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, 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 September 30, 2004, 11,752,266 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 nine month periods ended September 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
Nine Months Ended September 30, 2004 and 2003 (unaudited) Page 3
Condensed Balance Sheets as of September 30, 2004
and December 31, 2003 (unaudited) Page 4
Condensed Statements of Cash Flows for the Three and Nine
Months Ended September 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 Nine Months
Ended September 30, Ended September 30,
--------------------------------- ---------------------------------
2004 2003 Restated 2004 2003 Restated
------------------ -------------- ---------------- --------------
OPERATING REVENUES $ 23,938,849 $ 22,619,472 $ 70,950,478 $ 64,372,005
OPERATING EXPENSES:
Salaries, wages, and benefits 3,718,282 3,876,226 11,380,660 11,812,160
Rent and purchased transportation:
Related Party 1,849,200 1,849,200 5,507,400 5,487,300
Other 5,905,275 6,753,222 17,194,071 18,387,416
Fuel 2,484,525 2,172,924 7,156,918 6,663,494
Operating and maintenance (exclusive of depreciation
shown separately below) 5,514,750 5,373,578 17,125,726 15,894,626
Taxes and licenses 50,819 163,441 136,538 534,559
Insurance and claims 818,549 787,734 2,398,131 2,240,051
Communications and utilities 120,830 146,745 371,979 382,105
Depreciation and amortization 677,566 852,731 2,310,763 2,557,798
Loss (Gain) on sale of equipment (25,529) (12,257) (8,370) (20,065)
Other operating expenses 926,349 808,332 2,720,925 2,325,139
------------ ------------- ------------ ------------
22,040,616 22,771,876 66,294,741 66,264,583
------------ ------------- ------------ ------------
OPERATING INCOME (LOSS) 1,898,233 (152,404) 4,655,737 (1,892,578)
NONOPERATING EXPENSE:
Interest expense and other, net (746,761) (710,815) (2,156,283) (2,151,871)
------------ ------------- ------------ -------------
INCOME (LOSS) BEFORE (PROVISION) BENEFIT FOR INCOME TAXES 1,151,472 (863,219) 2,499,454 (4,044,449)
(PROVISION) BENEFIT FOR INCOME TAXES 2,733 - 2,733 -
------------ ------------- ------------ -------------
NET INCOME (LOSS) 1,154,205 (863,219) 2,502,187 (4,044,449)
ACCRETION OF PREFERRED STOCK DISCOUNT (131,991) (171,414) (437,235) (808,036)
UNDECLARED DIVIDEND (367,683) (280,663) (980,078) (563,966)
------------ ------------- ------------ -------------
NET INCOME (LOSS) ATTRIBUTABLE TO $ 654,531 $ (1,315,296) $ 1,084,874 $ (5,416,451)
COMMON SHARES
============ ============= ============ ============
PER SHARE AMOUNTS:
NET INCOME (LOSS) PER SHARE BASIC $ 0.06 $ (0.13) $ 0.09 $ (0.55)
============ ============= ============ ============
NET INCOME (LOSS) PER SHARE DILUTED $ 0.05 $ (0.13) $ 0.09 $ (0.55)
============ ============= ============ ============
See accompanying summary of accounting policies and notes to condensed
financial statements
3
TRAILER BRIDGE, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2004 2003
---------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 987,944 $ 424,961
Trade receivables, less allowance for doubtful
accounts of $586,264 and $590,518 12,739,665 11,019,375
Other receivables 13,254 16,888
Prepaid expenses 1,656,818 1,856,451
------------- -------------
Total current assets 15,397,681 13,317,675
Property and equipment, net 46,406,793 46,768,813
Other assets 1,911,278 1,175,454
------------- -------------
TOTAL ASSETS $ 63,715,752 $ 61,261,942
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,008,548 $ 8,502,286
Accrued liabilities 2,983,032 4,038,388
Current portion of long-term debt 1,285,902 1,683,953
Current portion of due to affiliates 850,750 386,127
Unearned revenue 1,062,337 747,544
------------- -----------------
Total current liabilities 12,190,569 15,358,298
Due to affiliates 7,280,284 5,922,641
Long-term debt, less current portion 37,069,594 35,347,339
------------- -----------------
TOTAL LIABILITIES 56,540,447 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
