SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended Commission file number
June 30, 2003 0-22837
TRAILER BRIDGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3617986
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10405 New Berlin Road E.
Jacksonville, FL 32226 (904) 751-7100
(address of principal (Zip Code) (Registrant's telephone number)
executive offices)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check market whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
As of August 13, 2003, 9,777,500 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim financial statements contained herein reflect all
adjustments that, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared in accordance with the instructions to Form
10-Q and do not include all the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.
Operating results for the three and six month periods ended June 30,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. In the opinion of management, the information set
forth in the accompanying balance sheet is fairly stated in all material
respects.
These interim financial statements should be read in conjunction with
the Company's audited financial statements for the three years ended December
31, 2002 that appear in the Company's Annual Report on Form 10-K.
Statements of Operations for the Three and Six Months Ended
June 30, 2003 and 2002 (unaudited) Page 3
Balance Sheets as of June 30, 2003 and December 31, 2002 (unaudited) Page 4
Statements of Cash Flows for the Six Months Ended June 30, 2003
and 2002 (unaudited) Page 5
Notes to Financial Statements as of June 30, 2003 Page 6
2
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------- ---------------------------------
2003 2002 2003 2002
----------------- ----------------- ---------------- ---------------
OPERATING REVENUES $ 21,695,012 $ 18,116,637 $ 40,681,086 $ 35,596,763
OPERATING EXPENSES:
Salaries wages, and benefits 3,764,919 3,541,216 7,935,934 7,514,580
Rent and purchased transportation:
Related Party 1,829,100 1,829,100 3,638,100 3,638,100
Other 6,262,860 4,813,000 11,634,195 9,207,201
Fuel 2,124,258 1,867,839 4,490,570 3,484,162
Operating and maintenance (exclusive of
depreciation shown separately below) 5,125,199 3,618,777 9,449,602 7,635,504
Taxes and licenses 205,679 96,462 371,117 276,847
Insurance and claims 622,942 838,624 1,452,316 1,464,395
Communications and utilities 126,697 166,009 235,359 324,723
Depreciation and amortization 849,794 825,676 1,705,067 1,746,266
(Gain) loss on sale of equipment (2,545) (133,867) (7,808) (69,464)
Other operating expenses 707,605 981,883 1,516,807 1,285,959
----------------- ----------------- ---------------- ---------------
21,616,508 18,444,719 42,421,259 36,508,273
----------------- ----------------- ---------------- ---------------
OPERATING INCOME (LOSS) 78,504 (328,082) (1,740,173) (911,510)
NONOPERATING INCOME (EXPENSE):
Interest expense and other, net (743,846) (802,216) (1,441,056) (1,529,322)
------------------------------------- ---------------------------------
LOSS BEFORE BENEFIT FOR INCOME TAXES (665,342) (1,130,298) (3,181,229) (2,440,832)
BENEFIT FOR INCOME TAXES - - - -
----------------- ----------------- ---------------- ---------------
NET LOSS (665,342) (1,130,298) (3,181,229) (2,440,832)
ACCRETION OF PREFERRED STOCK DISCOUNT (170,128) (636,622)
----------------- ----------------- ---------------- ---------------
NET LOSS ATTRIBUTABLE TO COMMON SHARES $ (835,470) $ (1,130,298) $ (3,817,851) $ (2,440,832)
================= ================= ================ ===============
PER SHARE AMOUNTS:
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.09) $ (0.12) $ (0.39) $ (0.25)
================= ================= ================ ===============
WEIGHTED AVERAGE
SHARES OUTSTANDING 9,777,500 9,777,500 9,777,500 9,777,500
================= ================= ================ ===============
See notes to financial statements
3
TRAILER BRIDGE, INC.
BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
----------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,470,634 $ 2,144,887
Trade receivables, less allowance for doubtful
accounts of $660,351 and $895,772 10,800,514 9,928,915
Other receivables 17,565 17,040
Prepaid expenses 1,187,403 1,939,032
----------------- -------------------
Total current assets 13,476,116 14,029,874
Property and equipment, net 48,411,533 50,076,776
Other assets 1,211,740 1,299,030
----------------- -------------------
TOTAL ASSETS $ 63,099,389 $ 65,405,680
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,072,367 $ 6,980,180
Accrued liabilities 5,014,191 3,679,381
Current portion of long-term debt 16,247,559 2,969,668
Unearned revenue 788,020 788,020
----------------- -------------------
Total current liabilities 28,122,137 14,417,249
Due to Affiliate 5,621,127 5,264,627
Long-term debt, less current obligations 22,747,778 36,724,276
----------------- -------------------
TOTAL LIABILITIES 56,491,042 56,406,152
----------------- -------------------
Stockholders' Equity:
Preferred stock Series A, $.01 par value, 1,000,000 shares
authorized; 19,550 shares issued and outstanding
(liquidation value $2,000,000) 196 196
Preferred stock Series B, $.01 par value, 1,000,000 shares
authorized; 24,000 shares issued and outstanding
(liquidation value $24,000,000) 22,683,734 22,047,112
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,777,500 shares issued and
outstanding 97,775 97,775
Additional paid-in capital 44,025,913 44,309,216
Subscribed preferred stock series B - (1,073,352)
Accumulated deficit in earnings (60,199,271) (56,381,419)
----------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 6,608,347 8,999,528
----------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,099,389 $ 65,405,680
================= ===================
See notes to financial statements
4
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2003 and June 30, 2002
(Unaudited)
June 30, June 30,
2003 2002
------------------ ------------------
Operating activities:
Net loss $ (3,181,229) $ (2,440,832)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,705,067 1,746,266
Noncash purchased transportation, related party 1,073,352 1,723,833
Provision for doubtful accounts 24,562 184,513
Gain on sale of fixed assets (7,808) (69,464)
Unrealized gain on marketable securities (314)
Decrease (increase) in:
Trade receivables (896,161) (1,033,108)
Other receivables (525) 17,167
Prepaid expenses 751,629 605,958
Assets held for sale 305,873
Increase (decrease) in:
Accounts payable (907,813) (3,287,831)
Accrued liabilities 1,408,006 (1,799,904)
Unearned revenue 76,300
------------------ ------------------
Net cash used in operating activities (30,920) (3,971,543)
------------------ ------------------
Investing activities:
Additions to and construction of property and equipment (7,017) (423,065)
Proceeds from sale of property and equipment 63,086 512,507
(Increase) decrease in other assets (795) 79,015
------------------ ------------------
Net cash provided by investing activities 55,274 168,457
------------------ ------------------
Financing activities:
Proceeds from (payments on) borrowing on revolving line of credit 195,639 (552,597)
Proceeds from borrowing from affiliate 5,027,976
Proceeds from borrowing under capital lease obligations 375,006
Issuance of Preferred Series A Convertible Stock 1,920,835
Principal payments on notes payable (894,246) (933,327)
Principal payments under capital lease obligations (296,496)
Derivative Instrument Payment (35,952)
------------------ ------------------
Net cash (used in ) provided by financing activities (698,607) 5,505,445
------------------ ------------------
Net (decrease) increase in cash and cash equivalents (674,253) 1,702,359
Cash and cash equivalents, beginning of the period 2,144,887 441,320
------------------ ------------------
Cash and cash equivalents, end of period $ 1,470,634 $ 2,143,679
================== ==================
Supplemental cashflow information and non-cash investing and financing
activities:
Cash paid for interest, net of amount capitalized $ 1,276,547 $ 1,591,920
================== ==================
Conversion of subordinated debt $ 1,073,352
================== ==================
See notes to financial statements
5
TRAILER BRIDGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for the
periods shown. The financial statements have been prepared in accordance with
the instructions to Form 10-Q and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America. The results of operations for any
interim period are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the Company's audited financial
statements for the three years ended December 31, 2002 that appear in the Form
10-K.
