10-K 1 tbs10k_123110.htm TBS INTERNATIONAL PLC 10-K 12/31/10 tbs10k_123110.htm
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
FORM 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2010
 
or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                                                                 to
 
Commission File Number 001-34599
 
TBS INTERNATIONAL PLC
 (Exact name of registrant as specified in its charter)
Ireland
98-0646151
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
Block A1 Vision Consulting
East Point Business Park Fairview
Dublin 3 Ireland
(Address of principal executive offices)
 
  1 353(0) 1 618 0000
(Registrant's telephone number, including area code)
 
Securities registered pursuant to section 12(b) of the Act:
 
Title of each class
 
Name of each exchange
on which registered
 
Class A ordinary shares, par value $0.01
 
The NASDAQ Global Select Market
 
Securities registered pursuant to section 12(g) of the Act:  None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
   
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
   
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  
o
   
   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer  o    Accelerated filer x    Non-accelerated filer o (Do not check if a smaller reporting company)       Smaller reporting company o
 
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
 
The aggregate market value of voting and non-voting common equity held by non-affiliates was $101.6 million on June 30, 2010, based upon the last reported sales price of such stock on the NASDAQ Global Select Market on that date.
 
As of March 15, 2011, the registrant had outstanding 18,037,011 Class A ordinary shares, par value $0.01 per share, 13,200,305 Class B ordinary shares, par value $0.01 per share, and 30,000 Series B preference shares, par value $0.01 per share.
 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2011 Annual Meeting of Stockholders, to be filed within 120 days of the end of the fiscal year ended December 31, 2010, are incorporated in Part III to the extent described herein.

 
 

 
TBS International plc
2010 FORM 10-K


         
Page
Part I
   
Item 1
 
Business
     
           
   
A.
 
4
   
B. 
 
7
   
C. 
 
7
   
D. 
 
9
   
E. 
 
10
   
F. 
 
11
   
G. 
 
11
   
H. 
 
12
   
I. 
 
12
   
J. 
 
13
   
K. 
 
14
   
L. 
 
15
   
M.
 
16
           
Item 1A
   
16
Item 1B
   
30
Item 2
   
31
Item 3
   
31
Item 4
   
31
           
           
Part II
   
           
Item 5
 
32
Item 6
   
35
Item 7
 
37
Item 7A
   
66
Item 8
   
67
Item 9
 
67
Item 9A   Controls and Procedures   67 
Item 9B 
   
67
           
           
Part III
   
Item 10
   
68
Item 11
   
70
Item 12
 
70
           
Item 13
   
70
Item 14
   
70
           
           
Part IV
   
Item 15
   
71
       

 
2

 
As used in this Annual Report on Form 10-K, the terms "we," "our," "us," "TBS" and "the Company" refer to TBS International plc, as successor to TBS International Limited, and its consolidated subsidiaries.  We use the terms "International," and "TBSI" when we wish to refer only to TBS International plc, the holding company that is the issuer of our ordinary shares and TBS International Limited, the former holding company and issuer of our ordinary shares.

Forward-Looking Statements

Our filings with the Securities and Exchange Commission or the SEC, including this Annual Report on Form 10-K for the fiscal year ended December 31, 2010, our Annual Report to Shareholders, any quarterly report on Form 10-Q or any current report on Form 8-K (along with any exhibits or amendments to such reports), our press releases, and any other written or oral statements made by or on our behalf, may include or incorporate by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect current expectations of our management and are based on our management's beliefs and assumptions, and on information currently available to our management.

Forward-looking statements may include, among other things, information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, the effects of future regulation and competition.  Forward looking statements include all statements that are not statements as to historical facts and generally can be identified as forward looking statements because they use words such as: "anticipates," "believes," "estimates," "expects," "future," "intends," "plans," "targets," "projects," "seeks", "will," "should," "likely" and similar expressions. These statements appear throughout this Annual Report on Form 10-K.
 
Forward looking statements involve risks, uncertainties and assumptions.  Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy.  Actual results may differ materially from those expressed, implied or projected in or by these forward-looking statements due to a number of uncertainties and risks, including those set forth in this report under "Item 1A - Risk Factors", and elsewhere incorporated by reference herein, and unforeseen risks, and other factors including but not limited to those set forth below:
 
·  
the effects of severe and rapid declines in industry conditions that have required the Company to restructure its outstanding indebtedness;
·  
the Company's ability to manage and repay its substantial indebtedness;
·  
the Company's ability to maintain financial ratios and comply with the financial covenants in its credit facilities;
·  
the Company's ability to effectively operate its business and manage its growth while complying with operating covenants in its credit facilities;
·  
the Company's ability to generate the significant amounts of cash necessary to service its debt obligations;
·  
very high volatility in the Company's revenues and costs, including volatility caused by increasing oil prices;
·  
excess supplies of dry bulk vessels in all classes and resulting heavy pressure on freight rates;
·  
adverse weather conditions that may significantly decrease the volume of many dry bulk cargoes;
·  
the stability and continued growth of the Asian and Latin American economies and rising inflation in China;
·  
the Company's vessels exceeding their economic useful life and the risks associated with operating older vessels;
·  
the Company's ability to grow its vessel fleet and effectively manage its growth;
·  
impairments of the Company's long lived assets or goodwill;
·  
compliance with environmental laws and regulations and the implementation of new environmental laws and regulations;
·  
other factors that are described in the "Risk Factors" sections of the Company's reports filed with the Securities and Exchange Commission.
    
    You should not rely on any forward-looking statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required under applicable law.
 
 
PART I

Item 1.  Business.
 
