TRAILER BRIDGE INC (TRBR)
Quarterly Report (SEC form 10-Q)

RESULTS OF OPERATIONS:

Three Months Ended June 30, 2001 and 2000 -

Total revenue for the three months ended June 30, 2001 was $21,659,184, a decrease of $2,105,705 or 8.9%, compared to total revenue of $23,764,889 reported for the three months ended June 30, 2000. The decreased revenue was due to decreased shipping volume in all sectors other than core southbound trailers and decreased yield. The Company also reported significant decreases in income for the three months ended June 30, 2001, resulting in a net loss of $5,160,945 or $.53 per share, as compared to net income of $627,724, or $.06 per share, for the three months ended June 30, 2000. Net income for the three months ended June 30, 2001 included no income tax benefit compared to a $323,927 provision for income taxes during the same period in the preceding year. Net income for the three months ended June 30, 2001 included a loss of $218,419 from the sale of excess 48' equipment compared to a gain on sale of equipment of $384,250 for the three months ended June 30, 2000. Net income for the three months ended June 30, 2000 included a benefit of $127,100 from the cumulative effect of a change in accounting principle related to periodic vessel dry-docking.

Operating loss for the three months ended June 30, 2001 was $4,131,848 a deterioration of $5,434,561 from operating income of $1,302,713 for the three months ended June 30, 2000. The operating loss was a result of decreased volume across all sectors other than core southbound trailers, lower yields, lower tractor asset utilization, increased purchased transportation and fuel costs. The operating loss for the three months ended June 30, 2001 was further impacted by the expense related to the dry-docking of one of the ro/ro vessels operated by the Company under charter from an affiliate of $463,756. The Company has elected to expense the full costs of dry-dockings as they occur rather than capitalize such expenses and amortize them over the period between dry-dockings. While the Company believes that this conservative treatment is the preferred method under SEC guidelines, it may not be the prevailing industry standard used by other shipping companies, including competitors of the Company that capitalize such expenses and amortize them over the period between scheduled dry-dockings. The operating loss resulted in an operating ratio of 119.1% for the three months ended June 30, 2001 compared to the 94.5% operating ratio for the three months ended June 30, 2000.

The market conditions in the trade lanes in which the Company operates that have been characterized by excess high-cost vessel capacity continued throughout the three months ended June 30, 2001. Overall market volume reductions and the operation in bankruptcy by a large carrier in the trade further exacerbated competitive activity. On March 21, 2001, the largest participant in the Puerto Rico market, NPR/Navieras, which had a 29.0% share of market in 2000, in conjunction with its parent and affiliates filed for Chapter 11 bankruptcy protection in the Delaware Bankruptcy Court in Wilmington, Delaware. Strong competitive activity and excess capacity are continuing.

Total southbound Puerto Rico volume for the three months ended June 30, 2001 decreased 2.7% and total northbound volume decreased 26.0% compared to the three months ended June 30, 2000. While core southbound trailer volume increased 3.6%, as compared to the same period last year, all other segments showed volume decreases, with new car volume down sharply at 25.7%. Comparing total volume and total revenue by direction, Trailer Bridge's effective yield to and from Puerto Rico decreased 4.8% and increased 0.6%, respectively, compared to the three months ended June 30, 2000. The Company's Puerto Rico deployed vessel capacity utilization overall during the three months ended June 30, 2001, was 65.6% to Puerto Rico and 19.5% from Puerto Rico. These were below capacity utilization figures of 79.9% to Puerto Rico and 29.3% from Puerto Rico during the three months ended June 30, 2000, when Trailer Bridge had 14.4% less effective capacity in the Puerto Rico lane. All of these capacity utilization figures are based upon vessels deployed in service and exclude the effect of one Triplestack Box Carrier(R) that is presently laid-up. Total net expenses related to this vessel, consisting primarily of depreciation and interest, were $222,629 during the three months ended June 30, 2001.

