and the initial public offering price of $10.00 per share. The
option does not involve the issuance of additional shares of Common Stock by the
Company and therefore, any subsequent purchase of shares under the option will
not have a dilutive effect on the Company's book value or earnings per share
amounts. As a result of this option, the Company sustained a pro forma net loss
of $2.4 million or $.30 per share, for 1997.
Excluding the charge for compensation discussed above, operating
expenses for 1997 increased $1.0 million from 1996. This increase was due to an
increase in expenses associated with an overall 17.3% increase in Puerto Rico
volume, offset by a decrease in handling costs from 1996 related to the
complexity and inefficiency of loading substitute vessels during the mid-body
expansion project. As a result, excluding the charge for compensation the
Company's operating ratio improved to 89.9% during 1997 from 93.0% during 1996.
Interest expense (net) decreased $532,444 (49.3%) to $548,631 in
1997 from $1.1 million in 1996 due to reductions in amounts owed to an
affiliate, the capitalization of interest related to new vessel construction and
increased interest income resulting from the unused proceeds of the Company's
initial public offering.
As a result of the factors described above including the charge for
compensation and after application of pro forma income taxes, the Company
reported a pro forma net loss of $2.4 million for 1997 compared to pro forma net
income of $2.1 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $40,447 in 1998 compared to net cash
provided by operations of $10.0 million in 1997. This represented a decrease of
$10.0 million from 1997. Net cash used in investing activities of $15.3 million
in 1998 reflects $36.2 million of capital expenditures, which were primarily
attributable to payments for the construction of the three of the Company's new
Triplestack Box Carriers and the purchase of containers and chassis. These
payments were partially offset by a decrease of restricted cash and investments
of approximately $19.7 million representing the proceeds of the Company's Title
XI bond issuances which were used to fund the construction of the Company's
three new Triplestack Box Carriers discussed above and by the sale of tractors
and trailers of $1.1 million.
At December 31, 1998 cash amounted to $5.6 million, working capital
was $4.0 million, and stockholders' equity amounted to $31.3 million. Management
believes that available borrowings under lines of credit, equipment financings
and cash flow generated from operations will allow the Company to meet its
working capital requirements, anticipated capital expenditures and other obli-
gations at least through calendar 1999.
YEAR 2000
The Year 2000 issue derives from computer programs being written
using two digits rather than four to determine the applicable year. The Company
recognizes that the approach of the Year 2000 brings a unique challenge to the
ability of computer systems to recognize the date change from December 31, 1999,
to January 1, 2000. As a result, the arrival of the Year 2000 could result in
system failures or miscalculations, causing disruption of operations, including,
among other things, a temporary inability to process transactions or to conduct
other normal business activity. Management of the Company concluded that Year
2000 would impact its internal information technology ("IT") and non-information
technology ("Non-IT") systems. In addition, the Company believes that the Year
2000 will impact its supplier chain environment and electronic data-interchange
environment. The Company has designated a group of personnel to manage the
conversion process for its own internal systems, including purchased software,
and to monitor the conversion process for supplier chain environment systems and
effects, as well as for the Company's data-interchange environment. A discussion
of the status of each of these areas follows:
INTERNAL IT AND NON-IT SYSTEMS
Year 2000 conversions within the Company's mainframe environment
have been completed. Mainframe environment conversions included the Company's
hardware and operating systems, its customized applications, and its purchased
software. The Year 2000 conversion for customized applications is Year 2000
operational at the present time. The Company elected to retain certain purchased
software systems and replace certain other purchased software systems.
Installation of Year 2000 compliant versions of retained and purchased software
systems have been completed. The carrying value of software systems to be
replaced for Year 2000 compliance is nominal. Year 2000 conversions of the
Company's desk-top environment, which includes network hardware and operating
systems software, as well as the networked PC hardware operating systems and
applications inventory, were completed in 1998. The Company has completed Year
2000 conversions of its electronic data-interchange software.
EXTERNAL IT AND NON-IT SYSTEMS
The Company is in the process of obtaining an inventory of critical
exposure arising from the Company's suppliers. The Company's list of suppliers
includes financial institutions, telecommunications providers, utility companies
and insurance providers, as well as basic suppliers critical to the operations
of the Company. The Company has sent and is continuing to send questionnaires to
suppliers considered to be significant to operations to determine their status
with respect to Year 2000 issues. The Company continually updates its list of
critical exposures. The Company has completed an inventory of Year 2000 exposure
with respect to data communication business partners. The Company does not have
any single customer that would be material to the Company as a whole. However,
the Company has some customers which, in the aggregate, are significant to the
Company's operations and financial results. The Company is in the process of
surveying significant customers' readiness for Year 2000. The information
provided by significant customers with respect to their Year 2000 readiness will
be considered in the development of the Company's contingency plan.
