SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended Commission file number
June 30, 2002 0-22837
TRAILER BRIDGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3617986
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10405 New Berlin Road E.
Jacksonville, FL 32226 (904) 751-7100
(address of principal (Zip Code) (Registrant's telephone
executive offices) number)
-------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of August 8, 2002, 9,777,500 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Statements of Operations for the Three and Six Months Ended
June 30, 2002 and 2001 (unaudited) Page 3
Balance Sheets as of June 30, 2002 and December 31, 2001 (unaudited) Page 4
Statements of Cash Flows for the Six Months Ended June 30, 2002
and 2001 (unaudited) Page 5
Notes to Financial Statements as of June 30, 2002 Page 6
2
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
-------------- -------------- --------------- ---------------
OPERATING REVENUES ......................................... $ 18,116,637 $ 21,659,184 $ 35,596,763 $ 42,295,897
OPERATING EXPENSES:
Salaries wages, and benefits ............................ 3,541,216 4,355,301 7,514,580 8,814,694
Rent and purchased transportation:
Related Party ........................................ 1,829,100 1,829,100 3,638,100 3,638,100
Other ................................................ 4,813,000 6,773,095 9,207,201 13,614,201
Fuel .................................................... 1,867,839 2,949,903 3,484,162 5,800,790
Operating and maintenance
(exclusive of depreciation shown separately
below)................................................ 3,618,777 6,356,696 7,635,504 12,404,450
Taxes and licenses ...................................... 96,462 236,668 276,847 418,636
Insurance and claims .................................... 838,624 621,217 1,464,395 1,257,289
Communications and utilities ............................ 166,009 157,714 324,723 327,753
Depreciation and amortization............................ 825,676 1,224,208 1,746,266 2,522,410
Other operating expenses ................................ 981,883 1,287,130 1,285,959 2,161,596
------------- ------------- -------------- --------------
18,578,586 25,791,032 36,577,737 50,959,919
------------- ------------- -------------- --------------
OPERATING LOSS.............................................. (461,949) (4,131,848) (980,974) (8,664,022)
NONOPERATING INCOME
(EXPENSE):
Interest expense, net ................................... (806,489) (810,678) (1,529,636) (1,684,540)
Gain (loss) on sale of equipment and other, net.......... 138,140 (218,419) 69,778 (186,536)
------------- ------------- -------------- --------------
(668,349) (1,029,097) (1,459,858) (1,871,076)
LOSS BEFORE BENEFIT
FOR INCOME TAXES......................................... (1,130,298) (5,160,945) (2,440,832) (10,535,098)
BENEFIT FOR INCOME TAXES ................................... - - - -
------------- ------------- -------------- --------------
NET LOSS.................................................... $ (1,130,298) $ (5,160,945) $ (2,440,832) $ (10,535,098)
============= ============= ============== ==============
NET LOSS PER SHARE.......................................... $ (0.12) $ (0.53) $ (0.25) $ (1.08)
============= ============= ============== ==============
WEIGHTED AVERAGE
SHARES OUTSTANDING ...................................... 9,777,500 9,777,500 9,777,500 9,777,500
============= ============= ============== ==============
See Notes to Financial Statements.
3
TRAILER BRIDGE, INC.
BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
------------------ ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,143,679 $ 441,320
Marketable securities 61,717 61,403
Trade receivables, less allowance for doubtful
accounts of $1,302,596 and $1,118,083 11,396,458 10,547,863
Other receivables 17,105 34,272
Prepaid expenses 652,167 1,258,125
Assets held for sale - 305,873
----------------- -----------------
Total current assets 14,271,126 12,648,856
Property and equipment, net 51,850,420 53,616,664
Other assets 1,379,210 1,458,225
----------------- -----------------
TOTAL ASSETS $ 67,500,756 $ 67,723,745
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,334,384 $ 9,622,215
Accrued liabilities 3,024,885 4,824,789
Current portion of notes payable 4,221,103 18,742,140
Unearned revenue 909,198 832,898
----------------- -----------------
Total current liabilities 14,489,570 34,022,042
Due to Affiliates 26,329,322 19,577,513
Long-term debt, less current obligations 35,947,043 22,833,420
Derivative financial instrument - 35,952
----------------- -----------------
TOTAL LIABILITIES 76,765,935 76,468,927
----------------- -----------------
Stockholders' Equity (Deficit):
Preferred stock series A, $.01 par value, 1,000,000 shares
authorized; 19,550 shares issued and outstanding 196 -
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,777,500 shares issued and
outstanding at 2002 and 2001 97,775 97,775
Additional paid-in capital 41,712,457 39,791,818
Accumulated deficit (51,075,607) (48,634,775)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (9,265,179) (8,745,182)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 67,500,756 $ 67,723,745
================= =================
See Notes to Financial Statements.