Recent Accounting Pronouncements - In June 2001, the FASB issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred and requires that the amount recorded as a
liability be capitalized by increasing the carrying amount of the related
long-lived asset. Subsequent to initial measurement, the liability is accreted
to the ultimate amount anticipated to be paid, and is also adjusted for
revisions to the timing or amount of estimated cash flows. The capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The Company adopted the standard
effective January 1, 2003. Adoption of SFAS No. 143 did not have a material
effect on the Company's financial position, results of operations or cashflows.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145 rescinds Statement 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. In addition, SFAS 145
amends Statement 13 on leasing to require that certain lease modifications that
have economic effects similar to sale-leaseback transactions be accounted for in
the same manner as sale-leaseback transactions. Provisions of SFAS 145 related
to the recission of Statement 4 are effective for financial statements issued by
the Company after January 1, 2003. The provisions of the statement related to
sale-leaseback transactions were effective for any transactions occurring after
May 15, 2002. All other provisions of the statement were effective as of the end
of the second quarter of 2002. The adoption of the provisions of SFAS 145 did
not have a material impact on the Company's financial condition or results of
operations, nor does the Company expect the future adoption of the other
provisions of SFAS 145 to have a material impact on the Company's financial
results.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities". SFAS 146 requires companies to recognize costs
associated with the exit or disposal of activities as they are incurred rather
than at the date a plan of disposal or commitment to exit is initiated. Types of
costs covered by SFAS 146 include lease termination costs and
6
certain employee severance costs that are associated with a restructuring,
discontinued operation, facility closing, or other exit or disposal activity.
The adoption of SFAS No. 146 did not have an effect on the financial position,
results of operations or cash flows of the Company.
Stock Options - Pursuant to the disclosure requirement of SFAS No. 148,
"Accounting for Stock-based Compensation" 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 proforma earnings per share amounts:
Three months ended Six months ended
----------------------------------- ------------------------------------
2003 2002 2003 2002
----------------- ----------------- ----------------- -----------------
Net loss as reported $ (835,470) $ (1,130,298) $ (3,817,851) $ (2,440,832)
Total Stock-based employee compensation
cost determined under fair value method
for all awards, net of related tax effects 127,789 229,854 255,611 459,708
----------------------------------- ------------------------------------
Pro forma net loss $ (963,259) $ (1,360,152) $ (4,073,462) $ (2,900,540)
=================================== =====================================
Loss per common share:
Basic, as reported ($0.09) ($0.12) ($0.39) ($0.25)
Basic, pro forma ($0.10) ($0.14) ($0.42) ($0.30)
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 liabilities in
the normal course of business. As shown in the financial statements, the Company
incurred a net loss in the three and six months ended June 30, 2003 of $665,342
and $3,181,229, respectively. As of June 30, 2003, current liabilities exceeded
current assets by $14,646,021 based on the inclusion of $14.5 million related to
the Company's present term loan and revolving credit facility that expires on
January 31, 2004. Following a further scheduled principal payment in the term
loan at the beginning of July 2003 the overall principal balance on the facility
was reduced to $14.0 million. Both equipment assets and accounts receivable
secure the facility. The Company believes that the collateral securing the
present facility has a value in excess of the present outstanding balance.
Therefore, the Company believes that the collateral securing the present
facility has a value in excess of the outstanding balance. The Company
does not anticipate entering into a re-financing with its present lender. The
Company does believe, based upon the level and trend of its cash flow
7
and the collateral it has to offer, it will be successful in refinancing with
other lenders. However, there is no assurance that it will be able to refinance.