We are an ocean transportation services company, originating in 1993, that provides worldwide shipping solutions to a diverse client base of industrial shippers.  We operate liner, parcel and bulk services supported by a fleet of multipurpose tweendeckers and handysize/handymax bulk carriers.  The flexibility of our fleet allows us to carry a wide range of cargo, including industrial goods, project cargo, steel products, metal concentrates, fertilizer, salt, sugar, grain, aggregates and general cargo, that cannot be carried efficiently by container or large dry bulk carriers.  Over the past 15 years, we have developed our business model around key trade routes between Latin America and Japan, South Korea, and China, as well as ports in North America, Africa, the Caribbean, and the Middle East.  We differentiate ourselves from our competitors by offering our Five Star Service: ocean transportation, projects, operations, port services, and strategic planning.

In December 2009, shareholders voted in favor of a reorganization proposal pursuant to which TBS International Ltd. common shares were cancelled and holders of such shares received ordinary shares of TBS International plc, an Irish company, on a one-to-one basis.  The reorganization transaction was completed on January 6, 2010, at which time TBS International plc replaced TBS International Ltd. as the ultimate parent company for our operations.  Shares of TBS International plc began trading on the NASDAQ Global Select Market on January 7, 2010 under the symbol "TBSI," the same symbol under which TBS International Ltd. shares were previously traded.

As of December 31, 2010, our controlled fleet totaled 49 vessels, including 47 ships that we own and two that we charter-in with an option to purchase.  In addition to the 49 vessels, we have chartered-in three ships through our consolidated joint venture in Brazil, Log-Star, for three years; as of December 31, 2010, one of these vessels has been in drydock since the time it was delivered to Log-Star in January 2010.  

In March 2007, we entered into a contract for six multipurpose vessels with retractable tweendecks.  The first vessel, the Rockaway Belle, was delivered in September 2009, and the second and third vessels, the Dakota Princess and the Montauk Maiden, were delivered in March 2010 and September 2010, respectively.  The Omaha Belle and the Comanche Maiden were delivered on January 5, 2011 and February 22, 2011, respectively, while the Maya Princess is scheduled for delivery in the second quarter of 2011.  On July 20, 2010, the Company sold the Savannah Belle.
 
Certain financial data, at and for the years ended December 31, 2010, 2009, and 2008 (in millions except for Number of Voyages) are as set forth in the following table:
 
Year ended December 31,
 
Total Assets
   
Total Revenue
   
Net Income/ (Loss)
 
Total revenue tons (RT) carried
 
Number of Voyages
 
                           
2010
  $ 686.3     $ 411.8     $ (245.3 )
10.3 RT
    476  
                                   
2009
  $ 953.6     $ 302.5     $ (67.0 )
8.8 RT
    424  
                                   
2008
  $ 1,041.7     $ 611.6     $ 191.8  
9.3 RT
    380  
 
 
 

    We target niche markets, which include trade routes, ports and cargoes not efficiently served by container and large dry bulk vessel operators.  In order to effectively serve these markets, we offer regularly scheduled voyages using our fleet of multipurpose tweendeckers and handysize and handymax dry bulk carriers.  Tweendeck vessels are differentiated by their retractable decks that can create separate holds, facilitating the transportation of non-containerized cargoes.  Our vessels are able to navigate and service many ports with restrictions on vessel size and transport many types of cargo that cannot be carried efficiently by container or large dry bulk carriers.  

As part of our comprehensive transportation service offering, we provide portside operations, related support services and solutions for challenging cargoes.  To provide these services, we employ a professional staff of approximately 170 employees at December 31, 2010, with extensive experience and diverse backgrounds.  In addition, our affiliate, TBS Commercial Group Ltd., has fully-staffed agencies and representative offices on five continents, with local teams of commercial agents and port captains who meet regularly with customers to tailor solutions to their logistics needs.  We believe this full-service approach to shipping provides a superior level of service that has resulted in the development of long-term relationships with our customers.

Our customers rely on our regular service as an integral part of their supply chain, and many of these relationships have been established for over 15 years.  We serve approximately 300 customers in more than 20 countries.  We have developed long-term relationships with established and well-respected industrial shippers in diverse markets including mining, steel manufacturing, trading, heavy industry, industrial equipment and construction.  We believe our business model allows us to respond rapidly to our customers’ changing demands and short delivery windows, increasing the value of our services to them as we enable them to schedule production and distribution.
 
Shipping freight rates remained flat during 2010 showing slight gains during the first half of 2010 but giving up most of the gains during the second half.  Rates continued declining in early 2011.  Our management believes that there are many reasons for this decline, including the large amount of additional tonnage from recent newbuilds in all vessel sizes as well as natural occurrences that significantly depressed the amount of available cargoes, such as the harsh summer in the grain growing regions of Russia and Ukraine and the recent devastating floods in Australia and Brazil.

 
Our Competitive Strengths
 
Trade Routes and Ports of Call
 
We provide ocean transportation services over five routes, focusing primarily on Asia and Latin America, with additional operations in North America, the Middle East, and Africa.  We began operations in 1993, sailing between East Asia and the West Coast of South America.  In 1995, we expanded our routes by adding sailings between the East and West Coasts of South America.  In 2002, we began offering cargo service between North America and the East and West Coasts of South America and expanded our routes by offering service from Brazil to West Africa and within the Middle East.  We continued to expand our service in the Middle East and North Africa during 2005 and 2006.   
 

