SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
Commission file number 0-15087
TRAILER BRIDGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3617986
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10405 New Berlin Road E., Jacksonville, FL 32226
(904) 751-7100
(Address and telephone number of Principal executive offices)
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act:
$0.01 Par Value
Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the registrant's definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
The aggregate market value of the shares of the registrant's $0.01 par value
common stock held by non-affiliates of the registrant as of June 30, 2002, the
last business day of the registrant's most recently completed second fiscal
quarter was $6,513,672 (based upon $2.42 per share being the price at which the
common equity was last sold). In making this calculation the issuer has assumed,
without admitting for any purpose, that all executive officers and directors of
the registrant are affiliates.
As of March 28, 2003, 9,777,500 shares of the registrant's common stock, par
value $.01 per share, and Series A Preferred Stock convertible at anytime to
1,955,000 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 2002 annual meeting of
stockholders that will be filed no later than 120 days after the end of the year
to which this report relates.
PART I
Item 1. Business
BUSINESS OVERVIEW
Trailer Bridge, headquartered in Jacksonville, Florida, is an
integrated trucking and marine freight carrier that provides truckload freight
transportation primarily between the continental U.S. and Puerto Rico. Founded
in 1991 as a Delaware corporation by transportation pioneer Malcom P. McLean,
the Company combines an efficient and dedicated motor carrier with a low cost
barge and tug marine transportation system. Mr. McLean died in May 2001. Trailer
Bridge was the first, and remains the only company serving markets governed by
the Jones Act to exclusively operate marine vessels fully configured to carry
48' and 53' long, 102" wide, "high-cube" equipment. This configuration enables
the Company to achieve equipment utilization rates and other operating
efficiencies not readily available to traditional ocean carriers that primarily
use smaller capacity equipment, such as 40' containers.
Trailer Bridge's differentiated service quickly gained the acceptance
of U.S. to Puerto Rico shippers, leading to rapid growth and high equipment
utilization. In 1996 the Company increased its vessel capacity by 56% by
inserting midsections ("mid-bodies") into its two existing barges, increasing
the capacity of each barge to 405 53' equivalent truckload units.
Trailer Bridge increased its vessel capacity again in 1998 and 1999
when it took delivery of five 403' long container carrying barges designed
specifically for the Company's integrated truckload marine transportation system
and bearing the Company's Triplestack Box Carrier(R) trade name. The Triplestack
Box Carriers are versatile, low-draft vessels that have a capacity of 265 53'
containers, stacked three-high on a single deck. During the fourth quarter of
2000 and throughout 2001, the Company provided a weekly sailing directly between
Newark, New Jersey and San Juan, Puerto Rico. This service was discontinued in
December 2001. The Company currently utilizes two mid-bodied roll-on roll-off
vessels and two Triplestack Box Carriers to provide twice weekly sailings
directly between Jacksonville, Florida and San Juan, Puerto Rico. Three
Triplestack Box Carriers are currently laid up and available for short or long
term charter. During 2002 one Triplestack Box Carrier was chartered for a
portion of the year under short-term charters.
OPERATIONS
At December 31, 2002, Trailer Bridge operated a fleet of 113 tractors,
548 high-cube trailers, 2,799 53' high cube containers and 2,029 53' chassis
that transport truckload freight between the Company's San Juan, Puerto Rico
port facility, its Jacksonville port facility and inland points in the U.S. and
Puerto Rico. During the fourth quarter 2001 and 2002 the Company either through
sale or termination of lease agreements, reduced the equipment it operates. The
Company also provides full truckload service between interior points within the
continental U.S., primarily to increase equipment utilization,
2
minimize empty miles and maximize revenue while repositioning equipment to carry
Puerto Rico bound freight. The Company maintains a centralized dispatch and
customer service center at its Jacksonville headquarters to coordinate the
movement of customer freight throughout our system. The operations center
features a fully integrated computerized dispatch and customer service network.
Customer service representatives solicit and accept freight, quote freight rates
and serve as the primary contact with customers. Dispatch and customer service
personnel work together to coordinate Puerto Rico and non-Puerto Rico freight to
achieve the most optimum load balance and minimize empty miles within the
Company's truckload operation.
At December 31, 2002, Trailer Bridge operated two 736' triple-deck,
roll-on/roll-off (ro/ro) ocean-going barges and two 403' Triplestack Box
Carriers. Loading of the ro/ro barges is performed with small maneuverable yard
tractors operated by stevedores hired by an outside contractor. Each ro/ro
vessel is towed at approximately 9 knots by one 7,200 horsepower diesel-powered
tug. Each Triplestack Box Carrier is towed at approximately 9 knots by one 4,000
horsepower diesel-powered tug. The tugs are time-chartered and are manned by
employees of two unaffiliated tug owners. Compared to a self-propelled vessel, a
towed barge has reduced Coast Guard manning requirements and higher fuel
efficiency. Similarly, the large number of U.S. tugs available for charter
provides the Company with a reliable source for towing services.
MARKETING AND CUSTOMERS
The Company's sales and marketing function is led by senior management
and sales professionals based in Jacksonville, San Juan and other key strategic
U.S. cities. These sales personnel aggressively market Trailer Bridge to
shippers as a customer-oriented provider of value-priced and dependable service.
The Company targets major shippers with high volume, repetitive shipments whose
freight lends itself to integrated trucking and marine service.
The Company believes that price is the primary determinant in the
freight lanes in which it is involved. Nonetheless, the Company also believes
that it provides enhanced service that results from its single company control
of the entire freight movement over land and water. This service frees the
customer from the operational complexities of coordinating the interface between
over-the-road and marine service. The Company's customer service philosophy has
generated increased demand from existing customers and has led to ongoing
relationships with customers such as DaimlerChrysler, General Motors, K Mart,
WalMart, JC Penney, Home Depot, Georgia Pacific, General Electric, Procter &
Gamble, Whirlpool, SC Johnson, Walgreen's and Toys `R' Us.
The Company has a diversified customer base. Typical shipments to
Puerto Rico include furniture, consumer goods, toys, new and used cars and
apparel. Typical shipments from Puerto Rico include health products,
electronics, shoes and scrap aluminum. Management intends to continue the
Company's efforts both to increase business with existing customers and add new
core carrier relationships.
The Company has written contracts with the majority of its customers.
These contracts generally specify service standards and rates, eliminating the
need for negotiating the rate for individual shipments. A contract typically
requires a minimum tender of cargo during a specified term in return for a set
rate during the period.
The continental United States/Puerto Rico trade lane in which the
Company operates is imbalanced with approximately 80% of the freight moving
southbound. The Company's core business is southbound containers and trailers
but it also moves new automobiles, used automobiles, non-
3
containerized, or freight not in trailers ("NITs") and freight moving in shipper
owned or leased equipment ("SOLs").
VESSELS
At December 31, 2002, the Company operated two 736' by 104' triple-deck
roll-on/roll-off barges. Each deck has ten lanes that are accessed from the
stern of the vessel via ramp structures in Jacksonville and San Juan that have
been built specifically for the Company. Six lanes on each vessel have been
converted to carry new and used automobiles on car decks that allow up to 11
cars to fit in the space previously used for one 53' unit. The trailers are
secured on the vessel by attachment to pullman stands that are engaged and
disengaged with specially configured yard tractors used to pull the trailers
into position on the vessel. These vessels are chartered from an affiliate,
Kadampanattu Corp. under long-term leases until at least 2010.
At December 31, 2002, the Company operated two Triplestack Box Carriers
that are single deck barges designed to carry 53' containers. These vessels
utilize the same port facilities as the ro/ro barge vessels in Jacksonville and
San Juan. Wheeled vehicles, known as reach-stackers, carry and load the
containers onto the vessels. These highly maneuverable vehicles are also used by
railroads to load containers on rail cars for intermodal transportation. The
reach-stackers are significantly less expensive than the cranes typically
required for loading and unloading containers from the holds of large cargo
ships and instead directly access the deck of the vessel via simple and movable
linear planks. The Company has filed for patent protection for its unique system
consisting of the vessels and their related loading and unloading method.
During the fourth quarter of 2000 and throughout 2001, the Company
utilized two Triplestack Box Carriers in a service between Newark, New Jersey
and San Juan, Puerto Rico (The "Northeast service"). That service was
discontinued in December 2001. Currently, three of the Triplestack Box Carriers
are not in service and available for short or long-term charter.
VESSELS OWNED OR OPERATED BY THE COMPANY
VESSEL NAME OWNED/CHARTERED TYPE CAPACITY SERVICE
- ----------- --------------- ---- -------- -------
SAN JUAN JAX BRIDGE Chartered(1) Ro/Ro 405 53' units Jax/San Juan
JAX SAN JUAN BRIDGE Chartered(1) Ro/Ro 405 53' units Jax/San Juan
ATLANTA BRIDGE Owned(2) TBC 265 53' units Jax/San Juan
CHARLOTTE BRIDGE Owned(2) TBC 265 53' units Jax/San Juan
MEMPHIS BRIDGE Owned(2)(3) TBC 265 53' units Laid up
CHICAGO BRIDGE Owned(2)(3) TBC 265 53' units Laid up
BROOKLYN BRIDGE Owned(2)(3) TBC 265 53' units Laid up
1 Chartered until 2010 with Company options until 2018. 736' x 104' tripledeck
roll on/roll off barge.
2 Built by the Company between 1998 and 2000. 403' x 100' single deck barge.
3 Available for charter.
RAMP STRUCTURES
The loading and unloading of the Company's two 736' by 104' triple-deck
roll-on/roll-off barges is accomplished through the use of separate ramp
structures. The Company has the exclusive right to use
4
a floating ramp structure in San Juan under the charter agreement, with its
affiliate Kadampanattu Corp., for the two 736' by 104' triple-deck roll-on/roll-
off barges. In Jacksonville, the Company has the preferential right to use a
land-base ramp structure built and owned by the Jacksonville Port Authority.
REVENUE EQUIPMENT
At December 31, 2002, the Company had 113 line haul tractors and 5 day
cabs. The line haul power units are conventional tractors. The day cabs are used
for local delivery work in Jacksonville. At December 31, 2002, the Company
operated dry van trailers, 533 of which were 48' x 102" models and 15 of which
were 53' x 102" models. At December 31, 2002, the Company operated 2,799 53'
containers and 2,029 chassis. At December 31, 2002, the Company operated 303
VTM's as described below.
The Company has designed and built units to transport automobiles on
its vessels. These units, designated by the Company as Vehicle Transport
Modules(R), or VTM's(TM), can hold up to three vehicles and provide an efficient
unit for loading and unloading. The Company built 303 of these units. During
2002 the Company received two separate patents for the VTMs. One patent covers
the VTM unit while the second patent covers the method of loading and unloading
vehicles into the VTM.
The Company performs preventative maintenance on equipment at its
Jacksonville operations center, with major maintenance and repairs handled by
outside contractors.
DRIVER RECRUITING AND RETENTION
The Company offers competitive compensation and full health care
benefits differentiating it from many truckload operators. Management also
promotes driver retention by assigning drivers a tractor for the life of the
unit. Drivers are assigned a single dispatcher, regardless of geographic area,
awarding supporting line-haul operations positions, while providing more
predictable home time for its drivers. The Company driver turnover in 2002 was
40.13% compared to 38.0% in 2001.
FUEL AVAILABILITY AND COST
The Company actively manages its fuel costs by requiring drivers to
fuel in Jacksonville at an offsite fuel facility where the Company has
established a bulk purchasing arrangement. Whenever possible in route, drivers
are required to fuel at truck stops and service centers with which the Company
has established volume purchasing arrangements. The Company offers
fuel-conservation bonuses to its drivers based on achieving miles per gallon
goals.
Although the Company pays for the marine fuel used by the large tugs it
charters, the actual fuel loading is controlled by tug crew personnel employed
by the tug owner. The fuel is purchased and loaded in each of the ports served
by the Company, primarily Jacksonville, Florida, at nearby fuel facilities
during cargo loading operations.
Trailer Bridge does not engage in any fuel hedging activities.
In 2001 due to the increased cost of fuel, the Company instituted fuel
surcharges to its customers, pursuant to its tariff. The fuel surcharges for
domestic truck movements are charged on a per mile basis and are triggered
through the Company's tariff at predetermined levels based upon the price of
fuel. During the first quarter of 2002 the price of fuel was below the
triggering price and therefore there was no fuel surcharge for domestic truck
movements. For the remainder of 2002 the fuel surcharge for domestic movements
increased from .01 per mile to .05 per mile at December 31, 2002. During the
first quarter of
5
2003 the fuel surcharge for domestic movements increased to .11 per mile before
receding to .08 per mile at March 25, 2003. The fuel surcharges on movements to
and from Puerto Rico are assessed on a per move basis. The fuel surcharges are
still in effect for Puerto Rico moves and have substantially offset the
increases in fuel prices. Neither fuel surcharge is distinguished from freight
revenues and both are reported in the Company's revenues. This has the effect of
increasing revenue rather than offsetting fuel expense.
SAFETY AND INSURANCE
Trailer Bridge emphasizes safety in all aspects of its operations. The
Company maintains its own strict standards for recruiting drivers, including a
minimum of three years of verifiable commercial driving experience, a safe
driving history and a successful physical examination, including drug and
alcohol testing. Its ongoing driver safety program includes an initial
orientation for all new drivers, 100% log monitoring and strong adherence to all
speed and weight regulations.
The Company bids annually for both marine and land insurance policies.
Major coverages include hull and protection indemnity, pollution, excess
liability, marine cargo, truckers' liability, workers' compensation and
commercial property.