Preferred stock Series B, $.01 par value, 1,000,000 shares
authorized; 24,000 shares issued and outstanding
(liquidation value $24,000,000) 23,465,092 23,027,857
Common stock, $.01 par value, 20,000,000 shares
authorized; 11,752,266 and 9,783,235 shares issued and
outstanding 117,523 97,832
Additional paid-in capital 44,344,992 42,404,394
Deficit (60,752,302) (62,817,254)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,175,305 4,633,664
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,715,752 $ 61,261,942
============= =============
See accompanying summary of accounting policies and notes to condensed
financial statements
4
TRAILER BRIDGE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended
--------------------------------------
September 30, September 30,
2004 2003
------------------ -----------------
Operating activities:
Net income (loss) $ 2,502,187 $ (4,044,449)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,310,763 2,557,798
Provision for doubtful accounts 916,442 463,034
(Gain)Loss on sale of fixed assets (8,370) (20,065)
Decrease (increase) in:
Trade receivables (2,636,733) (1,832,136)
Other receivables 3,634 (2,405)
Prepaid expenses 199,633 67,839
Increase (decrease) in:
Accounts payable (2,493,738) (339,429)
Accrued liabilities and related party charterhire 231,630 2,469,574
Unearned revenue 314,793 132,300
Due to affiliate 628,198 -
------------- -------------
Net cash provided by (used in) operating activities 1,968,439 (547,939)
------------- -------------
Investing activities:
Additions to and construction of property and equipment (473,159) (27,442)
Proceeds from sale of property and equipment 92,919 131,986
Additions to other assets (116,740) (6,946)
------------- -------------
Net cash (used in) provided by investing activities (496,980) 97,598
------------- -------------
Financing activities:
Proceeds from (payments on) borrowing on revolving line of credit 8,474,435 89,556
Payments on borrowing from affiliate (92,919) (36,900)
Exercise of stock options 39,454 900
Principal (payments) on notes payable (8,550,232) (1,341,368)
Loan costs (779,217) -
------------- -------------
Net cash provided by (used in) financing activities (908,479) (1,287,812)
------------- -------------
Net increase (decrease) in cash and cash equivalents 562,980 (1,738,153)
Cash and cash equivalents, beginning of the period 424,961 2,144,887
------------- -------------
Cash and cash equivalents, end of period $ 987,941 $ 406,734
============= =============
Supplemental cashflow information and non-cash investing
and financing activities:
Cash paid for interest $ 2,979,921 $ 1,496,768
============= =============
Satisfaction of preferred Stock Series B Subscription with
related party vessel services - 1,073,352
============= =============
Acquistion of property and equipment
Cost of equipment purchased $ 1,873,159 $ -
Loan Equipment (1,400,000)
------------- -------------
Cash paid for equipment $ 473,159 $ -
============= =============
See accompanying summary of accounting policies and notes to condensed
financial statements
5
TRAILER BRIDGE, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 Nine Months
Ended September 30, Ended September 30,
------------------------------------- ------------------------------------
2004 2003 (Restated) 2004 2003 (Restated)
---------------- ------------------ ---------------- -----------------
Net income (loss) $ 1,154,205 $ (863,219) $ 2,502,187 $ (4,044,449)
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) (355,598) (383,400)
-------------- ------------- ------------ --------------
$ 1,038,381 $ (991,008) $ 2,146,589 $ (4,427,849)
Income (Loss) per common share:
Basic, as reported $ 0.06 $ (0.13) $ 0.09 $ (0.55)
Diluted, as reported $ 0.05 $ (0.13) $ 0.09 $ (0.55)
Basic, pro forma $ 0.05 $ (0.15) $ 0.06 $ (0.59)
Diluted, pro forma $ 0.04 $ (0.15) $ 0.06 $ (0.59)
During the three and nine months ended September 30, 2004 respectively, 4,543
and 14,031 options were exercised. There were no options issued during the nine
months ended September 30, 2004.
