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

RESULTS OF OPERATIONS:

Three Months Ended March 31, 2002 and 2001

Operating revenues for the three months ended March 31, 2002 were $17,480,126 a decrease of $3,156,587 or 15.3%, compared to the first quarter of 2001. With the discontinuation of the Northeast service at the beginning of the quarter, the Company had 21.5% less overall vessel capacity deployed in the Puerto Rico lane compared to the first quarter of 2001. The Company's total volume of freight moving to and from Puerto Rico decreased 17.6% compared to the year earlier period.

With the discontinuation of the Northeast service, the Company believes that volume and yield comparisons solely related to freight moving via Jacksonville are most relevant. For the three months ended March 31, 2002, total southbound volume over Jacksonville increased 6.3% compared to the year earlier period and 7.8% sequentially from the fourth quarter of 2001. Northbound, total volume over Jacksonville decreased 31.2% from the year ago period and 11.7% sequentially from the fourth quarter. The effective yield of all of the southbound cargo moving via Jacksonville represented a decrease of 2.7% from the year earlier period but an increase of 1.2% sequentially from the fourth quarter. In the other direction, the effective yield of all northbound cargo moving over Jacksonville increased 12.4% from the year ago period and 4.9% sequentially from the fourth quarter of 2001.

The Company's Puerto Rico deployed vessel capacity utilization overall during the first quarter was 76.3% to Puerto Rico and 18.3% from Puerto Rico compared to 70.7% and 22.0%, respectively, during the first quarter of 2001. The first quarter capacity utilization figures for the three months ended March 31, 2002 represented improvement in both directions sequentially from the fourth quarter of 2001 when deployed vessels were utilized 66.0% southbound and 17.0% northbound. The Company had an average of 178 tractor units operating on the mainland during the three months ended March 31, 2002, generating 9,076 miles per month of which 79.6% were loaded, an improvement in efficiency from the year earlier period (9,202 and 74.7%, respectively) as well as sequentially from the fourth quarter of 2001 (8,743 and 78.2%, respectively).

Operating expenses decreased $7.2 million for the three months ended March 31, 2002 from $25.2 million for the same period in 2001 to $18.0 million. The termination of the Company's Northeast service resulted in significant decreases in operating expenses related to salary, wages and benefits; purchased transportation, primarily due to decreased tug charter hire expense; fuel expense; and operation and maintenance expense.

The operating loss for the three months ended March 31, 2002 was $519,025, as compared to an operating loss of $4,532,174 in the prior year period. Compared to the first quarter of 2001, operating income improved by $4,013,149 due to discontinuing the Northeast service, reductions in headcount and equipment, an array of other cost-cutting initiatives and the absence of the $877,865 dry-docking expense in the year ago quarter. As a result of the above, the operating ratio was 103.0% during the three months ended March 31, 2002 compared to the 122.0% operating ratio during the year earlier period. Net interest expense of $723,147 was down $150,715 from the year earlier period due primarily to lower interest rates. The Company also realized a net loss of $68,362 from non-operating items during three months ended March 31, 2002 compared to a gain of $31,883 in the year earlier period.

The Company's loss before income taxes for the first quarter ended March 31, 2002 was $1,310,534, compared to a pre-tax loss of $5,374,153 in the year earlier period. After a full valuation allowance for income tax credits, the net loss for the first quarter remained at $1,310,534, or $.13 per share, as compared to a net loss of $5,374,153 or $.55 per share, for the year earlier period.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operations was $2.8 million during the three months ended March 31, 2002 compared to net cash used by operations of $4.5 million during the same period in 2001. Net cash provided by investing activities of $50,710 during the three months ended March 31, 2002 reflects $379,226 in proceeds from the sale of equipment, partially offset by $375,006 of additions to and construction of property and equipment, which were primarily attributable to payments for trailers. Net cash provided from financing activities was $2.4 million during the three months ended March 31, 2002 compared to $4.0 million during the three months ended March 31, 2001. Net cash provided from financing activities of $2.4 million consisted of $3.9 million in notes payable to affiliates, consisting of $3.0 million in cash advances and $916,021 in deferred charterhire, and net proceeds from capital lease obligations of $226,556, partially offset by $1.2 million paid on notes payable under the Company's borrowing facility, and payments of $470,572 on notes payable.

At March 31, 2002, cash amounted to $156,807, working capital was a negative $5.0 million, and stockholders' equity was a negative $10.0 million.