 
During 2010 we operated our vessels in five liner, parcel and bulk services.  We have taken a conservative approach to building our service network.  The initial sailings on each route are typically based on the requirements of a major customer.  After regular sailings are established, we notify other potential customers of the service so their cargoes may be transported as well.  As demand increases, we evaluate committing additional resources to serve the route, either by purchasing or chartering-in additional vessels. We plan the loading and stowage of cargo on each sailing to maximize our ability to add cargo as vessels call in selected ports to discharge cargo, increasing our utilization rate and maximizing revenue per sailing.  A summary of our services and routes operated during 2010 is as follows:
 
Service
 
Routes
 
Cargoes
TBS Pacific Service
 
Eastbound:
   
   
Japan, South Korea and
 
Steel products, project cargo
   
China to the West, North and East Coasts of South America
 
and general cargo
   
Westbound:
   
   
Peru, Ecuador and Chile to East Asia
 
Minerals, metals, metal concentrates and fishmeal
TBS Latin America Service
 
Northbound:
   
   
Brazil to the Caribbean basin
 
Steel products, project cargo
   
and the West Coast of South America
 
and general cargo
   
Southbound:
   
   
Colombia to Brazil and Argentina
 
Coal and petroleum coke
 
TBS North America Service
 
Southbound:
   
   
North America to the Caribbean
 
Fertilizer, agricultural products
   
basin, South America and West Africa
 
and steel products
   
Northbound:
   
   
Caribbean to North America
 
Limestone and aggregates
 
TBS Middle East Carriers
 
Middle East region, including ports in the United Arab Emirates, to Qatar and Kuwait
 
 
Bulk aggregates
TBS Ocean Carriers
 
Brazil to the West Coast of Africa
 
Bulk sugar and salt
 
Our liner, parcel and bulk services primarily carry steel products, salt, sugar, grain, fertilizers, chemicals, metal concentrates and aggregates plus general and project cargoes.

·  
Steel products include specialty and carbon steel coils, steel pipe and structural steel used in infrastructure development, construction, oil and gas transmission, and automotive and appliance manufacturing industries.
·  
Fertilizers include ammonium sulfate shipped in bulk for use in commercial agriculture.
·  
Metal concentrates include copper, zinc, silver, and other metals generally shipped in small break-bulk lots from 1,000 to 10,000 metric ton parcels that are processed at their destinations by smelters into purer forms.
·  
General and project cargoes include industrial machinery, spare parts, oil well supplies, trailers, industrial tanks and other commercial goods used in industrial applications.
 
     In addition to our liner, parcel, and bulk services on the trade routes described above, we time charter-out vessels on an individual customer basis through TBS Ocean Carriers.  However, any of our services may time charter-out a vessel to meet our customers' needs.  Generally, we time charter-out vessels on a short-term basis to customers seeking vessel tonnage and to reposition a vessel.

A time charter is a contractual arrangement under which a shipowner is paid for the use of a vessel at a daily rate for a fixed period of time.  The shipowner is responsible for providing the crew and paying vessel operating expenses while the charterer is responsible for paying the voyage expenses.  At December 31, 2010, 17 vessels of our controlled and owned fleet were time chartered-out with an average remaining duration of 25 days.
 
    The following table shows the annual number of time charters-out, related duration and gross charter revenue since 2006:

Year
 
Number of Charters
   
Duration
(Days)
   
Gross Revenue
(in thousands)
 
2010
    136       5,818     $ 105,824  
2009
    132       4,733       51,201  
2008
    74       3,004       83,883  
2007
    67       3,659       88,365  
2006
    57       4,301       63,114  

Our business strategy consists of providing reliable transportation services to leading industrial shippers over key ocean trade routes.  The key elements of our business strategy are:
 
Focus on Increasing Cargo Volumes on Our Key Routes.  We intend to increase cargo volumes on our key Pacific and Latin American trade routes, as well as our third sailing from China and Korea which carries steel parcels to Mexico and Central and South America.  By adding vessels and sailings to the markets we already serve, we believe we will be able to provide more regular service to our clients, which we expect will allow us to capture a larger share of their shipping needs, and win new clients.  
 
Develop New Trade Routes.  We intend to continue developing new trade routes, such as adding sailings from Asia to Africa.  Our agents and port captains work closely with our clients, as well as potential clients, to identify additional services that we can provide.  We target routes that share the characteristics of our established routes and appear suited to our fleet and our full service approach.  When developing new trade routes, we utilize a combination of owned and chartered-in vessels.

Expand Our Fleet of Focused Vessel Types.  We have been expanding our fleet of multipurpose retractable tweendeckers through our newbuilding program.  In 2007, we contracted a Chinese shipyard to build six newly designed vessels named the "Roymar Class".  These 34,000 dwt vessels are a larger vessel class and their addition to our fleet will be a significant milestone in the implementation of our business plan to modernize and expand our fleet.  While we remain committed to expanding our fleet, pending a significant change in global economic conditions, we are temporarily suspending any further acquisitions of secondhand vessels.  Our current business strategy includes growing through chartering-in vessels as needed.

In September 2009, we took delivery of the first of six newbuildings, the Rockaway Belle.  Two vessels, the Dakota Princess and the Montauk Maiden, were delivered in March 2010 and September 2010 respectively.  We took delivery of two more vessels in 2011, the Omaha Belle and the Comanche Maiden in January 2011 and February 2011, respectively.  The remaining vessel, the Maya Princess, is tentatively scheduled to be delivered in the second quarter of 2011.  
 

Our current controlled fleet consists of a total of 49 vessels, aggregating approximately 1.5 million dwt.  The fleet consists of 27 multipurpose tweendeckers (8,000–34,000 dwt) and 22 dry bulk carriers, including 18 Handymax (35,000–46,000 dwt) and four Handysize (24,000–29,000 dwt) vessels.  All vessels are dual flagged in either Panama or Liberia and the Philippines.  We placed the first of six newbuild 34,000 dwt multipurpose tweendeckers into operation in late 2009.  In 2010, we placed two additional vessels into operation, and recently took delivery of two more vessels in the first quarter of 2011.  We expect to take delivery of the sixth and last vessel in the second quarter of 2011.
 
 
The following table provides information regarding the 49 vessels in our controlled fleet at December 31, 2010, which excludes vessels chartered-in under short-term charter and three vessels that are bareboat chartered in by Log-Star, our joint venture.
           