4
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and June 30, 2001
(Unaudited)
June 30, June 30,
2002 2001
------------------- ------------------
Operating activities:
Net loss $ (2,440,832) $ (10,535,098)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,746,266 2,522,410
Provision for doubtful accounts 184,513 1,382,964
(Gain) loss on sale of fixed assets (69,464) 186,536
Unrealized gain on marketable securities (314)
Decrease (increase) in:
Trade receivables (1,033,108) (2,755,057)
Other receivables 17,167 74,116
Prepaid expenses 605,958 175,891
Assets held for sale 305,873
Increase (decrease) in:
Accounts payable (3,287,831) 356,234
Accrued liabilities (1,799,904) 769,549
Due from related party 2,007
Unearned revenue 76,300
------------------ ------------------
Net cash used in operating activities (5,695,376) (7,820,448)
------------------ ------------------
Investing activities:
Additions to and construction of property and equipment (423,065) (473,295)
Proceeds from sale of property and equipment 512,507 963,545
Decrease in other assets 79,015 86,301
------------------ ------------------
Net cash provided by investing activities 168,457 576,551
------------------ ------------------
Financing activities:
Proceeds from (payments on) borrowing on revolving line
of credit, net (552,597) 1,722,492
Proceeds from borrowing from affiliates, net 6,751,809 7,075,651
Proceeds from borrowing under capital lease obligations 375,006
Issuance of Preferred Series A Convertible Stock 1,920,835
Principal payments on notes payable (933,327) (1,627,387)
Principal payments under capital lease obligations (296,496) (44,709)
Derivative instrument payment (35,952)
------------------ ------------------
Net cash provided by financing activities 7,229,278 7,126,047
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 1,702,359 (117,850)
Cash and cash equivalents, beginning of the period 441,320 865,167
------------------ ------------------
Cash and cash equivalents, end of period $ 2,143,679 $ 747,317
================== ==================
Non cash transactions
Capital contributed from affiliate $ - $ 1,809,000
================== ==================
See Notes to Financial Statements.
5
TRAILER BRIDGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for the
periods shown. The financial statements have been prepared in accordance with
the instructions to Form 10-Q and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the Company's audited financial statements for the three
years ended December 31, 2001 that appear in the Form 10-K.
Recent Accounting Pronouncements - In June 2001, the FASB issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill. SFAS No. 142 requires that
goodwill and certain intangibles no longer be amortized, but instead must be
tested for impairment at least annually. SFAS No. 142 is required to be applied
starting with fiscal years beginning after December 15, 2001, with early
application permitted in certain circumstances. The adoption of SFAS No. 141 and
SFAS No. 142 did not have a material impact on the Company's financial position
and results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and requires that the amount recorded as a liability be capitalized by
increasing the carrying amount of the related long-lived asset. Subsequent to
initial measurement, the liability is accreted to the ultimate amount
anticipated to be paid, and is also adjusted for revisions to the timing or
amount of estimated cash flows. The capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. SFAS No. 143 is required to be adopted for fiscal years
beginning after June 15, 2002, with earlier application encouraged. The Company
has not yet determined the impact, if any, the adoption of SFAS No. 143 will
have on the Company's financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". SFAS No. 144 retains the fundamental provisions of SFAS
No. 121 for (a) recognition and measurement of the impairment
6
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company has not yet determined the
impact, if any, the adoption of SFAS No. 144 will have on the Company's
financial position and results of operations.
2. COMPANY LIQUIDITY
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities in
the normal course of business. As shown in the financial statements, the Company
incurred a net loss in the six months ended June 30, 2002 of $2,440,832. As of
June 30, 2002, current liabilities exceeded current assets by $218,454 and total
liabilities exceeded total assets by $9,265,179. These factors among others may
indicate that the Company may be unable to continue as a going concern for a
sufficient period of time to realize the value of its assets.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required, and
ultimately to attain successful operations. The Company's projected cash flows
from operations combined with its revolving line of credit and maintenance of
its vendor relationships are expected to produce sufficient available liquidity
to maintain its current level of operations through calendar 2002 and the second
quarter of 2003.