TECHNOLOGY
The Company utilizes an IBM AS-400 computer system to handle its
accounting and operations requirements. The computer system links Company
headquarters, the truck operations center, the San Juan office and the marine
terminals in Jacksonville and San Juan. The system enhances the Company's
operating efficiency by providing cost effective access to detailed information
concerning available equipment, loads, shipment status and specific customer
requirements, and permits the Company to respond promptly and accurately to
customer requests.
The Company's electronic data interchange ("EDI") capability allows
customers to tender loads, receive load confirmation, check load status and
receive billing information via computer. The Company's EDI system also is
designed to accelerate receivables collection. The Company's largest customers
require EDI service from their core carriers. Management believes that advanced
technology will be required by an increasing number of large shippers as they
reduce the number of carriers they use in favor of core carriers.
During 2002 the Company developed a web-based load tracking system
providing customers with real time load information. During the first quarter of
2003 the Company has completed a successful test of it's web based booking
system that it expects to be fully deployed by the end of the second quarter of
2003.
COMPETITION
The Company currently competes with three carriers for freight moving
between the U.S. and Puerto Rico where its southbound van market share,
excluding vehicles, during the three months ended December 2002 was
approximately 12.5%. During 2002 one of the Company's competitors, Navieras de
Puerto Rico ("NPR"), which had operated under Chapter 11 bankruptcy protection
since March 2001, ceased operations by selling its vessels and other assets to
another competitor Sea Star Line. The current operators in the Puerto Rico trade
are Horizon Lines, LLC (formerly, CSX Lines, Inc.), Crowley Liner Services,
Trailer Bridge and Sea Star Line. Based on available industry data for the
fourth quarter of 2002, CSX Lines, Inc., (now Horizon Lines, LLC has
approximately 33.2% of the market and operates five container vessels that carry
mainly 40' containers. Crowley Liner Services, a subsidiary of privately
6
held Crowley Maritime Corporation, has approximately 34.8% of the market and
operates roll-on/roll-off barges in various services between the U.S. and Puerto
Rico. Sea Star Line, owned primarily by Saltchuk Resources, Inc., parent of
Totem Ocean Trailer Express, Inc. has approximately 19.5% of the market with two
combination ro/ro container vessels. If vehicles were included, both Trailer
Bridge's and Crowley's market share would be in excess of the preceding figures.
The competition in the trade lane served by the Company during the
first half of 2002 was continuous and severe, characterized by depressed freight
rates and significant over capacity. The contraction in freight rates was
exacerbated by the operation of NPR under bankruptcy protection. These
conditions began to dissipate over the second half of 2002 after the cessation
of operations by NPR, however competition in the trade lane remains strong.
Puerto Rico shippers select carriers based primarily upon price. To a
lesser extent, criteria such as frequency, transit time, consistency, billing
accuracy and claims experience are considered. The Company faces vigorous price
competition from competitors in the Puerto Rico market, which are part of larger
transportation organizations that possess greater financial resources than the
Company.
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the market. The
Company's non-Puerto Rico domestic truckload operations, which are used
primarily to balance its core Puerto Rico service, compete with a number of
trucking companies as well as private truck fleets used by shippers to transport
their own products. Truckload carriers compete primarily on the basis of price.
The Company's truck freight service also competes to a limited extent with rail
and rail-truck intermodal service, but the Company attempts to limit this
competition by seeking more time and service-sensitive freight. There are other
trucking companies, including diversified carriers with larger fleets and
substantially greater financial resources than the Company.
REGULATION
As a common and contract motor carrier, the Company is regulated by the
Surface Transportation Board (the successor federal agency to the Interstate
Commerce Commission) and various state agencies. The Company's drivers,
including owner-operators, also must comply with the safety and fitness
regulations promulgated by the Department of Transportation, including those
relating to drug testing and hours of service.
The Company's operations are subject to various federal, state and
local environmental laws and regulations, implemented principally by the
Environmental Protection Agency and similar state regulatory agencies. These
regulations govern the management of hazardous wastes, discharge of pollutants
into the air, surface and underground waters, and the disposal of certain
substances. Management is not aware of any water or land fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current environmental laws and
regulations.
The Company's marine operations are conducted in the U.S. domestic
trade. A set of federal laws known as the Jones Act requires that only U.S.
built, owned and crewed vessels move freight between ports in the U.S.,
including the noncontiguous areas of Puerto Rico, Alaska, Hawaii and Guam. These
marine operations are subject to regulation by various federal agencies,
including the Surface Transportation Board, the U.S. Maritime Administration and
the U.S. Coast Guard. These regulatory authorities have broad powers governing
activities such as operational safety, tariff filings of freight rates, certain
mergers, contraband, environmental contamination and financial reporting.
Management believes that its operations are in material compliance with current
marine laws and regulations, but there can be no assurance that current
regulatory requirements will not change.
7
EMPLOYEES
At December 31, 2002, Trailer Bridge had 230 employees consisting of
106 truck drivers and 124 executive and administrative personnel.
Item 2. Properties
Trailer Bridge is headquartered in Jacksonville, Florida, where it owns
a 16,000 square foot office building adjacent to its truck operations center.
This facility allows 82 Jacksonville personnel to be centralized in one
location. The office building has also been designed so that additions can be
constructed to serve the Company's future needs. The truck operations center
property consists of 17.8 acres near Interstate 95, approximately 2 miles from
the Company's marine terminal on Blount Island. In addition to the office
building, the property includes an 11,400 square foot tractor maintenance shop
where oil changes and light preventative maintenance are performed, a trailer
washing facility, drivers' lounge and parking space for tractors and trailers.
The Company maintains small sales office facilities in North Carolina,
Illinois, Ohio and New Jersey that are utilized by sales personnel. The Company
also rents a 2,600 square foot office in San Juan where 16 Puerto Rico
administrative and sales personnel are based.
PORT FACILITIES
The Company utilizes port facilities in Jacksonville and San Juan where
its vessels are loaded and freight is stored awaiting further movement by either
vessel or truck. Trailer Bridge's terminal in Jacksonville is located on Blount
Island and consists of a berthing area and approximately 25 acres leased from
the Jacksonville Port Authority. The lease, which expires in 2013, allows the
Company to use the berthing area on a preferential, although non-exclusive,
basis and the land area on an exclusive basis. Included in the lease is a $3.6
million triple deck loading ramp funded by the Jacksonville Port Authority that
the Company uses to load and unload its triple-deck roll-on/roll-off barges. The
Company pays the Jacksonville Port Authority a monthly rental payment plus a
wharfage payment based upon total cargo volume with a minimum guarantee of
approximately $1.7 million per year. The Company's marine terminal in San Juan
consists of two berthing areas and 39 acres that the Company utilizes on a
preferential basis under a stevedoring services agreement with the contractor
who provides cargo-handling services. This agreement, which expires in 2006,
calls for the Company to make fixed payments as well as payments based upon
total cargo volume and the prevailing wharfage rates of the Puerto Rico Ports
Authority. The Company terminated its marine operations in Newark, New Jersey in
December 2001. The Company believes its present port facilities are sufficient
for its current operations. See - RAMP STRUCTURES above.
Item 3. Legal Proceedings
The Municipality of Guaynabo, Puerto Rico has obtained a judgment
against the Company for a tax deficiency for $280,000. The Company believes that
this amount is incorrect in a number of respects, including claims for certain
years that have been extinguished by the statute of limitations. Applicable case
law has found that the tax in question is violative of the Constitution of the
United States since it does not provide a mechanism for apportioning the tax
among different jurisdictions. The Company has appealed this decision. The
Company has expensed the amount of the judgment and posted a bond for the full
amount of the deficiency.
8
The Company is a plaintiff in a lawsuit brought by tenants against the
Jacksonville Port Authority seeking declaratory relief from ad valorem taxes
that Duval County, Florida sought to assess against the Jacksonville Port
Authority that in turn sought to collect from each of its tenants. In July 2002
the plaintiffs won a declaratory judgment that the Jacksonville Port Authority
is immune from the imposition of such taxes because the Jacksonville Port
Authority is in the nature of an agency of a county and therefore immune from
taxation under the Florida State Constitution. In December 2002 the motion of
Duval County, Florida and the Jacksonville Port Authority for rehearing was
denied and the July 2002 finding upheld. In January 2003 the defendants appealed
this decision. The amount in controversy totals $68,000 for the years 1998, 1999
and 2000.
The Company discontinued operations to and from Newark, New Jersey
during the fourth quarter of 2001. Upon discontinuance of the Northeast service
the Company was no longer required to contribute to the multi-employer pension
plan of the International Longshoreman's Association thereby constituting a
complete withdrawal from the plan under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Under the terms of ERISA the Company incurred
a withdrawal liability that would be required to be paid unless the Company
resumed contributions to the plan within three years. The ILA Pension Trust Fund
(the "Fund") contends that the complete withdrawal from the plan took place in
2002 resulting in a withdrawal liability of $1,012,969 requiring 18 quarterly
payments of $60,121 and a final payment of $16,084. The Company contends that
the complete withdrawal occurred in 2001 resulting in a withdrawal liability of
$445,206 requiring 18 quarterly payments of $27,639 and a final payment of
$7,695. During 2002 the Company made three quarterly payments of $59,152 and one
payment of $63,029 in the first quarter of 2003. During the fourth quarter of
2002 the Company filed a demand for arbitration pursuant to ERISA to determine
the year of the complete withdrawal.
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims
related to personnel matters or for personal injury and property damage incurred
in the transportation of freight. The Company presently is a party to litigation
arising from vehicle accidents or cargo damage, and management is not aware of
any claims or threatened claims that reasonably would be expected to exceed
insurance limits or have a material adverse effect upon the Company's operations
or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 2002.
9
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock began trading on the Nasdaq National Market
tier of The Nasdaq Stock Market on July 29, 1997 under the symbol: TRBR.
The following table represents the high and low sales price for the
past two years.
2001 High Low
---- ---- ---
First Quarter $ 2.97 $ 1.31
Second Quarter 2.69 1.44
Third Quarter 2.20 1.51
Fourth Quarter 1.85 1.20
2002 High Low
---- ---- ---
First Quarter 1.46 .96
Second Quarter 3.35 1.50
Third Quarter 3.00 2.05
Fourth Quarter 2.75 1.66
The Company has never paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. Certain of the Company's loan
documents prevent the payment of cash dividends under certain circumstances.
As of March 28, 2003 there were 50 stockholders of record in addition
to approximately 1,100 stockholders whose shares were held in nominee name.
NASDAQ LISTING REQUIREMENTS TRANSFER TO SMALLCAP MARKET
The Company needed to maintain stockholders' equity of at least $10.0
million and meet other operational measures satisfactory to the NASDAQ listings
qualification panel to remain listed on the NASDAQ National Market. At December
31, 2002 the Company had $9.0 million in stockholders' equity therefore
effective with the open of business on April 17, 2003 the Company's securities
will be transferred to the Nasdaq SmallCap Market.
10
The following table sets forth information about the Company's equity
compensation plans.
Equity Compensation Plan Information
(a) (b) (c)
---------------------------------------------------------------------------
Number of securities
remaining available
for future issuance
Number of securities to Weighted-average under equity
be issued upon exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a)
------------------------ ------------------- -----------------------
Equity compensation 1,327,110 $5.59 22,890
- -------------------------------------------------------------------------------------------------------
plans approved by
- -----------------
securities holders
- ------------------
Equity compensation
- -------------------
plans not approved by
- ---------------------
security holders
- ------------------ -----------------------------------------------------------
Total 1,327,110 $5.59 22,890
- -------------------------------------------------------------------------------------------------------
Item 6. Selected Financial Data
The selected financial data set forth below has been derived from the
financial statements of the Company. The selected financial information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere in this report.
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $77,241 $ 88,552 $91,706 $81,568 $73,810
Operating loss........................ (2,838) (39) (3,961) (26,242) (4,036)
Net loss................................. (2,516) (2,136) (10,342) (29,420) (7,099)
Net loss per common share................ (.26) (.22) (1.06) (3.01) (0.79)
BALANCE SHEET DATA:
Working capital (deficiency).......... 3,963 613 3,159 (21,373) (387)
Total assets.......................... 89,229 88,063 82,640 67,724 65,406
Long-term debt, capitalized leases
and due to affiliate(1)............. 44,056 47,101 52,473 61,153 44,959
Stockholders' equity (deficiency)........ 31,344 29,208 18,866 (8,745) 9,000
_____________________________________
(1) Includes current maturities
11
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
EXECUTIVE SUMMARY
The Company produces revenue by the movement of freight by water to and
from Puerto Rico from the continental United States through its terminal
facility in Jacksonville, Florida. The Company also generates revenue from the
movement of freight within the continental United States by truck when such
movement complements its core business of moving freight to and from Puerto
Rico. The Company's operating expenses consists of the cost of the equipment,
labor, facilities, fuel and administrative support necessary to move freight to
and from Puerto Rico and within the continental United States as well as
interest costs related to its borrowings. The Puerto Rico lane in which the
Company operates has been subjected to overcapacity and intense competition over
the past five years. During 2002 the Puerto Rico tradelane experienced continued
overcapacity and intense competition during the first half of the year.
Following the cessation of operations by a competitor of the Company -NPR, Inc.
- - that had been operating in Chapter 11 bankruptcy, the Puerto Rico tradelane
stabilized and competition became less intense. The Puerto Rico tradelane
continues to undergo changes resulting from NPR, Inc.'s cessation of operations.
The Company has seen increased utilization of its vessels during the fourth
quarter of 2002 and the first quarter of 2003. During 2002 the Company
experienced decreased revenues as a result of ceasing its Northeast service at
the end of 2001, however the decrease in operating expenses was more pronounced
than the reduction in revenues resulting in significantly improved performance
for 2002 when compared to 2001.
