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, 2004 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 mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
As of July 23, 2004, 9,792,734 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 generally accepted
accounting principles for complete financial statements.
Operating results for the three month and six month periods ended June 30, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. 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,
2003 that appear in the Company's Annual Report on Form 10-K.
Condensed Statements of Operations for the Three Months and
Six Months Ended June 30, 2004 and 2003 (unaudited) Page 3
Condensed Balance Sheets as of June 30, 2004
(unaudited)and December 31, 2003 Page 4
Condensed Statements of Cash Flows for the Three and
Six Months Ended June 30, 2004 and 2003 (unaudited) Page 5
Notes to Condensed Financial Statements Page 6
2
TRAILER BRIDGE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------- --------------------------------------
2004 2003 2004 2003
------------------ ----------------- ----------------- -----------------
OPERATING REVENUES $ 24,102,899 $ 22,333,227 $ 47,011,629 $ 41,752,533
OPERATING EXPENSES:
Salaries, wages, and benefits 3,883,909 3,764,919 7,662,378 7,935,934
Rent and purchased transportation:
Related Party 1,829,100 1,829,100 3,658,200 3,638,100
Other 5,710,429 6,262,860 11,288,796 11,634,195
Fuel 2,249,850 2,124,258 4,672,392 4,490,570
Operating and maintenance (exclusive of
depreciation shown separately below) 6,098,043 5,763,414 11,610,976 10,521,049
Taxes and licenses (69,010) 205,679 85,720 371,117
Insurance and claims 771,240 622,942 1,579,582 1,452,316
Communications and utilities 128,402 126,697 251,150 235,359
Depreciation and amortization 834,435 849,794 1,633,197 1,705,067
Loss (Gain) on sale of equipment 13,743 (2,545) 17,160 (7,808)
Other operating expenses 936,275 707,605 1,794,575 1,516,807
---------------- --------------- --------------- ---------------
22,386,416 22,254,723 44,254,126 43,492,706
---------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) 1,716,483 78,504 2,757,503 (1,740,173)
NONOPERATING EXPENSE:
Interest expense and other, net (727,660) (743,846) (1,409,522) (1,441,056)
---------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE (PROVISION) BENEFIT
FOR INCOME TAXES 988,823 (665,342) 1,347,981 (3,181,229)
(PROVISION) BENEFIT FOR INCOME TAXES - - - -
---------------- --------------- --------------- ---------------
NET INCOME (LOSS) 988,823 (665,342) 1,347,981 (3,181,229)
ACCRETION OF PREFERRED STOCK DISCOUNT (145,832) (170,128) (305,244) (636,622)
UNDECLARED DIVIDEND (315,020) (283,303) (606,562) (283,303)
---------------- --------------- --------------- ---------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHARES $ 527,971 $ (1,118,773) $ 436,175 $ (4,101,154)
================ =============== =============== ===============
PER SHARE AMOUNTS:
NET INCOME (LOSS) PER SHARE BASIC $ 0.04 $ (0.11) $ 0.04 $ (0.42)
================ =============== =============== ===============
NET INCOME (LOSS) PER SHARE DILUTED $ 0.04 $ (0.11) $ 0.04 $ (0.42)
================ =============== =============== ===============
WEIGHTED AVERAGE
SHARES OUTSTANDING 9,792,449 9,777,500 9,790,991 9,777,500
CONVERTIBLE PREFERRED STOCK - SERIES A 1,955,000 - 1,955,000 -
---------------- --------------- --------------- ---------------
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC 11,747,449 9,777,500 11,745,991 9,777,500
================ =============== =============== ===============
OPTIONS TO PURCHASE COMMON STOCK 343,830 - 171,915 -
---------------- --------------- --------------- ---------------
DILUTED POTENTIAL COMMON SHARES 12,091,279 9,777,500 11,917,906 9,777,500
================ =============== =============== ===============
See accompanying summary of accounting policies and notes to condensed financial
statements
3
TRAILER BRIDGE, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2004 2003
---------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,734,084 $ 424,961
Trade receivables, less allowance for doubtful
accounts of $702,171 and $683,914 13,457,443 11,019,375
Other receivables 13,913 16,888
Prepaid expenses 1,401,549 1,856,451
------------- ---------------
Total current assets 16,606,989 13,317,675
Property and equipment, net 45,633,580 46,768,813
Other assets 1,610,641 1,175,454
------------- ---------------
TOTAL ASSETS $ 63,851,210 $ 61,261,942
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,110,709 $ 8,502,286
Accrued liabilities 4,181,492 4,038,388
Current portion of long-term debt 1,285,902 1,683,953
Current portion of due to affiliates 1,084,287 386,127
Unearned revenue 609,425 747,544
------------- ---------------
Total current liabilities 13,271,815 15,358,298