During the quarter ended June 30, 2002 the Company borrowed $5
million from an affiliate, Transportation Receivables 1992, LLC. The proceeds of
this borrowing were used to repay $3 million borrowed in the first quarter from
a related affiliate, the Estate of M. P. McLean and to provide $2 million in
working capital. In addition the same affiliate purchased Preferred series A
convertible stock for $2 million the proceeds of which were also available for
working capital. Separately, Kadampanattu Corp., also an affiliate of the
Company, has agreed to allow Trailer Bridge to defer payment on certain amounts
due under the charter of the two roll-on/roll-off vessels, through at least the
end of 2002. Kadampanattu Corp. has also agreed to convert $20.3 million to
non-convertible preferred stock if such conversion would be sufficient to regain
compliance with the applicable maintenance standards of the Nasdaq National
Stock Market and result in the Company's continued listing thereon.
The Company believes the $4.0 million cash infusion it obtained
during the quarter combined with projected cash flows from operations, its
revolving credit line and maintenance of its vendor relationships will be
sufficient for it to meet its ongoing operational needs and debt service
obligations through at least June 30, 2003.
7
3. SERIES A PREFERRED
In May 2002, the Company issued 19,550 shares of Series A preferred
stock for a total purchase price of $2 million. The Series A preferred stock has
a liquidation preference equal to its original purchase price. In the event of
the liquidation of the Company, unless the holders of the Series A preferred
stock elected to convert their shares to common stock, the holders of common
stock would not be entitled to receive any distributions after the payment or
provision for the Company's liabilities until the liquidation preference had
been paid in full.
The Company is prohibited from paying any dividend on or redeeming
or acquiring any shares of its common stock without the prior written consent of
the holders of a majority of the outstanding shares of Series A preferred stock.
Each share of Series A preferred stock is convertible into 100
shares of common stock at any time, at the holder's election, subject to
customary anti-dilution protection. The Series A preferred stock votes together
with the common stock, as a single class, except where class voting is required
by Delaware law, with each share of Series A preferred stock entitled to 35.52
votes per share.
The Company sold the Series A preferred stock described above on May
23, 2002, to Transportation Receivables 1992, LLC, an entity wholly-owned by the
estate of M. P. McLean, which is the majority shareholder of the Company.
4. 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
is not necessary.
8
5. LONG-TERM DEBT
Following is a summary of long-term debt at June 30, 2002 and December 31, 2002:
June 30, December 31,
2002 2001
Ship-financing bonds and notes (Title XI) maturing on
March 30, 2023; payable in semi-annual installments
of principal and interest; interest is fixed at 6.52%;
collateralized by vessels with a carrying value of
$16,259,189 at June 30, 2002; amount is
guaranteed by The United States of America
under the Title XI Federal Ship Financing Program $ 14,887,840 $ 14,887,840
Ship-financing bonds and notes (Title XI) maturing on
September 30, 2022; payable in semi-annual installments
of principal and interest; interest is fixed at 7.07%;
collateralized by vessels with a carrying value of
$10,324,976 at June 30, 2002; amount is
guaranteed by The United States of America
under the Title XI Federal Ship Financing Program 9,042,900 9,042,900
Term loan under $29 million credit facility maturing
between April 1, 2001 and January 31, 2004; payable
in monthly installments of principal and interest;
interest at a rate of 4.25% above the 30-day dealer
commercial paper rate (6.02% at June 30, 2002);
collateralized by trailers with a carrying value of
$16,822,522 at June 30, 2002 9,857,143 10,714,286
Revolving line of credit under $29 million credit facility;
interest at a rate of 3.75% above the 30-day dealer
commercial paper rate (5.52% at June 30, 2002);
collateralized by accounts receivable 4,624,604 5,123,129
Revolving line of credit under $29 million credit facility;
interest at a rate of 6.00% above the 30-day dealer
commercial paper rate (7.77% at June 30, 2002);
collateralized by accrued receivable 784,666 838,738
Note payable to bank maturing October 2006; payable
in monthly installments of principal and interest; interest
at a rate of 2.00% above the LIBOR market index rate
(3.84% at June 30, 2002); collateralized by land and
buildings and structures with a carrying value of
$2,121,525 at June 30, 2002 735,816 812,000
9
Capital lease obligations maturing in 2002; payable in
monthly installments of principal and interest; interest
at 10.00%; collateralized by computer equipment 3,686
Capital lease obligations maturing in 2002; payable in
monthly installments of principal and interest; interest
at 4.90%; collateralized by trailers 235,177 152,981
------------------- -------------------
40,168,146 41,575,560
Less current portion (4,221,103) (18,742,140)
------------------- -------------------
$ 35,947,043 $ 22,833,420
=================== ===================
During the quarter ended June 30, 2002, the Company renegotiated the covenants
contained in the loan and security agreement. As of June 30, 2002, the Company
was in compliance with the newly negotiated financial restrictions and as a
result, the debt is classified as long term.