Furthermore, even if it is able to refinance, such refinancing may be on terms
less favorable to the Company than the terms under its present facility. These
factors among others 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,
continued funding of its revolving line of credit and ultimately to attain
successful operations. The Company's business plan is to continue its efforts to
attract increased volume, to obtain rate increases as contracts are renewed due
to the reduction in excess capacity in its sector and manage operating costs in
order to attain profitable operations. The Company believes its actual and
projected cash flows from operations and continued funding of its revolving
credit line will be sufficient for it to meet its ongoing operational needs and
debt service obligations. No assurance can be made that the Company will be
successful in accomplishing its business plans. Furthermore, if the Company's
results deteriorate from the actual level experienced during the second quarter
of 2003, there is no assurance that financial assistance from its affiliates
similar to that received in the past would be made available. If the Company is
not able to refinance the credit facility secured by equipment and accounts
receivable by January 31, 2004, its present lender could exercise certain
remedies, including repossession of assets and distress sales, which could have
a material adverse effect on the Company. There can be no assurance that the
present lender would forebear from taking such actions if the Company is
unsuccessful in refinancing the credit facility. Therefore, there is no
assurance as to the Company's ability to continue as a going concern.
During 2003 the Company has commenced new contracts with both new and
existing customers resulting in a significantly improved revenue level for the
three months ended June 30, 2003. Revenue levels for the first six weeks of the
third quarter are in excess of plan. The Company believes that a continuation of
such revenue levels will result in successful operations and will be sufficient
for it to meet its ongoing operational needs and debt service obligations.
3. SEGMENTS
The Company's primary business is to transport freight from its
origination point in the continental United States to San Juan, Puerto Rico and
from San Juan, Puerto Rico to its destination point in the continental United
States. The Company provides a domestic trucking system and a barge vessel
system, which work in conjunction with each other to service its customers. The
Company would not employ either system separately; therefore segment reporting
is not necessary.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS:
Three Months Ended June 30, 2003 and 2002
- -----------------------------------------
Operating revenues for the three months ended June 30, 2003 were $21.7
million, an increase of $3.6 million or 19.8%, compared to the second quarter of
2002. The Company's fuel surcharge is included in the Company's revenues and
amounted to $1.0 million for the three months ended June 30, 2003 compared to
$603,911 in the year earlier period. The Company's Puerto Rico deployed vessel
capacity utilization overall during the three months ended June 30, 2002 was
94.9% to Puerto Rico and 26.5% from Puerto Rico significantly better than the
75.5% to Puerto Rico and 21.3%, respectively, during the second quarter of 2002.
The Company had an average of 202 tractor units operating on the mainland during
the three months ended June 30, 2003, generating an average of 9,422 miles per
month of which 76.5% were loaded.
Operating expenses increased $3.2 million for the three months ended
June 30, 2002 from $18.4 million for the same period in 2002 to $21.6 million.
The increased operating expenses were primarily the result of volume-related
increases and higher fuel prices. Salaries, wages and benefits expense increased
$223,703 primarily due to higher worker's compensation expense. Rent and
purchased transportation increased $1.5 million primarily as a result of
increased purchased miles, rate increases for such miles and increased equipment
expense. Fuel expense increased $256,419 primarily due to an increase in the
average price of fuel for the tugs that pull the Company's barges from $0.65 per
gallon to $0.79 per gallon and in the average price of diesel fuel for trucks
from $1.21 per gallon from the year earlier period to $1.38 per gallon.
Operating and maintenance expense increased $1.5 million due to increased volume
and increased equipment maintenance expense. Taxes and license expense increased
due to higher property taxes and a non-recurring benefit recognized in 2002.
Insurance and claims expense decreased $215,682 or 25.7% to $622,942 due to
lower hull, machinery and cargo insurance combined with lower insurance claims
volume. Communications and utilities expense decreased $39,312 primarily as a
result of use of a new telephone carrier. Depreciation and amortization expense
increased slightly by $24,118, due to the amortization of deferred financing
cost, partially offset by reductions in equipment fleet. Other operating
expenses decreased $274,278 primarily as a result of higher cost in the year
earlier period as a result of the effect of the Newark shutdown. The total costs
associated with the three laid-off triple-stack box carrier vessels during the
three months ended June 30, 2003 ere $535,624.
The operating income for the three months ended June 30, 2003 was
$78,504 as compared to an operating loss of $328,082 in the prior year period.
