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

RESULTS OF OPERATIONS:

Three Months Ended September 30, 2003 and 2002

Operating revenues for the three months ended September 30, 2003 were $21.6 million, an increase of $3.1 million or 17.0%, compared to the third quarter of 2002. The Company's fuel surcharge is included in the Company's revenues and amounted to $1.1 million for the three months ended September 30, 2003 compared to $678,032 in the year earlier period. The Company's Puerto Rico deployed vessel capacity utilization overall during the three months ended September 30, 2003 was 93.3% to Puerto Rico and 25.3% from Puerto Rico significantly better than the 79.3% to Puerto Rico and 22.6%, respectively, during the third quarter of 2002. The Company had an average of 215 tractor units operating on the mainland during the three months ended September 30, 2003, generating an average of 9,045 miles per month of which 74.4% were loaded.

Operating expenses increased $1.8 million for the three months ended September 30, 2002 from $20.0 million for the same period in 2002 to $21.8 million. The increased operating expenses were primarily the result of volume-related increases and higher fuel prices. Salaries, wages and benefits expense increased $51,880 primarily due to higher worker's compensation expense. Rent and purchased transportation increased $974,707 primarily as a result of increased purchased miles and rate increases for such miles. Fuel expense increased $331,153 or 18.0% primarily due to an increase in the average price of fuel for the tugs that pull the Company's barges from $0.73 per gallon to $0.82 per gallon and in the average price of diesel fuel for trucks from $1.26 per gallon to $1.35 per gallon from the year earlier period. Operating and maintenance expense increased $381,664 or 9.1% due to increased volume and increased equipment maintenance expense, partially offset by increased demurrage collection. Taxes and license expense increased due to higher property taxes. Insurance and claims expense increased $37,151 due to higher hull and machinery insurance offset by lower insurance claims volume. Other operating expenses decreased $75,896 primarily due to lower professional fees. The total costs associated with the three laid-off triple-stack box carrier vessels during the three months ended September 30, 2003, net of charter hire associated with such vessels were $337,484 compared to $349,869 for the same period last year.

The operating loss for the three months ended September 30, 2003 was $152,404 as compared to an operating loss of $1.5 million in the prior year period. Compared to the third quarter of 2002, operating results improved by $1.3 million, due to increased volume. As a result of the above, the operating ratio was 100.7% during the three months ended September 30, 2003, compared to the 108.1% operating ratio during the year earlier period. Net interest expense of $710,815 was down $56,075 from the year earlier period primarily due to lower loan balances.

The Company's loss before income taxes for the third quarter ended September 30, 2003 was $863,219 compared to a pre-tax loss of $2.3 million in the year earlier period. The net loss attributable to common shares for the three months ended September 30, 2003 after accretion of preferred stock discount was equivalent to $.11 per share as compared to $.25 per share for the year earlier period.

For the three months ended September 30, 2003 compared to the same period a year earlier, total southbound volume over Jacksonville increased 17.6%. The Company's core southbound trailer volume from Jacksonville to Puerto Rico increased 21.2%, new car volume decreased 16.7% while used cars moving to Puerto Rico increased 28.0%. Shipper owned or leased equipment ("SOL") increased 18.3% while freight not in trailers ("NIT") decreased 4.2%. For the three months ended September 30, 2003 compared to the same period a year earlier, the Company experienced significant revenue increases in all categories other than its domestic shipments which were $612,050, representing a 35.7% decrease from $951,490 in the prior period.

Northbound, total volume increased 15.4% for the three months ended September 30, 2003 compared to the same period a year earlier. The Company's northbound trailer volume from Puerto Rico increased 10.4%.

The effective yield of all the southbound freight decreased 0.5% while the effective yield of all northbound freight increased 7.6% from the year earlier period.

Nine Months Ended September 30, 2003 and 2002 -

The Company's total volume of freight moving to and from Puerto Rico increased 18.6% compared to the year earlier period. Operating revenues for the nine months ended September 30, 2003 were $62.3 million, an increase of $8.2 million, or 15.2%, compared to $54.1 million for the year earlier period. The Company's fuel surcharge is included in the Company's revenues and amounted to $2.9 million for the nine months ended September 30, 2003 compared to $1.9 million in the year earlier period.

The Company's Puerto Rico deployed vessel capacity utilization overall during the nine months ended September 30, 2003 was 92.9% to Puerto Rico and 24.8% from Puerto Rico compared to 77.0% and 20.8%, respectively, during the year earlier period. The Company had an average of 201 tractor units operating on the mainland during the nine months ended September 30, 2003, generating an average of 9,240 miles per month of which 74.7% were loaded.

For the nine months ended September 30, 2003 compared to the same period a year earlier, total southbound volume over Jacksonville increased 18.2%. The Company's core southbound trailer volume from Jacksonville to Puerto Rico increased 21.7%, new vehicle volume decreased 9.6% while used vehicles moving to Puerto Rico increased 14.8%. Shipper owned or leased equipment ("SOL") and freight not in trailers ("NIT") increased 36.9% and 7.5%, respectively.

Northbound, total volume increased 20.3% for the nine months ended September 30, 2003 compared to the same period a year earlier. The Company's northbound trailer volume from Puerto Rico increased 16.9%.