YEAR 2000 COSTS
The Company is using existing and contract personnel to perform Year
2000 conversions and evaluations of third-party systems. Since the beginning of
the process, the Company estimates its expenditures at approximately $50,000,
including labor costs and costs that relate to equipment and software purchases.
Year 2000 costs have been absorbed in the Company's normal operating expenses
which are funded with the Company's internally generated funds or its revolving
credit facility. The Company's cash flows have not been adversely impacted to a
material degree by Year 2000 costs. It is management's conclusion that there
have been no significant projects deferred as a result of Year 2000 efforts. The
Company does not expect to incur additional expenditures for Year 2000
conversion costs.
CONTINGENCY PLANNING
The Company is in the process of developing an assessment of its
most reasonably likely worst case Year 2000 scenario and its Year 2000
contingency plan. The responses the Company receives from suppliers regarding
their Year 2000 readiness will play a critical role in these determinations. The
Company currently plans to have made an assessment of its most reasonably likely
worst case Year 2000 scenario by April 1, 1999. This and other relevant
information will be utilized to develop the Company's contingency plan. It is
presently expected that the contingency plan will be developed by June 30, 1999.
Like virtually all other public and private companies, the Company's day-to-day
business is dependent on telecommunications services, banking services and
utility services provided by a large number of entities. At this time, the
Company is not aware of any of these entities or of any significant suppliers or
customers that has disclosed that it will not be Year 2000 compliant by January
1, 2000. However, many of these entities are, like the Company, still engaged in
the process of attempting to become Year 2000 compliant. The Company plans to
attempt to obtain written assurance of Year 2000 compliance from all entities
which management considers critical to operations of the Company. However, it is
likely that some critical suppliers or customers will not give written assurance
as to Year 2000 compliance because of concerns as to legal liability. Even where
written assurance is provided by critical suppliers or customers and a
contingency plan is developed by the Company to deal with possible
non-compliance by other critical suppliers or customers, the Year 2000
conversion process will continue to create risk to the Company which is outside
the control of the Company. There can be no assurance that a major Year 2000
disruption will not occur in a critical supplier or customer which would have a
material impact on the Company.
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 is expected to have a
greater impact with the Company's additional capacity.
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):
1997 1998
---- ----
By Quarter
First Second Third Fourth First Second Third Fourth
Operating revenues............ $16,446 $16,171 $16,676 $17,096 $16,347 $18,408 $18,852 $23,633
Operating income (loss)....... 1,748 (6,733) 1,517 1,653 286 411 (398) (3,345)
Pro forma net income (loss)(1) 909 (5,254) 2,446 1,103 69 149 (436) (2,299)
(1) See Note 2 to the Financial Statements.
This 10-K contains statements which 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 economic recessions, changes in demand for
transportation services offered by the Company, and changes in rate levels for
transportation services offered by the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest
rates. For certain debt instruments, a change in interest rates effects the
amount of interest expense incurred. The debt instruments subject to changes in
interest rates are the $8,550,000 revolving line of credit with a weighted
average interest rate of 6.49% and $2,598,911 of notes payable with a weighted
average interest rate of 9.17% with maturity dates ranging from May 29, 2001 to
October 29, 2001.
Item 8. Financial Statements and Supplementary Data
TRAILER BRIDGE, INC.
Financial Statements for the Three Years
in the Period Ended December 31, 1998
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, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Deloitte & Touche, LLP
Jacksonville, Florida
March 31, 1999
TRAILER BRIDGE, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- - --------------------------------------------------------------------------------
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,561,996 $ 14,277,445
Trade receivables, less allowance for doubtful
accounts of $1,093,403 and $1,165,874 13,491,451 7,747,600
Other receivables 1,376,576 141,339
Due from affiliate 552,134
Prepaid expenses 840,887 764,975
------------ ------------
Total current assets 21,823,044 22,931,359
------------ ------------
PROPERTY AND EQUIPMENT, net 62,054,638 30,282,611
GOODWILL, less accumulated amortization of
$311,322 and $264,543 857,620 904,399
RESTRICTED CASH AND INVESTMENTS 1,190,918 20,909,904
OTHER ASSETS 3,302,869 1,866,184
------------ ------------
TOTAL ASSETS $ 89,229,089 $ 76,894,457
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,341,141 $ 2,137,251
Other accrued liabilities 6,017,108 3,398,858
Current portion of notes payable 3,988,067 3,156,142
Current portion of capital lease obligations 42,945 35,908
Unearned revenue 470,684 163,084
Due to affiliate 60,300
------------ ------------
Total current liabilities 17,859,945 8,951,543
NOTES PAYABLE, less current portion 31,399,115 33,960,518
REVOLVING LINE OF CREDIT 8,550,000
CAPITAL LEASE OBLIGATIONS, less current portion 76,102 122,439
------------ ------------
TOTAL LIABILITIES 57,885,162 43,034,500
------------ ------------
COMMITMENTS (Notes 4, 7 and 12)
STOCKHOLDERS' 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 37,982,818 37,982,818
Accumulated deficit (6,736,666) (4,220,636)
------------ ------------
Total stockholders' equity 31,343,927 33,859,957
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,229,089 $ 76,894,457
============ ============
See notes to financial statements.