The note payable collateralized by land and buildings has provisions, which
allow the lendor to call the note if the Company is out of compliance with
covenants of other debt agreements. Accordingly, the note payable has been
classified as long term debt as of June 30, 2002.
These notes were classified as current as of December 31, 2001 as a result of
the non-compliance with the original covenants.
As of June 30, 2002, the Company is in default of the financial covenants
contained in the Title XI debt agreements and as a result is prohibited from
certain financial activities that would impact the financial position of the
Company including withdrawing capital, redeeming common stock, paying dividends,
making loans and investments in securities of any affiliate. The Company is in
compliance with these financial restrictions and as a result, the debt continues
to be classified as long term.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
Three Months Ended June 30, 2002 and 2001
- -----------------------------------------
With the discontinuation of the Northeast service at the end of
2001, the Company had 28.1% less overall vessel capacity deployed in the Puerto
Rico lane during the three months ended June 30, 2002 compared to the second
quarter of 2001. With this capacity reduction, the Company's total volume of
freight moving to and from Puerto Rico decreased 17.3% compared to the year
earlier period. Operating revenues for the three months ended June 30, 2002 were
$18,116,637 a decrease of $3,542,548 or 16.4%, compared to the second quarter of
2001. The Company's Puerto Rico deployed vessel capacity utilization overall
during the three months ended June 30, 2002 was 75.5% to Puerto Rico and 21.3%
from Puerto Rico significantly better than the 65.6% and 19.5%, respectively,
during the second quarter of 2001. The Company had an average of 178 tractor
units operating on the mainland during the three months ended June 30, 2002,
generating 9,383 miles per month of which 82.1% were loaded.
Operating expenses decreased $7.2 million for the three months ended
June 30, 2002 from $25.8 million for the same period in 2001 to $18.6 million.
The termination of the Company's Northeast service resulted in significant
decreases in operating expenses related to salary, wages and benefits; purchased
transportation; fuel expense; and operation and maintenance expense. Salaries,
wages and benefits expense decreased $814,085 primarily due to reductions in
headcount, driver payroll and less workers compensation expense. Rent and
purchased transportation decreased $2.0 million due to decreased tug charter
hire expense and less equipment rent due to the termination of short-term leases
on excess trailers. Fuel expense decreased $1.1 million due to less consumption
from operating two less tugs and operating fewer company trucks. Operating and
maintenance expense decreased $2.7 million resulting from less stevedoring,
wharfage and vessel maintenance expense. Vessel maintenance expense decreased
primarily due to a non-recurring charge for dry docking expense incurred the
year earlier period. Depreciation expense decreased by $398,532 due to
reductions in equipment fleet and less depreciation expense on tractors and
vessels. All remaining operating expenses decreased a net amount of $219,761,
consisting of decreases in depreciation and amortization, taxes and licenses,
and other expenses, partially offset by increases in insurance, claims and
communications. The total costs associated with the three laid-off triple-
stack box carrier vessels during the three months ended June 30, 2002, net of
charter income, were $478,687.
The operating loss for the three months ended June 30, 2002 was
$461,949, as compared to an operating loss of $4,131,848 in the prior year
period. Compared to the second quarter of 2001, operating loss improved by
$3,669,899, due to discontinuing the Northeast service, reductions in headcount
and equipment, and other cost-cutting initiatives. As a result of the above, the
operating ratio was 102.5% during the three months ended June 30, 2002, compared
to the 119.1% operating ratio during the year earlier period. Net interest
expense of $806,489 was down minimally from the year earlier period due
primarily to lower interest rates. The Company also realized a gain of $138,140
from non-operating items during three months ended June 30, 2002 compared to a
loss of $218,419 in the year earlier period.
