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

RESULTS OF OPERATIONS:

Three Months Ended June 30, 2003 and 2002

Operating revenues for the three months ended June 30, 2003 were $21.7 million, an increase of $3.6 million or 19.8%, compared to the second quarter of 2002. The Company's fuel surcharge is included in the Company's revenues and amounted to $1.0 million for the three months ended June 30, 2003 compared to $603,911 in the year earlier period. The Company's Puerto Rico deployed vessel capacity utilization overall during the three months ended June 30, 2002 was 94.9% to Puerto Rico and 26.5% from Puerto Rico significantly better than the 75.5% to Puerto Rico and 21.3%, respectively, during the second quarter of 2002. The Company had an average of 202 tractor units operating on the mainland during the three months ended June 30, 2003, generating an average of 9,422 miles per month of which 76.5% were loaded.

Operating expenses increased $3.2 million for the three months ended June 30, 2002 from $18.4 million for the same period in 2002 to $21.6 million. The increased operating expenses were primarily the result of volume-related increases and higher fuel prices. Salaries, wages and benefits expense increased $223,703 primarily due to higher worker's compensation expense. Rent and purchased transportation increased $1.5 million primarily as a result of increased purchased miles, rate increases for such miles and increased equipment expense. Fuel expense increased $256,419 primarily due to an increase in the average price of fuel for the tugs that pull the Company's barges from $0.65 per gallon to $0.79 per gallon and in the average price of diesel fuel for trucks from $1.21 per gallon from the year earlier period to $1.38 per gallon. Operating and maintenance expense increased $1.5 million due to increased volume and increased equipment maintenance expense. Taxes and license expense increased due to higher property taxes and a non-recurring benefit recognized in 2002. Insurance and claims expense decreased $215,682 or 25.7% to $622,942 due to lower hull, machinery and cargo insurance combined with lower insurance claims volume. Communications and utilities expense decreased $39,312 primarily as a result of use of a new telephone carrier. Depreciation and amortization expense increased slightly by $24,118, due to the amortization of deferred financing cost, partially offset by reductions in equipment fleet. Other operating expenses decreased $274,278 primarily as a result of higher cost in the year earlier period as a result of the effect of the Newark shutdown. The total costs associated with the three laid-off triple-stack box carrier vessels during the three months ended June 30, 2003 ere $535,624.

The operating income for the three months ended June 30, 2003 was $78,504 as compared to an operating loss of $328,082 in the prior year period. Compared to the second quarter of 2002, operating results improved by $406,586, due to increased volume. As a result of the above, the operating ratio was 99.6% during the three months ended June 30, 2003, compared to the 101.8% operating ratio during the year earlier period. Net interest expense of $743,846 was down minimally from the year earlier period due primarily to lower interest rates.

The Company's loss before income taxes for the second quarter ended June 30, 2003 was $665,342 compared to a pre-tax loss of $1.1 million in the year earlier period. The net loss attributable to common shares for the three months ended June 30, 2003 after accretion of preferred stock discount was equivalent to $.09 per share as compared to $.12 per share for the year earlier period.

For the three months ended June 30, 2003 compared to the same period a year earlier, total southbound volume over Jacksonville increased 25.8%. The Company's core southbound trailer volume from Jacksonville to Puerto Rico increased 29.1%, new car volume decreased 1.2% while used cars moving to Puerto Rico increased.12.7%. Shipper owned or leased equipment ("SOL") and freight not in trailers ("NIT") increased 73.0% and .9%, respectively.

Northbound, total volume increased 22.1% for the three months ended June 30, 2003 compared to the same period a year earlier. The Company's northbound trailer volume from Puerto Rico increased 24.4%.

The effective yield of all the southbound and northbound freight decreased 2.4% and 8.2%, respectively from the year earlier period.

Six Months Ended June 30, 2003 and 2002 -

The Company's total volume of freight moving to and from Puerto Rico increased 19.5% compared to the year earlier period. Operating revenues for the six months ended June 30, 2003 were $40.7 million, an increase of $5.1 million, or 14.3%, compared to the year earlier period. The Company's fuel surcharge is included in the Company's revenues and amounted to $1.8 million for the six months ended June 30, 2003 compared to $1.2 million in the year earlier period.

The Company's Puerto Rico deployed vessel capacity utilization overall during the six months ended June 30, 2003 was 92.7% to Puerto Rico and 24.5% from Puerto Rico compared to 75.9% and 19.9%, respectively, during the year earlier period. The Company had an average of 193 tractor units operating on the mainland during the six months ended June 30, 2003, generating an average of 9,355 miles per month of which 74.9% were loaded.

For the six months ended June 30, 2003 compared to the same period a year earlier, total southbound volume over Jacksonville increased 18.5%. The Company's core southbound trailer volume from Jacksonville to Puerto Rico increased 21.9%, new vehicle volume decreased 7.6% while used vehicles moving to Puerto Rico increased 7.5%. Shipper owned or leased equipment ("SOL") and freight not in trailers ("NIT") increased 51.1% and 13.4%, respectively.

Northbound, total volume increased 23.2% for the six months ended June 30, 2003 compared to the same period a year earlier. The Company's northbound trailer volume from Puerto Rico increased 21.1%.

