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
September 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 November 13, 2003, 9,779,481 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
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 nine month periods ended September
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 Nine Months Ended
September 30, 2003 and 2002 (unaudited) Page 3
Balance Sheets as of September 30, 2003 and
December 31, 2002 (unaudited) Page 4
Statements of Cash Flows for the Nine Months Ended September 30, 2003
and 2002 (unaudited) Page 5
Notes to Financial Statements for the three and nine months ended
September 30, 2003 (unaudited) Page 6
2
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------------- -------------------------------------
2003 2002 2003 2002
------------------ ----------------- ---------------- -----------------
OPERATING REVENUES $ 21,622,731 $ 18,488,328 $ 62,303,817 $ 54,085,091
OPERATING EXPENSES:
Salaries, wages, and benefits 3,876,226 3,824,346 11,812,160 11,338,926
Rent and purchased transportation:
Related Party 1,849,200 1,849,200 5,487,300 5,487,300
Other 6,561,522 5,586,815 18,195,716 14,794,016
Fuel 2,172,924 1,841,771 6,663,494 5,325,933
Operating and maintenance (exclusive of
depreciation shown separately below) 4,568,537 4,186,873 14,018,138 11,822,377
Taxes and licenses 163,441 120,115 534,559 396,962
Insurance and claims 787,734 750,583 2,240,051 2,214,978
Communications and utilities 146,745 142,628 382,105 467,351
Depreciation and amortization 852,731 821,154 2,557,798 2,567,420
Gain on sale of equipment (12,257) (23,803) (20,065) (93,267)
Other operating expenses 808,332 884,228 2,325,140 2,170,187
------------------ ----------------- ---------------- -----------------
21,775,135 19,983,910 64,196,396 56,492,183
------------------ ----------------- ---------------- -----------------
OPERATING LOSS (152,404) (1,495,582) (1,892,579) (2,407,092)
NONOPERATING EXPENSE:
Interest expense and other, net (710,815) (766,890) (2,151,870) (2,296,212)
------------------ ----------------- ------------------------------------
LOSS BEFORE BENEFIT FOR INCOME TAXES (863,219) (2,262,472) (4,044,449) (4,703,304)
BENEFIT FOR INCOME TAXES - (3,305) - (3,305)
------------------ ----------------- ---------------- -----------------
NET LOSS (863,219) (2,265,777) (4,044,449) (4,706,609)
ACCRETION OF PREFERRED STOCK DISCOUNT (171,414) (221,775) (808,036) (221,775)
------------------ ----------------- ---------------- -----------------
NET LOSS ATTRIBUTABLE TO $ (1,034,633) $ (2,487,552) $ (4,852,485) $ (4,928,384)
COMMON SHARES
================== ================= ================ =================
PER SHARE AMOUNTS:
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.11) $ (0.25) $ (0.50) $ (0.50)
================== ================= ================ =================
WEIGHTED AVERAGE
SHARES OUTSTANDING 9,777,633 9,777,500 9,777,544 9,777,500
================== ================= ================ =================
See notes to financial statements
3
TRAILER BRIDGE, INC.