Due to increased volume operating expenses increased $7.7 million, or 13.6%, for the nine months ended September 30, 2003 from $56.5 million for the same period in 2002 to $64.2 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 $473,234 or 4.2% primarily due to higher worker's compensation expense. Purchased transportation, other than related party increased $3.4 million or 23.0% primarily as a result of increased purchased miles, rate increases for such miles, and increased equipment lease expense. Fuel expense increased $1.3 million or 25.1% 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 $0.64 per gallon to $0.86 per gallon and in the average price of diesel fuel for trucks from $1.19 per gallon from the year earlier period to $1.42 per gallon. Operating and maintenance expense increased $2.2 million or 18.6% primarily due to expenses associated with increased volume and increased equipment maintenance expense; repairs related to the barge and San Juan ramp, partially offset by increased demurrage revenue due to increased volume and bettered demurrage collection. Taxes and license expense increased $137,597 or 34.7% due to increased sales taxes and a non-recurring benefit recognized in 2002. Communications and utilities expense decreased $85,246 primarily due to entering into a contract with a new telephone company. Other operating expense increased $154,953 or 7.1% from the year earlier period primarily as a result of the effect of a non-recurring benefit on other operating expenses in 2002. The operating loss for the nine months ended September 30, 2003 was $1.9 million compared to an operating loss of $2.4 million in the prior year period. Compared to the nine months ended September 30, 2002, operating loss decreased by $514,513 due to increased volume and vessel utilization partially offset by increases in rent and purchased transportation expense, fuel expense, mostly in the first quarter of 2003 and operating and maintenance expense. As a result of he above, the operating ratio was 103.0% during the nine months ended September 30, 2003, compared to the 104.5% operating ratio during the year earlier period. Net interest expense of $2.2 million was down from $2.3 million in the year earlier period due primarily to lower loan balances. The total costs associated with the three laid-off vessels during the nine months ended September 30, 2003, exclusive of charter revenue associated with such vessels, were $1.2 million. The Company's loss before income taxes for the nine months ended September 30, 2003 was $4.0 million compared to a pre-tax loss of $4.7 million in the year earlier period. The net loss applicable to common shares for the nine months ended September 30, 2003 after accretion of preferred stock discount was equivalent to $.50 per share unchanged as compared to $.50 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 satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company incurred a net loss in the three and nine months ended September 30, 2003 of $863,219 and $4.0 million, respectively.

Net cash used by operations was $547,939 during the nine months ended September 30, 2003 compared to net cash used by operations of $464,566 during the same period in 2002.

At September 30, 2003, cash amounted to $406,734, working capital was a negative $15.0 million due to the presentation of the Company's term loan and revolving credit facility totaling $13.9 million as short term due to its expiration at January 31, 2004. Stockholders' equity was $6.0 million.

As of September 30, 2003, the Company had $6.1 million drawn under the credit facility against a borrowing base of $6.2 million that is secured by net receivables of $11.3 million.

During the nine-month period ending September 30, 2003 cash provided by investing activities was $97,598 compared to $711,871 provided by investing activities in the year earlier period, primarily from proceeds on the sales of revenue equipment. During the nine-month period ending September 30, 2003 the Company used $1.3 million in financing activities primarily through repayments to its primary lender compared to $623,923 provided by financing activities in the year prior period.

As of September 30, 2003, current liabilities exceeded current assets by $15.0 million based on the inclusion of $13.9 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 October 2003 the overall principal balance on the facility was reduced to $13.4 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 present outstanding balance.

As of September 30, 2003, the Company was not in compliance with certain financial covenants contained in its present term loan and revolving credit facility that expires on January 31, 2004. Subsequent to September 30, 2003, the Company received a waiver of covenant defaults for the period ended September 30, 2003. The term loan and revolving credit facility is included in current liabilities since it is due January 31, 2004.

The Company does not anticipate entering into a re-financing with its present lender. The Company does believe, based upon its projected 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.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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, continued funding of its revolving line of credit and ultimately to attain successful operations. The Company's business plan is to continue its efforts to attract increased volume, to obtain rate increases as contracts are renewed due to the reduction in excess capacity in its sector and manage operating costs in order to attain profitable operations. The Company believes its projected cash flows from operations and continued funding of its revolving credit line will be sufficient for it to meet its ongoing operational needs and debt service obligations until January 31, 2004. No assurance can be made that the Company will be successful in accomplishing its business plans. There is no assurance that financial assistance from its affiliates similar to that received in the past will be made available. 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.

Subsequent to September 30, 2003 the Company has paid the principal and interest payments totaling $848,462 due September 30, 2003 on its $16.9 million Title XI bond offering and $545,740 due September 30, 2003 on its $10.5 million Title XI bond offering. These are the first principal payments made on either Title XI bond offering since March 2001.

As of September 30, 2003, the Company is not in compliance with financial covenants contained in the Title XI debt agreements and as a result is prohibited from certain financial activities that would impact the financial position of the Company including withdrawing capital, redeeming common stock, paying dividends, making loans to and investing in securities of any affiliate. The Company is in compliance with these financial restrictions and as a result, the debt continues to be classified as long term.

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

Subsequent to September 30, 2003, the due date on the note to an affiliate, Transportation Receivables 1992, LLC, was extended to October 1, 2004. The debt continues to be classified as long-term.

KNOWN TRENDS DURING FOURTH QUARTER of 2003

Most recently, for the six-week period ending November 7, 2003 average actual weekly revenue is 21.5% above the overall average weekly revenues for the fourth quarter of 2002. Since October 1, 2003 the Company has implemented rate increases and accessorial charges on a significant percentage of its carryings. 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 Fourth 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 being unable to refinance the Company's debt on favorable terms, 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 inability to sustain the recent increases in rate levels for transportation services offered by the Company.

©1998 Trailer Bridge, Inc.