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

RESULTS OF OPERATIONS:

Three Months Ended June 30, 1998 and 1997 -

The Company had total revenue of $18,408,322 for the three months ended June 30, 1998, an increase of $2,237,635 or 13.8% compared to the three months ended June 30, 1997. Core trailer volume to Puerto Rico increased 29.2% compared to the year earlier period and total car and other vehicle volume was up 21.6% compared to the year earlier period. As a result, core trailer revenue to Puerto Rico increased $1,559,341 or 19.5% compared to the year earlier period and car and other vehicle revenue increased $692,766 or 20.8% compared to the year earlier period. Revenue from shipper owned or leased equipment moving to Puerto Rico increased $183,380 or 17.0% primarily due to an increase in flatbed volume. While trailer volume from Puerto Rico increased 22.1%, related revenue increased only $170,120 or 7.8% compared to the year earlier period due to continued rate pressure on the limited volumes moving inbound from Puerto Rico. Non-Puerto Rico revenue of $1,080,454 represented a decrease of 24.2% from the year earlier period as available tractor capacity was utilized more in Puerto Rico traffic lanes.

For the three month period ending June 30, 1998 operating income was $410,872, a decrease of $1,384,368 or 77.1% from the $1,795,240 operating income before a non-recurring charge in the year earlier period. Operating income was lower primarily because, while total revenue was up 13.8%, the Company incurred additional costs related to the operation of 54% more vessel capacity during most of the period. In addition, the continuing competitive pressures on overall freight rates mitigated the favorable effect that would have otherwise resulted from the 32.2% and 22.1% increases in total trailer volume to and from Puerto Rico. As a result, The Company's operating ratio was 97.8% during the second quarter of 1998 compared to the 88.9% operating ratio during the year earlier period, exclusive of the non-recurring charge. Net interest expense of $203,100 was down $56,465 or 21.8% compared to the year earlier period as a result of an increase in earnings from temporary investments and the capitalization of interest related to the construction of five new vessels. During the period, the Company also had a gain of $100,455 related to the sale of older trailer equipment.

Income before income taxes for the three months ended June 30, 1998 was $308,227, a decrease of $1,229,124 or 80.0% from the year earlier period, exclusive of the non-recurring charge. After income taxes, net income for the three months ended June 30, 1998 was $149,098, or 84.0% below pro forma net income of $933,785, for the year earlier period, exclusive of the non-recurring charge, during which Trailer Bridge operated as an S Corporation. Net income per share was $.02 for the second quarter compared to $.14 for the year earlier period, exclusive of the non-recurring charge.

For the three month period ending June 30, 1998 total volume to and from Puerto Rico including cars and other vehicles grew 27.1% compared to the year earlier period, roughly one-half the 54% increase in vessel capacity growth. Total Puerto Rico revenue only increased 17.8% over the year earlier period, implying a 7.5% reduction in the overall average yield on the Company's Puerto Rico business compared to the same period last year due to heightened rate activity in all segments.

Six Months Ended June 30, 1998 and 1997 -

Operating revenue increased $2.1 million or 6.6%, from $32.6 million for the six months ended June 30, 1997 to $34.8 million for the six months ended June 30, 1998. The increase was primarily due to increased trailer and new vehicle volume to Puerto Rico partially offset by lower rates.

Salaries, wages and benefits increased $859,857 or 12.3%, from $6.9 million for the six months ended June 30, 1997, excluding a non-recurring compensation charge, to $7.8 million for the six months ended June 30, 1998. The increase was primarily due to an overall increase in healthcare expenses, increased administrative headcount and more company truck drivers.

Rent and purchased transportation increased $2.7 million or 32.0%, from $8.5 million for the six months ended June 30, 1997 to $11.2 million for the six months ended June 30, 1998. The increase was primarily due to the increased tug charter hire required for the two additional vessels and to a lesser extent the increase in the number of partner carrier trucks employed to service the additional inland transportation requirements.

Fuel expense decreased $212,465 or 7.2%, from $2.9 million for the six months ended June 30, 1997 to $2.7 million for the six months ended June 30, 1998. The decrease was directly related to lower fuel prices. Overall fuel consumption increased due to the additional tugs.

Operating and maintenance expenses increased $1.0 million or 15.6%, from $6.2 million for the six months ended June 30, 1997 to $7.2 million for the six months ended June 30, 1998. The increase was primarily a result of the increased volume, mostly marine terminal related expense resulting from the increase to twice weekly Puerto Rico service.

Taxes and licenses increased $16,155 or 7.0%, from $231,927 for the six months ended June 30, 1997 to $248,082 for the six months ended June 30, 1998. The increase relates to property taxes incurred during 1998 at the new facility completed in the third quarter of 1997.

Insurance and claims expense decreased $25,339 or 2.7%, from $934,579 for the six months ended June 30, 1997 to $909,240 for the six months ended June 30, 1998. The decrease primarily relates to lower claim volume on used vehicles.

Communications and utilities expense increased $84,019 or 31.1%, from $270,447 for the six months ended June 30, 1997 to $354,466 for the six months ended June 30, 1998. The increase relates to increased voice communication volume associated with increased headcount in addition to increased utilities associated with operating the new facility.

Depreciation and amortization expense increased $276,842 or 20.5%, from $1.3 million for the six months ended June 30, 1997 to $1.6 million for the six months ended June 30, 1998. The increase relates to the two new vessels and related revenue equipment, primarily containers and chassis.

Other operating expenses increased $299,003 or 17.9%, from $1.7 million for the six months ended June 30, 1997 to $2.0 million for the six months ended June 30, 1998. The increase relates to increased sales expenses and professional fees. The increase in professional fees is primarily related to Year 2000 compliance.

Interest expense net of interest income decreased $134,284 or 25.7%, from $522,981 for the six months ended June 30, 1997 to $388,697 for the six months ended June 30, 1998. The decrease was a result of an increase in earnings from temporary investments and the capitalization of interest related to the construction of five new vessels.

Trailer Bridge also had a gain of $128,965 related to the sale of older trailer equipment for the six months ended June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial condition remained strong. At June 30, 1998, available cash amounted to $4.2 million, working capital was $4.7 million and stockholders equity was equal to $34.1 million.

Net cash provided by operating activities was $345,818 for the first six months of 1998, compared with $5.1 million in 1997.

Net cash used in investing activities was $10.4 million in 1998 and $13.4 million in 1997. The investment spending was primarily for the two new vessels and the related revenue equipment, primarily 53' containers and chassis.

The vessels were funded primarily from Title XI financing and the revenue equipment was funded primarily from the remaining proceeds of the Company's IPO in 1997. On July 21, 1998, BankBoston approved a $25 million revolving credit/term loan facility that can be utilized for general corporate purposes.

Management believes that cash flow from operations combined with the Company's borrowing capacity under it's revolving credit/term loan facility will be adequate to meet the Company's debt service requirements, fund continued growth, and meet working capital needs.

YEAR 2000

The Company developed a plan during 1997 to deal with the Year 2000 problem. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's plan provides for the conversion efforts to be completed by the end of 1998. The total cost of the project is currently estimated to be $200,000 and is being funded through operating cash flows. The Company is expensing all costs associated with these systems changes as the costs are incurred. As of June 30, 1998, approximately $45,000 had been expensed since the project was initiated.

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.