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2003 2002
---------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 406,734 $ 2,144,887
Trade receivables, less allowance for doubtful
accounts of $590,518 and $895,772 11,298,017 9,928,915
Other receivables 19,445 17,040
Prepaid expenses 1,871,193 1,939,032
------------- ------------
Total current assets 13,595,389 14,029,874
Property and equipment, net 47,577,869 50,076,776
Other assets 1,162,607 1,299,031
------------- ------------
TOTAL ASSETS $ 62,335,865 $ 65,405,681
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,640,751 $ 6,980,180
Accrued liabilities 4,701,104 3,679,382
Current portion of long-term debt 16,302,096 2,969,668
Unearned revenue 920,320 788,020
------------- ------------
Total current liabilities 28,564,271 14,417,250
Due to Affiliate 5,602,227 5,264,627
Long-term debt, less current obligations 22,140,036 36,724,276
------------- ------------
TOTAL LIABILITIES 56,306,534 56,406,153
------------- ------------
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) 22,855,148 22,047,112
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,777,900 and 9,777,500 shares issued and
outstanding 97,779 97,775
Additional paid-in capital 44,310,112 44,309,216
Subscribed preferred stock series B - (1,073,352)
Accumulated deficit in earnings (61,233,904) (56,381,419)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 6,029,331 8,999,528
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,335,865 $ 65,405,681
============= ============
See notes to financial statements
4
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2003 and September 30, 2002
(Unaudited)
September 30, September 30,
2003 2002
------------------ ------------------
Operating activities:
Net loss $ (4,044,449) $ (4,706,609)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,557,798 2,567,420
Noncash purchased transportation, related party 1,073,352 2,906,296
Provision for doubtful accounts 463,034 670,012
Gain on sale of fixed assets (20,065) (93,267)
Unrealized gain on marketable securities 8,567
Decrease (increase) in:
Trade receivables (1,832,136) (269,526)
Other receivables (2,405) 15,457
Prepaid expenses 67,839 (162,608)
Assets held for sale - 305,873
Increase (decrease) in:
Accounts payable (339,429) (2,604,651)
Accrued liabilities 1,396,222 (2,007,826)
Unearned revenue 132,300 2,906,296
---------------- --------------
Net cash used in operating activities (547,939) (464,566)
---------------- --------------
Investing activities:
Additions to and construction of property and equipment (27,442) (48,059)
Proceeds from sale of property and equipment 131,986 647,409
(Increase) decrease in other assets (6,946) 112,521
---------------- --------------
Net cash provided by investing activities 97,598 711,871
---------------- --------------
Financing activities:
Proceeds from (payments on) borrowing on revolving line of credit 89,556 (1,314,310)
Proceeds from borrowing from affiliate (36,900) 1,881,698
Issuance of Preferred Series A Convertible Stock - 1,920,835
Issuance of Common Stock 900 -
Principal payments on notes payable (1,341,368) (1,380,449)
Principal payments under capital lease obligations - (447,898)
Derivative Instrument Payment - (35,953)
Decrease in due to affiliate (36,900) -
---------------- --------------
Net cash (used in ) provided by financing activities (1,287,812) 623,923
---------------- --------------
Net (decrease) increase in cash and cash equivalents (1,738,153) 871,228
Cash and cash equivalents, beginning of the period 2,144,887 441,320
---------------- --------------
Cash and cash equivalents, end of period $ 406,734 $ 1,312,548
================ ==============
Supplemental cashflow information and non-cash investing and financing
activities:
Cash paid for interest, net of amount capitalized $ 1,496,768 $ 3,346,756
================ ==============
Conversion of subordinated debt $ 1,073,352 $ 22,102,448
================ ==============
Equipment acquired under capital lease agreements $ - $ 375,006
================ ==============
See notes to financial statements
5
TRAILER BRIDGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 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
6
to exit is initiated. Types of costs covered by SFAS 146 include lease
termination costs and 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.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, for certain
decisions made by the Board as part of the Derivatives Implementation Group
process and to incorporate clarifications of the definitions of a derivative.
SFAS No. 149 is effective for contracts modified or entered into after June 30,
2003 and hedging relationships designated after June 30, 2003. The Company
adopted the standard on July 1, 2003. There has been no impact on the Company's
financial condition, results of operations or cash flows upon adoption.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. The statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company has not entered into or modified any
financial instruments with characteristics outlined in the statement. The
Company adopted the standard on July 1, 2003. There has been no impact on the
Company's financial condition, results of operations or cash flows upon
adoption.
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 deducts the total fair
value expense under SFAS 123, net of related income tax effects. The Company
has not incurred any stock-based employee compensation for any period using the
intrinsic value method under APB 25, which is permitted under SFAS 123. The
table below shows the reported and proforma earnings per share amounts:
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------ -------------------------------------
2003 2002 2003 2002
------------------ ------------------ ------------------ -----------------
Net loss as reported ($1,034,633) ($2,487,552) ($4,852,485) ($4,928,384)
Total Stock-based employee compensation
cost determined under fair value method
for all awards, net of related tax effects 127,789 229,854 383,400 689,562
------------------------------------- --------------------------------------
Pro forma net loss ($1,162,422) ($2,717,406) ($5,235,885) ($5,617,946)
===================================== ======================================
Loss per common share:
Basic and diluted, as reported ($0.11) ($0.25) ($0.50) ($0.50)
Basic and diluted, pro forma ($0.12) ($0.28) ($0.54) ($0.57)
7
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 satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss in the three and nine months ended
September 30, 2003 of $863,219 and $4,044,449 respectively. As of September 30,
2003, current liabilities exceeded current assets by $14,968,882 based on the
inclusion of $13.9 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 on the term loan at the beginning of October 2003
the overall principal balance on the facility was reduced to $13.4 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. The Company does not anticipate entering
into a refinancing with its present lender. The Company does believe, based upon
its projected cash flows 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 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 until January 31, 2004. No assurance can be made that the Company
will be successful in accomplishing its business plans. There is no assurance
that financial assistance from its affiliates similar to that received in the
past will 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 would 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 from
mid-March through September 30, 2003. Additionally, commencing October 1, 2003
the Company has implemented rate increases on a significant amount of its
contracts. The Company believes that a continuation
8
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.