Earnings per share - options to purchase 576,000 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 nine month period ending
September 30, 2004.
6
2. SIGNIFICANT TRANSACTIONS
In April 2004, the Company refinanced its term loan and revolving line of credit
with a new senior lender. The facility 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. As of September 30, 2004, the Company had $14.3 million drawn under the
credit facility. 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.
During 2004, the Company's affiliate, Kadampanattu Corp. has agreed to defer
certain charterhire payments to be paid by the Company. The total deferred
amount at September 30, 2004 is $2.6 million and is payable in 36 monthly
payments commencing January 2005. The Company expects to defer $.3 million in
the fourth quarter of 2004.
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 the ability until the end of 2004, to purchase Kadampanattu Corp.,
which owns roll-on/ roll-off vessels that the Company currently charters for
$7.4 million per year and is the holder of the Company's $24.0 million Series B
Preferred Stock. The Company is attempting to finance this purchase with
borrowed funds aggregating $80.0 million, and also payoff certain of its debt
facilities. If completed, the Company expects that such purchase and refinancing
would be immediately accretive to the Company's earnings. In this regard, on a
annual basis purchased transportation expense from a related party of $7.4
million would be eliminated and rent would decrease by $4.1 million. In addition
on a annual basis, Interest and Depreciation expense will increase by $6.2
million and $3.3 million respectively, resulting in an estimated favorable
impact of $2.0 million.
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.
In August and September of 2004, the Company purchased a group of containers.
The containers were part of an operating lease that was due to expire in 2004.
The purchase price for the equipment was $1.8 million and the Company obtained
financing for $1.4 million related to the transaction. In connection with the
purchase, the Company had an appraisal performed, which included a review of the
useful lives of its containers and chassis. The results of the appraisal
indicated an increase in the useful life of these assets. As such, management
revised its estimate of the remaining useful lives of chassis, VTMs (Specialized
containers for carrying vehicles) and containers to extend the useful live by
approximately 6 years. During the quarter ended September 30, 2004, a change in
accounting estimate was recognized to reflect this decision, resulting in an
increase in net income of $133,277, or $.01 per basic and diluted share.
3. EARNINGS PER SHARE
The Company adopted the consensus reached in EITF 03-06, "Participating
Securities and Two-Class Method under FASB 128" which provides further guidance
on the definition of participating securities and requires the use of the
two-class method in calculating earnings per share for enterprises with
participating securities under SFAS Statement 128 "Earnings per Share."
Pursuant to EITF 03-06, the Company's Series A convertible preferred shares
(prior to their conversion to common shares) were considered participating
securities. EITF 03-06 requires that each period's income be allocated to
participating securities. Accordingly, for the reporting periods in which there
is income attributable to common shareholders, the Company allocated a portion
of such income to the Series A convertible shareholders based upon the pro-rata
share of income, weighted for the period prior to redemption. During reporting
periods in which there was a net loss attributable to common shareholders, such
loss is allocated entirely to the common shares. For the three months and nine
months ended September 30, 2004, $28,436 and $138,663 of the net income was
allocated to the convertible preferred shares. For the three and nine months
ended September 30, 2003, none of the loss was allocated to the preferred
shareholders.
The following reconciles Basic and Diluted Earnings Per Share:
7
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
2004 2003 2004 2003
-------------- -------------- ------------- --------------
Net income attributable to commons shareholders $ 654,531 $ (1,315,296) $ 1,084,874 $ (5,416,451)
Net Income allocated to preferred
Series A Shareholders (prior to conversion)(1) (28,436) (138,663) -
----------- ----------- ----------- ------------
Net income allocated to common shareholders $ 626,095 $ (1,315,296) $ 946,211 $ (5,416,451)
Weighted average common shares-basic 11,229,004 9,777,633 10,270,370 9,777,544
Add: Dilutive effect of options 358,097 243,317
----------- ----------- ----------- ------------
Weighted average shares -Diluted 11,587,101 9,777,633 10,513,687 9,777,544
Income (Loss) per common share:
Basic, pro forma $ 0.06 $ (0.13) $ 0.09 $ (0.55)
Diluted, pro forma $ 0.05 $ (0.13) $ 0.09 $ (0.55)
(1) Weighted for days outstanding prior to conversion on July 23, 2004.