RESULTS OF OPERATIONS
Year ended December 31, 2002 Compared to Year ended December 31, 2001
Operating revenues decreased $7.8 million, or 9.6%, to $73.8 million
during 2002 from $81.6 million during 2001. This decrease in operating revenues
was due to a $6.5 million or 8.8% decrease in total Puerto Rico revenue to $67.4
million due to decreased volume resulting from the Company's cessation of its
Northeast service and a decrease of $1.3 million in non-Puerto Rico domestic
revenue and other revenue. As a result of terminating the Northeast service, the
Company offered 22.2% less capacity in the Puerto Rico trade lane and operated
four vessels to Puerto Rico in 2002 compared to six vessels in 2001. Core
container and trailer volume to Puerto Rico decreased 10.7% in 2002 compared to
2001, while total car and other volume increased 19.9% compared to 2001. As a
result, container and trailer revenue to Puerto Rico decreased 11.7% and car and
other revenue increased 7.3% compared to 2001. Revenue from shipper owned or
leased equipment moving to Puerto Rico decreased 1.7% from 2001. Revenue from
northbound shipments from Puerto Rico decreased 14.6% from 2001 primarily as a
result of the cessation of the Northeast service. The overall market to Puerto
Rico, particularly with regard to the movement of used automobiles, not in
trailers and shipper owned or leased movements, was characterized by
overcapacity and intense rate competition during the first half of 2002 and more
stable market conditions after the cessation of operations by a competitor of
the Company in mid-year. The Company's fuel surcharge is included in the
Company's revenues and amounted to $2.6 million in 2002 and $3.4 million in
2001.
Vessel capacity utilization on the core continental U.S. to Puerto Rico
traffic lane was 79.4% during 2002, compared to 67.9% during 2001.
The Company decreased its overall market share of freight moving in
trailers or containers in both directions to 11.4% in 2002 from 12.9% in 2001,
as a result of the termination of the Company's Northeast service. For 2002, the
Company's market share was 11.4% southbound and 11.3% northbound compared to
12.7% southbound and 13.4% northbound in 2001. All of these market share figures
are
12
based on freight moving in trailers and containers and exclude cars and
other wheeled vehicles moving southbound where the Company has a market share
generally above 30%.
Operating expenses decreased $30.0 million, or 27.8% from $107.8
million in 2001 to $77.9 million for 2002. This decrease was due to significant
decreases in all areas other than insurance and claims that increased $386,377
or 14.6% due to higher insurance premium rates. Salary, wages and benefits
decreased $2.4 million due to the reduction of personnel mainly attributable to
the termination of the Company's Northeast service; reduced driver payroll due
to a decrease in Company truck miles by approximately 1.7 million miles and a
reimbursement of $222,832 workers compensation insurance premium due to an
adjustment of rates from prior years. Purchased transportation decreased $6.1
million or 22.6% primarily due to decreased tug charter hire expense of $3.5
million related to elimination of the tug required for the Northeast service; an
increase of $646,360 in charter revenue of idle vessels from $47,600 in 2001
that acts as a contra-expense to vessel expense and a decrease of $2.8 million
in equipment expense, partially offset by an increase of $793,156 in truck and
rail purchased transportation as a result of operating fewer owned tractors.
Fuel expense decreased $3.4 million or 31.2% primarily as a result of
termination of the Northeast service resulting in a $2.8 million decrease in tug
fuel and a decrease of $530,850 in truck fuel expense resulting from a decrease
in truck miles of approximately 1.7 million miles. Operation and maintenance
expense decreased $8.3 million or 33.6% due to $4.4 million in lower marine
terminal expenses because of reduced sailings and lower volumes as a result of
the termination of the Company's Northeast service; the absence of any dry
docking expenses as compared to $1.3 million in 2001; a $1.4 million decrease in
truck maintenance due to a reduction in tractors; and an increase in net
demurrage of $1.0 million. Taxes and licenses expense decreased $519,450 or
46.3% primarily as a result of reduction in volume related to the termination of
the Company's Northeast service and a successful legal challenge to ad valorem
taxes that Duval County, Florida sought to impose on the Company. Communications
and utilities expense decreased $99,923 or 14.8% as a result of the termination
of the Company's Northeast service and generally lower telephone rates.
Depreciation and amortization expense decreased $1.5 million or 31.4% primarily
as a result of the Company's tractor fleet being fully depreciated compared to
$1.0 million in depreciation in 2001; the reduction in equipment associated with
the Northeast service and lower depreciation of vessels following an asset
impairment charge of $3.0 million in 2001. Other operating expense decreased
$2.9 million, primarily as a result of a $2.1 million decrease in bad debt.
Operating expenses also decreased $4.9 million in 2002 as compared with 2001
that included asset impairments charges of $3.8 million and restructuring
charges for the Northeast service shutdown of $1.1 million. As a result, the
Company's operating ratio decreased to 105.5% during 2002 from 132.0% during
2001.
Interest expense (net) decreased to $3.0 million in 2002 from $3.2
million in 2001 primarily due to lower interest rates on the Company's floating
rate indebtedness.
As a result of the factors described above the Company reported a net
loss of $7.1 million for 2002 compared to net loss of $29.4 million in 2001.
Known Trends During First Quarter of 2003
During January and February overall vessel utilization was 87.8% and
20.1% southbound and northbound, respectively, figures slightly above but
similar to fourth quarter 2002 levels. The Company has experienced a noteworthy
increase in volume in March. For the three weeks ending March 28, 2003, overall
vessel utilization was 95.8% and 26.4% southbound and northbound, respectively.
Based upon increased volume from specific accounts, increased customer
commitments and actual booking levels and trends, the Company believes that the
actual March volume and utilization performance is more indicative of business
levels for the remainder of 2003 than any actual experience during 2002. The
flat vessel utilization levels in January and February will impact operating
results for the first quarter but the vessel
13
utilization experienced for the three weeks ending March 28, 2003 results in
significantly improved operating performance on a run-rate basis.
Year ended December 31, 2001 Compared to Year ended December 31, 2000
Operating revenues decreased $10.1 million, or 11.1%, to $81.6 million
during 2001 from $91.7 million during 2000. This decrease was due to a $10.3
million or 12.2% decrease in total Puerto Rico revenue to $73.9 million due to
decreased volume and rate deterioration in the Puerto Rico market and a decrease
of $224,327 in non-Puerto Rico domestic revenue, partially offset by an increase
in fuel surcharges and other revenue of $199,412. Core container and trailer
volume to Puerto Rico decreased 1.4% in 2001 compared to 2000, and total car and
other volume decreased 22.7% compared to 2000. As a result, core container and
trailer revenue to Puerto Rico decreased 5.6% and car and other revenue
decreased 26.6% compared to 2000. Revenue from shipper owned or leased equipment
moving to Puerto Rico decreased 37.0% from 2000. Revenue from northbound
shipments from Puerto Rico decreased 7.0% from 2000. The overall market to
Puerto Rico, particularly with regard to the movement of used automobiles, not
in trailers and shipper owned or leased movements, was characterized by
overcapacity and intense rate competition. The Company's fuel surcharge of $3.4
million is included in the Company revenues for 2001 and increased from $2.9
million included in revenue in 2000.
The Company's overall volume to and from Puerto Rico decreased 10.1% in
2001, while related revenue decreased $9.3 million or 9.4% compared to 2000
implying, an overall yield reduction of 2.3%. Vessel capacity deployed on the
core continental U.S. to Puerto Rico traffic lane increased 8.1% during 2001
compared to 2000, due to the upgrade to weekly service from Newark, New Jersey
from the bi-weekly service offered in 2000. Effective in the end of the fourth
quarter of 2001 the Company discontinued this service. See further discussion
below. Vessel capacity utilization on the core continental U.S. to Puerto Rico
traffic lane was 67.9% during 2001, compared to 78.9% during 2000.
The market to and from Puerto Rico in 2001 was again characterized by
increasing competitive activity throughout the year. The excess vessel capacity
in the market was exacerbated by market volume reductions that resulted in
overall market volume of trailers and containers declining 1.4% in 2001 with the
largest decline in the northbound segment. The Company decreased its overall
market share of freight moving in trailers or containers in both directions to
13.3% in 2001 from 13.6% in 2000, with all of that decrease coming from reduced
share of market in the northbound segment. For 2001, the Company's market share
was 13.1% southbound and 14.1% northbound compared to 13.1% southbound and 15.3%
northbound in 2000. All of these market share figures are based on freight
moving in trailers and containers and exclude cars and other wheeled vehicles
moving southbound where the Company has a market share generally above 30%. The
highly competitive market conditions resulted in a 2.3% reduction in yield. On
March 21, 2001, the largest participant in the Puerto Rico market, NPR/Navieras,
which had a 29.4% market share in 2000, in conjunction with its parent and
affiliates, filed for Chapter 11 bankruptcy protection in the Delaware
Bankruptcy Court in Wilmington, Delaware. Despite the bankruptcy filing
NPR/Navieras continued to operate its regular service throughout 2001 placing
additional downward pressure on rates. Through March 31, 2002, NPR/Navieras
continues to operate its regular service.
At the end of the fourth quarter of 2001 the Company discontinued its
weekly Northeast service between Newark, New Jersey and San Juan, Puerto Rico
and implemented other operational changes to improve its performance. These
changes primarily relate to concentrating the Company's mainland vessel
operations in Jacksonville and discontinuing direct vessel service from the
Northeast (Newark, NJ). Certain key customers that utilized the Northeast
sailing have transitioned cargo previously handled from the Northeast to the
Company's Jacksonville service. The direct Northeast sailing represented
approximately 28% of the Company's total vessel capacity, but was significantly
less in terms of actual
14
volume and revenue. Of the three weekly sailings to Puerto Rico operated by the
Company during the first nine months of 2001, the Northeast segment was the most
under-utilized with southbound and northbound capacity utilization of 51% and
8%, respectively, compared to 75% and 24%, respectively, for the Company's
Jacksonville sailings.
Operating expenses increased $12.1 million, or 12.7% from $95.7 million
in 2000 to $107.8 million for 2001. This increase was due to an increase in
salary, wages and benefits of $967,021 due to increases in healthcare expense
and workers compensation insurance; an increase in purchased transportation of
$518,962 primarily due to increased tug charter hire expense related to the
additional tug required for the weekly Newark service; an increase in operation
and maintenance of $3.2 million primarily due to the dry docking expense
associated with the two roll-on roll-off barges. The Company elected to fully
expense the cost of the dry-dockings in the first and second quarter of 2001
totaling $1.3 million rather than capitalize such expenses and amortize them
over the period between dry-dockings. While the Company believes that this
conservative treatment is the preferred method under SEC guidelines, it may not
be the prevailing industry standard used by other shipping companies, including
competitors of the Company. Operation and maintenance expense was also affected
by increased maintenance expense on Company owned trucks, partially offset by
less stevedoring expense due to lower volumes.
Operating expenses were further affected by asset impairments
consisting of $3.0 million in vessel related charges; write down of $721,181
goodwill of and $99,240 of revenue equipment charges. Operating expenses were
also impacted by restructuring charges for the Northeast service shutdown of
$1.1 million, an increase in taxes and licenses of $625,175 due to increased
intangible tax on equipment and an accrual for the settlement of a sales tax
dispute in Puerto Rico; an increase in insurance and claims of $277,059
primarily due to increased premiums for Hull and Machinery and Personal Injury
insurance; an increase in other operating expenses of $1.4 million primarily the
result of an increase of $2.9 million in bad debt expense; partially offset by a
decrease of $419,309 in fuel expense due to reduced fuel prices. As a result,
the Company's operating ratio increased to 132.0% during 2001 from 104.8% during
2000.
Interest expense (net) decreased to $3.2 million in 2001 from $3.4
million in 2000 primarily due to lower interest rates on the Company's floating
rate indebtedness.
As a result of the factors described above the Company reported a net
loss of $29.4 million for 2001 compared to net loss of $10.3 million in 2000.
To provide the Company with additional liquidity, during 2000, the
Company sold an affiliate a piece of land for $750,000. A gain of $336,818 was
recognized on this transaction.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $3.7 million in 2002 compared $11.0
million in 2001. This represented an improvement of $7.3 million from 2001. Net
cash provided by investing activities of $839,286 in 2002 primarily reflects
proceeds from the sale of older trailer equipment. Net cash provided from
financing activities was $4.6 million compared to $10.3 million in 2001
representing a decrease of $5.7 million. Net cash provided from financing
activities of $4.6 million consisted of $1.9 million for issuance of preferred
stock to affiliates, borrowings of $4.9 million from an affiliate, borrowings of
$102,623 on notes payable under the Company's borrowing facility, partially
offset by payments of $1.8 million on notes payable and $531,672 payments on
capital lease obligations.
15
At December 31, 2002, cash amounted to $2.1 million, working capital
was a negative $387,376, and stockholders' equity was $9.0 million.
As of December 31, 2002, the Company had $6.1 million drawn under the
credit facility against a borrowing base of $7.3 million that is secured by net
receivables of $9.9 million.
During 2002, the Company issued to the Company's affiliate,
Kadampanattu Corp., $24 million of Series B Preferred Stock as payment for
indebtedness, amounts deferred under long-term charters of the Company and an
advance portion of the 2003 charterhire. The Series B Preferred Stock is not
convertible into common stock.