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
OPERATING REVENUES $ 77,240,644 $ 66,388,577 $ 63,148,218
OPERATING EXPENSES:
Salaries, wages, and benefits 16,284,073 14,722,568 13,288,633
Compensation expense recognized
for stock option 8,528,670
Rent and purchase transportation:
Related party 6,736,500 7,500,000 5,900,000
Other 20,305,185 10,019,705 10,331,461
Fuel 5,701,701 5,617,199 5,883,378
Operating and maintenance (exclusive of
depreciation shown separately below) 19,849,857 12,869,034 14,210,787
Taxes and licenses 558,866 452,275 455,407
Insurance and claims 2,014,729 1,900,334 2,121,039
Communications and utilities 825,309 587,655 607,833
Depreciation and amortization 3,574,132 2,597,887 2,944,069
Other operating expenses 4,435,941 3,409,127 2,981,104
----------- ----------- -----------
80,286,293 68,204,454 58,723,711
----------- ----------- -----------
OPERATING (LOSS) INCOME (3,045,649) (1,815,877) 4,424,507
NONOPERATING INCOME (EXPENSE):
Interest expense, net:
Related party (278,641) (457,743)
Other (1,035,769) (269,990) (623,332)
Gain (loss) on sale of equipment, net 207,255 (80,851) 66,523
----------- ----------- -----------
(828,514) (629,482) (1,014,552)
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION AND PRO FORMA
PROVISION FOR INCOME TAXES (3,874,163) (2,445,359) 3,409,955
BENEFIT (PROVISION) FOR INCOME TAXES 1,358,133 426,566 (38,581)
---------- -------- --------
NET (LOSS) INCOME BEFORE PRO FORMA PROVISION
FOR INCOME TAXES (2,516,030) (2,018,793) 3,371,374
PRO FORMA PROVISION FOR INCOME TAXES (NOTE 2) (397,329) (1,298,442)
----------- ----------- -----------
PRO FORMA NET (LOSS) INCOME (NOTE 2) $ (2,516,030) $ (2,416,122) $ 2,072,932
============ =========== ===========
PRO FORMA NET (LOSS) INCOME
PER COMMON SHARE
Basic $ (0.26) $ (0.30) $ 0.31
=========== =========== ===========
Diluted $ (0.26) $ (0.30) $ 0.31
=========== =========== ===========
See notes to financial statements.
TRAILER BRIDGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------
Retained
Common Stock Additional Earnings
---------------------------- Paid-in (Accumulated
Share Amounts Capital Deficit) Total
-------------- ------------- ---------------- ---------------- ----------------
BALANCE, JANUARY 1, 1996 6,672,500 $ 66,725 $ (66,300) $ 2,672,745 $ 2,673,170
Net income 3,371,374 3,371,374
--------- ------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1996 6,672,500 66,725 (66,300) 6,044,119 6,044,544
Compensation expense recognized
for stock options 8,528,670 8,528,670
Distributions to stockholders 1,060,212 (8,245,962) (7,185,750)
Net proceeds from initial public
offering of common stock 3,105,000 31,050 28,460,236 28,491,286
Net loss (2,018,793) (2,018,793)
--------- ------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1997 9,777,500 97,775 37,982,818 (4,220,636) 33,859,957
Net loss (2,516,030) (2,516,030)
--------- ------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1998 9,777,500 $ 97,775 $ 37,982,818 $ (6,736,666) $ 31,343,927
========= ======= =========== ============ ===========
See notes to financial statements.