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.
Three Months Ended September 30, 2004 Compared to the Three Months Ended
- ------------------------------------------------------------------------
September 30, 2003
- ------------------
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 and has
continued to abate in 2004. The Company increased utilization of its vessels
during 2003. The Company's utilization has been maintained over the last
twenty-one months while rates within the Puerto Rico lane have increased.
The following table sets forth the indicated items as a percentage of net
revenues for three months ended September 30, 2004 and 2003:
8
Operating Statement - Margin Analysis
(% of Operating Revenues)
Three Months
Ended September 30,
-----------------------------------
2004 2003
---------------- ----------------
Operating Revenues 100% 100%
Salaries, wages, and benefits 15.5 17.1
Rent and purchased transportation:
Related Party 7.7 8.2
Other 24.7 29.9
Fuel 10.4 9.6
Operating and maintenance (exclusive of
depreciation shown separately below) 23.0 23.8
Taxes and licenses 0.2 0.7
Insurance and claims 3.4 3.5
Communications and utilities 0.5 0.6
Depreciation and amortization 2.8 3.8
(Gain) Loss on sale of equipment (0.1) (0.1)
Other operating expenses 4.0 4.0
---------------- ----------------
Total Operating Expenses 92.1 101.1
Operating income (loss) 7.9 (0.7)
Net interest expense (3.1) (3.1)
---------------- ----------------
Net income (loss) 4.8% (3.8)%
================ ================
The Company's operating ratio (operating expense stated as a percentage of
operating revenues) improved from 101% during the three months ended September
30, 2003 to 92% during the three months ended September 30, 2004.
Revenues
The following table sets forth by percentage and dollar, the changes in the
Company's revenue by sailing route and freight carried:
Revenue & Volume changes for Three Months Ended September 30, 2004
compared to Three Months Ended September 30, 2003.
Overall Southbound Northbound
---------------- ----------------- ----------------
Volume Percent Change:
Core container & trailer -2.8% -3.7% 0.0%
Auto and other cargos 26.9% 29.1% 10.0%
SOLs 0.2% -1.2% 16.0%
Revenue Change ($millions):
Core container & trailer $ 0.1 $ 0.2 $ (0.1)
Auto and other cargos 0.9 1.0 (0.1)
SOLs (0.1) (0.1) 0.0
Other Revenues 0.4
---------
Total Revenue Change $ 1.3
---------
Vessel capacity utilization on the core continental U.S. to Puerto Rico traffic
lane was 94.9% for the three months ended September 30, 2004, compared to 93.3%
for the three months ended September 30, 2003.
Revenue for the three months ended September 30, 2004 was $23.9 million,
compared to $22.6 million for the three months ended September 30, 2003. The
increase in revenue was primarily due to increased freight rates and increased
accessorial charges. The Company's fuel surcharge is included in the Company's
9
revenues and amounted to $1.9 million during the three months ended September
30, 2004 compared to $1.1 million in the three months ended September 30, 2003.
The Company's demurrage is included in the Company's revenues and amounted to
$0.6 million during the three months ended September 30, 2004 compared to $0.7
million in the three months ended September 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 $0.1 million
during the three months ended September 30, 2004 compared to $0.2 millions
charterhire in the three months ended September 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 September 30, 2004
compared to the three months ended September 30, 2003 primarily due to hurricane
related delays in the sailing schedule.
This past hurricane season was unusually active with four hurricanes striking
various parts of Florida during August and September. As a result of port
closings and weather resulting from these hurricanes, the Company's schedules
were affected and the timing of certain sailings was delayed. Two northbound
sailings that were originally scheduled for September did not occur until early
October, resulting in approximately $200,000 less revenue in September. In
addition, volume and revenue in September was less than what it would have been
as the operations of various customers, particularly certain customers located
in Florida, were disrupted. The Company has now caught up on its schedule and no
sailings were actually lost. We believe that the effect of these hurricanes will
primarily be one of timing in terms of when revenue occurs rather than any
meaningful actual lost revenue.