On September 30, 2002 the Company rescheduled its principal payments
under each of its two Title XI bond issues. The combined interest payment due on
September 30, 2002 totaling $805,010 was paid on its scheduled date. The Company
had previously rescheduled the principal payments of $210,300 and $338,360,
respectively, due on each of its Title XI bond issues September 30, 2001 and
March 31, 2002 for payment on September 30, 2002 and March 31, 2003. This
resulted in total scheduled principal payments for the Company's two Title XI
issues of $420,600 and $676,720, respectively, for both September 30, 2002 and
March 31, 2003. During the three months ended September 30, 2002, the Company
rescheduled the full double principal payments due September 30, 2002 and one
half of the double principal payments due March 31, 2003. As a result,
commencing March 31, 2003, these rescheduled principal payments will be paid
equally over the remaining scheduled principal payment periods of each Title XI
issue. As rescheduled, the Company's semi- annual principal payments shall
increase to $226,073 and $363,118 until fully paid September 30, 2022 and March
30, 2023, respectively. There was no fee paid or change in interest rate due to
this rescheduling. The Company has received the consent of the Maritime
Administration and the holder of both of the Title XI bond issues to defer the
principal payments of $226,073 and $363,118 due March 31, 2003 until March 31,
2004. The Company will therefore defer such principal payments. The Company
expects to pay the interest on each of the bond issues upon the earlier of the
completion of the documentation regarding the deferral or the expiration of the
grace period contained in each issue.
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 business plan for 2003
is to continue its effort to attract increased volume and manage operating costs
in order to attain profitable operations. During the first quarter of 2003, the
Company has commenced new contracts with both new and existing customers
resulting in a significantly improved revenue level over the five-week period
ended April 12, 2003. Revenue levels for the five week period ended April 12,
2003 are in excess of plan. The Company believes that if planned revenue levels
can be maintained, attaining successful operations is expected. However, no
assurance can be made that the Company will be successful in maintaining the
improved revenue levels and accomplishing its other business plans. If the
Company is unsuccessful in meeting its projections, there is no assurance that
financial assistance from its affiliates similar to that received in the past
would be made available. Therefore, there is substantial doubt as to the
Company's ability to continue as a going concern.
INFLATION
Inflation has had a minimal effect upon the Company's operating results
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.
16
SEASONALITY
The Company's marine operations are subject to the seasonality of the
Puerto Rico freight market where shipments are generally reduced during the
first calendar quarter and increased during the fourth calendar quarter of each
year in anticipation of Christmas. This seasonality was not as pronounced in
2002, 2001 and 2000 as it had been in previous years.
For the three months ending December 31, 2002, operating revenues
increased $509,667 or 2.6% from $19.2 million in 2001 to $19.7 million in 2002
as a result of higher southbound trailer and auto volumes compared to previous
quarter. The $2.6 million decrease in southbound revenue resulting from the
termination of the Company's Northeast service was more than offset by an
increase of $3.2 million in revenue from additional Jacksonville southbound
volume partially offset by decreases in northbound and domestic revenue. Total
operating expenses for the three months ended December 31, 2002, decreased $10.4
million to $21.4 million in 2002 from $31.8 million in 2001. Salary, wages and
benefits decreased $568,212 as a result of a reduction in force as a result of
the termination of the Company's Northeast service and lower driver payroll due
to reduced miles driven by Company tractors. Purchased transportation decreased
$411,675 or 6.3% primarily due to decreased tug charter hire expense of $846,833
related to elimination of the tug required for the Northeast service partially
offset by an increase in truck and rail purchased transportation as a result of
operating fewer tractors. Fuel expense decreased $258,752 primarily as a result
of termination of the Northeast service resulting in a $269,987 decrease in tug
fuel partially offset by higher fuel prices. Operating and maintenance expense
decreased $1.9 million or 29.8% due to $761,838 in lower marine terminal
expenses because of reduced sailings and lower volumes as a result of the
termination of the Company's Northeast service; a $512,826 decrease in truck
maintenance due to a reduction in tractors; and an increase in net demurrage of
$674,931. Taxes and licenses decreased significantly from $507,629 in 2001 to
$205,779 in 2002 as a result of a reversal of certain accruals in 2001 and due
to an accrual for a tax settlement in Puerto Rico in 2001; Depreciation and
amortization expense decreased $444,657 or 35.3% primarily as a result of the
Company's tractor fleet being fully depreciated in 2002 compared to $201,917 in
depreciation expense related to the tractor fleet in 2001; the reduction in
equipment associated with the Northeast service and lower depreciation of
vessels due to an asset impairment charge of $3.0 million in 2001. Other
operating expense decreased $1.7 million, primarily as a result of a $1.5
million decrease in bad debt expense that had been negatively affected in 2001
by specific account write-offs and certain over accruals. Operating expenses
also decreased $4.9 million in 2002 as compared with 2001 by the absence of
asset impairments consisting of $3.8 million and restructuring charges for the
Northeast service shutdown of $1.1 million that occurred in 2001.
The Company's overall volume to and from Puerto Rico for the fourth
quarter of 2002 increased 0.6% despite 20.5% less capacity offered due to the
termination of the Northeast service. Core southbound volume and related revenue
to Puerto Rico increased 2.1% and 6.7% respectively in the fourth quarter of
2002 compared to the similar period of 2001. Utilization of vessel capacity
deployed on the core continental U.S. to Puerto Rico traffic lane increased to
86.6% during the fourth quarter of 2002 from 66.1% during the same period in
2001.
For the three months ended December 31, 2002 the Company's net loss was
$2.4 million compared to the same period in 2001 when the Company had a net loss
of $13.3 million.
17
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):
2001 2002
---- ----
By Quarter
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
Operating revenues........... $20,637 $21,659 $20,052 $19,220 $17,480 $18,117 $18,488 $19,725
Operating loss............... (4,500) (4,350) (4,813) (12,579) (587) (324) (1,496) (1,630)
Net loss applicable to
common shares.............. (5,374) (5,161) (5,598) (13,286) (1,311) (1,130) (2,488) (2,818)
This 10-K contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The matters discussed in this Report include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to the future operating performance of the Company.
Investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. Without limitation, these risks and
uncertainties include the risks of the Company maintaining or securing
sufficient liquidity to operate its business, continued support of its lenders,
vendors and employees, economic recessions, severe weather, changes in demand
for transportation services offered by the Company, and changes in rate levels
for transportation services offered by the Company.
The following table summarizes the Company's contractual obligations
and commitments. See Notes 4, 5 and 6 of the Notes to Financial Statements for
additional information regarding transactions with related parties, long-term
debt and operating leases.
Payments due by period
Less than 1 More than 5
Contractual obligations Total year 1-3 years 3-5 years years
----------------------- ----- ---- --------- --------- -----
Long-Term Debt Obligations $39,693,944 $2,969,668 $15,855,378 $2,832,864 $18,036,034
[Operating Lease Obligations 48,679,009 19,730,556 17,098,563 5,773,725 6,076,165
Total $88,372,953 $22,700,224 $32,953,941 $8,606,588 $24,112,199
18
RISKS
COMPANY LIQUIDITY
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required, and
ultimately to attain successful operations. The Company's business plan for 2003
is to continue its effort to attract increased volume and manage operating costs
in order to attain profitable operations. During the first quarter of 2003, the
Company has commenced new contracts with both new and existing customers
resulting in a significantly improved revenue level over the five-week period
ended April 12, 2003. Revenue levels for the five week period ended April 12,
2003 are in excess of plan. The Company believes that if planned revenue levels
can be maintained, attaining successful operations is expected. However, no
assurance can be made that the Company will be successful in maintaining the
improved revenue levels and accomplishing its other business plans. If the
Company is unsuccessful in meeting its projections, there is no assurance that
financial assistance from its affiliates similar to that received in the past
would be made available. Therefore, there is substantial doubt as to the
Company's ability to continue as a going concern.
ASSISTANCE FROM AFFILIATES
The Company has engaged and continues to engage in transactions with
certain affiliates - Kadampanattu Corp., Transportation Receivables 1992, LLC
and the Estate of M. P. McLean. Since inception, the Company has chartered its
two ro/ro vessels from Kadampanattu Corp. under long term charters at a fixed
daily price. At various times during the Company's existence the Company has
borrowed funds from Kadampanattu Corp. on an unsecured basis, deferred
charterhire or been forgiven charterhire. For the year ended December 31, 2002,
the Company expensed $7.3 million in charterhire. During 2002, Kadampanattu
Corp. deferred such charterhire and in August, September and December accepted
shares of Series B Preferred Stock in payment.
Kadampanattu Corp., a corporation wholly-owned by the Estate of M. P.
McLean, has in previous years also advanced funds to the Company on an unsecured
basis. During 2002, Kadampanattu Corp. converted $24.0 million of indebtedness,
and advanced portion of the charterhire for 2003 under the long-term charters of
the Company to non-convertible Series B Preferred Stock. Beginning April 1,
2003, cumulative preferential dividends will accrue on the outstanding amount of
the Series B preferred stock at a rate equal to 90-day LIBOR plus 350 basis
points. Starting in 2004, the dividend rate will increase 25 basis points per
quarter up to a maximum dividend rate of 90-day LIBOR plus 650 basis points. The
notes that the Series B Preferred Stock was exchanged for were non-interest
bearing until due and provided for interest on overdue amounts at a rate of 90
day Libor plus 250 basis points. The Company's Audit Committee, comprised of
independent directors, and the Company's full board of directors approved this
conversion.
During the first quarter of 2002, the Company entered in to a Loan and
Security Agreement with the Estate of M. P. McLean under which the Company
borrowed $3.0 million. The loan was secured primarily by unencumbered trailer
equipment. During the second quarter of 2002, the Company borrowed $5.0 million
from an affiliate, Transportation Receivables 1992, LLC secured primarily by the
same unencumbered trailer equipment. The proceeds of this borrowing were used to
repay $3.0 million borrowed in the first quarter of 2002 from a related
affiliate, the Estate of M. P. McLean and to provide $2.0 million in working
capital. In addition the same affiliate purchased $2.0 million of Series A
Preferred Stock. The Series A Preferred Stock, which has a liquidation
preference of $2.0 million, does
19
not bear preferential dividends but participates with the common stock on an as-
converted basis in any common dividends. Shares of Series A Preferred Stock 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 Stock entitled to 35.52 votes per share (or approximately 35%
of the number of votes on an as-converted basis). The Estate of M. P. McLean is
the sole member of Transportation Receivables 1992, LLC. The Company's Audit
Committee, comprised of independent directors, and the Company's full board of
directors, based upon a fairness opinion from an independent entity, approved
all transactions with Transportation Receivables 1992, LLC.
The Estate of M. P. McLean, or its affiliates, owns approximately 50.6%
of the outstanding shares of the Company's Common Stock and 100% of the Series A
Preferred Stock, resulting in 53.9% of the voting stock of the Company. Upon
conversion of the Series A Preferred Stock the Estate of M. P. McLean would
control approximately 58.8% of the voting interest. In addition, it owns 100% of
the common stock of Kadampanattu Corp. John D. McCown, Chairman and Chief
Executive Officer of the Company, is a co-executor of the Estate of M. P.
McLean. No assurance can be made that the Estate of M. P. McLean, or other
affiliate will provide additional support to the Company. John D. McCown and
William G. Gotimer, Jr. are officers and directors of Kadampanattu Corp. M. P.
McLean, Jr., a director of the Company, is a director of Kadampanattu Corp.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which requires
the Company to make estimates and assumptions about future events and their
impact on amounts reported in these financial statements and related notes.
Since future events and their impact cannot be determined with certainty, the
actual results will inevitably differ from our estimates. Such differences could
be material to the financial statements.
Management believes the application of accounting policies, and the
estimates inherently required therein, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, management has found
20
the application of accounting policies to be appropriate, and actual results
have not differed materially from those determined using necessary estimates.
The Company's accounting policies are more fully described in Note 1 to
the financial statements. Certain critical accounting policies are described
below.
Revenue Recognition. Revenue is recognized on a percentage of
completion basis.
Long-lived assets. In evaluating the fair value and future benefits of
long-lived assets, the Company performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. Due to the
continued operating losses independent appraisals are used to determine the
appropriateness of the carrying values.
Income taxes. Generally accepted accounting principles require that the
Company record a valuation allowance against the deferred tax asset associated
with the its net operating loss carry forward (NOL) if it is "more likely than
not" that we will not be able to utilize it to offset future taxes. Due to the
size of the Company's NOL in relation to the Company's history of unprofitable
operations, we have not recognized any of this net deferred tax asset. The
Company currently provides for income taxes only to the extent that it expects
to pay cash taxes (primarily state taxes and the federal alternative minimum
tax) for current income.
It is possible, however, that the Company could operate in the future at
levels which cause management to conclude that it is more likely than not that
we will realize all or a portion of the NOL. Upon reaching such a conclusion,
the Company would record the estimated net realizable value of the deferred tax
asset at that time and would then provide for income taxes at a rate equal to
its combined federal and state effective rates, which would approximate 38%
under current tax rates. Subsequent revisions to the estimated net realizable
value of the deferred tax asset could cause the provision for income taxes to
vary significantly from period to period, although cash tax payments would
remain unaffected until the benefit of the NOL is utilized.
The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See the Company's
audited financial statements and notes thereto which begin on page F-1 of this
Annual Report on Form 10-K which contain accounting policies and other
disclosures required by generally accepted accounting principles.
New Accounting Pronouncements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 54, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." Additionally, his Statement amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for sale-
leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meaning, or
describe their applicability under changed conditions. This Statement will
be effective for the year ended December 31, 2003 and for transactions
entered into after May 15, 2002. It does not appear that this Statement
will have a material effect on the financial position, operations or cash
flows of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement nullifies Emerging Issued Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Under Issue 94-3, a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146 is
21
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. It does not appear that this Statement
will have a material effect on the financial position, operations or cash
flows of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement amends SFAS No. 123
(same title) and provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements in
both annual and interim financial statements related to the methods of
accounting for stock-based employee compensation and the effect of the method on
reported results. The Statement also prohibits the use of the prospective method
of transition, as outlined in SFAS No. 123, when beginning to expense stock
options and change to the fair value based method in fiscal years beginning
after December 15, 2003. As required, the Company adopted the disclosure
requirements of SFAS No. 148 on December 31, 2002.