For the three months ended June 30, 2001, salaries wages and benefits increased $584,180 compared to the same period last year primarily as a result of higher healthcare expenses and workers compensation cost. Rent and purchased transportation increased $640,184 compared to the same period last year primarily as a result of the additional tug charter hire and inland purchased transportation expense incurred in changing from bi-weekly to weekly service from Newark. For the three months ended June 30, 2001, fuel expense increased $433,908 compared to the same period last year primarily as a result of increased consumption from the additional tug and increased fuel rates. Due primarily to the increase in the Newark service from bi-weekly to weekly frequency, operating and maintenance expense also increased $1.1 million during the three month period ended June 30, 2001 compared to the same period in the preceding year. Other operating expenses increased $322,539 compared to same period in the preceding year primarily as a result of an increase in demurrage reserves.

Subsequent to June 30, 2001 the Company secured contractual changes resulting in cost reduction of more than $550,000 per quarter.

Six Months Ended June 30, 2001 and 2000 -

Total revenue for the six months ended June 30, 2001 was $42,295,897, a decrease of $2,802,397 or 6.2%, compared to total revenue of $45,098,294 reported for the six months ended June 30, 2000. The decreased revenue was due to decreased shipping volume in all sectors other than core southbound trailers and decreased yield. The Company also reported significant decreases in income for the six months ended June 30, 2001, resulting in a net loss of $10.5 million or $1.08 per share, as compared to a net loss of $523,203, or $.05 per share, for the six months ended June 30, 2000. Net income for the six months ended June 30, 2001 included a loss of $186,536 from the sale of excess 48' equipment compared to a gain on sale of equipment of $395,011 for the six months ended June 30, 2000. Net income for the three months ended June 30, 2000 included a benefit of $127,100 from the cumulative effect of a change in accounting principle related to periodic vessel dry-docking.

Operating loss for the six months ended June 30, 2001 was $8.6 million compared to operating income of $399,683 for the six months ended June 30, 2000. The results for the six months ended June 30, 2001 are not affected by a forgiveness of charter due to an affiliate of $1,809,000 that has been treated as a contribution of capital. Such amount has been expensed and is reflected in the income statement. The operating loss was a result of decreased volume across all sectors other than core southbound trailers, lower yields, lower tractor asset utilization, increased purchased transportation and fuel costs. During the period the Company operated one additional vessel on its Newark to San Juan service compared to the same period in the preceding year. The operating loss for the six months ended June 30, 2001 was further impacted by the expenses related to the dry-docking of both of the ro/ro vessels operated by the Company under charter from an affiliate of $1.34 million. The Company has elected to expense the full costs of dry-dockings as they occur rather than capitalize such expenses and amortize them over the period between dry-dockings. While the Company believes that this conservative treatment is the preferred method under SEC guidelines it may not be the prevailing industry standard used by other shipping companies, including competitors of the Company that capitalize such expenses and amortize them over the period between scheduled dry-dockings. The operating loss resulted in an operating ratio of 120.5% for the six months ended June 30, 2001 compared to the 99.1% operating ratio for the six months ended June 30, 2000.

The market conditions in the trade lanes in which the Company operates that have been characterized by excess high-cost vessel capacity continued throughout the six months ended June 30, 2001. Overall market volume reductions and the approach towards filing of and operation in bankruptcy by a large carrier in the trade further exacerbated competitive activity. On March 21, 2001, the largest participant in the Puerto Rico market, NPR/Navieras, which had a 29.0% share of market in 2000, in conjunction with its parent and affiliates filed for Chapter 11 bankruptcy protection in the Delaware Bankruptcy Court in Wilmington, Delaware. Competitive activity and excess capacity are continuing.