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
OPERATING ACTIVITIES:
Net (loss) income $ (2,516,030) $ (2,018,793) $ 3,371,374
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 3,574,132 2,597,887 2,944,069
Provision for uncollectible accounts 1,040,721 381,691 673,699
(Gain) loss on sale of equipment (207,255) 80,851 (66,523)
Compensation expense recognized for stock option 8,528,670
Deferred income taxes (1,332,642) (652,876)
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables (6,784,572) 176,581 (70,153)
Other receivables (1,235,237) (141,339)
Due from affiliate (612,434)
Prepaid expenses (75,912) 199,996 (353,742)
Other assets 59,936 67,014 (13,217)
Increase (decrease) in:
Accounts payable 5,203,890 155,830 659,377
Accrued liabilities 2,618,250 763,759 145,544
Unearned revenue 307,600 (60,543) (55,271)
------------ ------------- -----------
Net cash provided by operating activities 40,447 10,078,728 7,235,157
------------ ------------- -----------
INVESTING ACTIVITIES:
Due to affiliate (4,592,892) (3,171,944)
Purchases and construction of property and equipment (36,172,044) (20,434,204) (6,707,075)
Proceeds from the sale of equipment 1,126,390 31,764 426,462
Decrease (increase) in restricted cash and investments 19,718,986 (20,909,904)
------------ ------------- -----------
Net cash used in investing activities (15,326,668) (45,905,236) (9,452,557)
------------ ------------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings on notes payables 1,746,591 31,740,797 6,637,569
Proceeds from borrowings on revolving line of credit 8,550,000
Proceeds from sale of common stock 28,491,286
Payments on notes payable (3,476,069) (3,650,278) (3,125,722)
Payments of dividends (7,185,750)
Debt issue costs (210,450) (909,729)
Payments on capital lease obligations (39,300) (41,294) (133,854)
------------ ------------- -----------
Net cash provided by financing activities 6,570,772 48,445,032 3,377,993
------------ ------------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,715,449) 12,618,524 1,160,593
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,277,445 1,658,921 498,328
------------ ------------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,561,996 $ 14,277,445 $ 1,658,921
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for state income taxes $ 134,127 $ 46,145 $ 68,035
============ =========== ===========
Cash paid for interest, net of amount capitalized:
Related party $ 283,653 $ 457,151
Other $ 2,249,445 419,739 652,554
------------ ----------- -----------
$ 2,249,445 $ 703,392 $ 1,109,705
============ =========== ===========
Book value of like kind assets exchanged $ 610,041
============ =========== ===========
Equipment acquired under capital lease agreements $ 211,060
===========
See notes to financial statements.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------
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.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
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.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
Goodwill - Goodwill is being amortized on a straight-line basis over
twenty-five years.
Restricted Cash and Investments - Restricted cash and investments consist
of cash and investments held in trust and committed for the construction of
the Company's Triplestack Box Carrier(TM) vessels and investments held by a
letter of credit for the continued use of a newly constructed land-based
ramp. These funds have been invested in highly liquid interest bearing
deposits, U.S. Treasury bills and money market accounts and are carried at
cost which approximates market.
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.
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.
The Company was organized under Subchapter S of the Internal Revenue Code
until this election was terminated effective with the Company's initial
public offering in July 1997. Under Subchapter S, the Company was not
subject to federal income taxes.
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.
Recently Adopted Accounting Standards - In June, 1997 the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130")
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 does not require a specific format for that
financial statement but requires that an entity display an amount
representing total comprehensive income for the period in that statement.
SFAS No. 130 requires that an entity classify items of other comprehensive
income by their nature in a financial statement. For example, other
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
comprehensive income may include foreign currency and unrealized gains and
losses on certain investments in debt and equity securities. In addition,
the accumulated balance of other comprehensive income must be displayed
separately from retained earnings and additional paid in capital in the
equity section of a statement of financial position. Adoption of SFAS No.
130 had no impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") effective for fiscal years beginning after December 15,
1997. SFAS No. 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires reporting of segment profit or
loss, certain specific revenue and expense items and segment assets. It
also requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts reported in the financial statements.
Adoption of SFAS No. 131 did not have a material impact on the financial
statements.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"),
effective for fiscal years beginning after December 15, 1997. SFAS No. 132
revises employer disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
This statement standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis and
eliminates certain disclosures. Restatement of disclosures for earlier
periods is required. Adoption of SFAS No. 132 did not have a material
impact on the financial statements.
New Accounting Standards - In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), effective for fiscal years beginning after June 15, 1999. SFAS No.
133 requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting.
The Company has determined that the implementation of this statement will
not have a material impact on the financial statements.