Deadweight
 
Vessel Name
 
Vessel Type
 
Year Built
 
Weight Tons
 
Zia Belle
 
Multipurpose Tweendecker
 
1997
    8,492  
Tamoyo Maiden
 
Multipurpose Tweendecker
 
1986
    17,235  
Ainu Princess
 
Multipurpose Tweendecker
 
1987
    17,324  
Siboney Belle
 
Multipurpose Tweendecker
 
1987
    17,324  
Kiowa Princess
 
Multipurpose Tweendecker
 
1986
    19,762  
Seneca Maiden
 
Multipurpose Tweendecker
 
1986
    19,764  
Aztec Maiden
 
Multipurpose Tweendecker
 
1984
    19,777  
Hopi Princess
 
Multipurpose Tweendecker
 
1984
    20,401  
Navajo Princess (1)
 
Multipurpose Tweendecker
 
1987
    21,902  
Inca Maiden (1)
 
Multipurpose Tweendecker
 
1986
    22,133  
Shawnee Princess
 
Multipurpose Tweendecker
 
1984
    22,323  
Caribe Maiden
 
Multipurpose Tweendecker
 
1987
    22,800  
Ottawa Princess
 
Multipurpose Tweendecker
 
1987
    22,800  
Taino Maiden
 
Multipurpose Tweendecker
 
1985
    23,278  
Tuckahoe Maiden
 
Multipurpose Tweendecker
 
1985
    23,278  
Cherokee Princess
 
Multipurpose Tweendecker
 
1990
    23,286  
Kickapoo Belle
 
Multipurpose Tweendecker
 
1987
    23,319  
Apache Maiden
 
Multipurpose Tweendecker
 
1987
    23,325  
Mohegan Princess
 
Multipurpose Tweendecker
 
1983
    26,276  
Tayrona Princess
 
Multipurpose Tweendecker
 
1983
    26,320  
Laguna Belle (2)
 
Multipurpose Tweendecker
 
1996
    28,503  
Seminole Princess (2)
 
Multipurpose Tweendecker
 
1997
    28,503  
Nanticoke Belle
 
Multipurpose Tweendecker
 
1989
    28,835  
Wichita Belle
 
Multipurpose Tweendecker
 
1991
    28,843  
Rockaway Belle (3)
 
Multipurpose Tweendecker
 
2009
    34,006  
Dakota Princess
 
Multipurpose Tweendecker
 
2010
    34,038  
Montauk Maiden
 
Multipurpose Tweendecker
 
2010
    34,022  
Arapaho Belle
 
Handysize Bulk Carrier
 
1998
    24,021  
Oneida Princess
 
Handysize Bulk Carrier
 
1998
    24,247  
Mohave Maiden
 
Handysize Bulk Carrier
 
1984
    28,074  
Zuni Princess
 
Handysize Bulk Carrier
 
1984
    28,166  
La Jolla Belle (3)
 
Handymax Bulk Carrier
 
1982
    35,025  
Shinnecock Belle
 
Handymax Bulk Carrier
 
1985
    37,451  
Maori Maiden
 
Handymax Bulk Carrier
 
1984
    37,734  
Tupi Maiden
 
Handymax Bulk Carrier
 
1992
    38,852  
Nyack Princess
 
Handymax Bulk Carrier
 
1984
    38,885  
Biloxi Belle
 
Handymax Bulk Carrier
 
1984
    39,225  
Miami Maiden
 
Handymax Bulk Carrier
 
1984
    39,333  
Iroquois Maiden
 
Handymax Bulk Carrier
 
1983
    40,876  
Fox Maiden
 
Handymax Bulk Carrier
 
1985
    40,902  
Alabama Belle
 
Handymax Bulk Carrier
 
1986
    41,808  
Houma Belle
 
Handymax Bulk Carrier
 
1985
    42,219  
Sioux Maiden
 
Handymax Bulk Carrier
 
1989
    42,248  
Mohawk Princess
 
Handymax Bulk Carrier
 
1982
    42,360  
Yakima Princess
 
Handymax Bulk Carrier
 
1990
    42,475  
Canarsie Princess
 
Handymax Bulk Carrier
 
1985
    42,842  
Chesapeake Belle
 
Handymax Bulk Carrier
 
1984
    44,146  
Tuscarora Belle
 
Handymax Bulk Carrier
 
1984
    44,189  
Manhattan Princess
 
Handymax Bulk Carrier
 
1982
    45,526  
   
Total DWT
        1,478,473  
                 
 
 
(1)  
These vessels are multipurpose tweendeckers with the ability to carry wheeled cargo such as automobiles, tractors or trailers. The vessels allow cargo to be "rolled on" and "rolled off" in addition to allowing cargo to be "lifted-on" and "lifted-off".
 
 
(2)  
These vessels are leased and operated by us under a sale-leaseback arrangement that expires in 2014.  These leases are accounted for as operating leases for financial reporting purposes.  Each agreement allows for the purchase of the respective vessel at the end of 2012 and each year thereafter until the end of the charter period.
 
(3)  
On September 23, 2009 we took delivery of the newly-constructed vessel the Rockaway Belle from Nantong Yahua Shipbuilding Group Co., Ltd.  The La Jolla Belle was previously named the Rockaway Belle and was part of our existing fleet.

Multipurpose Tweendeckers
 
Our multipurpose tweendecker vessels have retractable tweendecks that can convert a multipurpose tweendecker to a bulk carrier, and back again. Unlike container ships, which can carry only cargo that can be or has been pre-packaged into standard 20-foot or 40-foot containers, or bulk carriers that limit the ability to mix different cargoes in any one hold, multipurpose tweendeckers can be divided into multiple cargo compartments by a mezzanine deck, or tweendeck.  The tweendeck permits the carriage of cargoes of differing sizes and shapes in the same or separate holds and permits greater flexibility in the stowage and carriage of cargo.  Many of our vessels sailing eastbound from Asia will call at multiple Latin American ports to discharge cargo and load additional cargo for shipment to other ports.  Cargoes are stowed in a manner that facilitates efficient loading and discharging.
 