11
The Company's loss before income taxes for the second quarter ended
June 30, 2002 was $1,130,298 compared to a pre-tax loss of $5,160,945 in the
year earlier period. Due to the Company's continued losses a full valuation
allowance is provided for its income tax asset. Therefore, the net loss for the
first quarter remained at $1,130,298, or $.12 per share, as compared to a net
loss of $5,160,945 or $.53 per share, for the year earlier period.
With the discontinuance of the Company's Northeast service at the
end of 2001, the Company believes that volume and yield comparisons solely
related to freight moving via Jacksonville are most relevant. For the three
months ended June 30, 2002 compared to the same period a year earlier, total
southbound volume over Jacksonville increase 3.0%. The Company's core southbound
trailer volume from Jacksonville to Puerto Rico increased 3.1%, new and used
cars moving to Puerto Rico increased 34.0% and 14.3% respectively, while shipper
owned or leased equipment ("SOL") and freight not in trailers ("NIT") decreased
38.4% and 9.2%, respectively.
Northbound, total volume over Jacksonville decreased 7.5% for the
three months ended June 30, 2002 compared to the same period a year earlier. The
Company's northbound trailer volume from Puerto Rico to Jacksonville decreased
15.5% but was partially offset by increase in northbound movement of
automobiles.
Due to rate decreases resulting from the hyper-competitive
conditions in the second half of 2001, the effective yield of all the southbound
and northbound freight moving via Jacksonville decreased 3.5% and 8.4%,
respectively from the year earlier period.
During the three month period ending June 30, 2002 a competitor with
a 27% market share which had been operating under Chapter 11 of the bankruptcy
code since March 2001 sold its vessel assets to another competitor. Shortly
after that transaction was finalized in mid-May, the purchaser began taking
steps that effectively resulted in two-thirds of the capacity of the purchased
vessels that were deployed being permanently removed from the Puerto Rico
market. The Company believes this action represents 20% reduction of the overall
capacity in the tradelane. The Company believes that this previous level of
excess capacity has been the root cause of the hyper-competitive conditions in
the Puerto Rico market in recent years, particularly in 2001. With this change,
the Company believes it and the other remaining carriers in the lane will
benefit from greater asset utilization and an unwinding of the unsustainable
pricing characteristic of recent years. The Company's own effective yield on
core southbound loads is down approximately 25% from five years ago.
Six Months Ended June 30, 2002 and 2001
- ---------------------------------------
With the discontinuation of the Northeast service at the end of
2001, the Company had 24.0% less overall vessel capacity deployed in the Puerto
Rico lane compared to the year earlier period. The Company's total volume of
freight moving to and from Puerto Rico decreased 17.5% compared to the year
earlier period. Operating revenues for the six months ended June 30, 2002 were
$35,596,763 a decrease of $6.7 million, or 15.8%, compared to the year earlier
period.
12
The Company's Puerto Rico deployed vessel capacity utilization
overall during the six months ended June 30, 2002 was 75.9% to Puerto Rico and
19.9% from Puerto Rico compared to 68.0% and 20.7%, respectively, during the
year earlier period. The Company had an average of 179 tractor units operating
on the mainland during the six months ended June 30, 2002, generating 9,189
miles per month of which 80.9% were loaded.
Largely resulting from the 24.0% decrease in overall vessel capacity
to Puerto Rico, operating expenses decreased $14.4 million, 28.2%, for the six
months ended June 30, 2002 from $51.0 million for the same period in 2001 to
$36.6 million. The termination of the Company's Northeast service resulted in
significant decreases in operating expenses related to salary, wages and
benefits; purchased transportation, primarily due to decreased tug charter hire
expense; fuel expense; depreciation; and operation and maintenance expense.
The operating loss for the six months ended June 30, 2002 was
$980,974 compared to an operating loss of $8,664,022 in the prior year period.