Compared to the second quarter of 2002, operating results improved by $406,586,
due to increased volume. As a result of the above, the operating ratio was 99.6%
during the three months ended June 30, 2003, compared to the 101.8% operating
ratio during the year earlier period. Net interest expense of $743,846 was down
minimally from the year earlier period due primarily to lower interest rates.
The Company's loss before income taxes for the second quarter ended
June 30, 2003 was $665,342 compared to a pre-tax loss of $1.1 million in the
year earlier period. The net loss
9
attributable to common shares for the three months ended June 30, 2003 after
accretion of preferred stock discount was equivalent to $.09 per share as
compared to $.12 per share for the year earlier period.
For the three months ended June 30, 2003 compared to the same period a
year earlier, total southbound volume over Jacksonville increased 25.8%. The
Company's core southbound trailer volume from Jacksonville to Puerto Rico
increased 29.1%, new car volume decreased 1.2% while used cars moving to Puerto
Rico increased.12.7%. Shipper owned or leased equipment ("SOL") and freight not
in trailers ("NIT") increased 73.0% and .9%, respectively.
Northbound, total volume increased 22.1% for the three months ended
June 30, 2003 compared to the same period a year earlier. The Company's
northbound trailer volume from Puerto Rico increased 24.4%.
The effective yield of all the southbound and northbound freight
decreased 2.4% and 8.2%, respectively from the year earlier period.
Six Months Ended June 30, 2003 and 2002
- ---------------------------------------
The Company's total volume of freight moving to and from Puerto Rico
increased 19.5% compared to the year earlier period. Operating revenues for the
six months ended June 30, 2003 were $40.7 million, an increase of $5.1 million,
or 14.3%, compared to the year earlier period. The Company's fuel surcharge is
included in the Company's revenues and amounted to $1.8 million for the six
months ended June 30, 2003 compared to $1.2 million in the year earlier period.
The Company's Puerto Rico deployed vessel capacity utilization overall
during the six months ended June 30, 2003 was 92.7% to Puerto Rico and 24.5%
from Puerto Rico compared to 75.9% and 19.9%, respectively, during the year
earlier period. The Company had an average of 193 tractor units operating on the
mainland during the six months ended June 30, 2003, generating an average of
9,355 miles per month of which 74.9% were loaded.
For the six months ended June 30, 2003 compared to the same period a
year earlier, total southbound volume over Jacksonville increased 18.5%. The
Company's core southbound trailer volume from Jacksonville to Puerto Rico
increased 21.9%, new vehicle volume decreased 7.6% while used vehicles moving to
Puerto Rico increased 7.5%. Shipper owned or leased equipment ("SOL") and
freight not in trailers ("NIT") increased 51.1% and 13.4%, respectively.
Northbound, total volume increased 23.2% for the six months ended June
30, 2003 compared to the same period a year earlier. The Company's northbound
trailer volume from Puerto Rico increased 21.1%.
Due to increased volume operating expenses increased $5.8 million, or
16.2%, for the six months ended June 30, 2003 from $36.5 million for the same
period in 2002 to $42.4 million. The increased operating expenses were primarily
the result of a higher fuel prices in addition to volume related increases.
Salary, wages and benefits increased $421,354 or 5.6% primarily due to higher
worker's compensation expense. Purchased transportation, other than related
party increased $2.4 million or 26.3% primarily as a result of increased
purchased miles, rate increases
10
for such miles, increased equipment expense and less charter hire revenue. Fuel
expense increased $1.0 million or 28.9% from the year earlier period primarily
due to an increase in the average price of fuel for the tugs that pull the
Company's barges from $0.59 per gallon to $0.88 per gallon and in the average
price of diesel fuel for trucks from $1.15 per gallon from the year earlier
period to $1.47 per gallon. Operating and maintenance expense increased $1.8
million or 23.8% primarily due to expenses associated with increased volume and
increased equipment maintenance expense. Taxes and license expense increased due
to higher property taxes and a non-recurring benefit recognized in 2002.