4. LONG-TERM DEBT
As of September 30, 2003, the Company was not in compliance with
certain financial covenants contained in its present term loan and revolving
credit facility that expires on January 31, 2004. Subsequent to September 30,
2003, the Company received a waiver of covenant defaults for the period ended
September 30, 2003. The term loan and revolving credit facility is included
in current liabilities since it is due January 31, 2004.
As of September 30, 2003, the Company is not in compliance with
financial covenants contained in the Title XI debt agreements and as a result is
prohibited from certain financial activities that would impact the financial
position of the Company including withdrawing capital, redeeming common stock,
paying dividends, making loans to and investing 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.
5. TRANSACTIONS WITH AFFILIATES
Subsequent to September 30, 2003, the due date on the note to an
affiliate, Transportation Receivables 1992, LLC, was extended to October 1,
2004. The debt continues to be classified as long-term.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS:
Three Months Ended September 30, 2003 and 2002
- ----------------------------------------------
Operating revenues for the three months ended September 30, 2003 were
$21.6 million, an increase of $3.1 million or 17.0%, compared to the third
quarter of 2002. The Company's fuel surcharge is included in the Company's
revenues and amounted to $1.1 million for the three months ended September 30,
2003 compared to $678,032 in the year earlier period. The Company's Puerto Rico
deployed vessel capacity utilization overall during the three months ended
September 30, 2003 was 93.3% to Puerto Rico and 25.3% from Puerto Rico
significantly better than the 79.3% to Puerto Rico and 22.6%, respectively,
during the third quarter of 2002. The Company had an average of 215 tractor
units operating on the mainland during the three months ended September 30,
2003, generating an average of 9,045 miles per month of which 74.4% were loaded.
Operating expenses increased $1.8 million for the three months ended
September 30, 2002 from $20.0 million for the same period in 2002 to $21.8
million. The increased operating expenses were primarily the result of
volume-related increases and higher fuel prices. Salaries, wages and benefits
expense increased $51,880 primarily due to higher worker's compensation expense.
Rent and purchased transportation increased $974,707 primarily as a result of
increased purchased miles and rate increases for such miles. Fuel expense
increased $331,153 or 18.0% primarily due to an increase in the average price of
fuel for the tugs that pull the Company's barges from $0.73 per gallon to $0.82
per gallon and in the average price of diesel fuel for trucks from $1.26 per
gallon to $1.35 per gallon from the year earlier period. Operating and
maintenance expense increased $381,664 or 9.1% due to increased volume and
increased equipment maintenance expense, partially offset by increased demurrage
collection. Taxes and license expense increased due to higher property taxes.
Insurance and claims expense increased $37,151 due to higher hull and machinery
insurance offset by lower insurance claims volume. Other operating expenses
decreased $75,896 primarily due to lower professional fees. The total costs
associated with the three laid-off triple-stack box carrier vessels during the
three months ended September 30, 2003, net of charter hire associated with such
vessels were $337,484 compared to $349,869 for the same period last year.
The operating loss for the three months ended September 30, 2003 was
$152,404 as compared to an operating loss of $1.5 million in the prior year
period. Compared to the third quarter of 2002, operating results improved by
$1.3 million, due to increased volume. As a result of the above, the operating
ratio was 100.7% during the three months ended September 30, 2003, compared to
the 108.1% operating ratio during the year earlier period. Net interest expense
of $710,815 was down $56,075 from the year earlier period primarily due to lower
loan balances.
The Company's loss before income taxes for the third quarter ended
September 30, 2003 was $863,219 compared to a pre-tax loss of $2.3 million in
the year earlier period. The net loss attributable to common shares for the
three months ended September 30, 2003 after accretion of
10
preferred stock discount was equivalent to $.11 per share as compared to $.25
per share for the year earlier period.