The following diagram shows a typical multipurpose tweendeck ship fitted for different types of cargo.

TBS Ship
 
Bulk Carriers
 
    Our bulk carriers range in size from 24,021 dwt to 45,526 dwt.  Several of the vessels have equipment that enables self-loading and discharging in an effort to enhance our ability to serve a broad range of ports.
 
 
The hull and machinery of every commercial vessel must be "classed" by a classification society authorized by its country of registry.  Our vessels currently are enrolled with Lloyds Register of Shipping, or LR, Nippon Kaiji Kyokai, or NKK, American Bureau of Shipping, or ABS, Det Norske Veritas, or DNV, and Bureau Veritas, or BV.  The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and international conventions promulgated by the International Maritime Organization, or IMO.  These include the Convention on Maritime Pollution Prevention, the International Safety Management Code, or ISM Code, and International Convention for the Safety of Life at Sea, or SOLAS.  All of our vessels have been certified as being "in class" by their respective classification societies.
 
A vessel must undergo annual surveys, intermediate surveys and special surveys.  In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period.  All of our controlled vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection.  Every vessel is required to be drydocked twice in every five-year period, with no interval greater than three years.  Vessels less than 15 years of age may be underwater inspected instead of drydocked, at the intermediate period. Excluding the three newly built vessels, our controlled fleet of 46 vessels will require approximately 92 drydockings over five years.  We anticipate drydocking approximately 18 vessels per year.  The numbers of vessels drydocked during a year will vary depending on operational and commercial considerations.   During 2011, we anticipate 16 vessels entering drydock.  Below are the number of vessels that entered drydock for the years ended December 31, 2010, 2009 and 2008:
 
 
    For the Year Ended December 31,  
   
2010
   
2009
   
2008
 
Vessels Entering Drydock
  13     22     16  

Our drydocking expenditures and surveys are being accounted for using the deferral method.  Under the deferral method of accounting for drydocking, the costs incurred are deferred and amortized on a straight-line basis over the period through the date of the next drydocking, which is typically 30 months.  We only include in deferred drydocking costs those costs that are incurred to meet regulatory requirements, or are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency.  Normal repairs and maintenance, whether incurred as part of the drydocking or not, are expensed as incurred.
 
 
Substantially all of the operations, ship maintenance, supervision of crewing, technical support, purchasing, insurance, financial management services and network of commercial agents necessary to support our fleet and operate our business are supervised by four service companies.

Two of these service companies, TBS Shipping Services, Inc. and Roymar Ship Management, Inc., are our wholly-owned subsidiaries that manage the accounts of our other subsidiaries and, on their behalf, make payments and advances for costs associated with the operation of our business.  The other service companies, TBS Commercial Group Ltd. and Beacon Holdings Ltd., are controlled by certain of our key executive officers.  Together these four companies employ approximately 340 experienced professionals who meet regularly with shippers and consignees to market our services in more than 20 countries and address the needs and concerns of our customers.

Operations management
 
TBS Shipping Services coordinates services to customers, integrates the activities of our commercial agency network, oversees charter activities, administers voyages and provides accounting services, including the preparation of our account ledgers and financial statements.
 
Ship management
 
Roymar manages our controlled fleet providing an experienced technical management staff and a full range of vessel maintenance capabilities to ensure that we maintain a high-level of ship performance.  The services provided by Roymar include:
 
·
supervising the recruiting of crew;
·
obtaining spares, stores and provisions necessary on board the vessels;
·
implementing our maintenance program;
·
arranging for and supervising all drydocking procedures;
·
arranging for surveys and inspections according to requirements of classification society, flag state and port state rules and regulations;
·
maintaining high safety and environmental protection standards in compliance with the ISM Code and SOLAS;
·
arranging for insurance of the vessels; and
·
identifying vessels to acquire and negotiating purchase options on vessels that we charter.
 
    We are fully responsible for the maintenance of our controlled fleet.  We make every effort to prevent delays at sea or in port caused by malfunctions or breakdowns.  Roymar deploys superintendents, including master mariners and engineers, to supervise the maintenance of our controlled fleet.  We minimize operation costs through continuous onboard supervision of our vessels and use of the vessels' crews for ship maintenance.  We believe that our preventive maintenance practice has extended the lives of the vessels in our controlled fleet, minimized drydocking expenses and nearly eliminated downtimes and off-hire periods resulting from speed deficiencies, stoppages at sea and vessel breakdowns.
 
Commercial agents
 
    We have established a network of long-term commercial and operational relationships with affiliated commercial agency service companies.  The majority of these service companies are wholly or partly-owned by TBS Commercial Group.  These service companies employ locally-based sales and customer service professionals who personally meet with shippers and consignees on a regular basis.  These professionals provide a competitive advantage by addressing our customers' concerns and anticipating their future needs through their personal contact with our customers.  We believe that personal attention to customers has played a critical role in our growth and success.  Our method of operation focuses on sales and service for long-term sustained expansion.  The agreements with TBS Commercial Group are subject to the approval of the Compensation Committee of our Board of Directors.  We paid commissions and port agency fees to TBS Commercial Group of approximately $9.4 million, $7.8 million, and $16.8 million in 2010, 2009, and 2008 respectively.  See "Note 14 - Related Party Transactions" to our consolidated financial statements.

 
    As of December 31, 2010, we had approximately 170 office employees located in Yonkers and Scarsdale, New York.  At December 31, 2010, we had contracts with three unaffiliated manning agents, to provide approximately 1,180 crew for our vessels.  We are not a party to the contracts with the seagoing personnel, all of whom are required to have appropriate maritime licenses.  Historically our labor relations have been good.
 
