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

RESULTS OF OPERATIONS:

Three Months Ended September 30, 2001 and 2000

Total revenue for the three months ended September 30, 2001 was $20.1 million a decrease of $3.1 million or 13.4%, compared to total revenue of $23.2 million reported for the three months ended September 30, 2000. The decreased revenue was due to decreased shipping volume in all sectors and decreased yield. The Company also reported significant decreases in operating income for the three months ended September 30, 2001, resulting in a net loss of $5.6 million or $.57 per share, as compared to net loss of $210,257, or $.02 per share, for the three months ended September 30, 2000. Net loss for the three months ended September 30, 2001 included a tax benefit of $22,129 compared to a tax benefit of $230,343 during the same period in the preceding year. Net loss for the three months ended September 30, 2001 included a gain of $38,157 from the sale of excess 48' equipment compared to a gain on sale of equipment of $39,380 for the three months ended September 30, 2000.

Operating loss for the three months ended September 30, 2001 was $4.9 million a deterioration of $5.2 million from operating income of $340,337 for the three months ended September 30, 2000. The operating loss was a result of decreased volume across all sectors, lower yields, and increased purchased transportation expense. The operating loss resulted in an operating ratio of 124.2% for the three months ended September 30, 2001 compared to the 98.5% operating ratio for the three months ended September 30, 2000.

Total southbound Puerto Rico volume for the three months ended September 30, 2001 decreased 10.2% and total northbound volume decreased 23.0% compared to the three months ended September 30, 2000. Core southbound trailer volume decreased 4.8%, as compared to the same period last year, and all other segments showed volume decreases, with used car volume down sharply at 31.2%. Comparing total volume and total revenue by direction, Trailer Bridge's effective yield to and from Puerto Rico decreased 5.3% and increased 4.3%, respectively, compared to the three months ended September 30, 2000. The Company's Puerto Rico deployed vessel capacity utilization overall during the three months ended September 30, 2001, was 69.5% to Puerto Rico and 19.1% from Puerto Rico. These were below capacity utilization figures of 81.2% to Puerto Rico and 26.1% from Puerto Rico during the three months ended September 30, 2000, when Trailer Bridge had 8.2% 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 $167,771 during the three months ended September 30, 2001.

For the three months ended September 30, 2001, salaries wages and benefits increased $306,447 compared to the same period last year primarily as a result of higher healthcare expenses and workers' compensation cost. Rent and purchased transportation increased $287,924 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 September 30, 2001, fuel expense decreased $26,634 compared to the same period last year primarily as a result of decreased fuel rates. Operating and maintenance expenses increased $1.3 million primarily due to the increase in the Newark service from bi-weekly to weekly frequency, compared to the same period in the preceding year.

Nine Months Ended September 30, 2001 and 2000 -

Total revenue for the nine months ended September 30, 2001 was $62.3 million, a decrease of $5.9 million or 8.6%, compared to total revenue of $68.2 million reported for the nine months ended September 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 operating income for the nine months ended September 30, 2001, resulting in a net loss of $16.2 million or $1.65 per share, as compared to a net loss of $733,460, or $.07 per share, for the nine months ended September 30, 2000. Net loss for the nine months ended September 30, 2001 included a loss of $148,379 from the sale of excess 48' equipment compared to a gain on sale of equipment of $434,392 for the nine months ended September 30, 2000. Net loss for the nine months ended September 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 nine months ended September 30, 2001 was $13.5 million compared to operating income of $740,020 for the nine months ended September 30, 2000. The results for the nine months ended September 30, 2001 are not affected by a forgiveness of charterhire due to an affiliate of $1.8 million 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 nine months ended September 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 $1.3 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 121.7% for the nine months ended September 30, 2001 compared to the 98.9% operating ratio for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2001 decreased 4.2% and total northbound volume decreased 19.9% compared to the nine months ended September 30, 2000. While core southbound trailer volume increased 1.8%, as compared to the same period last year, all other segments showed volume decreases, with new car volume down sharply at 22.7%. Comparing total volume and total revenue by direction, Trailer Bridge's effective yield to and from Puerto Rico decreased 5.0% and 0.5%, respectively, compared to the nine months ended September 30, 2000. The Company's Puerto Rico deployed vessel capacity utilization overall during the nine months ended September 30, 2001, was 68.5% to Puerto Rico and 20.2% from Puerto Rico. These were below capacity utilization figures of 78.7% to Puerto Rico and 27.4% from Puerto Rico during the nine months ended September 30, 2000, when Trailer Bridge had 9.5% 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 $541,164 during the nine months ended September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, the Company had cash of $1.3 million and due to the reclassification of $16.4 million of long-term debt as current, working capital was a negative $16.1 million. During the nine months ending September 30, 2001, net cash used in operating activities totaled $8.9 million. The net cash used in operating activities includes the effect of charterhire due an affiliate that was deferred or forgiven, in the nine months ended September 30, 2001 as well as non-recurring dry-docking expenses.