Compared to the six months ended June 30, 2001, operating loss improved by
$7,683,048, due to discontinuing the Northeast service, reductions in headcount
and equipment, and other cost-cutting initiatives. As a result of the above, the
operating ratio was 102.8% during the six months ended June 30, 2002, compared
to the 120.5% operating ratio during the year earlier period. Net interest
expense of $1,529,636 was down from $1,684,540 in the year earlier period due
primarily to lower interest rates. The Company also realized a gain of $69,778
from non-operating items during six months ended June 30, 2002 compared to a
loss of $186,536 in the year earlier period. The total costs associated with
the three laid-off vessels during the six months ended June 30, 2002, net of
charter income, were $953,920.
The Company's loss before income taxes for the six months ended June
30, 2002 was $2,440,832 compared to a pre-tax loss of $10,535,098 in the year
earlier period. Due to the Company's continued losses a full valuation allowance
is provided for its income tax asset. Therefore, the net loss for the six months
ended June 30 2002 remained at $2,440,832, or $.25 per share, as compared to a
net loss of $10,535,098 or $1.08 per share, for the year earlier period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $5.7 million during the six months
ended June 30, 2002 compared to net cash used by operations of $7.8 million
during the same period in 2001. Net cash provided by investing activities of
$168,457 during the six months ended June 30, 2002 reflects $512,507 in proceeds
from the sale of equipment, partially offset by $423,065 of additions to and
construction of property and equipment, which were primarily attributable to
payments for trailers. Net cash provided from financing activities was $7.2
million during the six months ended June 30, 2002 compared to $7.1 million
during the six months ended June 30, 2001.
At June 30, 2002, cash amounted to $2.1 million, working capital was
negative $218,444, and stockholders' equity was negative $9.3 million. At June
30, 2002, the Company was in compliance with all financial and other covenants
with all its lenders. As of June 30, 2002, the Company had $5.4 million drawn
under the credit facility against a borrowing base of $5.5 million that is
secured by net receivables of $7.5 million.
13
The Company has reduced its payables to non-affiliated vendors by
$3.3 million since December 31, 2001.
During the quarter ended June 30, 2002 the Company borrowed $5
million from an affiliate, Transportation Receivables 1992, LLC. The proceeds of
this borrowing were used to repay $3 million borrowed in the first quarter from
a related affiliate, the Estate of M. P. McLean and to provide $2 million in
working capital the proceeds of which were also available for working capital.
In addition the same affiliate purchased Preferred series A convertible stock
for $2 million. Separately, Kadampanattu Corp., also an affiliate of the
Company, has agreed to allow Trailer Bridge to defer payment on certain amounts
due under the charter of the two roll-on/roll-off vessels, through at least the
end of 2002. Kadampanattu Corp. has also agreed to convert $20.3 million to
non-convertible preferred stock, if such conversion would be sufficient to
regain compliance with the applicable maintenance standards of the Nasdaq
National Stock Market and result in the Company's continued listing thereon.
The Series A preferred stock, which has a liquidation preference of
$2 million, does not bear preferential dividends but participates with the
common stock on an as-converted basis in any common dividends. Shares of Series
A preferred are convertible into common stock at a price of $1.022330179 per
common share, which was a 23.3% discount of the 30 day average closing price as
of March 28, 2002 of $1.33. Except where class voting is required by law, the
series A preferred stock votes together with the common stock as a single class,
with each share of Series A preferred entitled to 35.52 votes per share (or
approximately 35% of the number of votes on an as-converted basis). For
additional information concerning the issuance of the Series A preferred stock,
see Item 4, "Changes in Securities and Use of Proceeds."
The Company's projected cash flows from operations combined with its
revolving line of credit and maintenance of its vendor relationships are
expected to produce sufficient available liquidity to maintain its current level
of operations and service its debt obligations through calendar 2002 and the
second quarter of 2003.
AFFILIATES OF THE COMPANY
The Estate of M. P. McLean is the majority shareholder of the
Company. John D. McCown, Chairman and Chief Executive Officer of the Company,
is a co-executor of the Estate of Malcom P. McLean. F. Duffield Meyercord,
director of the Company, is the other co-executor of the Estate of Malcom P.
McLean.
Two companies wholly owned by the Estate of Malcom P. McLean have
entered transactions with the Company.
During the three month period ended June 30, 2002, Transportation
Receivables 1992, LLC purchased the Series A convertible stock and provided $5
million in secured loans to the Company. The proceeds of the loan were partially
used to repay a $3 million loan outstanding to the Estate of Malcom P. McLean.