 
We believe we distinguish ourselves from our competition by offering proven reliability, frequent and on-time service, flexible cargo management, expert loading and stowage and close client coordination in the ports and on the vessels.  This customer focus has enabled us, through our affiliated agents, to develop long-term relationships with established and well-respected industrial shippers in diverse markets including mining companies, steel manufacturers, trading companies, heavy industry, industrial equipment enterprises and construction companies.  Our business model is designed to enable us to respond rapidly to our customers' changing demands and short delivery windows, increasing the value of our services to them as we enable them to schedule production and distribution.
 
A substantial majority of our repeat business is based on our relationships and reputation with our customers, and is not governed by long-term contracts.  We depend upon a limited number of customers for a large part of our revenue.  Our top ten customers by revenue, accounted for, in the aggregate, 30.8% of our total consolidated revenue for 2010.  We have affreightment contracts with several of these customers.  In 2010, no individual customer accounted for more than 10% of revenue.
 
We transport cargo throughout the world, including the United States.  The amount of voyage revenue generated by country for each of the last three fiscal years is as follows (in thousands):

   
Year Ended December 31,
 
Country
 
2010
   
2009
   
2008
 
Brazil
  $ 62,892     $ 53,192     $ 127,360  
Japan
    50,778       35,914       79,812  
United Arab Emirates
    39,641       32,387       69,714  
Chile
    22,935       16,564       46,923  
China
    18,985       12,944       42,319  
USA
    32,734       28,137       33,702  
Peru
    24,225       26,870       48,707  
Korea
    2,238       6,744       15,699  
Venezuela
    7,968       5,063       9,903  
Argentina
    4,877       8,021       8,312  
Others
    28,557       22,144       36,456  
    $ 295,830     $ 247,980     $ 518,907  
                         
 
    Revenue attributed to these countries is based on the location where the cargo is loaded.  Time charter revenue by country cannot be allocated because we do not control the itinerary of the vessel.
 
 
The cargo markets we serve are highly competitive.  Our competition on the routes we serve consists primarily of regional shipping companies focused on the breakbulk market, international bulk shipping companies competing in the large lot segment of the bulk metal concentrates market and larger shipping concerns that compete in diverse shipping segments in addition to the breakbulk market.  We compete on the basis of targeting niche markets that include trade routes, ports and cargoes not efficiently served by many containers and large dry bulk vessel operators.  We focus on smaller lots of 1,000 to 10,000 metric tons in the bulk metal concentrates market in Chile and Peru, whereas other bulk shipping companies focus on shipments of 20,000 to 45,000 metric tons of bulk metal concentrates.  Additionally, we compete with other regional shipping companies in providing operations, port services and strategic planning.
 
 
Vessel Environmental Regulations

Ocean shipping and related operations are affected by extensive and changing environmental protection and other laws and regulations.  These laws and regulations take the form of international conventions and agreements, including those administered by the IMO, and SOLAS, with which all internationally trading vessels must comply, and national, state and local laws and regulations, all of which are amended frequently.  Compliance with these laws and regulations may entail significant expenses at any time, including expenses for ship modifications and changes in operating procedures, which could have an adverse effect on our results of operations.  Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operation of the owned vessels will depend upon a number of factors, we believe that we have and will be able to obtain all permits, licenses and certificates material to the conduct of our operations.
 
In the United States, we are subject to various federal, state and local environmental laws, ordinances and regulations requiring the cleanup of environmental contamination resulting from a discharge of oil or other regulated material, and may be held liable to a governmental entity or to third parties for remediation costs and related damages in connection with environmental contamination.  These laws typically impose cleanup responsibility, and liability, which under these laws, has been interpreted to be strict and under certain circumstances, joint and several, and subject to very limited statutory defenses.  The costs of investigation, remediation or removal of such regulated materials and damages resulting from their release may be substantial.
 
Although we do not transport petroleum products, we are subject to the U.S. Oil Pollution Act of 1990 (“OPA 90”), because we use petroleum products for fuel and because the possibility of accidents involving oil tankers presents an exposure to our vessels.  Under OPA 90, vessel owners, operators and bareboat charterers are responsible parties and are jointly, severally and strictly liable, unless the spill results solely from the act or omission of a third party, an act of God or an act of war, for containment and cleanup costs and other damages resulting from the discharge or threatened discharge of oil into the navigable waters, adjoining shorelines or the 200 nautical mile exclusive economic zone of the United States.  OPA 90 limits the liability of responsible parties for such costs and damages to the greater of $1,000 per gross ton of the vessel or $854,400 per non-oil tanker vessel that is over 300 gross tons, subject to possible adjustment for inflation.  The Federal Water Pollution Control Act (“FWPCA”) imposes significant civil penalties as well as strict, joint and several liability on responsible parties for removal costs and imposes liability for natural resource damages arising from the discharge of oil or other hazardous substances into U.S. navigable waters, adjoining shorelines, waters of the contiguous zone and areas of the outer continental shelf and deepwater ports.  The Comprehensive Environmental Response, Compensation & Liability Act of 1980 (“CERCLA”), imposes strict, and under certain circumstances, joint and several liability on responsible parties for releases and threatened releases of hazardous substances (other than oil) whether on land or at sea, subject to limits depending on the nature of the vessel and its cargo.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels over 300 gross tons carrying hazardous substances as cargo.  The limits on liability under OPA 90, FWPCA and CERCLA do not apply if the discharge is caused by gross negligence, willful misconduct, or in the cases of OPA 90 and CERCLA, the violation by a responsible party or its agent of any applicable safety, construction or operating regulation.  The statutory limits on liability may not apply in certain other instances, including if the responsible parties fail or refuse to report the incident or refuse to cooperate and assist in connection with oil removal activities.  In addition, OPA 90, FWPCA and CERCLA specifically permit individual states to impose their own liability regimes with regard to oil and hazardous waste releases occurring within their boundaries, and many states have enacted legislation providing for unlimited liability for oil spills.  In some cases, states that have enacted such legislation have not yet issued implementing regulations under these laws.  We intend to comply with all applicable state regulations in ports where we call.
 