Subsequent to March 31, 2002, the Company received a waiver from its senior lender of all existing defaults under financial and other covenants contained in its credit agreement. Additionally, the senior lender set new covenants with which the Company believes it can comply.

As of March 31, 2002, the Company had $4.7 million drawn under the credit facility against a borrowing base of $5.3 million that is secured by net receivables of $7.3 million.

Due to the Company's financial performance during 2001 and the resulting lack of liquidity the Company is beyond its historical payment terms with many of its vendors and lessors.

Subsequent to the end of the three month period ended March 31, 2002 the Company entered into an agreement with an affiliate to provide a $4.0 million of cash to the Company. When the transaction is completed and fully documented $2.0 million will be a loan to the Company bearing an 8.03% fixed interest rate, with no principal payments for two years and quarterly interest payments in arrears. The loan will be secured by the same collateral backing up a similar $3.0 million loan made in January 2002. The additional $2.0 million will purchase newly issued preferred stock with no coupon and no redemption that is convertible into 1,955,000 shares of common stock. Pending the completion of the necessary documentation related to the transaction, the affiliate has loaned $4.0 million to the Company under a demand note bearing the same 8.03% interest rate. Separately, Kadampanattu Corp., also an affiliate of the Company, has agreed to allow Trailer Bridge to defer payment on certain amounts due under the charter of the two roll-on/roll-off vessels, through at least the end of 2002.

The Company believes the $4.0 million cash infusion it obtained subsequent to the three month period ended March 31, 2002 combined with projected cash flows from operations; continued funding of its revolving credit line and maintenance of its vendor relationships will be sufficient for it to meet its ongoing operational needs and debt service obligations through at least the end of 2002. Ultimately, the Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required, and its ability to attain successful operations.

MARKET CONDITIONS.

The market in which the Company operates, the United States to Puerto Rico trade lane, remained hyper-competitive with significant over capacity through the three months ended March 31, 2002. Beginning in 2002, the Company reduced its capacity by ceasing to operate its Northeast Service. Subsequent to March 31, 2002 the Company's competitors significantly reduced their capacity. One of the Company's competitors, NPR, which had operated under Chapter 11 bankruptcy protection since March 2001, ceased all of its operations by selling its vessel and other assets to another competitor. The purchaser has chosen not to operate any of the three sailings per week formerly operated by NPR. Another competitor, CSX Lines, announced it was adding a weekly sailing to its service. This net reduction of two sailings per week in the Puerto Rico trade lane should ease the over capacity in the trade resulting in better vessel utilization and more compensatory freight rates. Despite the reduction in capacity in the trade lane no assurance can be made that market conditions will improve or that competitive pressures will not increase.

NASDAQ LISTING REQUIREMENTS

Due to the Company's financial performance during 2001 and its current per share market price the Company is not in compliance with either of NASDAQ's maintenance standards necessary for continued listing on the NASDAQ National Market. The Company has been notified by NASDAQ that if it cannot demonstrate compliance with either of the maintenance standards by May 15, 2002 its staff will provide written notification that the Company's common stock will be delisted from the NASDAQ National Market. Upon such notification the Company could appeal such determination to the Listing Qualification Panel.

The Company has corrected certain areas of its non-compliance but has been unable to attain full compliance with the applicable maintenance standards. The Company intends to appeal any written notification that the Company's common stock will be delisted from the NASDAQ National Market to the Listing Qualification Panel, while continuing to work with NASDAQ on attaining full compliance.

Alternatively, the Company could apply for listing on the NASDAQ SmallCap Market and if in compliance with its standards, continue trading on that market. No assurance can be given that the Company will be successful in either remaining on the NASDAQ National Market or transferring to the NASDAQ SmallCap Market. Failure to trade on either of those exchanges could result in adverse consequences to the Company and its shareholders, including but not limited to, reduced stock price and trading activity.

FORWARD-LOOKING STATEMENTS

This report may contain statements that may be considered as forward-looking or predictions concerning future operations. Such statements are based on management's belief or interpretation of information currently available. These statements and assumptions involve certain risks and uncertainties and management can give no assurance that such expectations will be realized. Among all the factors and events that are not within the Company's control and could have a material impact on future operating results are general economic conditions, cost and availability of diesel fuel, adverse weather conditions and competitive rate fluctuations.

©1998 Trailer Bridge, Inc.