Due to increased volume operating expenses increased $5.8 million, or 16.2%, for the six months ended June 30, 2003 from $36.5 million for the same period in 2002 to $42.4 million. The increased operating expenses were primarily the result of a higher fuel prices in addition to volume related increases. Salary, wages and benefits increased $421,354 or 5.6% primarily due to higher worker's compensation expense. Purchased transportation, other than related party increased $2.4 million or 26.3% primarily as a result of increased purchased miles, rate increases for such miles, increased equipment expense and less charter hire revenue. Fuel expense increased $1.0 million or 28.9% from the year earlier period primarily due to an increase in the average price of fuel for the tugs that pull the Company's barges from $0.59 per gallon to $0.88 per gallon and in the average price of diesel fuel for trucks from $1.15 per gallon from the year earlier period to $1.47 per gallon. Operating and maintenance expense increased $1.8 million or 23.8% primarily due to expenses associated with increased volume and increased equipment maintenance expense. Taxes and license expense increased due to higher property taxes and a non-recurring benefit recognized in 2002. Depreciation and amortization expense decreased $41,199 or 2.4% primarily due to the full depreciation of the Company's tractor fleet during 2002 partially offset by increased amortization of deferred financing cost. Other operating expense increased $230,848 or 18.0% from the year earlier period primarily as a result of the effect of the Newark shutdown on other operating expenses in 2002. The operating loss for the six months ended June 30, 2003 was $1.7 million compared to an operating loss of $911,510 in the prior year period. Compared to the six months ended June 30, 2002, operating loss increased by $828,663 million despite increased volume and vessel utilization due to increases in rent and purchased transportation expense, fuel expense and operating and maintenance expense. As a result of the above, the operating ratio was 104.3% during the six months ended June 30, 2003, compared to the 102.6% operating ratio during the year earlier period. Net interest expense of $1.4 million was down from $1.5 million in the year earlier period due primarily to lower interest rates. The total costs associated with the three laid-off vessels during the six months ended June 30, 2003 were $1.1 million. The Company's loss before income taxes for the six months ended June 30, 2003 was $3.2 million compared to a pre-tax loss of $2.4 million in the year earlier period. The net loss applicable to common shares for the six months ended June 30, 2003 after accretion of preferred stock discount was equivalent to $.39 per share as compared to $.25 per share for the year earlier period.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. As shown in the financial statements, the Company incurred a net loss in the three and six months ended June 30, 2003 of $665,342 and $3,181,229, respectively.

Net cash used by operations was $30,920 during the six months ended June 30, 2003 compared to net cash used by operations of $4.0 million during the same period in 2002.

At June 30, 2003, cash amounted to $1.5 million, working capital was a negative $14.6 million due to the presentation of the Company's term loan and revolving credit facility totaling $14.5 million as short term due to its expiration at January 31, 2004, and stockholders' equity was $6.6 million.

As of June 30, 2003, the Company had $6.3 million drawn under the credit facility against a borrowing base of $6.6 million that is secured by net receivables of $10.8 million. The Company received an amendment to certain financial covenants under the credit facility during the three months ended June 30, 2003.

During the three-month period ended June 30, 2003 the Company commenced payment of full charterhire to an affiliate, Kadampanattu Corp. of $1.8 million per quarter.

During the six-month period ending June 30, 2003 the Company cash provided by investing activities was $55,274 compared to $168,457 provided by investing activities in the year earlier period, primarily from proceeds on the sales of revenue equipment.

During the six-month period ending June 30, 2003 the Company used $698,606 in financing activities primarily through repayments to its primary lender compared to $5.5 million provided by financing activities in the year prior period.

As of June 30, 2003, current liabilities exceeded current assets by $14.6 million based on the inclusion of $14.5 million related to the Company's present term loan and revolving credit facility that expires on January 31, 2004. Following a further scheduled principal payment in the term loan at the beginning of July 2003 the overall principal balance on the facility was reduced to $14.0 million. Both equipment assets and accounts receivable secure the facility. The Company believes that the collateral securing the present facility has a value in excess of the rpesent outstanding balance. Therefore, the Company believes that the collateral securing the present facility has a value of almost twice the present outstanding balance.

The Company does not anticipate entering into a re-financing with its present lender. The Company does believe, based upon the level and trend of its cash flow and the collateral it has to offer, it will be successful in refinancing with other lenders. However, there is no assurance that it will be able to refinance. Furthermore, even if it is able to refinance, such refinancing may be on terms less favorable to the Company than the terms under its present facility. These factors among others indicate that the Company may be unable to continue as a going concern for a sufficient period of time to realize the value of its assets.

If the Company is not able to refinance the credit facility secured by equipment and accounts receivable by January 31, 2004, its present lender could exercise certain remedies, including repossession of assets and distress sales of the Company's collateral, which could have a material adverse effect on the Company. There can be no assurance that the present lender would forebear from taking such actions if the Company is unsuccessful in refinancing the credit facility. Therefore, there is no assurance as to the Company's ability to continue as a going concern.

The Company believes the projected cash flows from operations and continued funding of its revolving credit line through a refinancing will be sufficient for it to meet its ongoing operational needs and debt service obligations through at least June 30, 2004.

KNOWN TRENDS DURING THIRD QUARTER of 2003

Most recently, for the six-week period ending August 9, 2003, a period representing almost half of the third quarter, average actual weekly revenue is 23% above the overall average weekly revenues for the third quarter of 2002. Based upon increased volume from specific existing accounts, increased customer commitments and actual growing booking trends, the Company believes that these actual volume and revenue trends are sustainable and therefore more indicative of what to expect going forward than any recent actual historical period. Despite the improved volume and vessel capacity utilization experienced by the Company since early March 2003, no assurance can be made that such improved volume and vessel capacity utilization will continue or that competitive pressures will not increase.

FORWARD-LOOKING STATEMENTS

This report, particularly the preceding discussion of "Liquidity and Capital Resources" and "Known Trends During Third Quarter of 2003" 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 risk of economic recessions, severe weather conditions, changes in the price of fuel, changes in costs incurred by the Company to provide such services, changes in services offered by the Company's competitors, addition of new competitors, risks of transportation generally and changes in rate levels for transportation services offered by the Company.

©1998 Trailer Bridge, Inc.