In addition, we also comply with the U.S. Environmental Protection Agency (EPA) National Pollution Discharge Elimination System (NPDES) Vessel General Permit (VGP). EPA signed the final VGP on December 18, 2008, with an effective date of December 19, 2008. Subsequently, the U.S. District Court for the Northern District of California signed an order providing that "the exemption for discharges incidental to the normal operation of a vessel, contained in 40 C.F.R. § 122.3(a), is vacated as of February 6, 2009." Therefore, the regulated community needed to comply with the terms of the VGP as of February 6, 2009. The EPA has identified 26 possible discharges from vessels that are covered by the General Permit.  There are other discharges that are not covered by the General Permit but are regulated by other U.S. regulations. The General Permit applies when the ship is operating within the U.S. Territorial Sea (three mile limit). The 2008 Vessel General Permit (VGP) regulates discharges incidental to the normal operation of vessels operating in a capacity as a means of transportation. The VGP includes general effluent limits applicable to all discharges; general effluent limits applicable to 26 specific discharge streams; narrative water-quality based effluent limits; inspection, monitoring, recordkeeping, and reporting requirements; and additional requirements applicable to certain vessel types.
 
Pursuant to regulations promulgated by the U.S. Coast Guard, responsible parties (as defined in such regulations) must establish and maintain evidence of financial responsibility in the amount of $1,000 per gross ton, for a non-tank vessel.  The Protection & Indemnity (“P&I”) Associations, which historically provided shipowners and operators financial assurance, have refused to furnish evidence of insurance to responsible parties, and therefore responsible parties have obtained financial assurance from other sources at additional cost, including evidence of surety bond, guaranty or by self-insurance.  In addition, in recent years the U.S. Coast Guard has increased its inspection of vessels entering the United States to ensure they comply with applicable environmental regulations, including regulations related to the discharge of oil.
 
Port state authorities in general and in certain jurisdictions in particular have become more active in inspecting older vessels visiting their ports and, in certain instances, demanding that repairs be made before allowing a vessel to sail, even though that vessel may be fully insured, in class and in compliance with all relevant maritime conventions including SOLAS.
 
The IMO has adopted regulations that are designed to reduce oil pollution in international waters.  In complying with OPA 90, IMO and other regulations that may be adopted, shipowners and operators may be forced to meet new maintenance and inspection requirements, develop contingency arrangements for potential spills and obtain additional insurance coverage.
 
The technical manager of our vessels, Roymar, is ISO 14001:2004 certified.  Roymar has developed and implemented environmental practices which it monitors, protecting and preserving the marine environment in which our managed vessels operate.  We have high standards in our fleet for pollution prevention, regulatory compliance and continual improvement of our environmental management activities.
 
Other Regulations
 
Operation of our vessels also is affected by the requirements of the ISM Code.  The ISM Code mandates an extensive “Safety Management System” that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating vessels safely and describing procedures for dealing with emergencies.  Our owned vessels and Roymar, the technical manager of our vessels, are currently ISM Code certified.
 
We also are required by various governmental and quasi-governmental agencies and other regulatory authorities to obtain permits, licenses and certificates in connection with our operations.  Some countries in which we operate have laws that restrict the carriage of cargoes depending on the registry of a vessel, the nationality of its crew and prior and future ports of call, as well as other considerations relating to particular national interest.
 
 
We are subject to a variety of initiatives intended to enhance vessel security, including the Maritime Transportation Security Act of 2002, or MTSA.  U.S. Coast Guard regulations require that vessels operating in waters subject to the jurisdiction of the United States implement a number of security measures.  Similarly, a chapter of SOLAS, dealing specifically with maritime security, imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security Code, or ISPS Code.  The ISPS Code is designed to protect ports and international shipping against terrorism.  To engage in international trade, a vessel must have an International Ship Security Certificate, or ISSC, which attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code, from a recognized security organization approved by the vessel’s flag state.  ISPS Code requirements include:
 
·  
on-board installation of automatic identification systems to provide a means for the  automatic transmission of safety-related information among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status;
·  
on-board installation of ship security alert systems that do not sound on the vessel but instead alert the onshore authorities;
·  
development of vessel security plans;
·  
permanent marking of a ship's identification number on its hull;
·  
maintenance of a continuous synopsis record on-board showing a vessel's history, including the name of the vessel and of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owners and their registered address; and
·  
compliance with flag state security certification requirements.

Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided they have a valid ISSC on board.  Our vessels comply with all MTSA, SOLAS and ISPS Code requirements and vessel certifications, which are kept current by Roymar.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Piracy incidents have continued in the Gulf of Aden, with dry bulk vessels and tankers particularly vulnerable to such attacks.  We have implemented a corporate and vessel anti-piracy plan on all vessels transiting in high risk areas. These plans incorporate best prevention and proactive practices in training, procedures and equipment recommended by security consultants and industry panels. With the flag states’ approval, we are employing armed security guards on a case by case basis, depending on the route.  These protective measures are being carried out for every transit in high risk areas, but do not ensure that an attack will be repelled.