Operating Expenses
Salary, wages and benefits decreased by $0.2 million or 4.1% due to lower
company driver miles due shift to rail transportation within our intermodal
model. Purchased transportation other than to a related party decreased $0.8
million or 12.56% primarily due to the increased use of rail transportation
which is more cost effective than trucking and also decreased as a result of our
August and September 2004 container purchase. Taxes and licenses decreased $0.1
million or 68.91% 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. Fuel cost increased by
$0.3 million or 14.3% primarily due to the increases on the world market for
crude oil which minimized the effect of the Company use of more fuel efficient
tugs. As a result, the Company's operating ratio improved to 92% during the
three months ended September 30, 2004 from 101% during the three months ended
September 30, 2003.
In August and September of 2004, the Company purchased a group of containers.
The containers were part of an operating lease that was due to expire in 2004.
The purchase price for the equipment was $1.8 million and the Company obtained
financing for $1.4 million related to the transaction. In connection with the
purchase, the Company had an appraisal performed, which included a review of the
useful lives of its containers and chassis. The results of the appraisal
indicated an increase in the useful life of these assets. As such, management
revised its estimate of the remaining useful lives of chassis, VTMs (Specialized
containers for carrying vehicles) and containers to extend the useful live by
approximately 6 years. During the quarter ended September 30, 2004, a change in
accounting estimate was recognized to reflect this decision, resulting in an
increase in net income of $133,277, or $.01 per basic and diluted share.
In the quarter in which the Kadampanattu transaction discussed in Note 2 to the
Financial Statements concludes and in accordance with Topic D-42, "the effect on
the calculation of earnings per share for the redemption or induced conversion
of preferred stock," the $0.5 million excess of the consideration transferred to
holders of the preferred stock over the carrying amount on our books will be
subtracted from net income to arrive at net income attributable to common
shareholders in the calculation of earnings per share.
If completed, the Company expects that such purchase and refinancing would be
immediately accretive to the Company's earnings. In this regard-, on a annual
basis purchased transportation expense from a related party of $7.4 million
would be eliminated and rent would decrease by $4.1 million. In addition on a
annual basis, Interest and Depreciation expense will increase by $6.2 million
and $3.3 million respectively, resulting in an estimated favorable impact of
$2.0 million.
No tax expense has been recorded by the Company for the period due to its
deferred tax asset having a valuation allowance recorded at 100% of the deferred
tax asset value. At September 30, 2004 the Company has a net deferred tax asset
of approximately $22.0 million which is offset by a 100% valuation allowance.
The Company expects to maintain a full valuation allowance on future tax
benefits until an appropriate level of profitability is sustained.
10
As a result of the factors described above, the Company reported a net income of
$1.2 million for the three months ended September 30, 2004 compared to net loss
of $0.9 million in the same period in 2003.
Nine months Ended September 30, 2004 Compared to the Nine months Ended
- ----------------------------------------------------------------------
September 30, 2003
- ------------------
The following table sets forth the indicated items as a percentage of net
revenues for nine months ended September 30, 2004 and 2003:
Operating Statement - Margin Analysis
(% of Operating Revenues)
Nine Months
Ended September 30,
--------------------------------------
2004 2003
---------------- ----------------
Operating Revenues 100.0% 100.0%
Salaries, wages, and benefits 16.0 18.3
Rent and purchased transportation:
Related Party 7.8 8.5
Other 24.2 28.6
Fuel 10.1 10.4
Operating and maintenance (exclusive of
depreciation shown separately below) 24.1 25.0
Taxes and licenses 0.2 0.8
Insurance and claims 3.4 3.5
Communications and utilities 0.5 0.6
Depreciation and amortization 3.3 4.0
(Gain) Loss on sale of equipment (0.0) (0.0)
Other operating expenses 3.8 3.2
---------------- ----------------
Total Operating Expenses 93.4 102.9
Operating income (loss) 6.6 (2.9)
Net interest expense (3.1) (3.4)
---------------- ----------------
Net income (loss) 3.5% (6.3)%
================ ================
The Company's operating ratio (operating expense stated as a percentage of
operating revenues) improved from 103% during the nine months ended September
30, 2003 to 93% during the nine months ended September 30, 2004.