Due to affiliates 7,276,499 5,922,641
Long-term debt, less current portion 37,294,822 35,347,339
------------- ---------------
TOTAL LIABILITIES 57,843,136 56,628,278
------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred stock Series A, $.01 par value, 1,000,000 shares
authorized; 19,550 shares issued and outstanding
(liquidation value $2,000,000) 1,920,835 1,920,835
Preferred stock Series B, $.01 par value, 1,000,000 shares
authorized; 24,000 shares issued and outstanding
(liquidation value $24,000,000) 23,333,101 23,027,857
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,792,723 and 9,783,235 shares issued and
outstanding 97,927 97,832
Additional paid-in capital 42,430,727 42,404,394
Deficit (61,774,516) (62,817,254)
------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 6,008,074 4,633,664
------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,851,210 $ 61,261,942
============= ===============
See accompanying summary of accounting policies and notes to financial
statements
4
TRAILER BRIDGE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six Months ended
--------------------------------------
June 30, June 30,
2004 2003
------------------- -----------------
Operating activities:
Net income (loss) $ 1,347,981 $ (3,181,229)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,633,197 1,705,067
Provision for doubtful accounts 677,241 335,734
(Gain)Loss on sale of fixed assets 17,160 (7,808)
Decrease (increase) in:
Trade receivables (3,115,309) (1,207,333)
Other receivables 2,975 (525)
Prepaid expenses 454,903 751,629
Increase (decrease) in:
Accounts payable (2,391,577) (907,813)
Accrued liabilities and related party charterhire 1,546,176 2,481,358
Unearned revenue (138,119) -
Due to affiliate 659,398 -
-------------- -------------
Net cash provided by (used in) operating activities 694,026 (30,920)
-------------- -------------
Investing activities:
Additions to and construction of property and equipment (448,733) (7,017)
Proceeds from sale of property and equipment 10,450 63,086
Additions to other assets (1,719) (795)
-------------- -------------
Net cash (used in) provided by investing activities (440,002) 55,274
-------------- -------------
Financing activities:
Proceeds from (payments on) borrowing on revolving
line of credit 9,476,661 195,639
Proceeds from (payments on) borrowing from affiliate (10,450) -
Exercise of stock options 26,428 -
Principal payments on notes payable (7,927,230) (894,246)
Loan costs (510,310) -
-------------- -------------
Net cash provided by (used in) financing activities 1,055,099 (698,607)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 1,309,123 (674,253)
Cash and cash equivalents, beginning of the period 424,961 2,144,887
-------------- -------------
Cash and cash equivalents, end of period $ 1,734,084 $ 1,470,634
============== =============
Supplemental cashflow information and non-cash investing
and financing activities:
Cash paid for interest $ 1,955,629 $ 1,276,547
============== =============
Satisfaction of preferred Stock Series B Subscription
with related party vessel services $ - $ 1,073,352
============== =============
See accompanying summary of accounting policies and notes to condensed
financial statements
5
TRAILER BRIDGE, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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, 2003 that appear in the Form
10-K.
Reclassifications - certain reclassifications have been made to the 2003
condensed financial statements to conform with the current presentation.
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.
Pursuant to the above disclosure requirement, the following table provides an
expanded reconciliation for all periods presented that adds back to the reported
net income (loss) 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.
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------- ---------------------------------
2004 2003 2004 2003
------------ ----------------- -------------- ----------------
Net income (loss) attributable to common shares, as reported $ 527,971 $ (1,118,773) $ 436,175 $ (4,101,154)
Total stock-based employee compensation cost included in the
determination of net income (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 (115,824 (127,789) (231,648) (255,611)
---------- ----------------- --------------- ---------------
$ 412,147 $ (1,246,562) $ 204,527 $ (4,356,765)
Income (Loss) per common share:
Basic, as reported $ 0.04 $ (0.11) $ 0.04 $ (0.42)
Diluted, as reported $ 0.04 $ (0.11) $ 0.04 $ (0.42)
Basic, pro forma $ 0.04 $ (0.13) $ 0.02 $ (0.45)
Diluted, pro forma $ 0.03 $ (0.13) $ 0.02 $ (0.45)
During the six and three months ended June 30, 2004 respectively, 9,488 and 822
options were exercised. There were no options issued during the six months ended
June 30, 2004.