The Company did not pay its scheduled principal and interest payments totaling $1,363,370 due September 30, 2001 under either of its Title XI bond offerings. The scheduled principal payments total $548,360 and the interest through September 30, 2001 totals $815,010. The Company is currently in a grace period under the bonds and has reached an agreement in principle with the holder of the bonds and with the Maritime Administration whereby the principal payments due on September 30, 2001 and March 31, 2002 will be rescheduled for payment on September 30, 2002 and March 31, 2003, respectively. The Company expects to document this deferral and make the respective interest payments within the grace period without acceleration of the principal amount. The Company requested no deferment of the interest due on September 30, 2001 and March 31, 2002. The trustee for both of the Company's Title XI bonds has confirmed its receipt of the agreement of the obligees to the principal deferral and has indicated it will take no action to accelerate the bonds without further instruction from the respective obligees.

The aforementioned failure to pay the scheduled principal and interest payments on the Company's Title XI obligations constitutes an event of default under the Company's credit agreement with its senior lender and as a result the senior lender has sent the Company a notice of default. While the senior lender continues to fund draws under the Company's revolving credit line and the Company is in discussions with the senior lender regarding the credit facility, no assurance can be made that the lender will continue to do so. The company depends on its secured revolving credit facility to maintain its liquidity, therefore continued access to the revolving line of credit is critical to the Company's cash flow needs and denial of access to such funds would have a material adverse effect on the Company's ability to operate and its financial condition. As of September 30, 2001 the Company had $7.0 million drawn under the credit facility against a borrowing base of $7.3 million that is secured by net receivables of $14.8 million. Additionally, a default to our senior lender would result in cross-defaults in other loan and/or lease documents that could result in acceleration of such debts or return of leased assets.

The Company deferred charterhire it pays to an affiliate for its two ro/ro barges for the three month period ending September 30, 2001 and has received further deferral of such charterhire through at least the end of 2001.

The Company's projected cash flows from operations will be insufficient to maintain its current level of operations through September 30, 2002. The Company has reached an agreement in principle with an affiliate to provide an additional $3.0 million line of credit secured primarily by additional owned equipment of the Company with a carrying value of $4.1 million. The proceeds of this financing will be utilized to pay the interest due on the Company's Title XI bonds and to provide working capital. The company expects to complete this transaction within thirty days. The Company intends to further supplement its projected cash flows by operational changes and through certain agreements with affiliates and/or non-affiliates, including the sale and/or return of excess equipment, including over the road assets. The Company has also identified additional potential sources of liquidity. The Company continues to pursue a sale/leaseback transaction of its Jacksonville office building/truck terminal. The Company anticipates minimal capital expenditures through September 30, 2002.

Management believes that through the successful deferral of the Title XI principal payments, the completion of the borrowing from an affiliate, the completion of the sale/leaseback transaction described above and with planned operational changes, the Company will meet all of its working capital requirements, anticipated capital expenditures, debt service requirements and other obligations at least through September 30, 2002. However due to uncertainties regarding future economic conditions, increased competition, and fuel prices, and due to the fact that certain operational changes and financing transactions with affiliates and non-affiliates must occur to provide the Company the necessary liquidity, no assurances can be made regarding the eventual outcome of the Company's plans. Failure of the Company to arrange necessary liquidity could have a material adverse affect on the Company's liquidity and financial condition.

©1998 Trailer Bridge, Inc.