Total southbound Puerto Rico volume for the six months ended June 30, 2001 decreased .9% and total northbound volume decreased 18.4% compared to the six months ended June 30, 2000. While core southbound trailer volume increased 5.6%, as compared to the same period last year, all other segments showed volume decreases, with new car volume down sharply at 27.9%. Comparing total volume and total revenue by direction, Trailer Bridge's effective yield to and from Puerto Rico decreased 5.0% and 2.6%, respectively, compared to the six months ended June 30, 2000. The Company's Puerto Rico deployed vessel capacity utilization overall during the six months ended June 30, 2001, was 68.0% to Puerto Rico and 20.7% from Puerto Rico. These were below capacity utilization figures of 77.3% to Puerto Rico and 28.1% from Puerto Rico during the six months ended June 30, 2000, when Trailer Bridge had 11.8% less effective capacity in the Puerto Rico lane. All of these capacity utilization figures are based upon vessels deployed in service and exclude the effect of one Triplestack Box Carrier(R) that is presently laid-up. Total net expenses related to this vessel, consisting primarily of depreciation and interest, were $373,392 during the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001, the Company had cash of $747,317 and working capital of $3.2 million, increases of $265,809 and $232,882, respectively, from March 31, 2001. Compared to December 31, 2000, cash decreased $117,850 and working capital increased $60,537. During the six months ending June 30, 2001, net cash used in operating activities totaled $7.8 million. The $3.3 million cash used in operating activities in the three months ending June 30, 2001 represented an improvement of $1.3 million from the $4.5 million used in the three months ending March 31, 2001. The net cash used in operating activities includes the effect of charterhire due an affiliate that was deferred or forgiven, in the second and first quarters as well as non-recurring dry-docking expenses. Excluding those amounts, adjusted net cash used in operating activities was $2.9 million for the six months ending June 30, 2001. The $1.0 million net cash used operating activities in the second quarter was approximately one half the $1.9 million net cash used in operating activities in the first quarter of 2001.

The Company anticipates acceleration in the improving trend of both core operating results and net cash from operating activities for the upcoming third quarter, in part due to cost reductions already now being realized from recent contractual and operational changes. The combined cost reduction from contractual changes already secured by the Company is equivalent to more than $550,000 per quarter. In addition, based upon the loaded mile tractor utilization achieved in July 2001 the company estimates additional cost savings of approximately $150,000 in the third quarter of 2001. Factoring in other positive revenue and costs trends, the Company anticipates further improvements in cash used in operating activities for the third quarter of 2001.

The Company's operating losses in the first and second quarters include the non-cash effects of depreciation, non-recurring expense of dry-docking and loss on equipment sale and charterhire due an affiliate that has been forgiven as well as deferred in the first and second quarters, respectively. Excluding those items, adjusted net cash used in operating activities was $1.2 million for the six months ending June 30, 2001. To fund operations, dry-docking expenditures and interest and principal payments under its debt obligations, the Company borrowed an additional $1.7 million under its revolving line of credit and received additional advances from an affiliate. During the six months ending June 30, 2001, the Company had net cash provided by financing activities of $7.1 million. Since June 30, 2001, the Company has not required additional advances from such affiliate. The Company's projected cash flows from operations and financing transactions, including those with affiliates, indicate that there is sufficient available liquidity to maintain its current level of operations through June 30, 2002.

The Company has also identified additional potential sources of liquidity. The Company owns unencumbered tractor and trailer equipment with a carrying value of $5.7 million. The Company is in discussions to utilize such equipment in an asset based financing transaction. In addition, the Company has retained a real estate firm to market a sale/leaseback of its Jacksonville office building/truck terminal. That property has an estimated value of approximately $4.5 million and an outstanding mortgage of less than $900,000, therefore any sale/leaseback transaction is anticipated to be a meaningful source of additional liquidity. Furthermore, affiliates of the Company have the ability to loan at least an additional $3 million under certain terms.

Under its present revolving credit agreement, the borrowing base formula allowed for additional borrowings of $2.7 million at June 30, 2001, however such amount was subject to a $2.0 million reserve available only when a certain financial ratio is achieved. The Company has received a waiver from its revolving credit lender for non-compliance with certain financial covenants at June 30, 2001 and the covenants have been amended to levels that the Company expects to be able to meet. The Company will seek to obtain additional borrowing capacity under its revolving credit agreement, including additional instances where it can have access to the $2.0 million reserve. Additionally, the Company believes it can arrange other transactions with affiliates, if needed, to provide liquidity. The Company anticipates minimal capital expenditures through June 30, 2002.

Management believes that the Company will meet all of its working capital requirements, anticipated capital expenditures, debt service requirements and other obligations at least through June 20, 2002. However due to uncertainties regarding future economic conditions, increased competition, and fuel prices, no assurances can be made regarding the eventual outcome of the Company's plans.

FORWARD-LOOKING STATEMENTS

This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The matters discussed in this report include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to the future operating performance of the Company. Investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. Without limitation, these risks and uncertainties include the risks of weather, economic recessions, increases in fuel prices, changes in demand for transportation services offered by the Company, and changes in rate levels for transportation services offered by the Company.

©1998 Trailer Bridge, Inc.