The Estate of Malcom P. McLean is the sole member of Transportation Receivables
1992, LLC. The Company's Audit Committee based upon a fairness opinion from
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an independent entity approved all transactions with Transportation
Receivables 1992, LLC. The Company does not expect to enter into any further
transactions with the Estate of Malcom P. McLean itself or Transportation
Receivables 1992, LLC.
Kadampanattu Corp., a corporation wholly-owned by the Estate of
Malcom P. McLean, charters the two roll-on roll-off vessels to the Company
under fixed rate charters entered into with Kadampanattu Corp. at the time of
the Company's inception. During the three months ended June 30, 2002
Kadampanattu Corp. deferred receipt of its charterhire and has agreed to such
deferrals through the end of calendar year 2002. Kadampanattu Corp. has also
advanced funds to the Company on an unsecured basis. At June 30, 2002 the
outstanding amount of such indebtedness is $26.3 million. Kadampanattu Corp.
has also agreed to convert $20.3 million to non-convertible preferred stock if
such conversion would be sufficient to regain compliance with the applicable
maintenance standards of the Nasdaq National Stock Market and result in the
Company's continued listing thereon. John D. McCown and William G. Gotimer, Jr.
are officers and directors of Kadampanattu Corp. Malcom P. McLean, Jr., a
director of the Company, is a director of Kadampanattu Corp.
MARKET CONDITIONS.
The market in which the Company operates, the United States to
Puerto Rico trade lane, remained hyper-competitive with significant over
capacity through the first half of the three months ended June 30, 2002.
Beginning in 2002, the Company reduced its capacity by ceasing to operate its
Northeast Service. In mid-May 2002 the Company's competitors significantly
reduced their capacity. One of the Company's competitors, NPR, which had
operated under Chapter 11 bankruptcy protection since March 2001, ceased all of
its operations by selling its vessel and other assets to another competitor. The
purchaser has chosen not to operate any of the three sailings per week formerly
operated by NPR. Another competitor, CSX Lines, announced it was adding a weekly
sailing to its service. This net reduction of two sailings per week in the
Puerto Rico trade lane has eased the over capacity in the trade resulting in
better vessel utilization and more compensatory freight rates. The Company
expects this change in market condition to result in increased capacity
utilization and yield in the second half of 2002. Despite the reduction in
capacity in the trade lane no assurance can be made that market conditions will
improve or that competitive pressures will not increase.
NASDAQ LISTING REQUIREMENTS
Related to the previously disclosed appeal by the Company of the
Nasdaq staff notification regarding the delisting of the Company's common stock
from the Nasdaq National Stock Market, on June 27, 2002 the Company had a
hearing before the listing qualification panel, where it proposed a course of
action to attain full compliance with the applicable maintenance standard. The
Company proposed to issue $20.3 million of non-convertible preferred stock in
payment of an equal face amount of the Company's debt to its affiliate
Kadampanattu Corp. This transaction has been approved by both the Company and
Kadampanattu Corp. and will be consummated immediately upon a decision of the
listing qualification panel that such transaction
15
cures the Company's non-compliance with NASDAQ maintenance
standards thereby permitting the Company's continued listing on the NASDAQ
National Stock Market. The Company has not yet received the decision of the
listing qualification panel.
FORWARD-LOOKING STATEMENTS
This report may contain statements that may be considered as
forward-looking or predictions concerning future operations and market
conditions. Such statements are based on management's belief or interpretation
of information currently available. These statements and assumptions involve
certain risks and uncertainties and management can give no assurance that such
expectations will be realized. Among all the factors and events that are not
within the Company's control and could have a material impact on future
operating results are risk of economic recessions, severe weather conditions,
changes in demand for transportation services offered by the Company, and
changes in rate levels for transportation services offered by the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has had no material change in market risk in the first six months of
2002. For a discussion of the Company's exposure to market risk see Item 7A of
the Company's Annual Report on Form 10-K.
16
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In May 2002, the Company issued 19,550 shares of Series A preferred
stock for a total purchase price of $2 million. The Series A preferred stock has
a liquidation preference equal to its original purchase price. In the event of
the liquidation of the Company, unless the holders of the Series A preferred
stock elected to convert their shares to common stock, the holders of common
stock would not be entitled to receive any distributions after the payment or
provision for the Company's liabilities until the liquidation preference had
been paid in full.