Revenues
The following table sets forth by percentage and dollar, the changes in the
Company's revenue by sailing route and freight carried:
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Revenue & Volume changes for Nine Months ended September 30, 2004
compared to Nine Months Ended September 30, 2003.
Overall Southbound Northbound
---------------- ----------------- ----------------
Volume Percent Change:
Core container & trailer 3.0% -1.4% 17.2%
Auto and other cargos 5.0% 5.9% -1.9%
SOLs 2.2% 5.9% -30.6%
Revenue Change ($millions):
Core container & trailer $ 2.0 $ 1.5 $ 0.5
Auto and other cargos 1.9 1.9 0.0
SOLs 0.1 0.1 0.0
Other Revenues 2.6
-----------
Total Revenue Change $ 6.6
-----------
Vessel capacity utilization on the core continental U.S. to Puerto Rico traffic
lane was 93.9% for the nine months ended September 30, 2004, compared to 94.1%
for the nine months ended September 30, 2003.
Revenue for the nine months ended September 30, 2004 was $71.0 million compared
to $64.4 million for the nine months ended September 30, 2003. The increase in
revenue was primarily due to increased freight rates and increased accessorial
charges. The Company's fuel surcharge is included in the Company's revenues and
amounted to $4.7 million during the nine months ended September 30, 2004
compared to $2.9 million during the nine months ended September 30, 2003. The
Company's demurrage is included in the Company's revenues and amounted to $2.2
million during the nine months ended September 30, 2004 compared to $1.6 million
during the nine months ended September 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 $0.5 million during the
nine months ended September 30, 2004 compared to $.2 million charterhire during
the nine months ended September 30, 2003. Charterhire is rental revenue for
vessels not in use in liner service.
This past hurricane season was unusually active with four hurricanes striking
various parts of Florida during August and September. As a result of port
closings and weather resulting from these hurricanes, the Company's schedules
were affected and the timing of certain sailings was delayed. Two northbound
sailings that were originally scheduled for September did not occur until early
October, resulting in approximately $200,000 less revenue in September. In
addition, volume and revenue in September was less than what it would have been
as the operations of various customers, particularly certain customers located
in Florida, were disrupted. The Company has now caught up on its schedule and no
sailings were actually lost. We believe that the effect of these hurricanes will
primarily be one of timing in terms of when revenue occurs rather than any
meaningful actual lost revenue.
Operating Expenses
Purchased transportation other than to a related party decreased $1.2 million or
6.49% primarily due to the increased use of rail transportation which is more
cost effective than trucking and also decreased as a result of our August and
September 2004 container purchase. Operating and maintenance expense increased
$1.2 million or 7.75% principally due to $0.3 million in drydocking charges,
$0.6 in transportation equipment repairs and $0.2 in cargo handling expense due
to heavy volumes in the period. Taxes and licenses decreased $0.4 million or
74.5% 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 93% during the nine months ended September 30, 2004
from 103% during the nine months ended September 30, 2003.
In August and September of 2004, the Company purchased a group of containers.
The containers were part of an operating lease that was due to expire in 2004.
The purchase price for the equipment was $1.8 million and the Company obtained
financing for $1.4 million related to the transaction. In connection with the
purchase, the Company had an appraisal performed, which included a review of the
useful lives of its containers and chassis. The results of the appraisal
indicated an increase in the useful life of these assets. As such, management
revised its estimate of the remaining useful lives of chassis, VTMs (Specialized
containers for carrying vehicles) and containers to extend the useful live by
approximately 6 years. During the quarter ended September 30, 2004, a change in
accounting estimate was recognized to reflect this decision, resulting in an
increase in net income of $133,277, or $.01 per basic and diluted share.
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In the quarter in which the Kadampanattu transaction discussed in Note 2 to the
Financial Statements concludes and in accordance with Topic D-42, "the effect on
the calculation of earnings per share for the redemption or induced conversion
of preferred stock," the $0.5 million excess of the consideration transferred to
holders of the preferred stock over the carrying amount on our books will be
subtracted from net income to arrive at net income attributable to common
shareholders in the calculation of earnings per share.