Reclassification - Certain prior year amounts have been reclassified to
conform to current year presentation.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
2. PRO FORMA INCOME TAXES
For informational purposes, the statements of operations for years ended
December 31, 1997 and 1996 contain a pro forma adjustment for income tax
expense which would have been recorded if the Company had not been an S
Corporation and had been subject to corporate income taxes based on the tax
laws in effect during those periods.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consist of the
following:
1998 1997
---- ----
Land $ 917,885 $ 504,703
Construction in progress 6,739,792 11,673,923
Buildings and structures 2,542,581 2,377,131
Office furniture and equipment 2,396,311 1,710,120
Freight equipment 54,677,780 18,621,149
Leasehold improvements 1,355,871 672,909
Equipment under capital leases 263,105 263,105
Less accumulated depreciation and amortization (6,838,687) (5,540,429)
----------- -----------
Fixed assets, net $ 62,054,638 $ 30,282,611
=========== ===========
Depreciation and amortization expense on property and equipment and
equipment under capital leases was $3,480,882, $2,551,108 and $2,897,290
in 1998, 1997 and 1996, respectively. Interest cost of $918,838 and
$296,771 was capitalized during 1998 and 1997, respectively.
4. TRANSACTIONS WITH AFFILIATED COMPANY
Due to/from Affiliate - Amounts due from affiliate include prepaid barge
charterhire lease rent and reimbursable miscellaneous repair payments made
by the Company related to assets of the affiliate. Prior year balance
represented barge charterhire lease rent due to affiliate.
Lease Agreements - The Company leases two roll-on/roll-off barge vessels
and the use of two ramps from an affiliate under operating lease
agreements. For the period from January 1, 1995 through May 10, 1996 for
one vessel and through July 19, 1996, as to the other vessel, the lease
payment was $5,000 per day for each vessel. Upon completion of the
renovations to the vessels during 1996 which extended the barges from a
length of approximately 500 feet to a length of approximately 750 feet, the
lease payments were increased to $10,500 per day for each vessel. Effective
July 23, 1997, the lease payments were adjusted to $10,050 per day for each
vessel. The leases expire at the later of September 1, 2010 or the
repayment of all obligations under an affiliate's construction loan related
to the vessel renovations. Such construction loan is scheduled to be repaid
in quarterly
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
installments ending June 30, 2003. 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. In the third quarter of 1998, the
lease payments to affiliate were reduced by a $600,000 non-recurring
forgiveness in recognition of the impact of Hurricane Georges and in
consideration of the efforts of the Company to recover and repair the San
Juan triple-deck ramp structure utilized by the two triple-deck barges.
Total lease expense under these leases from affiliate totaled $6,736,500,
$7,500,000 and $5,900,000 in 1998, 1997 and 1996, respectively.
While the vessels were undergoing renovations, the Company leased barges
from a third party. In recognition of the $1,160,000 of additional barge
rent and $509,000 of other transitional expenses incurred in 1996, during
the renovation period, the affiliate agreed to reduce the charter rental
due from the Company by approximately $1,669,000.
5. CAPITALIZED LEASE OBLIGATIONS
Future minimum lease payments under capitalized computer equipment leases
as of December 31, 1998 are as follows:
1999 $ 51,780
2000 51,780
2001 29,999
--------
Total minimum lease payments 133,559
Interest portion (14,512)
--------
Present value of minimum lease payments 119,047
Less current portion (42,945)
--------
$ 76,102
========
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
6. NOTES PAYABLE
Following is a summary of long-term debt at December 31, 1998 and 1997:
1998 1997
---- ----
Ship-financing bonds and notes (Title XI) totaling $16,918,000
maturing on March 30, 2023; payable in 50 semi-annual installments
of principal and interest; interest is fixed at 6.52%; collateralized
by vessels with a carrying value of $18,942,200 at December 31, 1998;
amount is guaranteed by The United States of America under the Title XI
Federal Ship Financing Program $ 16,579,640 $ 16,918,000
Ship-financing bonds and notes (Title XI) totaling $10,515,000 maturing
on September 30, 2022; payable in 50 semi-annual installments of
principal and interest; interest is fixed at 7.07%; collateralized by
vessels with a carrying value of $12,871,133 at December 31, 1998; amount
is guaranteed by The United States of America under the Title XI
Federal Ship Financing Program 10,094,400 10,515,000
Borrowings under a $25 million revolving credit and term loan agreement
maturing April 1, 2000 and April 1, 2001; payable in monthly installments
of principal and interest; interest at fixed rates ranging from 7.38% to
8.08%; collateralized by tractors with a carrying value of $6,317,914 at
December 31, 1998 4,292,729 3,957,902
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 8.867% to 9.290%;
collateralized by trailers with a carrying value of $3,970,661 at
December 31, 1998 2,814,648 3,764,498
Note payable to bank totaling $1,680,000 maturing October 2006; payable
in 120 monthly installments of principal and interest; interest is fixed
at 7.95%; collateralized by land and buildings and structures with a
carrying value of $2,331,504 at December 31, 1998 1,316,000 1,484,000
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
In August 1998, the Company entered into a revolving credit and term loan
agreement that provides for borrowings of up to $25,000,000. At the
election of the Company, interest on each borrowing under the line of
credit will accrue at (a) a variable interest rate of the financial
institution's Base Rate plus the Applicable Margin then applicable to Base
Rate Loans, or (b) the Eurodollar Rate determined for such Interest Period
plus the Applicable Margin then applicable to Eurodollar Rate Loans.