Depreciation and amortization expense decreased $41,199 or 2.4% primarily due to
the full depreciation of the Company's tractor fleet during 2002 partially
offset by increased amortization of deferred financing cost. Other operating
expense increased $230,848 or 18.0% from the year earlier period primarily as a
result of the effect of the Newark shutdown on other operating expenses in 2002.
The operating loss for the six months ended June 30, 2003 was $1.7 million
compared to an operating loss of $911,510 in the prior year period. Compared to
the six months ended June 30, 2002, operating loss increased by $828,663 million
despite increased volume and vessel utilization due to increases in rent and
purchased transportation expense, fuel expense and operating and maintenance
expense. As a result of the above, the operating ratio was 104.3% during the six
months ended June 30, 2003, compared to the 102.6% operating ratio during the
year earlier period. Net interest expense of $1.4 million was down from $1.5
million in the year earlier period due primarily to lower interest rates. The
total costs associated with the three laid-off vessels during the six months
ended June 30, 2003 were $1.1 million. The Company's loss before income taxes
for the six months ended June 30, 2003 was $3.2 million compared to a pre-tax
loss of $2.4 million in the year earlier period. The net loss applicable to
common shares for the six months ended June 30, 2003 after accretion of
preferred stock discount was equivalent to $.39 per share as compared to $.25
per share for the year earlier period.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities in
the normal course of business. As shown in the financial statements, the Company
incurred a net loss in the three and six months ended June 30, 2003 of $665,342
and $3,181,229, respectively.
Net cash used by operations was $30,920 during the six months ended
June 30, 2003 compared to net cash used by operations of $4.0 million during the
same period in 2002.
At June 30, 2003, cash amounted to $1.5 million, working capital was a
negative $14.6 million due to the presentation of the Company's term loan and
revolving credit facility totaling $14.5 million as short term due to its
expiration at January 31, 2004, and stockholders' equity was $6.6 million.
As of June 30, 2003, the Company had $6.3 million drawn under the
credit facility against a borrowing base of $6.6 million that is secured by net
receivables of $10.8 million. The Company received an amendment to certain
financial covenants under the credit facility during the three months ended June
30, 2003.
During the three-month period ended June 30, 2003 the Company commenced
payment of full charterhire to an affiliate, Kadampanattu Corp. of $1.8 million
per quarter.
During the six-month period ending June 30, 2003 the Company cash
provided by investing activities was $55,274 compared to $168,457 provided by
investing activities in the year earlier period, primarily from proceeds on the
sales of revenue equipment.
11
period. During the six-month period ending June 30, 2003 the Company used
$698,606 in financing activities primarily through repayments to its primary
lender compared to $5.5 million provided by financing activities in the year
prior period.
As of June 30, 2003, current liabilities exceeded current assets by
$14.6 million based on the inclusion of $14.5 million related to the Company's
present term loan and revolving credit facility that expires on January 31,
2004. Following a further scheduled principal payment in the term loan at the
beginning of July 2003 the overall principal balance on the facility was reduced
to $14.0 million. Both equipment assets and accounts receivable secure the
facility. The Company believes that the collateral securing the present facility
has a value in excess of the rpesent outstanding balance. Therefore, the
Company believes that the collateral securing the present facility has a value
of almost twice the present outstanding balance.
The Company does not anticipate entering into a re-financing with its
present lender. The Company does believe, based upon the level and trend of its
cash flow and the collateral it has to offer, it will be successful in
refinancing with other lenders. However, there is no assurance that it will be
able to refinance. Furthermore, even if it is able to refinance, such
refinancing may be on terms less favorable to the Company than the terms under
its present facility. These factors among others 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.
If the Company is not able to refinance the credit facility secured by
equipment and accounts receivable by January 31, 2004, its present lender could
exercise certain remedies, including repossession of assets and distress sales
of the Company's collateral, which could have a material adverse effect on the
Company. There can be no assurance that the present lender would forebear from
taking such actions if the Company is unsuccessful in refinancing the credit
facility. Therefore, there is no assurance as to the Company's ability to
continue as a going concern.