In November 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
(FIN 45), which requires a guarantor to recognize a liability for the fair
value of the obligation at the inception of the guarantee. The Company
adopted the disclosure requirements of FIN 45 as of December 31, 2002. The
adoption of the measurement requirements of FIN 45 will not have a material
impact on the Company's financial position or results of operation.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities," which clarified the application of Accounting Research Bulletin No.
51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46 is
applicable immediately for variable interest entities created after January 31,
2003. The provisions of FIN 46 are applicable for variable interest entities
created prior to January 31, 2003 no later than July 1, 2003. The adoption of
FIN 46 will not have an impact on the Company's financial position or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates.
For its debt instruments, a change in interest rates affects the amount of
interest expense incurred.
The Company entered into an interest rate contract to manage its
exposure to changes in interest rates and to make fixed the overall cost of one
of its variable rate financings. The contract is carried at fair value and
changes in the fair value are recognized in earnings.
The contract/notional amount and estimated fair value of the Company's financial
instrument as of December 31, 2001 are as follows:
2001
-----------------------------------
Contact/Notional Fair
Amount Value
----------------- ----------------
Interest rate swap agreement $ 812,000 $ (35,592)
The Company has no interest rate swap agreements at December 31, 2002.
22
The following tables summarize the Company's debt obligations at
December 31, 2002 and 2001, presenting principal cash flows and related interest
rates by expected fiscal year of maturity. Variable interest rates represent the
weighted-average rates of the portfolio at December 31, 2002 and 2001. The
Company estimates that the carrying value of its debt instruments is not
materially different from its fair value.
Expected Fiscal Year of Maturity at December 31, 2002
(Dollars in thousands)
2003 2004 2005 2006 2007 Thereafter
------------------------------------------------------------------------------
Fixed Rate $ 1,253 1,253 1,253 1,654 1,178 18,039
Average Interest Rate 6.7% 6.7% 6.7% 6.7% 6.7% 6.7%
Variable Rate $ 1,714 13,350 -
Average Interest Rate 6.3% 6.3% -
Expected Fiscal Year of Maturity at December 31, 2001
(Dollars in thousands)
2002 2003 2004 2005 2006 Thereafter
----------------------------------------------------------------------------
Fixed Rate $ 1,097 1,646 1,097 1,097 1,097 17,896
Average Interest Rate 6.7% 6.7% 6.7% 6.7% 6.7% 6.7%
Variable Rate $ 17,550 -
Average Interest Rate 5.5% -
23
Item 8. Financial Statements and Supplementary Data
TRAILER BRIDGE, INC.
Financial Statements for the Three Years in the Period Ended December
31, 2002 and Independent Auditors' Report
* * * * * *
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2002
BALANCE AT CHARGED TO
BEGINNING COSTS AND DEDUCTIONS BALANCE AT
YEAR OF YEAR EXPENSES (CHARGEOFFS) END OF YEAR
---- ------- -------- ------------ -----------
Allowance for Doubtful Accounts
2000 $1,368,514 1,805,130 (1,459,819) 1,713,825
2001 $1,713,825 4,737,308 (5,333,050) 1,118,083
2002 $1,118,083 981,637 (1,203,947) 895,773
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Incorporated by Reference
The information called for by Item 10 -- "Directors and Executive
Officers of the Registrant", Item 11 -- "Executive Compensation", Item 12 --
"Security Ownership of Certain Beneficial Owners and Management" and Item 13 --
"Certain Relationships and Related Transactions" is incorporated herein by this
reference to the Company's definitive proxy statement for its annual meeting of
stockholders scheduled to be held in May 2003, which definitive proxy statement
is expected to be filed with the Commission not later than 120 days after the
end of the fiscal year to which this report relates.
24
PART IV
Item 14. Controls And Procedures
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-14(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on their
evaluation, our principal executive officer and principal accounting
officer concluded that Trailer Bridge, Inc.'s disclosure controls and
procedures are effective.
(b) There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referenced in
paragraph (a) above.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) Documents Filed as Part of this Report
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves, for
each of the three years ended December 31, 2002, 2001 and 2000.
All other schedules are omitted as the required information is not
applicable or the information is presented in the Financial
Statements and notes thereto in Item 8 above.
3. Exhibits.
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1.1(12) Amended and Restated Certificate of Incorporation of the
Registrant
3.1.2(12) Certificate of Designations of Series A Preferred Stock
3.1.3(12) Certificate of Designations of Series B Preferred Stock
3.1.4(12) Amendment No. 1 to Certificate of Designations of Series B
Preferred Stock
3.1.5(12) Amendment No. 2 to Certificate of Designations of Series B
Preferred Stock
3.2(1) Form of Amended and Restated Bylaws of the Registrant
25
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
4.1(1) See Exhibits 3.1.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining the
rights of holders of the Registrant's Common Stock
10.1(1)# Form of Indemnification Agreement with Directors and
Executive Officers
10.2(1) Bareboat Charter Party dated February 1992
10.2.1(1) Amendment to Bareboat Charter Party dated December 31, 1994
10.2.2(1) Second Amendment to Bareboat Charter Party dated October
1995
10.2.3(1) Third Amendment to Bareboat Charter Party dated March 1,
1997
10.2.4(1) Form of Fourth Amendment to Bareboat Charter Party
10.2.5(2) Fourth Amendment to Bareboat Charter Party dated June 30,
1997
10.2.6(13) Fifth Amendment to Bareboat Charter Party dated March 30,
2001
10.6(1) Vessel Construction Contract dated as of December 30, 1996
between Coastal Ship, Inc. and Halter Marine, Inc.
10.6.1(1) Assignment of Vessel Construction Contract dated March 24,
1997 between Coastal Ship, Inc. and the Registrant
10.6.2(1) Amendment No. 1 to Vessel Construction Contract dated as of
April 1997
10.7.1(11) 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)
10.8(1) Commitment to Guarantee Obligations
10.8.1(1) Trust Indenture
10.8.3(1) Title XI Reserve Fund and Financial Agreement
10.8.4(4) Commitment to Guarantee Obligations
10.8.5(4) Trust Indenture
10.8.7(4) Title XI Reserve Fund and Financial Agreement
10.8.9(8) Trust Indenture First Supplement to Special Provisions
26
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
10.8.11(8) Trust Indenture First Supplement to Special Provisions
10.8.12(12) Trust Indenture, Second Supplement to Special Provisions
10.8.13(12) United States Government Guaranteed Ship Financing Bond,
1997 Series, Amended and Restated September 30, 2002, in the
amount of $10,515,000
10.8.14(12) Trust Indenture, Second Supplement to Special Provisions
10.8.15(12) United States Government Guaranteed Ship Financing Bond,
1997 Series II, Amended and Restated September 30, 2002, in
the amount of $16,918,000
10.9(1) Agreement and Lease dated as of August 1, 1991 between the
Registrant and the Jacksonville Port Authority
10.9.1(1) Amendment #5 to Exhibit B, Schedule of Fees and Charges
10.11(1)# Incentive Stock Plan
10.11.1(1)# Form of Stock Option Award Agreement
10.11.2(6)# Amendment No. 1 to Trailer Bridge, Inc. Stock Incentive Plan
10.11.3(6)# Trailer Bridge, Inc. Non-Employee Director Stock Incentive
Plan
10.11.4(6)# Form of Non-Employee Director Stock Option Award Agreement
10.12(3) Trailer Bridge, Inc. Employee Stock Purchase Plan
10.14(5) Agreement with Kadampanattu Corp. re ramp expenses
10.15(6) Loan and Security Agreement dated as of December 27, 2000
Between General Electric Capital Corporation as Lender and
Trailer Bridge, Inc. as Borrower
10.15.1(9) First Amendment Dated as of August ___, 2001 to Loan and
Security Agreement dated as of December 27, 2000 Between
General Electric Capital Corporation as Lender and Trailer
Bridge, Inc. as Borrower
10.15.2(10) Second Amendment to Loan and Security Agreement dated as of
May 1, 2002 by and between Trailer Bridge, Inc. and General
Electric Capital Corporation
10.18(10) Loan and Security Agreement dated as of May ___, 2002
Between Transportation Receivables 1992, LLC as Lender and
Trailer Bridge, Inc. as Borrower
10.19(10) Securities Purchase Agreement between Trailer Bridge, Inc.
and Transportation Receivables 1992, LLC
27
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
10.20(10) Intercreditor Agreement, dated as of May 1, 2002 by and
among Transportation Receivables 1992, LLC, General Electric
Capital Corporation and Trailer Bridge, Inc.
10.22.1(11) 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(11) 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(11) Registration Rights Agreement dated as of May 23, 2002
between Trailer Bridge, Inc. and Transportation Receivable
1992, LLC
10.24(13)# Employment Agreement dated as of April 5, 2002 between
Trailer Bridge, Inc. and William G. Gotimer, Jr.
18(7) Letter re Change in Accounting principles
23(13) Consent of Deloitte & Touche LLP
99.1(13) 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(13) 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)
- -------------------
(1) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
(2) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
(3) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
(4) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
(5) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1999.
(6) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2000.
28
(7) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K/A for the year ended December 31, 2000 filed December 14,
2001.
(8) Incorporated by reference to the indicated exhibit to the Company's
Form 8-K filed January 9, 2002.
(9) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2001.
(10) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended March 31, 2002.
(11) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended June 30, 2002.
(12) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 2002.
(13) Filed herewith.
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on this 14th day of April 2003.
TRAILER BRIDGE, INC.
By: /s/ John D. McCown
------------------------------------
John D. McCown
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John D. McCown Chairman of the Board and Chief Executive Officer April 14, 2003
- ------------------------------------ and Director (Principal Executive Officer)
John D. McCown
/s/ Mark A. Tanner Vice President -- Administration and Chief Financial April 14, 2003
- ------------------------------------ Officer (Principal Financial and Accounting Officer)
Mark A. Tanner
/s/ William G. Gotimer, Jr. Director April 14, 2003
- ------------------------------------
William G. Gotimer, Jr.
/s/ Nickel van Reesema Director April 14, 2003
- ------------------------------------
Nickel van Reesema
/s/ Allen L. Stevens Director April 14, 2003
- ------------------------------------
Allen L. Stevens
/s/ Peter Shaerf Director April 14, 2003
- ------------------------------------
Peter Shaerf
/s/ Artis E. James Director April 14, 2003
- ------------------------------------
Artis E. James
30
SIGNATURE TITLE DATE
--------- ----- ----
Director April ___, 2003
- ------------------------------------
F. Duffield Meyercord
Director April ___, 2003
- ------------------------------------
Malcom P. McLean, Jr.
Director April ___, 2003
- ------------------------------------
Greggory B. Mendenhall
31
CERTIFICATIONS
I, John D. McCown, certify that:
1. I have reviewed this annual report on Form 10-K of Trailer Bridge, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 14, 2003
/s/ John D. McCown
-----------------------
John D. McCown
Chief Executive Officer
32
CERTIFICATIONS
I, Mark A. Tanner, certify that:
1. I have reviewed this annual report on Form 10-K of Trailer Bridge, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 14, 2003
/s/ Mark A. Tanner
-----------------------
Mark A. Tanner
Chief Financial Officer
33
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1.1(12) Amended and Restated Certificate of Incorporation of the
Registrant
3.1.2(12) Certificate of Designations of Series A Preferred Stock
3.1.3(12) Certificate of Designations of Series B Preferred Stock
3.1.4(12) Amendment No. 1 to Certificate of Designations of Series B
Preferred Stock
3.1.5(12) Amendment No. 2 to Certificate of Designations of Series B
Preferred Stock
3.2(1) Form of Amended and Restated Bylaws of the Registrant
4.1(1) See Exhibits 3.1.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining the
rights of holders of the Registrant's Common Stock
10.1(1)# Form of Indemnification Agreement with Directors and
Executive Officers
10.2(1) Bareboat Charter Party dated February 1992
10.2.1(1) Amendment to Bareboat Charter Party dated December 31, 1994
10.2.2(1) Second Amendment to Bareboat Charter Party dated October
1995
10.2.3(1) Third Amendment to Bareboat Charter Party dated March 1,
1997
10.2.4(1) Form of Fourth Amendment to Bareboat Charter Party
10.2.5(2) Fourth Amendment to Bareboat Charter Party dated June 30,
1997
10.2.6(13) Fifth Amendment to Bareboat Charter Party dated March 30,
2001
10.6(1) Vessel Construction Contract dated as of December 30, 1996
between Coastal Ship, Inc. and Halter Marine, Inc.