Borrowings outstanding under the agreement at December 31, 1998 totaled
$12,842,729 which were comprised of $8,550,000 under the revolving credit
and $4,292,729 under the term loan portion of the agreement.
The debt agreements contain certain restrictive covenants, including
requirements to maintain tangible net worth (as defined), a debt ratio,
interest coverage and debt service coverage at certain levels.
At December 31, 1998, the Company was in non-compliance with certain
restrictive financial covenants related to the revolving credit and term
loan agreement as a result of the additional costs incurred related to the
loss of the San Juan ramp structure following Hurricane Georges. The
Company received a waiver of compliance with such covenants for the
December 31, 1998 and March 31, 1999 measurement periods. The restrictive
covenants resume with the June 30, 1999 measurement period. The Company
expects to be in compliance with the restrictive covenants for the
remainder of 1999.
Following are maturities of long-term debt for each of the next five years:
1999 $ 3,988,067
2000 4,615,952
2001 2,568,360
2002 1,265,320
2003 1,265,320
Thereafter 21,684,163
-----------
$ 35,387,182
===========
7. OPERATING LEASES
The Company has various operating lease agreements, principally for its
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, 1998 are as follows:
1999 $ 25,593,906
2000 24,728,006
2001 21,832,841
2002 21,298,358
2003 20,100,341
Thereafter 86,707,637
------------
Total minimum payments required $ 200,261,089
============
Lease expense for all operating leases, including leases with terms of less
than one year, was $19,027,272, $16,879,647 and $14,806,980 for 1998, 1997
and 1996.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
8. OTHER ACCRUED LIABILITIES
1998 1997
---- ----
Fringe benefits $ 901,573 $ 600,674
Marine expense 3,149,861 925,731
Salaries and wages 336,510 352,362
Other 1,629,164 1,520,091
---------- ----------
$ 6,017,108 $ 3,398,858
========== ==========
9. INCOME TAXES
The components of the benefit (expense) for income taxes is comprised of
the following as of December 31, 1998 and 1997:
1998 1997
---- ----
Current:
Federal $ 22,808 $ (201,164)
State 2,683 (25,146)
---------- ---------
25,491 (226,310)
---------- ---------
Deferred:
Federal 140,278 580,334
State 1,192,364 72,542
---------- ---------
1,332,642 652,876
---------- ---------
$ 1,358,133 $ 426,566
========== =========
Income taxes for the year ended December 31, 1998 and 1997 differ from the
amount computed by applying the statutory Federal corporate rate to income
before income taxes. The differences are reconciled as follows:
1998 1997
---- ----
Tax benefit at statutory Federal rate $ 1,317,216 $ 831,422
Valuation allowance (900,000)
Nondeductible expenses (51,136) (68,693)
State income taxes, net of federal benefit 154,966 39,334
Pro rata income allocated to S Corporation year (428,382)
Recognition of deferred tax liability 994,060
Other (62,913) (41,175)
---------- ---------
Total income tax benefit $ 1,358,133 $ 426,566
========== =========
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
The components of the Company's net deferred tax asset at December 31, 1998
and 1997 is as follows:
1998 1997
---- ----
Deferred tax assets:
Employee stock option $ 3,240,895 $ 3,240,895
Net operating loss 4,297,455 185,934
Accrued expense 189,475 110,360
Allowance for bad debts 415,493 443,032
---------- ----------
Gross deferred assets 8,143,318 3,980,221
Deferred tax liabilities:
Fixed asset basis 5,178,795 2,359,343
Other 79,005 68,002
---------- ----------
Gross deferred tax liabilities 5,257,800 2,427,345
Deferred tax asset valuation allowance 900,000 900,000
---------- ----------
Net deferred tax asset $ 1,985,518 $ 652,876
========== ==========
Prior to July 23, 1997, the Company was organized under Subchapter S of the
Internal Revenue Code for income tax purposes and therefore, all Federal
and certain state income taxes were the responsibility of the Company's
stockholders. The Company was subject to state income taxes in those states
that do not recognize Subchapter S elections. State income tax expense for
1998, 1997 and 1996 was not significant due to the utilization of net
operating loss carryforwards.
At December 31, 1998, the Company had available net operating loss ("NOL")
carryforwards for regular federal income tax purposes of approximately
$11,309,000, of which $489,000 will expire beginning in the year 2005.
Under Internal Revenue code Section 382, the $489,000 of net operating
losses become available in equal amounts through the year 2005.