6
Earnings per share - options to purchase 465,000 shares of the Company's common
stock were excluded from the calculation of diluted earnings per share because
they were out of the money during the three and six month period ending June 30,
2004.
2. SIGNIFICANT TRANSACTIONS
In April 2004, after receiving extensions from its then existing senior lender,
the Company refinanced this debt with a new senior lender. The new debt consists
of a revolving line of credit in the amount of $20.0 million and a term loan in
the amount of $3.0 million, both of which are due in April 2007. The new debt
provides for interest at prime plus 1.5% for the revolving line of credit and
prime plus 7.5% for the term loan and is payable monthly. The revolving line of
credit is subject to a borrowing base calculation but requires the Company to
maintain a minimum availability of $2.0 million. The borrowing base is based on
a percentage of eligible accounts receivable and revenue equipment, as defined.
Both obligations are secured by receivables and revenue equipment. Related party
debt maturities in the amount of $4.9 million has been rescheduled from October
2004 to May 2007. Additionally, related party debt in the amount of $0.7 million
due in 2004 has been rescheduled for monthly principal payments commencing
January 2005. Commencing March 1, 2004 the Company's affiliate, Kadampanattu
Corp., has agreed to defer $1.0 million of charterhire to be paid by the Company
in 2004. This deferred amount is payable in 36 monthly payments commencing
January 2005. Accordingly, the revolving credit debt and the related party
obligations have been classified according to their new terms in the condensed
financial statements. As of June 30, 2004, the Company had $15.2 million drawn
under the credit facility against a borrowing base of $15.7 million.
3. SUBSEQUENT EVENTS
The Company announced in July 2004 that it had reached an agreement to purchase
its affiliate, Kadampanattu Corp. for $32.0 million. Under the agreement, the
Company has until the end of 2004, to purchase Kadampanattu Corp., which owns
the roll-on/ roll-off vessels that the Company currently charters for $7.3
million per year and the $24.0 million in the Company's Series B Preferred
Stock. The Company is currently exploring options to finance this purchase
through a combination of debt and equity. The Company expects that such a
purchase would be immediately accretive to the Company's earnings.
On July 23, 2004 the holder of the Company's Series A Preferred Stock exercised
its right to convert such stock into 1,955,000 shares of common stock of the
Company. The holder of preferred shares, Transportation Receivables 1992, LLC,
is wholly-owned by the Estate of M. P. McLean an affiliate of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 consist 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. The Puerto Rico lane
in which the Company operates had been subjected to overcapacity and intense
competition over the five years prior to 2003. As a result of the reduction of
vessel capacity in the trade lane in 2002, the Puerto Rico lane stabilized and
competition became less intense during 2003 which has continued into 2004. The
Company increased utilization of its vessels during 2003. The Company's
utilization has been maintained over the last eighteen months while rates within
the Puerto Rico lane have increased.
7
Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30,
2003
- ----------------------------------------------------------------------------
The following table sets forth the indicated items as a percentage of net
revenues for three months ended June 30, 2004 and 2003:
Operating Statement - Margin Analysis
(% of Operating Revenues)
Three Months
Ended June 30,
--------------------------------
2004 2003
---------------- -------------
Operating Revenues 100% 100%
Salaries, wages, and benefits 16 17
Rent and purchased transportation:
Related Party 8 8
Other 24 28
Fuel 9 10
Operating and maintenance (exclusive of
depreciation shown separately below) 25 26
Taxes and licenses (0) 1
Insurance and claims 3 3
Communications and utilities 1 1
Depreciation and amortization 3 4
(Gain) Loss on sale of equipment 0 (0)
Other operating expenses 4 3
---------------- ----------
Total Operating Expenses 93 100
Operating income (loss) 7 0
Net interest expense (3) (3)
---------------- ----------
Net income (loss) 4% -3%
================ ==========
The Company's operating ratio (operating expense stated as a percentage of
operating revenues) improved from 100% during the three months ended June 30,
2003 to 93% during the three months ended June 30, 2004. This improvement is
more fully explained under the Operating Expense caption set forth below.