10.6.1(1) Assignment of Vessel Construction Contract dated March 24,
1997 between Coastal Ship, Inc. and the Registrant
10.6.2(1) Amendment No. 1 to Vessel Construction Contract dated as of
April 1997
34
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
10.7.1(11) 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)
10.8(1) Commitment to Guarantee Obligations
10.8.1(1) Trust Indenture
10.8.3(1) Title XI Reserve Fund and Financial Agreement
10.8.4(4) Commitment to Guarantee Obligations
10.8.5(4) Trust Indenture
10.8.7(4) Title XI Reserve Fund and Financial Agreement
10.8.9(8) Trust Indenture First Supplement to Special Provisions
10.8.11(8) Trust Indenture First Supplement to Special Provisions
10.8.12(12) Trust Indenture, Second Supplement to Special Provisions
10.8.13(12) United States Government Guaranteed Ship Financing Bond,
1997 Series, Amended and Restated September 30, 2002, in the
amount of $10,515,000
10.8.14(12) Trust Indenture, Second Supplement to Special Provisions
10.8.15(12) United States Government Guaranteed Ship Financing Bond,
1997 Series II, Amended and Restated September 30, 2002, in
the amount of $16,918,000
10.9(1) Agreement and Lease dated as of August 1, 1991 between the
Registrant and the Jacksonville Port Authority
10.9.1(1) Amendment #5 to Exhibit B, Schedule of Fees and Charges
10.11(1)# Incentive Stock Plan
10.11.1(1)# Form of Stock Option Award Agreement
10.11.2(6)# Amendment No. 1 to Trailer Bridge, Inc. Stock Incentive Plan
10.11.3(6)# Trailer Bridge, Inc. Non-Employee Director Stock Incentive
Plan
10.11.4(6)# Form of Non-Employee Director Stock Option Award Agreement
10.12(3) Trailer Bridge, Inc. Employee Stock Purchase Plan
35
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
10.14(5) Agreement with Kadampanattu Corp. re ramp expenses
10.15(6) Loan and Security Agreement dated as of December 27, 2000
Between General Electric Capital Corporation as Lender and
Trailer Bridge, Inc. as Borrower
10.15.1(9) First Amendment Dated as of August ___, 2001 to Loan and
Security Agreement dated as of December 27, 2000 Between
General Electric Capital Corporation as Lender and Trailer
Bridge, Inc. as Borrower
10.15.2(10) Second Amendment to Loan and Security Agreement dated as of
May 1, 2002 by and between Trailer Bridge, Inc. and General
Electric Capital Corporation
10.18(10) Loan and Security Agreement dated as of May ___, 2002
Between Transportation Receivables 1992, LLC as Lender and
Trailer Bridge, Inc. as Borrower
10.19(10) Securities Purchase Agreement between Trailer Bridge, Inc.
and Transportation Receivables 1992, LLC
10.20(10) Intercreditor Agreement, dated as of May 1, 2002 by and
among Transportation Receivables 1992, LLC, General Electric
Capital Corporation and Trailer Bridge, Inc.
10.22.1(11) 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(11) 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(11) Registration Rights Agreement dated as of May 23, 2002
between Trailer Bridge, Inc. and Transportation Receivable
1992, LLC
10.24(13)# Employment Agreement dated as of April 5, 2002 between
Trailer Bridge, Inc. and William G. Gotimer, Jr.
18(7) Letter re Change in Accounting principles
23(13) Consent of Deloitte & Touche LLP
99.1(13) 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)
36
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
99.2(13) 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)
- -------------------
(1) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
(2) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
(3) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
(4) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
(5) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1999.
(6) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2000.
(7) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K/A for the year ended December 31, 2000 filed December 14,
2001.
(8) Incorporated by reference to the indicated exhibit to the Company's
Form 8-K filed January 9, 2002.
(9) Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 2001.
(10) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended March 31, 2002.
(11) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended June 30, 2002.
(12) Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 2002.
(13) Filed herewith.
# Management contract or compensatory plan or arrangement.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF TRAILER BRIDGE, INC. AS OF AND FOR THE ONE
YEAR ENDED DECEMBER 31, 2002 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
37
TRAILER BRIDGE, INC.
Financial Statements for the Three Years
in the Period Ended December 31, 2002
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, 2002 and 2001, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Trailer Bridge, Inc. as of December 31, 2002
and 2001, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations raise
substantial doubt about its ability to continue as a going concern. Manage-
ment's plans concerning this matter are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for periodic vessel dry-docking in 2000.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Jacksonville, Florida
April 12, 2003
TRAILER BRIDGE, INC.
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
2002 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,144,887 $ 441,320
Marketable securities 61,403
Trade receivables, less allowance for doubtful
accounts of $895,772 and $1,118,083 9,928,915 10,547,863
Other receivables 17,040 34,272
Prepaid expenses 1,939,032 1,258,125
Assets held for sale 305,873
-----------
Total current assets 14,029,874 12,648,856
PROPERTY AND EQUIPMENT, net 50,076,776 53,616,664
OTHER ASSETS 1,299,031 1,458,225
---------- -----------
TOTAL ASSETS $ 65,405,681 $ 67,723,745
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 6,980,180 $ 9,622,215
Accrued liabilities 3,679,382 4,824,789
Current portion of long-term debt 2,969,668 18,742,140
Unearned revenue 788,020 832,898
------------- -----------
Total current liabilities 14,417,250 34,022,042
DUE TO RELATED PARTIES 5,264,627 19,577,513
LONG-TERM DEBT, less current portion 36,724,276 22,833,420
DERIVATIVE FINANCIAL INSTRUMENT 35,952
-----------
TOTAL LIABILITIES 56,406,153 76,468,927
------------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 6 and 11)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock Series A, $.01 par value, 1,000,000 shares
authorized; 19,550 shares issued and outstanding
(liquidation value $2,000,000) 196
Preferred stock Series B, $.01 par value, 1,000,000 shares
authorized 24,000 shares issued and outstanding (liquidation
value $24,000,000) 22,047,112
Common stock, $.01 par value, 20,000,000 authorized
shares; 9,777,500 shares outstanding 97,775 97,775
Additional paid-in capital 44,309,216 39,791,818
Subscribed preferred stock Series B (1,073,352)
Accumulated deficit (56,381,419) (48,634,775)
------------- -----------
Total stockholders' equity (deficiency) 8,999,528 (8,745,182)
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 65,405,681 $ 67,723,745
============= ===========
See notes to financial statements.
-2-
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
OPERATING REVENUES $ 73,810,457 $ 81,567,732 $ 91,706,164
OPERATING EXPENSES:
Salaries, wages, and benefits 15,218,526 17,615,602 16,648,581
Rent and purchased transportation:
Related party 7,336,500 7,336,500 7,356,600
Other 20,893,378 27,006,429 26,487,467
Fuel 7,396,815 10,751,623 11,157,500
Operating and maintenance (exclusive of
depreciation shown separately below) 16,391,612 24,702,099 21,503,909
Taxes and licenses 602,742 1,122,191 497,016
Insurance and claims 3,036,622 2,650,245 2,373,186
Communications and utilities 577,320 677,243 662,026
Depreciation and amortization 3,383,002 4,928,489 4,840,965
Other operating expenses 3,112,174 5,984,223 4,570,616
(Gain) loss on sale of equipment, net:
Related party (336,818)
Other (101,862) 160,692 (93,398)
Asset impairments 3,820,421
Restructuring expenses (Note 2) 1,054,410
------------- ------------ ------------
77,846,829 107,810,167 95,667,650
------------- ------------ ------------
OPERATING LOSS (4,036,372) (26,242,435) (3,961,486)
NONOPERATING INCOME (EXPENSE):
Interest expense, net (3,052,569) (3,225,079) (3,357,936)
Other, net (10,527) 25,449
------------- ------------ ------------
(3,063,096) (3,199,630) (3,357,936)
------------- ------------ ------------
LOSS BEFORE INCOME TAX AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (7,099,468) (29,442,065) (7,319,422)
INCOME TAX (EXPENSE) BENEFIT (3,305) 22,129 (3,149,432)
------------- ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (7,102,773) (29,419,936) (10,468,854)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF TAX OF $77,900 (Note 1) 127,100
------------- ------------ ------------
NET LOSS (7,102,773) (29,419,936) (10,341,754)
ACCRETION OF PREFERRED STOCK DISCOUNT (643,871)
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (7,746,644) $ (29,419,936) $ (10,341,754)
============= ============ ============
LOSS PER COMMON SHARE (BASIC AND DILUTED):
Loss before cumulative effect of accounting change $ (0.79) $ (3.01) $ (1.07)
Cumulative effect of accounting change 0.01
------------- ------------ ------------
Net loss per common share $ (0.79) $ (3.01) $ (1.06)
============= ============ ============
See notes to financial statements.
-3-
TRAILER BRIDGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
Preferred Stock Series A Preferred Stock Series B Common Stock
------------------------- ------------------------------ ----------------------
Shares Amount Shares Amount Shares Amount
----------- ---------- --------- ------------ ----------- -----------
BALANCE, JANUARY 1, 2000 9,777,500 $ 97,775
--------- -------- --------- ------------ ----------- --------
Net loss
BALANCE, DECEMBER 31, 2000 9,777,500 97,775
Capital contribution from charter
hire relief (Note 4)
Net loss
--------- -------- --------- ------------ ----------- --------
BALANCE, DECEMBER 31, 2001 9,777,500 97,775
Issuance of preferred stock Series A,
net of issuance costs 19,550 $ 196
Issuance of preferred stock Series B 24,000 $ 21,403,241
Accretion of Preferred Stock Discount 643,871
Net loss
--------- -------- --------- ------------ ----------- --------
BALANCE, DECEMBER 31, 2002 19,550 $ 196 24,000 $ 22,047,112 9,777,500 $ 97,775
========= ======== ========= ============ =========== ========
-4-
Additional Subscribed
Paid-in Accumulated Preferred Stock Series B
Capital Deficit Receivable Total
--------------- ----------------- ---------------------------- ------------------
BALANCE, JANUARY 1, 2000 $ 37,982,818 $ (8,873,085) $ 29,207,508
Net loss (10,341,754) (10,341,754)
------------ ------------ ----------- -------------
BALANCE, DECEMBER 31, 2000 37,982,818 (19,214,839) 18,865,754
Capital contribution from charter
hire relief (Note 4) 1,809,000 1,809,000
Net loss (29,419,936) (29,419,936)
------------ ------------ ----------- -------------
BALANCE, DECEMBER 31, 2001 39,791,818 (48,634,775) (8,745,182)
Issuance of preferred stock Series A 1,920,639 1,920,835
Issuance of preferred stock Series B 2,596,759 $ (1,073,352) 22,926,648
Accretion of Preferred Stock Discount (643,871)
Net loss (7,102,773) (7,102,773)
------------ ------------ ----------- -------------
BALANCE, DECEMBER 31, 2002 $ 44,309,216 $ (56,381,419) $ (1,073,352) $ 8,999,528
============ ============ =========== =============
See notes to financial statements.
-5-
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
OPERATING ACTIVITIES:
Net loss $ (7,102,773) $ (29,419,936 $ (10,341,754)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,383,002 4,928,489 4,840,965
Non-cash purchased transportation,
related party 3,673,417
Asset impairment 3,820,421
Provision for uncollectible accounts 981,637 4,737,308 1,805,130
Loss on trading securities 10,527
Proceeds from sale of trading securities 50,876
(Gain) loss on sale of equipment (101,862) 160,692 (430,216)
Loss on derivative instruments 35,952
Deferred income tax provision 3,227,332
Stock received in demutualization of
insurance carrier (61,403)
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables (362,689) (201,936) (4,353,227)
Other receivables 17,232 69,999 (27,773)
Due from affiliate 2,007 2,748,193
Prepaid expenses (680,907) 414,992 (470,674)
Other assets 159,194 117,834 41,184
Increase (decrease) in:
Accounts payable (2,642,035) 2,128,041 33,404
Accrued liabilities (1,045,066) 1,690,682 (279,228)
Unearned revenue (44,878) 540,103 (206,711)
----------- ------------ ------------
Net cash used in operating activities (3,704,325) (11,036,755) (3,413,375)
----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases and construction of property and equipmet (47,138) (810,830) (5,648,398)
Proceeds from the sale of equipment 886,424 1,152,295 1,799,205
Decrease in restricted cash and investments 691,419
----------- ------------ ------------
Net cash provided by (used in) investing
activities 839,286 341,465 (3,157,774)
----------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings on notes payables 12,000,000
Net borrowings (repayments) on revolving line of credit 102,623 700,580 (10,288,713)
Payments on notes payable (1,827,572) (2,626,640) (5,294,636)
Proceeds from borrowings from affiliate 4,940,345 12,348,438 9,038,075
Payment for termination of interest rate swap (35,952)
Debt issue costs (381,150)
Payments on capital lease obligations (531,673) (150,935) (83,010)
Issuance of Preferred Series A 1,920,835
----------- ------------ ------------
Net cash provided by financing activities 4,568,606 10,271,443 4,990,566
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,703,567 (423,847) (1,580,583)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 441,320 865,167 2,445,750
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,144,887 $ 441,320 $ 865,167
----------- ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for state income taxes $ 2,875 $ 3,275 $ 11,055
=========== ============ ============
Cash paid for interest $ 3,596,847 $ 2,374,819 $ 4,097,954
=========== ============ ============
Conversion of subordinated debt $ 22,926,648
=========== ============ ============
Equipment acquired under capital lease agreements $ 375,006 $ 217,945
=========== ============ ============
Capital contribution from related party debt
forgiveness $ 1,809,000
=========== ============ ============
See notes to financial statements.
-6-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
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 between
Jacksonville, Florida and San Juan, Puerto Rico.
Cash and Cash Equivalents - The Company considers cash on hand and amounts
on deposit with financial institutions with original maturities of three
months or less to be cash equivalents.
Marketable Securities - The Company classifies its marketable securities
as trading securities, as they are expected to be sold in the near term.
The securities consist of equity securities, which are stated at fair
value, with net unrealized gains or losses on the securities recorded in
operations. Quoted market prices are used to determine the fair value of
trading securities.
Allowance for Doubtful Accounts - The Company provides an allowance for
doubtful accounts on trade receivables based upon estimated collectibility
and collection experience.
Property and Equipment - Property and equipment are stated at cost and the
capitalized interest costs associated with significant capital additions
less accumulated depreciation. Property and equipment are depreciated on a
straight-line method based on the following estimated useful lives:
Years
Buildings and structures 40
Office furniture and equipment 6-10
Freight equipment 4-25
Leasehold improvements 2-5
Equipment under capital leases 5
Tires on revenue equipment purchased are capitalized as part of the
equipment cost and depreciated over the life of the vehicle. Replacement
tires are expensed when placed in service.
Leasehold improvements and equipment under capital leases are amortized
over the lesser of the estimated lives of the asset or the lease terms.
Maintenance and repairs which do not materially extend useful life and
minor replacements are charged to earnings as incurred.