For the three months ended September 30, 2003 compared to the same
period a year earlier, total southbound volume over Jacksonville increased
17.6%. The Company's core southbound trailer volume from Jacksonville to Puerto
Rico increased 21.2%, new car volume decreased 16.7% while used cars moving to
Puerto Rico increased 28.0%. Shipper owned or leased equipment ("SOL") increased
18.3% while freight not in trailers ("NIT") decreased 4.2%. For the three months
ended September 30, 2003 compared to the same period a year earlier, the Company
experienced significant revenue increases in all categories other than its
domestic shipments which were $612,050, representing a 35.7% decrease from
$951,490 in the prior period.
Northbound, total volume increased 15.4% for the three months ended
September 30, 2003 compared to the same period a year earlier. The Company's
northbound trailer volume from Puerto Rico increased 10.4%.
The effective yield of all the southbound freight decreased 0.5% while
the effective yield of all northbound freight increased 7.6% from the year
earlier period.
Nine Months Ended September 30, 2003 and 2002
- ---------------------------------------------
The Company's total volume of freight moving to and from Puerto Rico
increased 18.6% compared to the year earlier period. Operating revenues for the
nine months ended September 30, 2003 were $62.3 million, an increase of $8.2
million, or 15.2%, compared to $54.1 million for the year earlier period. The
Company's fuel surcharge is included in the Company's revenues and amounted to
$2.9 million for the nine months ended September 30, 2003 compared to $1.9
million in the year earlier period.
The Company's Puerto Rico deployed vessel capacity utilization overall
during the nine months ended September 30, 2003 was 92.9% to Puerto Rico and
24.8% from Puerto Rico compared to 77.0% and 20.8%, respectively, during the
year earlier period. The Company had an average of 201 tractor units operating
on the mainland during the nine months ended September 30, 2003, generating an
average of 9,240 miles per month of which 74.7% were loaded.
For the nine months ended September 30, 2003 compared to the same
period a year earlier, total southbound volume over Jacksonville increased
18.2%. The Company's core southbound trailer volume from Jacksonville to Puerto
Rico increased 21.7%, new vehicle volume decreased 9.6% while used vehicles
moving to Puerto Rico increased 14.8%. Shipper owned or leased equipment ("SOL")
and freight not in trailers ("NIT") increased 36.9% and 7.5%, respectively.
Northbound, total volume increased 20.3% for the nine months ended
September 30, 2003 compared to the same period a year earlier. The Company's
northbound trailer volume from Puerto Rico increased 16.9%.
Due to increased volume operating expenses increased $7.7 million, or
13.6%, for the nine months ended September 30, 2003 from $56.5 million for the
same period in 2002 to $64.2
11
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 $473,234 or 4.2% primarily due to higher worker's compensation
expense. Purchased transportation, other than related party increased $3.4
million or 23.0% primarily as a result of increased purchased miles, rate
increases for such miles, and increased equipment lease expense. Fuel expense
increased $1.3 million or 25.1% 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 $0.64 per gallon to $0.86 per gallon and in the average price of
diesel fuel for trucks from $1.19 per gallon from the year earlier period to
$1.42 per gallon. Operating and maintenance expense increased $2.2 million or
18.6% primarily due to expenses associated with increased volume and increased
equipment maintenance expense; repairs related to the barge and San Juan ramp,
partially offset by increased demurrage revenue due to increased volume and
bettered demurrage collection. Taxes and license expense increased $137,597 or
34.7% due to increased sales taxes and a non-recurring benefit recognized in
2002. Communications and utilities expense decreased $85,246 primarily due to
entering into a contract with a new telephone company. Other operating expense
increased $154,953 or 7.1% from the year earlier period primarily as a result of
the effect of a non-recurring benefit on other operating expenses in 2002. The
operating loss for the nine months ended September 30, 2003 was $1.9 million
compared to an operating loss of $2.4 million in the prior year period. Compared
to the nine months ended September 30, 2002, operating loss decreased by
$514,513 due to increased volume and vessel utilization partially offset by
increases in rent and purchased transportation expense, fuel expense, mostly in
the first quarter of 2003 and operating and maintenance expense. As a result of
he above, the operating ratio was 103.0% during the nine months ended September
30, 2003, compared to the 104.5% operating ratio during the year earlier period.
Net interest expense of $2.2 million was down from $2.3 million in the year
earlier period due primarily to lower loan balances. The total costs associated
with the three laid-off vessels during the nine months ended September 30, 2003,
exclusive of charter revenue associated with such vessels, were $1.2 million.