Revenues
The following table sets forth by percentage and dollar, the changes in the
Company's revenue by sailing route and freight carried:
8
Revenue & Volume changes for Three Months Ended June 30, 2004 compared to Three
Months Ended June 30, 2003.
Overall Southbound Northbound
---------------- ----------------- ----------------
Volume Percent Change:
Core container & trailer 1.1% (6.1)% 23.8%
Auto and other cargos 2.6% 10.1% (44.2)%
SOLs (13.1)% (7.9)% (57.9)%
Domestic linehaul (29.9)%
Revenue Change ($millions):
Core container & trailer $ 0.1 $ (0.2) $ 0.3
Auto and other cargos 0.5 0.5 (0.1)
SOLs 0.0 0.0 (0.0)
Domestic linehaul (0.3)
Other Revenues 1.5
---------
Total Revenue Change $ 1.8
---------
Vessel capacity utilization on the core continental U.S. to Puerto Rico traffic
lane was 91.5% for the three months ended June 30, 2004, compared to 94.9% for
the three months ended June 30, 2003.
Revenue for the three months ended June 30, 2004 was $24.1 million, compared to
$22.3 million for the three months ended June 30, 2003. The increase in revenue
was primarily due to increased freight rates and increased assessorial charges.
The Company's fuel surcharge is included in the Company's revenues and amounted
to $1.5 million during the three months ended June 30, 2004 compared to $1.0
million in the three months ended June 30, 2003. The Company's demurrage is
included in the Company's revenues and amounted to $0.8 million during the three
months ended June 30, 2004 compared to $0.6 million in the three months ended
June 30, 2003. Demurrage is a charge assessed for failure to return empty
freight equipment on time. The increase in demurrage revenue was due to the
strengthening of Puerto Rico market and better billing methods utilized in 2004.
The Company's charterhire is included in the Company's revenues and amounted to
$0.2 million during the three months ended June 30, 2004 compared to no
charterhire in the three months ended June 30, 2003. Charterhire is rental
revenue for vessels not in use in liner service. Southbound core container &
trailer volume was lower during the three months ended June 30, 2004 compared to
the three months ended June 30, 2003 primarily due to lower volume from a
specific customer.
Operating Expenses
Salary, wages and benefits increased by $0.1 million or 3.2% due to increased
workers compensation expense and incentive related compensation partially offset
by reductions in healthcare cost due to a change in the group healthcare
insurance carrier and driver payroll due to how inland transportation
requirements are serviced. Purchased transportation other than to a related
party decreased $0.6 million or 8.8% primarily due to the increased use of rail
transportation which is more cost effective than trucking. Taxes and licenses
decreased $0.3 million or 133.6% due primarily to a ruling by the Puerto Rican
Supreme Court in the Company's favor concerning a previously accrued and
disputed Volume of Business Tax in the Guaynabo Municipality of Puerto Rico.
Operating and maintenance expense increased $0.3 million or 5.8% principally due
to $0.2 million in drydocking charges and $0.1 in transportation equipment
repairs. The Company minimized the effect of higher fuel costs by replacing two
tugs with more fuel-efficient tugs in the year and with more utilization of rail
transportation versus trucking. As a result, the Company's operating ratio
improved to 93% during the three months ended June 30, 2004 from 100% during the
three months ended June 30, 2003.
As a result of the factors described above, the Company reported a net income of
$1.0 million for the three months ended June 30, 2004 compared to net loss of
$0.7 million in the same period in 2003.
9
Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003
- -----------------------------------------------------------------------------
The following table sets forth the indicated items as a percentage of net
revenues for three months ended June 30, 2004 and 2003:
Operating Statement - Margin Analysis
(% of Operating Revenues)
Six Months
Ended June 30,
--------------------------------------
2004 2003
---------------- ----------------
Operating Revenues 100% 100%
Salaries, wages, and benefits 16 19
Rent and purchased transportation:
Related Party 8 9
Other 24 28
Fuel 10 11
Operating and maintenance (exclusive of
depreciation shown separately below) 25 25
Taxes and licenses 0 1
Insurance and claims 3 3
Communications and utilities 1 1
Depreciation and amortization 3 4
(Gain) Loss on sale of equipment 0 (0)
Other operating expenses 4 4
---------------- ----------------
otal Operating Expenses 94 104
Operating income (loss) 6 (4)
Net interest expense (3) (3)
---------------- ----------------
Net income (loss) 3% (8%)
================ ================
The Company's operating ratio (operating expense stated as a percentage of
operating revenues) improved from 104% during the six months ended June 30, 2003
to 94% during the six months ended June 30, 2004. This improvement is more fully
explained under operating expense caption set forth below.