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value exceeds
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less cost to sell.
Goodwill - The Company historically amortized goodwill using the
straight-line method over twenty-five years, and periodically reviewed
goodwill for potential impairment. In 2001, the Company determined that
goodwill was impaired and recorded an impairment loss of approximately
$721,000, representing the remaining carrying value of goodwill.
-7-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
Had goodwill been accounted for under SFAS No. 142, which provides for the
non-amortization of goodwill, for all periods presented, net loss would
have been as follows:
2002 2001 2000
Reported net loss applicable to common shares $ (7,746,644) $ (29,419,936) $ (10,341,754)
Add back goodwill amortization 42,881 46,779
----------- ------------ ------------
Proforma adjusted net loss applicable to
common shares $ (7,746,644) $ (29,377,055) $ (10,294,975)
=========== ============ ============
Other Assets - Other assets consist mainly of debt issuance costs which
are amortized on a straight-line basis over the life of the associated
debt which approximates the interest method.
Insurance - The Company is self-insured for employee medical coverage
above deductible amounts. Reinsurance is obtained to cover losses in
excess of certain limits. Provisions for losses are determined on the
basis of claims reported and an estimate of claims incurred but not
reported.
Derivative Instrument - At times the Company uses interest rate swap
agreements to manage its exposure to changes in interest rates. In
accordance with Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 138, derivatives are carried at fair value and the
changes in the fair value of the derivative are recognized in earnings.
Revenue Recognition - Common carrier operations revenue is recorded on the
percentage-of-completion basis and direct costs are expensed as incurred.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Valuation allowances are provided
against deferred tax assets for amounts that are not considered "more
likely than not" to be realized.
Earnings Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings applicable 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
Accounting Principles Board ("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. In December 2002, the
Company adopted the disclosure provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure."
-8-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
New Accounting Standards - In April 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 54, Amendment of FASB
Statement No. 13, and Technical Corrections." This Statement rescinds SFAS
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No.
44, "Accounting for Intangible Assets of Motor Carriers." Additionally,
his Statement amends SFAS No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meaning, or
describe their applicability under changed conditions. This Statement will
be effective for the year ended December 31, 2003 and for transactions
entered into after May 15, 2002. It does not appear that this Statement
will have a material effect on the financial position, operations or cash
flows of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement nullifies
Emerging Issued Task Force (EITF) Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." Under
Issue 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. This Statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002,
with early application encouraged. It does not appear that this Statement
will have a material effect on the financial position, operations or cash
flows of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This Statement
amends SFAS No. 123 (same title) and provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements in both annual and interim
financial statements related to the methods of accounting for stock-based
employee compensation and the effect of the method on reported results.
The Statement also prohibits the use of the prospective method of
transition, as outlined in SFAS No. 123, when beginning to expense stock
options and change to the fair value based method in fiscal years
beginning after December 15, 2003. As required, the Company adopted the
disclosure requirements of SFAS No. 148 on December 31, 2002.
In November 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
(FIN 45), which requires a guarantor to recognize a liability for the fair
value of the obligation at the inception of the guarantee. The Company
adopted the disclosure requirements of FIN 45 as of December 31, 2002. The
adoption of the measurement requirements of FIN 45 will not have a
material impact on the Company's financial position or results of
operation.
-9-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities," which clarified the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities
in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial
support from other parties. FIN 46 is applicable immediately for variable
interest entities created after January 31, 2003. The provisions of FIN 46
are applicable for variable interest entities created prior to January 31,
2003 no later than July 1, 2003. The adoption of FIN 46 will not have an
impact on the Company's financial position or results of operations.
Accounting Change - During the year ended December 31, 2000, the Company
changed its method of accounting for periodic vessel dry-docking. Prior to
the change, the Company accrued estimates of future vessel dry-docking
costs. The Company now expenses these costs as incurred. This change
resulted in a gain of $127,100, net of income taxes of $77,900 for the
year ended December 31, 2000.
Reclassifications - Certain reclassifications have been made to the 2001
and 2000 financial statements to conform with the presentation adopted in
2002.
2. COMPANY LIQUIDITY AND MANAGEMENT'S FURTHER CONTINGENCY PLANS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, during the years ended December 31, 2002, 2001
and 2000, the Company incurred net losses applicable to common shares of
$7,746,644, $29,419,936 and $10,341,754, respectively and had negative
cash flows from operating activities of $3,704,325, $11,036,755 and
$3,413,375, respectively. These factors along with a working capital
deficiency as of December 31, 2002, 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
business plan for 2003 is to continue its effort to attract increased
volume and manage operating costs in order to attain profitable
operations. During the first quarter of 2003, the Company has commenced
new contracts with both new and existing customers resulting in a
significantly improved revenue level over the five-week period ended
April 12, 2003. Revenue levels for the five week period ended April 12,
2003 are in excess of plan. The Company believes that if planned revenue
levels can be maintained, attaining successful operations is expected.
However, no assurance can be made that the Company will be successful in
maintaining the improved revenue levels and accomplishing its other
business plans. If the Company is unsuccessful in meeting its projections,
there is no assurance that financial assistance from its affiliates
similar to that received in the past would be made available. Therefore,
there is substantial doubt as to the Company's ability to continue as a
going concern.
-10-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
3. RESTRUCTURING EXPENSES
In the quarter ended December 31, 2001, the Company recorded restructuring
expenses of $1,054,410 from continuing operations, resulting from the
decision to discontinue its weekly Northeast service between Newark, New
Jersey and San Juan, Puerto Rico. The restructuring charge was comprised
of the following:
Fixed asset impairments $ 380,550
Remaining lease obligations and penalties 599,074
Employee severance and termination benefit costs 74,786
----------
$ 1,054,410
The Company implemented its restructuring plan during 2002. As part of its
restructuring plan, the Company terminated 17 employees working in the
Northeast service operation in January, 2002.
The actions to complete the exit plan consisted primarily of completing
the off-hire of approximately 619 leased trailers.
As of December 31, 2001, $305,873, net of an impairment charge of $380,550
was included in assets held for sale representing the net realizable value
of equipment to be sold. At December 31, 2002 and 2001, $150,000 and
$673,860, respectively, was included in accrued liabilities, representing
the portion of the charges not yet expended.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 consist of the
following:
2002 2001
Land $ 504,703 $ 504,703
Buildings and structures 2,578,361 2,578,361
Office furniture and equipment 3,248,186 4,160,359
Freight equipment 63,263,165 63,811,047
Leasehold improvements 1,894,546 1,926,572
Less accumulated depreciation and amortization (21,412,185) (19,364,378)
------------ -------------
Fixed assets, net $ 50,076,776 $ 53,616,664
============ =============
Depreciation and amortization expense on property and equipment was
$3,383,002, $4,885,608 and $4,794,186 in 2002, 2001 and 2000,
respectively.
In the fourth quarter of 2001, the Company determined that certain vessels
were impaired and recorded an impairment loss of $3,000,000 based upon
independent appraisals of the vessels. Additionally, in the fourth quarter
of 2001, the Company recorded an impairment loss of approximately $99,000
relating to damaged trailers.
5. TRANSACTIONS WITH RELATED PARTIES
The Company leases two roll-on/roll-off barge vessels and the use of a
ramp system in San Juan, Puerto Rico from an affiliate under operating
lease agreements. The lease payments are $10,050 per day for each vessel.
The leases expire September 1, 2010. The leases provide the Company the
option to extend the leases through September 1, 2018 for total payments
of $11,000 per vessel per day or, alternatively, the Company may purchase
the vessels at their then fair market values. Total lease expense under
these leases from affiliate totaled $7,336,500, $7,336,500 and $7,356,600
-11-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
in 2002, 2001 and 2000, respectively. During 2001, the Company was
provided $1,809,000 in charter hire relief that was recorded as a capital
contribution. In addition, the Company deferred certain charter hire
payments to the affiliate for the remainder of 2001. All deferred charter
hire payments were recorded as an increase in due to related parties.
The Company received net cash advances from an affiliate totaling
$461,468 and $4,226,188 in 2002 and 2001, respectively. These advances
were used to meet the Company's cash flow requirements. These advances
have been classified as non-current liabilities.
During 2002, the Company issued to an affiliate $24 million of
non-convertible preferred stock Series B as payment for indebtedness,
amounts deferred under the long-term charters of the Company and an
advance portion of the 2003 charterhire.
The Company received an advance of $203,877 and $60,750 from an officer in
2002 and 2001, respectively. Such advance was used to meet the Company's
cash flow requirements. The amount is included in the total amount due to
related parties.
During 2000, the Company sold an affiliate a piece of land for $750,000. A
gain of $336,818 was recognized on this transaction.
In December 2001, the Company entered into a loan and security agreement
with a related party providing for a $3 million revolving credit facility.
The purpose of the loan was for working capital and other general
corporate purposes. The Company borrowed $725,000 under the agreement in
2001, and the remaining $2.275 million in the first quarter of 2002.
During the quarter ended June 30, 2002 the Company borrowed $5 million
from an affiliate. The proceeds of this borrowing were used to repay the
$3 million borrowed under the revolving credit agreement, and to provide
$2 million in working capital. In addition, the same affiliate purchased
preferred convertible stock Series A for $2 million. The preferred stock
Series A, 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 preferred Series A are
convertible into common stock at a price of $1.02 per common share, which
is a 23.3% discount from the 30 day average closing price as of March 28,
2002 of $1.33. Except where class voting is required by law, the preferred
stock Series A votes together with the common stock as a single class,
with each share of preferred Series A entitled to 35.52 votes per share,
or approximately 35% of the number of votes on an as-converted basis.
6. LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 2002 and 2001:
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 $15,653,517 at December 31,
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 $10,149,952 at
December 31, 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 quarterly installments of principal and interest;
interest at a rate of 4.25% above the 30-day dealer commercial paper rate (5.50%
at December 31, 2002); collateralized by trailers with a carrying value of
$15,981,216 at December 31, 2002 9,000,000 10,714,286
-12-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
2002 2001
Revolving line of credit under $29 million credit facility; interest at a rate
of 3.75% above the 30-day dealer commercial paper rate (5.00% at December 31,
2002);
collateralized by accounts receivable $ 6,064,490 $ 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 (8.02% at December 31,
2001); collateralized by accrued receivable 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 30-day LIBOR rate
(3.42% at December 31, 2002); collateralized by land and buildings and
structures with a carrying value of $2,090,718 at
December 31, 2002 698,714 812,000
Capital lease obligations repaid in 2002; payable in
monthly installments of principal and interest; interest
ranging from 4.9% to 10%; collateralized by trailers 156,667
----------- -----------
39,693,944 41,575,560
Less current portion (2,969,668) (18,742,140)
----------- -----------
$ 36,724,276 $ 22,833,420
=========== ==========
In December 2000, the Company entered into a $29 million loan and security
agreement consisting of a $15 million revolving credit facility, a $12
million term loan and a $2 million capital expenditure loan. The revolving
credit facility is limited to 85% of eligible accounts receivable plus 75%
of eligible accrued receivables, as defined in the agreement (as amended),
not to exceed $15 million. Additional borrowings available under the
revolving credit facility and the capital expenditure loan at December 31,
2002 amounted to approximately $647,000.
The loan and security agreement contains certain restrictive covenants,
including, but not limited to, requirements to maintain tangible net
worth, as defined in the credit agreement, and a fixed charge coverage
ratio. As of December 31, 2002, the Company is in compliance with these
covenants and as a result, the debt has been classified as long-term. As
of December 31, 2001, the Company was in default of these debt covenants.
Since the lender could demand payment of the full amount outstanding as a
result of the default, debt under the loan and security agreement was
classified as a current liability as of December 31, 2001.
During the three months ended September 30, 2002 the Company rescheduled
its principal payments under each of its two Title XI bond issues. The
combined interest payment due on September 30, 2002 totaling $805,010 was
paid on its scheduled date. The Company had previously rescheduled the
principal payments of $210,300 and $338,360, respectively, due on each of
its Title XI bonds issues September 30, 2001 and March 31, 2002 for
payment on September 30, 2002 and March 31, 2003. This resulted in total
scheduled principal payments of the Company's two title XI issues of
$420,000 and $676,720, respectively, for both September 30, 2002 and March
31, 2003. During the three months ended September 30, 2002, the Company
rescheduled the full double principal payments due September 30, 2002 and
one half of the double principal payments due March 31, 2003. As a result,
-13-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
commencing March 30, 2003, these rescheduled principal payments will be
paid equally over the remaining scheduled principal payment period of each
title XI issue. As rescheduled, the Company's semi-annual principal
payments shall increase to $226,073 and $363,118 until fully paid
September 30, 2022 and March 30, 2023, respectively. As of December 31,
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 or 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.
Following are maturities of long-term debt at December 31, 2002:
2003 $ 2,969,668
2004 14,602,791
2005 1,252,587
2006 1,654,482
2007 1,178,382
Thereafter 18,036,034
------------
$ 39,693,944
============
7. OPERATING LEASES
The Company has various operating lease agreements, principally for tug
charter, office facilities, terminals and equipment.
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, 2002 are as follows:
2003 $ 19,730,556
2004 11,002,879
2005 6,095,684
2006 4,519,833
2007 1,253,892
Thereafter 6,076,165
------------
Total minimum payments required $ 48,679,009
===========
Rent expense for all operating leases, including leases with terms of
less than one year, was $19,428,851, $24,912,304 and $23,540,198 for 2002,
2001 and 2000.