10. COMMON STOCKHOLDERS' EQUITY
Common Stock:
In July 1997, the Company completed an underwritten initial public offering
("IPO") of 3,105,000 shares of its common stock at an initial offering
price of $10.00 per share, yielding gross proceeds of $31,050,000. Net
proceeds to the Company as a result of the IPO were $28,491,286 after
deduction of underwriting, legal, accounting and other offering related
expenses totaling $2,558,714.
Also in July 1997, the Company's Board of Directors and stockholders
authorized the following which became effective in connection with the
Company's initial public offering: (i) a 15,700-for-1 stock split, (ii) an
increase in the authorized number of common shares from 2,000 to
20,000,000, (iii) a change in the par value of common stock from $1.00 to
$.01 and (iv) 1,000,000 shares of preferred stock with a par value of $.01
per share. Stockholder's equity has been restated to give retroactive
recognition to the stock split and change in par value in prior periods. In
addition, all references in the financial statements to the number of
shares and per share amounts have been restated.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
Earnings Per Share:
For the years ended December 31, 1998 and 1997, outstanding options to
purchase shares of common stock at an exercise price of $10.00 per share
were not included in the computation to arrive at diluted EPS because the
options' exercise price exceeded the average market price of the common
shares.
Stock Options:
In May 1997, the majority stockholder of the Company granted to the
Company's Chairman and Chief Executive Officer, an option to purchase up to
942,000 shares of common stock (adjusted for the 15,700-for-1 stock split)
owned by him at an exercise price of $.95 per share. The option was
immediately exercisable with a term of 10 years. In connection with this
option, the Company recorded a non-recurring, non-cash charge to
compensation expense during the year ended December 31, 1997. This option
does not involve the issuance of additional shares of common stock by the
company and therefore, any purchase of shares under the option will not
have a dilutive effect on the Company's book value or earnings per share
amounts.
Compensation cost charged to operations associated with the Company's stock
option plans was $8,528,670 in 1997. Compensation cost was based on the
difference between the value of the shares of common stock vested during
the year and the exercise price of such shares.
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 interest in its continued success. The Company
has reserved 785,000 shares of common stock for issuance pursuant to the
Incentive Stock Plan to eligible employees under the Plan.
In January 1998, the Company's Board of Directors authorized and granted an
additional 130,000 non-qualified options to executives under the Company's
Incentive Stock Plan. The exercise price is $10 per share and vest equally
over a period of five years.
In July 1997, the Company awarded non-qualified options to executives
covering an aggregate of 392,500 shares at an exercise price equal to the
initial public offering price of the common stock. The Board of Directors
also granted non-qualified options to purchase 78,500 additional shares to
other employees at an exercise price equal to the initial public offering
price. Such options become exercisable at the rate of 20% per year
beginning on the first anniversary date of the offering. Options that
expire unexercised or are forfeited become available again for issuance
under the Plan.
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. Had compensation
expense for stock options been determined based upon the fair value at the
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
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.
1998 1997
---- ----
As reported
Pro forma net loss $ (2,516,030) $ (2,416,122)
Net loss per share - Basic and Diluted (0.26) (0.30)
Pro forma for SFAS No. 123
Net loss $ (2,930,148) $ (2,588,671)
Net loss per share - Basic and Diluted (0.30) (0.32)
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made. There were no options granted in 1996. The
following assumptions were applied in determining the pro forma
compensation cost:
Years ended December 31 1998 1997
Risk-free interest rate 5.76% 6.16%
Expected dividend yield 0% 0%
Expected option life 7 years 7 years
Expected stock price volatility 81.93% 69.32%
A summary of the status of options under the Company's stock-based
compensation plans as of December 31, 1998 and 1997 is presented below:
1998 1997
-------------------------- --------------------------
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
Outstanding at beginning of year 468,126 $ 10.00
Granted 130,000 10.00 471,000 $ 10.00
Exercised
Forfeited (76,944) 10.00 (2,874) 10.00
-------- --------
Outstanding at end of year 521,182 10.00 468,126 10.00
======== ========
Grants exercisable at year-end 93,262
Weighted-average fair value of
options granted during the year $ 7.36 $ 7.13
The following table summarizes information about the outstanding grants at
December 31, 1998:
Weighted-Average
Exercise Options Remaining Options
Price Outsanding Contractual Life Exercisable
-------- ---------- ---------------- -----------
$ 10.00 521,182 8.8 93,262
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
- - --------------------------------------------------------------------------------
Remaining non-exercisable options as of December 31, 1998 become
exercisable as follows:
1999 101,730
2000 101,730
2001 101,730
2002 101,730
2003 21,000
--------
427,920
========
11. 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 $214,000, $176,000 and
$166,000 to the Plan during 1998, 1997 and 1996. The Company made an
optional contribution of $0, $39,000 and $32,700 in December 1998, 1997 and
1996.
