April 1, 1999
TRAILER BRIDGE INC (TRBR)
Annual Report (SEC form 10-K)
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,
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,
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
©1998 Trailer Bridge, Inc.
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