-14-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
8. ACCRUED LIABILITIES
Accrued liabilities consists of the following at December 31, 2002 and
2001:
2002 2001
Fringe benefits $ 465,522 $ 469,268
Marine expense 470,852 722,053
Salaries and wages 382,713 423,279
Interest 755,847 1,295,365
Rent 505,281 199,780
Taxes 355,898 503,322
Other 593,269 537,862
Restructuring (See Note 2) 150,000 673,860
---------- ----------
$ 3,679,382 $ 4,824,789
========== ==========
9. INCOME TAXES
The (provision) benefit for income taxes is comprised of the following as
of December 31, 2002, 2001 and 2000:
2002 2001 2000
Current:
Federal
State $ (3,305) $ 22,129
----------- -------------
(3,305) 22,129
----------- -------------
Deferred:
Federal 2,384,509 9,960,787 $ 2,437,415
State 280,530 1,171,857 286,755
----------- ------------- -----------
2,665,039 11,132,644 2,724,170
Valuation allowance (2,665,039) (11,132,644) (5,873,602)
----------- ------------- -----------
Total: income tax (expense) benefit $ (3,305) $ 22,129 $ (3,149,432)
=========== ============= ===========
-15-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
Income tax (expense) benefit for the years ended December 31, 2002, 2001
and 2000 differs from the amounts computed by applying the statutory
Federal corporate rate to loss before income taxes and cumulative effect
of accounting change. The differences are reconciled as follows:
2002 2001 2000
Tax benefit at statutory Federal rate $ 2,413,819 $ 10,010,301 $ 2,488,605
Increase in deferred tax asset
valuation allowance (2,665,039) (11,132,644) (5,873,602)
Nondeductible expenses (32,759) (55,339) (57,212)
State income taxes, net of federal benefit 280,674 1,199,811 292,777
------------ ------------- -----------
Total income tax benefit (expense) $ (3,305) $ 22,129 $ (3,149,432)
============ ============= ===========
The components of the Company's net deferred tax asset at December 31,
2002 and 2001 are as follows:
2002 2001
Deferred tax assets:
Net operating loss $ 27,378,102 $ 23,540,681
Employee stock option 3,240,895 3,240,895
Asset impairment charge 1,452,110 1,451,760
Restructuring charge 142,880 400,524
Goodwill 128,383 158,017
Allowance for bad debts 340,393 424,871
Accrued vacation 180,076
Other - 13,661
------------- -------------
Gross deferred assets 32,862,839 29,230,409
Deferred tax liabilities:
Fixed asset basis 12,213,654 11,223,931
Other - 22,332
------------- -------------
Gross deferred tax liabilities 12,213,654 11,246,263
Deferred tax asset valuation allowance 20,649,185 17,984,146
------------- -------------
Net deferred tax asset $ - $ -
============= =============
The Company has recorded various deferred tax assets as reflected above.
Realization is dependent on generating sufficient taxable income in future
years. As a result of the net losses incurred in recent years, a valuation
allowance of $2,665,039, $11,132,644, and $5,873,602 was established at
December 31, 2002, 2001, and 2000, respectively.
At December 31, 2001, the Company had available net operating loss ("NOL")
carryforwards for federal income tax purposes of $72,047,636 which expire
beginning in 2018.
-16-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
10. STOCKHOLDERS' EQUITY
Earnings Per Share:
The weighted average number of common shares used to calculate basic loss
per share was 9,777,500 for the years ended December 31, 2002, 2001 and
2000. Outstanding options to purchase shares of common stock of 1,327,110,
1,100,687 and 1,100,687 were excluded from the computation to arrive at
diluted EPS because the options' exercise prices exceeded the average
market price of the common shares for the years ended December 31, 2002,
2001 and 2000, respectively, and thus their inclusion would be
antidilutive.
Preferred Stock Series A:
During the second quarter of 2002, the Company issued 19,550 shares of
preferred stock Series A for $2 million to an affiliate. Issuance costs
amounted to $79,165.
Conversion Rights - Each share of preferred stock Series A is convertible
into common stock at a price of $1.02 per common share.
Dividends - The preferred stock Series A does not bear any preferential
dividends but participates with the common stock on an as-converted basis
in any common dividends.
Voting Rights - Except where class voting is required by law, the
preferred stock Series A votes together with the common stock as a single
class, with each share of preferred Series A entitled to 35.52 votes per
share, or approximately 35% of the number of votes on an as-converted
basis.
Liquidation Preference - The preferred stock Series A has a liquidation
value equal to its original purchase price. In the event of liquidation of
the Company, unless the holders of the preferred stock Series A elect to
convert their shares to common stock, the holders of common stock will not
be entitled to receive any distributions after the payment or provision
for the Company's liabilities until the liquidation preference is paid in
full.
Preferred Stock Series B:
During 2002, the Company issued 24,000 shares of preferred stock Series B
as payment for indebtedness, amounts deferred under the long-term charters
of the Company and an advance portion of the 2003 charterhire. The total
issued value of preferred stock Series B was $24 million. As an increasing
rate preferred stock, Series B was recorded at fair-value resulting in an
initial discount of approximately $3.3 million of which approximately $3
million will be accreted over a period of four years and nine months and
approximately $.3 million will be accreted over a period of four years and
six months. Accretion for the year ended December 31, 2002 was $643,871.
The preferred stock Series B issued for the advance portion of the 2003
charterhire in the amount of $1.07 million has been recorded as a stock
subscription and is included in Stockholders' Equity in the accompanying
balance sheet.
Dividends - Beginning April 1, 2003, cumulative preferential dividend will
accrue on the purchase price of the preferred stock Series B at a rate
equal to 90-day LIBOR plus 350 basis points. Starting in 2004, the
dividend rate will increase 25 basis points per quarter up to a maximum
dividend rate of 90-day
-17-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
LIBOR plus 650 basis points. No dividend may be declared on the preferred
stock Series A or any common stock unless (1) all accrued dividends on the
preferred stock Series B has been paid in full and (2) the holders of a
majority of Series B preferred stock consent to such payment.
Liquidation Preference - The preferred stock Series B has a liquidation
preference of $1,000 per share, and is pari passu with the Company's
preferred stock Series A as to liquidation. The liquidation value of
Series B preferred stock was $24,000,000 at December 31, 2002.
Redemption Rights - The Company, at its option, may redeem the preferred
stock Series B in whole or in part if, after giving effect to the
redemption, the Company will have at least $10 million in stockholders'
equity and, in the event such shares are held by affiliates of the
Company, such redemption has been approved by the holders of a majority of
disinterested shares voting on the redemption at a meeting of
shareholders.
Stock Options:
In 1997, the Company's Board of Directors and stockholders authorized the
establishment of an Incentive Stock Plan (the "Plan"). The purpose of the
Plan is to promote the interests of the Company and its shareholders by
retaining the services of outstanding key management members and employees
and encouraging them to have a greater financial investment in the Company
and increase their personal interest in its continued success. The Company
initially reserved 785,000 shares of common stock for issuance pursuant to
the Plan to eligible employees under the Plan. In July 2000, the Board of
Directors authorized an increase of 515,000 shares of common stock
reserved under the Plan. Awarded options that expire unexercised or are
forfeited become available again for issuance under the Plan. The options
vest equally over a period of five years.
In July 2000, the Company's Board of Directors and its stockholders
authorized the establishment of the Non-Employee Director Stock Incentive
Plan (the "Director Plan"). The purpose of the Director Plan is to assist
the Company in attracting and retaining highly competent individuals to
serve as non-employee directors. The Company has reserved 50,000 shares of
common stock for issuance pursuant to the Director Plan. Awarded options
that expire unexercised or are forfeited become available again for
issuance under the Director Plan. The exercise price per share of options
granted under the Director Plan shall not be less than 100% of the fair
market value of the common stock on the date of grant.
-18-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
A summary of the status of options under the Company's stock-based
compensation plans at December 31, 2002, 2001 and 2000 is presented below:
2002 2001 2000
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at beginning of year 1,100,687 $ 5.95 1,100,687 $ 5.95 711,258 $ 7.70
Granted 302,000 2.88 437,500 2.84
Forfeited (75,577) 2.84 (48,071) 3.45
--------- --------- ---------
Outstanding at end of year 1,327,110 5.59 1,100,687 5.95 1,100,687 5.95
========= ========= =========
Grants exercisable at year-end 708,588 538,354 318,216
Weighted-average fair value of
options granted during the year $ 2.34 $ 2.32
The following table summarizes information about the outstanding options
at December 31, 2002:
Weighted-Average
Exercise Options Remaining Options
Price Outstanding Contractual Life Exercisable
----- ----------- ---------------- -----------
$ 10.00 493,078 4.8 years 449,104
2.25 179,900 6.2 years 107,820
2.84 354,610 7.6 years 151,665
2.88 299,522 9.4 years
-------- -------
1,327,110 708,589
========= =======
Remaining non-exercisable options as of December 31, 2002 become
exercisable as follows:
2003 192,401
2004 171,401
2005 135,461
2006 59,629
2007 59,629
--------
618,521
-19-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
Pro Forma Effect:
The Company applies the intrinsic value based method of APB Opinion No.
25, "Accounting for Stock Issued to Employees," to account for its stock
plans. Accordingly, the Company is adopting the disclosure requirements of
SFAS NO. 148, "Accounting for Stock-based Compensation" - Transition and
Disclosure, effective for the fiscal year ending December 31, 2002, which
requires presentation of pro forma net income and earnings per share
information under SFAS No. 123 (same title).
Pursuant to the above disclosure requirement, the following table provides
an expanded reconciliation for all periods presented that adds back to
reported net income the recorded expense under APB 25, net of related
income tax effects, deducts the total fair value expense under SFAS 123,
net of related income tax effects and shows the reported and pro forma
earnings per share amounts.
2002 2001 2000
Net loss as reported $ (7,746,644) $ (29,419,936) $ (10,341,754)
Total stock-based employee compensation
cost included in the determination of net
loss, net of related tax effects
Total stock-based employee compensation
cost determined under fair value method
for all awards, net of related tax effects (979,380) (944,542) (521,364)
----------- ------------ ------------
Pro forma net loss $ (8,726,024) $ (30,364,478) $ (10,863,118)
Loss per common share:
Basic, as reported $ (0.79) $ (3.01) $ (1.06)
Basic, pro forma $ (0.89) $ (3.11) $ (1.11)
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made. The following assumptions were applied in
determining the pro forma compensation cost:
Years ended December 31 2002 2000
Risk-free interest rate 5.13% 6.20%
Expected dividend yield 0% 0%
Expected option life 7 years 7 years
Expected stock price volatility 91.38% 91.01%
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 $138,000, $199,000 and
$213,000 to the Plan during 2002, 2001 and 2000.
In addition, the Company has a 165(e) Plan that covers substantially all
employees in Puerto Rico. The Company made contributions of approximately
$25,000, $25,000 and $20,000 to the Plan during 2002, 2001, and 2000.
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
-20-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
approximately $700, $11,000 and $15,000 to the Plan during 2002, 2001 and
2000, respectively. In accordance with the Plan document, the Plan will
terminate automatically on the fifth anniversary of the Plan start date,
which will occur on March 1, 2003.
The Company has a Profit Sharing Plan; however, there have been no
contributions to the Plan during the three years ended December 31, 2002.
12. CONTINGENCIES
Legal:
The Company is involved in litigation on a number of matters and is
subject to certain claims which arise in the normal course of business,
none of which, in the opinion of management, are expected to have a
materially adverse effect on the Company's financial statements.
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.
Notes Payable - Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used
to estimate fair value for debt instruments. The Company believes the
carrying amount is a reasonable estimate of such fair value.
Marketable Securities - Fair market values of marketable securities are
based on quoted market prices.
Derivative Instruments - Fair values of derivative instruments are based
on quoted market prices, if available. If quoted market prices are not
available, fair values are determined based on a cash flow model using
market assumptions.
The contract/notional amount and estimated fair value of the Company's
derivative financial instrument are as follows:
2001
Contact/Notional Fair
Amount Value
------------------ --------------
Interest rate swap agreement $ 812,000 $ (35,952)
In the normal course of business, the Company uses interest rate swap
agreements, to manage its interest rate risk for purposes other than
trading. The Company does not use derivative financial instruments for
speculative purposes. As is customary for these types of instruments, the
Company does not require
-21-
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
- --------------------------------------------------------------------------------
collateral or other security from other parties to these instruments. By
their nature all such instruments involve risk, including the credit risk
of nonperformance by counterparties. However, at December 31, 2001, in
management's opinion there was no significant risk of loss in the event of
nonperformance of the counterparties to these financial instruments. The
Company has no interest swap agreements at December 31, 2002.
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 is not necessary.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31, June 30, September 30, December 31,
Quarter Ended 2002 2002 2002 2002
-------------------- ------------------- -------------------- --------------------
Operating revenues $ 17,480,126 $ 18,116,637 $ 18,488,328 $ 19,725,366
Operating loss (587,387) (323,809) (1,495,582) (1,629,594)
Loss before income tax (1,310,534) (1,130,298) (2,262,472) (2,396,164)
Net loss applicable to
common shares (1,310,534) (1,130,298) (2,487,552) (2,818,260)
Net loss per share -
basic and diluted (0.13) (0.12) (0.25) (0.29)
March 31, June 30, September 30, December 31,
Quarter Ended 2001 2001 2001 2001 (1)
--------------------- -------------------- --------------------- ---------------------
Operating revenues $ 20,636,713 $ 21,659,184 $ 20,052,136 $ 19,219,699
Operating loss (4,500,291) (4,350,267) (4,813,263) (12,578,614)
Loss before income tax (5,374,154) (5,160,945) (5,620,547) (13,286,419)
Net loss applicable to
common shares (5,374,154) (5,160,945) (5,598,418) (13,286,419)
Net loss per share -
basic and diluted (0.55) (0.53) (0.57) (1.36)
(1) Operating loss includes $3,820,421 in asset impairment charges,
$1,054,410 in restructuring expenses and an additional provision
for uncollectible accounts receivable of $701,000.
-22-