In addition, the Company has a 165(e) Plan that covers substantially all
employees in Puerto Rico. The Company made contributions of approximately
$15,000, $13,000 and $10,000 to the Plan during 1998, 1997, and 1996.
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
$6,000 to the Plan during 1998.
The Company has a Profit Sharing Plan in which they contributed
approximately $24,000, $688,000 and $430,000 to the Plan during 1998, 1997,
and 1996.
12. COMMITMENT AND CONTINGENCIES
At December 31, 1998, the Company is obligated under construction
agreements totaling approximately $530,000.
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.
13. 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.
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Concluded)
- - --------------------------------------------------------------------------------
Restricted Cash and Investments - For those interest bearing deposits and
short-term investments, 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.
14. 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.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31, June 30, September 30, December 31,
Quarter Ended 1998 1998 1998 1998
-------------------- --------------------- -------------------- --------------------
Operating revenues $ 16,347,403 $ 18,408,322 $ 18,851,977 $ 23,632,942
Operating income (loss) 286,042 410,872 (397,792) (3,344,771)(1)
Net income (loss) before
income tax 128,995 308,227 (641,217) (3,670,168)
Net income (loss) 69,156 149,098 (435,605) (2,298,679)
Net income
(loss) per share - basic 0.01 0.02 (0.04) (0.24)
March 31, June 30, September 30, December 31,
Quarter Ended 1997 1997 1997 1997
-------------------- --------------------- -------------------- --------------------
Operating revenues $ 16,446,066 $ 16,170,687 $ 16,676,100 $ 17,095,724
Operating income (loss) 1,747,899 (6,733,430) 1,516,502 1,653,152
Net income (loss) before
income tax 1,484,483 (6,991,319) 1,364,856 1,696,621
Pro forma net income (loss) 909,263 (5,253,990) 2,445,963 1,103,016
Pro forma net income
(loss) per share - basic 0.14 (0.79) 0.28 0.11
_________________________________
(1) Operating income was negatively impacted by $3.4 million of additional
costs related to the disruption caused by the loss of use of the San Juan
ramp structure resulting from Hurricane Georges. The $3.4 million of
estimated additional costs included $1,622,613 in additional operating and
maintenance costs (comprised primarily of stevedoring and port related
items), $1,450,427 in additional rent and purchased transportation expense
(comprised primarily of terminal equipment rental, trucking expense in San
Juan and the U.S. and revenue equipment rental), $117,954 in salaries and
wages, $102,374 in insurance and claims and $67,715 in communications and
other operating expenses.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS END
YEAR OF YEAR EXPENSES (CHARGEOFFS) OF YEAR
---- ---------- --------- ------------ ----------
1996 655,440 673,699 (423,558) 905,581
1997 905,581 381,691 (121,398) 1,165,874
1998 1,165,874 1,040,721 (1,113,192) 1,093,403
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Not Applicable
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 1999, 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Documents Filed as Part of this Report
Page
1. Financial Statements:
Independent Auditors' Report ................. 15
Balance Sheets ............................... 16
Statements of Operations ..................... 17
Statements of Changes in Common Stockholders'
Equity ....................................... 18
Statements of Cash Flows ..................... 19
Notes to Financial Statements ................ 20
2. Financial Statement Schedules:
II - Valuation And Qualifying Accounts
Three Years Ended December 31, 1998
All other financial statement schedules have been omitted either
because they are not applicable or because the information that would be
included in such schedules is included elsewhere in the financial statements or
notes thereto.
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
*4.1 -- 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, 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
*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
***10.12 -- 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
****27.1 -- Financial Data Schedule
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) which 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.
**** 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.
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 29th day of March 1999.
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
John D. McCown Chief Executive Officer
and Director (Principal
Executive Officer) March 31, 1999
/s/ Mark A. Tanner Vice President --
Mark A. Tanner Administration and Chief
Financial Officer
(Principal Financial and
Accounting Officer) March 31, 1999
/s/ Malcom P. McLean Director
Malcom P. McLean March 31, 1999
/s/ Kenneth G. Younger Director
Kenneth G. Younger March 31, 1999
/s/ Artis E. James Director
Artis E. James March 31, 1999
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
*3.1 -- Form of Amended and Restated Certificate of
Incorporation of the Registrant
*3.2 -- Form of Amended and Restated Bylaws of the Registrant
*4.1 -- 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, 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
*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
***10.12 -- 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
****27.1 -- Financial Data Schedule
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) which 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.
**** Filed herewith
# Management contract or compensatory plan or arrangement.