If completed, the Company expects that such purchase and refinancing would be
immediately accretive to the Company's earnings. In this regards, on a annual
basis purchased transportation expense from a related party of $7.4 million
would be eliminated and rent would decrease by $4.1 million. In addition on a
annual basis, Interest and Depreciation expense will increase by $6.2 million
and $3.3 million respectively, resulting in an estimated favorable impact of
$2.0 million.
No tax expense has been recorded by the Company for the period due to its
deferred tax asset having a valuation allowance recorded at 100% of the deferred
tax asset value. At September 30, 2004 the Company has a net deferred tax asset
of approximately $22.0 million which is offset by a 100% valuation allowance.
The Company expects to maintain a full valuation allowance on future tax
benefits until an appropriate level of profitability is sustained.
As a result of the factors described above, the Company reported a net income of
$2.5 million for the nine months ended September 30, 2004 compared to a net loss
of $4.0 million for the nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $2.0 million in the first nine months of
2004 compared to net cash used in operations of $.5 million in 2003. This
represented an improvement of $2.5 million primarily resulting from an increase
in net income of $6.5 million, partially offset by $1.7 million increase in
accounts receivable between periods due to increased sales and $2.5 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 $.5 million in the first nine 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 under operating
leases by the Company. Net cash used in financing activities was $.9 million in
the first nine months of 2004 compared to net cash used in financing activities
of $1.3 million in 2003 representing a change of $.4 million. During the second
quarter of 2004, the Company's refinanced its term loan and revolving line of
credit facility with new lender. The refinancing is reflected as both an
increase in proceeds of $8.4 million and principal payments of $7.2 million. At
September 30, 2004, cash amounted to approximately $1.0 million, working capital
was a positive $3.2 million, and stockholders' equity was $7.2 million.
In April 2004, the Company refinanced its term loan and revolving line of credit
with a new senior lender. The facility 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. As of September 30, 2004, the Company had $14.3 million drawn under the
credit facility. 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.
During 2004, the Company's affiliate, Kadampanattu Corp. has agreed to defer
certain charterhire payments to be paid by the Company. The total deferred
amount at September 30, 2004 is $2.6 million and is payable in 36 monthly
payments commencing January 2005. The Company expects to defer $.3 million in
the fourth quarter of 2004.
In August and September of 2004, the Company purchased a group of containers.
The containers were part of an operating lease that was due to expire in 2004.
The purchase price for the equipment was $1.8 million and the Company obtained
financing for $1.4 million related to the transaction.
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 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
13
Stock. The Company is attempting to finance this purchase with borrowed funds
aggregating $80.0 million, and also payoff certain of its debt facilities. If
completed, the Company expects that such purchase and refinancing would be
immediately accretive to the Company's earnings and have a positive effect on
cash flow by reducing lease payments to related party by $7.4 million and rent
payments by $4.1 million partially offset by higher interest payments of $6.2
million annually.
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.
CRITICAL ACCOUNTING POLICIES
The Company believes that there have been no significant changes to our critical
accounting policies during the three months ended September 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.
FORWARD-LOOKING STATEMENTS
This report, particularly the preceding discussion of "Liquidity and Capital
Resources" contains 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
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, and
the Company's ability to borrow funds to close the K-Corp acquisition.
PART II
OTHER INFORMATION
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 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 that has materially affected, or
is reasonably likely to materially effect, our internal controls over financial
reporting.
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Item 6. Exhibits
(a) Exhibits
Exhibit
Number Description of Exhibit
10.25 Employment Agreement dated as of August 5, 2004 between Trailer
Bridge, Inc. and John D. McCown
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)
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: November 11, 2004 By: /s/ John D. McCown
--------------------------------------
John D. McCown
Chairman and Chief Executive Officer
Date: November 11, 2004 By: /s/ Mark A. Tanner
--------------------------------------
Mark A. Tanner
Vice President of Administration
and Chief Financial Officer
16