The Company believes the projected cash flows from operations and
continued funding of its revolving credit line through a refinancing will be
sufficient for it to meet its ongoing operational needs and debt service
obligations through at least June 30, 2004.
KNOWN TRENDS DURING THIRD QUARTER of 2003
Most recently, for the six-week period ending August 9, 2003, a period
representing almost half of the third quarter, average actual weekly revenue is
23% above the overall average weekly revenues for the third quarter of 2002.
Based upon increased volume from specific existing accounts, increased customer
commitments and actual growing booking trends, the Company believes that these
actual volume and revenue trends are sustainable and therefore more indicative
of what to expect going forward than any recent actual historical period.
Despite the improved volume and vessel capacity utilization experienced by the
Company since early March 2003, no assurance can be made that such improved
volume and vessel capacity utilization will continue or that competitive
pressures will not increase.
12
FORWARD-LOOKING STATEMENTS
This report, particularly the preceding discussion of "Liquidity and
Capital Resources" and "Known Trends During Third Quarter of 2003" contain
statements that may be considered as forward-looking or predictions concerning
future operations. Such statements are based on management's belief or
interpretation of information currently available. These statements and
assumptions involve certain risks and uncertainties and management can give no
assurance that such expectations will be realized. Among all the factors and
events that are not within the Company's control and could have a material
impact on future operating results are risk of economic recessions, severe
weather conditions, changes in the price of fuel, changes in costs incurred by
the Company to provide such services, changes in services offered by the
Company's competitors, addition of new competitors, risks of transportation
generally and changes in rate levels for transportation services offered by the
Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has had no material change in market risk in the first six
months of 2003. For a discussion of the Company's exposure to market risk see
Item 7A of the Company's Annual Report on Form 10-K.
Item 4. 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"), as of the end of the period covered by 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 has been no significant change in our internal controls over
financial reporting identified in connection with the evaluation
referred to in paragraph (a) above that occurred during the last quarter
and that has materially affected, or is reasonably likely to material
affect, our internal controls over financial reporting.
13
PART II
OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on one item at the Annual Meeting of
Shareholders held on May 28, 2003:
The election of nine directors, to terms ending in 2004
A majority of votes were cast in favor of the election of the following
directors:
Shares Voted
Nominee For Nominee Shares Withheld
------- ----------- ---------------
Nickel van Reesema 8,638,449 50,343
Peter S. Shaerf 8,638,449 50,343
Allen L. Stevens 8,638,449 50,343
Artis James 8,685,118 3,674
John D McCown 8,621,449 67,343
William G. Gotimer, Jr. 8,668,118 20,674
Malcom P. McLean, Jr. 8,619,168 69,624
Greggory B. Mendenhall 8,622,093 66,699
F. Duffield Meyercord 8,639,918 48,874
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Description of Exhibit
----------------------
10.8.16 Trust Indenture, Third Supplement to Special Provisions
10.8.17 United States Government Guaranteed Ship Financing Bond, 1997
Series, Amended and Restated April 29, 2003, in the amount of
$10,515,000
10.8.18 Trust Indenture, Third Supplement to Special Provisions
10.8.19 United States Government Guaranteed Ship Financing Bond, 1997
Series II, Amended and Restated April 29, 2003, in the amount of
$16,918,000
10.8.20 First Amendment To Amended And Restated Title XI Reserve Fund and
Financial Agreement
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934
14
31.2 Certification of Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934
32.1 Certification of Trailer Bridge, Inc.'s Chief Executive Officer
and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
(as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
b) The Company furnished a report on Form 8-K on May 19, 2003 (Item 12).
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TRAILER BRIDGE, INC.
Date: August 13, 2003 By: /s/ John D. McCown
-------------------------------------
John D. McCown
Chairman and Chief Executive
Officer
Date: August 13, 2003 By: /s/ Mark A. Tanner
-------------------------------------
Mark A. Tanner
Vice President of Administration
and Chief Financial Officer
16