Revenues
The following table sets forth by percentage and dollar, the changes in the
Company's revenue by sailing route and freight carried:
10
Revenue & Volume changes for Six Months ended June 30, 2004 compared to
Six Months Ended June 30, 2003.
Overall Southbound Northbound
---------------- ----------------- ----------------
Volume Percent Change:
Core container & trailer 6.1% (0.2)% 27.1%
Auto and other cargos 3.4% 4.8% (6.2)%
SOLs 3.4% 10.3% (50.0)%
Domestic linehaul (35.9)%
Revenue Change ($millions):
Core container & trailer $ 1.9 $ 1.3 $ 0.6
Auto and other cargos 1.0 0.9 0.1
SOLs 0.2 0.2 (0.0)
Domestic linehaul (0.5)
Other Revenues 2.7
----------
Total Revenue Change $ 5.3
---------
Vessel capacity utilization on the core continental U.S. to Puerto Rico traffic
lane was 91.7% for the six months ended June 30, 2004, compared to 92.6% for the
six months ended June 30, 2003.
Revenue for the six months ended June 30, 2004 was $47.0 million compared to
$41.8 million for the six months ended June 30, 2003. The increase in revenue
was primarily due to increased freight rates and increased assessorial charges.
The Company's fuel surcharge is included in the Company's revenues and amounted
to $2.7 million during the six months ended June 30, 2004 compared to $1.8
million during the six months ended June 30, 2003. The Company's demurrage is
included in the Company's revenues and amounted to $1.7 million during the six
months ended June 30, 2004 compared to $0.9 million during the six months ended
June 30, 2003. Demurrage is a charge assessed for failure to return empty
freight equipment on time. The Company's charterhire is included in the
Company's revenues and amounted to $0.4 million during the six months ended June
30, 2004 compared to no charterhire during the six months ended June 30, 2003.
Charterhire is rental revenue for vessels not in use in liner service.
Operating Expenses
Purchased transportation other than to a related party decreased $0.3 million or
3.0% primarily due to the increased use of rail transportation which is more
cost effective than trucking. Operating and maintenance expense increased $1.1
million or 10.4% principally due to $0.3 million in drydocking charges, $0.5 in
transportation equipment repairs and $0.3 in cargo handling expense due to heavy
volumes in the period. Taxes and licenses decreased $0.3 million or 76.9% due
primarily to a ruling by the Puerto Rican Supreme Court in the Company's favor
concerning a previously accrued and disputed Volume of Business Tax in the
Guaynabo Municipality of Puerto Rico. As a result, the Company's operating ratio
improved to 94% during the six months ended June 30, 2004 from 104% during the
six months ended June 30, 2003.
As a result of the factors described above, the Company reported a net income of
$1.3 million for the six months ended June 30, 2004 compared to a net loss of
$3.2 million for the six months ended June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $0.7 million in the first six months of 2004
compared to net cash used in operations of $30,920 in 2003. This represented an
improvement of $0.7 million primarily resulting from an increase in net income
to $1.3 million, partially offset by $1.9 million increase in accounts
receivable between periods due to increased sales and $1.5 million decrease in
accounts payable between periods due to larger cash availability as a result of
the Company `s new line of credit. Net cash used by investing activities was
$0.4 million in the first six months of 2004 compared to net cash provided by
investing activities of $0.1 million in 2003. The change is due primarily from
payments made towards the purchase of containers currently under lease by the
Company. Net cash provided by financing activities was a positive $1.1 million
in the first six months 2004 compared to net cash used in financing activities
11
of negative $0.7 million in 2003 representing a difference of $1.8 million. The
increase is due principally from the net proceeds of the revolver. At June 30,
2004, cash amounted to approximately $1.7 million, working capital was a
positive $3.3 million, and stockholders' equity was approximately $6.0 million.
At March 31, 2004, the Company had $13.4 million due under its senior credit
facility, which expired January 31, 2004. In addition, the Company had $8.1
million due to related parties, all of which was due in 2004. In April 2004,
after receiving extensions from its then existing senior lender, the Company
refinanced this debt with a new senior lender. The new debt consists of a
revolving line of credit in the amount of $20.0 million and a term loan in the
amount of $3.0 million, both of which are due in April 2007. The new debt
provides for interest at prime plus 1.5% for the revolving line of credit and
prime plus 7.5% for the term loan and is payable monthly. The revolving line of
credit is subject to a borrowing base calculation but requires the Company
maintain a minimum availability of $2.0 million. The borrowing base is based on
a percentage of eligible accounts receivable and revenue equipment, as defined.