The Company is prohibited from paying any dividend on or redeeming
or acquiring any shares of its common stock without the prior written consent of
the holders of a majority of the outstanding shares of Series A preferred stock.
Each share of Series A preferred stock is convertible into 100
shares of common stock at any time, at the holder's election, subject to
customary anti-dilution protection. The Series A preferred stock votes together
with the common stock, as a single class, except where class voting is required
by Delaware law, with each share of Series A preferred stock entitled to 35.52
votes per share.
The Company sold the Series A preferred stock described above on May
23, 2002, to Transportation Receivables 1992, LLC, an entity wholly-owned by the
estate of M. P. McLean, which is the majority shareholder of the Company. The
Company did not pay any underwriting discounts or commissions in connection with
the sale. The sale of the shares was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
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Item 4: Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on one item at the Annual Meeting of
Shareholders held on May 29, 2002:
1. The election of eight directors, to terms ending in 2003
A majority of votes were cast in favor of the election of the
following directors:
Shares Voted
Nominee For Nominee Shares Withheld
------- ----------- ---------------
Nickel van Reesema 8,122,295 14,900
Peter S. Shaerf 8,122,295 14,900
Artis James 8,122,295 14,900
John D McCown 8,105,095 32,100
William G. Gotimer, Jr. 8,122,295 14,900
Malcom P. McLean, Jr. 7,399,595 737,600
Greggory B. Mendenhall 7,399,595 737,600
F. Duffield Meyercord 7,399,595 737,600
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Description of Exhibit
3.1.1 Amended and Restated Certificate of Incorporation
3.1.2 Certificate of Designations of Series A Convertible Preferred
Stock
10.7.1 Amended, Modified, Restated and Renewal Real Estate Promissory
Note dated June 14, 2002 between the Registrant and Wachovia
Bank (formerly, First Union National Bank of Florida)
10.22.1 Receipt for Future Advance and Mortgage and Mortgage Note
Modification, Consolidation and Extension Agreement dated as
of May 23, 2002 between Trailer Bridge, Inc., as Mortgagor,
and Transportation Receivables 1992, LLC, as Mortgagee (as
assignee of the Estate of M.P. McLean)
10.22.2 Consolidated Promissory Note dated as of May 23, 2002 in the
original principal amount of $5,000,000 from Trailer Bridge,
Inc. to Transportation Receivables 1992, LLC
10.23 Registration Rights Agreement dated as of May 23, 2002 between
Trailer Bridge, Inc. and Transportation Receivables 1992, LLC
99.1 Certification of Trailer Bridge, Inc.'s Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of Trailer Bridge, Inc.'s Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
(b) The Company filed a report on Form 8-K dated April 2, 2002 on
April 8, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TRAILER BRIDGE, INC.
Date: August 9, 2002 By: /s/ John D. McCown
------------------------------------
John D. McCown
Chairman and Chief
Executive Officer
Date: August 9, 2002 By: /s/ Mark A. Tanner
------------------------------------
Mark A. Tanner
Vice President of Administration
and Chief Financial Officer
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EXHIBIT INDEX
Description of Exhibit
3.1.1 Amended and Restated Certificate of Incorporation
3.1.2 Certificate of Designations of Series A Convertible Preferred
Stock
10.7.1 Amended, Modified, Restated and Renewal Real Estate Promissory
Note dated June 14, 2002 between the Registrant and Wachovia
Bank (formerly, First Union National Bank of Florida)
10.22.1 Receipt for Future Advance and Mortgage and Mortgage Note
Modification, Consolidation and Extension Agreement dated as
of May 23, 2002 between Trailer Bridge, Inc., as Mortgagor,
and Transportation Receivables 1992, LLC, as Mortgagee (as
assignee of the Estate of M.P. McLean)
10.22.2 Consolidated Promissory Note dated as of May 23, 2002 in the
original principal amount of $5,000,000 from Trailer Bridge,
Inc. to Transportation Receivables 1992, LLC
10.23 Registration Rights Agreement dated as of May 23, 2002 between
Trailer Bridge, Inc. and Transportation Receivables 1992, LLC
99.1 Certification of Trailer Bridge, Inc.'s Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of Trailer Bridge, Inc.'s Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
21