The Company's loss before income taxes for the nine months ended September 30,
2003 was $4.0 million compared to a pre-tax loss of $4.7 million in the year
earlier period. The net loss applicable to common shares for the nine months
ended September 30, 2003 after accretion of preferred stock discount was
equivalent to $.50 per share unchanged as compared to $.50 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 satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss in the three and nine months ended
September 30, 2003 of $863,219 and $4.0 million, respectively.
Net cash used by operations was $547,939 during the nine months ended
September 30, 2003 compared to net cash used by operations of $464,566
during the same period in 2002.
At September 30, 2003, cash amounted to $406,734, working capital was a
negative $15.0 million due to the presentation of the Company's term loan and
revolving credit facility
12
totaling $13.9 million as short term due to its expiration at January 31, 2004.
Stockholders' equity was $6.0 million.
As of September 30, 2003, the Company had $6.1 million drawn under the
credit facility against a borrowing base of $6.2 million that is secured by net
receivables of $11.3 million.
During the nine-month period ending September 30, 2003 cash provided by
investing activities was $97,598 compared to $711,871 provided by investing
activities in the year earlier period, primarily from proceeds on the sales of
revenue equipment. During the nine-month period ending September 30, 2003 the
Company used $1.3 million in financing activities primarily through repayments
to its primary lender compared to $623,923 provided by financing activities
in the year prior period.
As of September 30, 2003, current liabilities exceeded current assets
by $15.0 million based on the inclusion of $13.9 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 October 2003 the overall principal balance on the
facility was reduced to $13.4 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.
As of September 30, 2003, the Company was not in compliance with
certain financial covenants contained in its present term loan and revolving
credit facility that expires on January 31, 2004. Subsequent to September 30,
2003, the Company received a waiver of covenant defaults for the period ended
September 30, 2003. The term loan and revolving credit facility is included
in current liabilities since it is due January 31, 2004.
The Company does not anticipate entering into a re-financing with its
present lender. The Company does believe, based upon its projected 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.
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 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 until January 31, 2004. No assurance can be made that the Company
will be successful in accomplishing its business plans. There is no assurance
that financial assistance from its affiliates similar to that received in the
past will 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 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.
13
Subsequent to September 30, 2003 the Company has paid the principal and
interest payments totaling $848,462 due September 30, 2003 on its $16.9 million
Title XI bond offering and $545,740 due September 30, 2003 on its $10.5 million
Title XI bond offering. These are the first principal payments made on either
Title XI bond offering since March 2001.
As of September 30, 2003, the Company is not in compliance with
financial covenants contained in the Title XI debt agreements and as a result is
prohibited from certain financial activities that would impact the financial
position of the Company including withdrawing capital, redeeming common stock,
paying dividends, making loans to and investing 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.
The Company believes the projected cash flows from operations and
continued funding of its revolving credit line through a refinancing and a
refinancing of its existing term loans will be sufficient for it to meet its
ongoing operational needs and debt service obligations through at least
September 30, 2004.
Subsequent to September 30, 2003, the due date on the note to an
affiliate, Transportation Receivables 1992, LLC, was extended to October 1,
2004. The debt continues to be classified as long-term.
KNOWN TRENDS DURING FOURTH QUARTER of 2003
Most recently, for the six-week period ending November 7, 2003 average
actual weekly revenue is 21.5% above the overall average weekly revenues for the
fourth quarter of 2002. Since October 1, 2003 the Company has implemented rate
increases and accessorial charges on a significant percentage of its carryings.
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.
FORWARD-LOOKING STATEMENTS
This report, particularly the preceding discussion of "Liquidity and
Capital Resources" and "Known Trends During Fourth 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 being unable to refinance the
Company's debt on favorable terms, 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
inability to sustain the recent increases 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 nine
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.
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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.
15
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Description of Exhibit
----------------------
10.15.3 Third Amendment of the GECC Loan and Security 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
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 August 18, 2003 (Item
12).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TRAILER BRIDGE, INC.
Date: November 13, 2003 By: /s/ John D. McCown
-------------------------------------
John D. McCown
Chairman and Chief Executive
Officer
Date: November 13, 2003 By: /s/ Mark A. Tanner
-------------------------------------
Mark A. Tanner
Vice President of Administration
and Chief Financial Officer
17