On April 23, 2004, the Company received $3.0 million in proceeds from the term
loan and borrowed $11.0 million under the credit facility against a borrowing
base of $14.5 million. Both obligations are secured by net receivables of $13.2
million and revenue equipment of $13.8 million. As of March 31, 2004, the former
senior credit facility was secured by net receivables of $13.0 million and
revenue equipment of $13.8 million. Related Party debt of $4.9 million, due in
October 2004, has been scheduled for payment in May 2007. Additionally, $0.7
million of the 2004 scheduled repayment of related party debt has been
rescheduled for 36 monthly principal payments commencing January 2005. Effective
March 1, 2004 the Company's affiliate, Kadampanattu Corp., agreed to defer $1.0
million of charterhire to be paid by the Company in 2004. This deferred amount
is payable in 36 monthly payments beginning in January 2005. These factors along
with increased rates and vessel utilization, are expected to allow the Company
to meet its working capital requirements in 2004 and through December 31, 2005.
The Company's business plan does not require the full utilization of the
revolving credit facility. As of June 30, 2004, the Company had $15.2 million
drawn under the credit facility against a borrowing base of $15.7 million.
CRITICAL ACCOUNTING POLICIES
The Company believes that there have been no significant changes to our critical
accounting policies during the three months ended June 30, 2004, as compared to
those we disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the
year ended December 31, 2003.
SUBSEQUENT EVENTS
The Company announced in July 2004 that it had reached an agreement where it was
able to purchase its affiliate, Kadampanattu Corp. for $32.0 million. Under the
agreement, the Company has the ability until the end of 2004, to purchase
Kadampanattu Corp., which owns roll-on/ roll-off vessels that the Company
currently charters for $7.3 million per year and the $24.0 million in the
Company's Series B Preferred Stock. The Company is currently exploring options
to finance this purchase through a combination of debt and equity. The Company
expects that such a purchase would be immediately accretive to the Company's
earnings.
On July 23, 2004 the holder of the Company's Series A Preferred Stock exercised
its right to convert such stock into 1,955,000 shares of common stock of the
Company. The holder of preferred shares, Transportation Receivables 1992, LLC,
is wholly-owned by the Estate of M. P. McLean an affiliate of the Company.
FORWARD-LOOKING STATEMENTS
This report, particularly the preceding discussion of "Liquidity and Capital
Resources" and "Known Trends During Second Quarter of 2004" contain statements
that may be considered as forward-looking or predictions concerning future
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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 demand for transportation services
offered by the Company, changes in services offered by the Company's
competitors, risks of transportation generally and changes in rate levels for
transportation services offered by the Company.
PART II
Item 1. Legal Proceedings
The Company was successful in its appeal of a previous year's judgment against
the Company for a tax deficiency by the Municipality of Guaynabo for $280,000.
The appeals court found that the Company was correct in its contention that 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 time for the Municipality of Guaynabo to appeal this decision
has expired.
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 26, 2004:
1. The election of nine directors, to terms ending in 2005
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 6,563,112 0
Peter S. Shaerf 6,563,112 0
Allen L. Stevens 6,563,112 0
Artis James 6,539,525 23,587
John D McCown 6,485,356 77,756
William G. Gotimer, Jr. 6,485,356 77,756
Malcom P. McLean, Jr. 6,539,525 23,587
Greggory B. Mendenhall 6,539,525 23,587
F. Duffield Meyercord 6,539,525 23,587
Item 5. 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-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as of the date 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.
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(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 that has materially affected, or
is reasonably likely to materially effect, our internal controls over financial
reporting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
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
99.1 Certification of Trailer Bridge, Inc.'s Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002)
99.2 Certification of Trailer Bridge, Inc.'s Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TRAILER BRIDGE, INC.
Date: August 5, 2004 By: /s/ John D. McCown
--------------------------------------
John D. McCown
Chairman and Chief Executive Officer
Date: August 5, 2004 By: /s/ Mark A. Tanner
--------------------------------------
Mark A. Tanner
Vice President of Administration
and Chief Financial Officer
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