 
Our business is subject to normal hazards associated with owning and operating vessels in international trade.  The operation of ocean-going vessels carries an inherent risk of catastrophic marine disaster, including oil spills and other environmental accidents, as well as property losses caused by adverse weather conditions, cargo loss or damage, mechanical failures, human error, war, terrorism and business interruption due to political circumstances in foreign countries, hostilities, piracy and labor action.  Not all risk can be insured against and our insurance policies have certain deductibles and other limits on coverage for which we are responsible.  We believe that our current insurance coverage is adequate to protect us against normal accident-related risk involved in the conduct of our business.  Our principal insurance policies include:
 
Hull and machinery and war risks insurance includes coverage for damages to a vessel’s hull and machinery in a collision, as well as basic perils of the sea and contributions for general average and salvage charges.  This coverage includes the risk of actual or constructive total loss for our controlled fleet.  Each vessel is insured for at least its fair market value, with a deductible of $75,000 per vessel per incident under the hull and machinery coverage and no deductible under the war risk coverage.  The respective owners of the other vessels that we charter-in maintain insurance on those vessels, and we maintain time charter liability insurance to a limit of $500 million per incident.
 
Protection and Indemnity, or P&I, Insurance includes coverage for oil pollution, damage to docks and other installations and coverage against third-party liabilities including collision liabilities encountered in our commercial operations.  It also includes coverage for the death, injury or illness of our crew.  Our P&I insurance is provided by mutual marine insurance associations or P&I Clubs.  P&I Clubs are formed by shipowners to provide protection from large financial losses to one member by contribution towards the loss by all members.  We are subject to potential additional premiums for prior years due to funding requirements and coverage shortfalls of the clubs in the event claims exceed available funds and reserves.  We also are subject to future premium increases based on prior year underwriting loss experience.  We have an overall coverage limit of approximately $5.0 billion for damage to cargo and third party liabilities and a sublimit for oil pollution of $1.0 billion per vessel for each accident or occurrence.  Deductibles range from $5,000 to $50,000 depending on the nature of the claim.
 
Other Insurance is maintained for legal expenses with respect to freight, demurrage and defense claims.  We also carry limited insurance covering the loss of revenue resulting from extended vessel off-hire periods.
 
 
U.S. Taxation of Shipping Income
 
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation generally is subject to U.S. federal income tax in respect of shipping income derived from sources within the United States.  For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States ("U.S. source shipping income").  Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States.  Accordingly, in the absence of an exemption from tax under Section 883 of the U.S. Internal Revenue Code, as amended (the "Code") our gross U.S. source shipping income would be subject to either a 4% tax imposed without allowance for deductions or to a net basis tax.
 
The net tax regime is applicable if we are considered to have a fixed place of business in the United States that is involved in the earning of U.S. source shipping income and substantially all of such shipping income is attributable to regularly scheduled transportation.  The U.S. source shipping income to which the net tax regime is applicable, net of applicable deductions, would be subject to an effective tax rate of up to 54.5% and certain interest paid would be subject to a 30% branch interest tax, or such lesser percentage as may be available under an applicable treaty.  Any gain derived from the sale of a vessel, if considered to be from U.S. sources, also would be partly or wholly subject to the net tax regime.  If the net tax regime does not apply, the gross tax regime will apply.  Under the gross tax regime, our U.S. source shipping income, which, by operation of the source rule, cannot be more than 50% of our total shipping income, would be subject to a 4% tax imposed on a gross basis, without allowance for deductions.
 
U.S. source shipping income of a foreign corporation will qualify for exemption from U.S. federal income tax under Section 883 of the Code if (i) the corporation is organized in a foreign country that grants an equivalent exemption to U.S. corporations (the "country of organization requirement"), (ii) the stock of the corporation, or the direct or indirect corporate parent thereof (provided the parent is organized in a country that satisfies the country of organization requirement) is "primarily and regularly traded on an established securities market" in such country, in another country that grants the equivalent exemption from tax to U.S. corporations or in the United States, and (iii) certain other requirements are met, including that non-qualified shareholders, each holding 5% or more of a class of stock of the corporation, do not own 50% or more of the total value of such class of stock for more than one-half the days of taxable year (together, the "publicly traded test").  This exemption is available whether or not the corporation has or is considered to have a fixed place of business in the United States that is involved in the earning of U.S. source shipping income.  Regardless of whether our U.S. source shipping income qualifies for exemption under Section 883 of the Code, gain realized on a sale of a vessel generally will not be subject to U.S. federal income tax, provided the sale is considered to occur outside of the United States for U.S. federal income tax purposes.

We currently qualify for exemption under Section 883 of the Code, because International and its subsidiaries currently are incorporated in jurisdictions that satisfy the country of organization requirement and we satisfy the publicly traded test by virtue of International’s Class A ordinary shares being primarily traded on the NASDAQ Global Select Market.  Further, the aggregate ownership of all non-qualified 5% shareholders is less than 50% of the total value of the Class A ordinary shares.  If at any time we fail to satisfy the publicly traded test and we are unable to qualify for another applicable exemption, our U.S. source shipping income would be subject to U.S. federal income tax, either under either the gross tax or the net tax regime, each of which is described above.
 
Federal and State Taxation of TBS International plc’s U.S. Subsidiaries
 
Our U.S. subsidiaries, Roymar and TBS Shipping Services and its subsidiaries, are subject to U.S. federal and state income taxes on their income.
 
Ireland Taxation of TBS International plc

TBS International plc, the successor issuer to TBS International Limited, is incorporated in Ireland. TBS International plc as a separate entity is subject to tax in Ireland on its worldwide income and gains at 25% with the exception of dividend income received from its subsidiaries that are sourced from active trading profits, which is subject to tax in Ireland at 12.5%. TBS International plc should be considered an investment company for Irish tax purposes and should be allowed to deduct expenses of management against its income and gains. However, as it is not anticipated that TBS International plc will receive any significant dividends from its subsidiaries in the foreseeable future, it is not expected that TBS International plc will have any material income subject to Irish taxation.
 
Bermuda Taxation of Our Subsidiary, TBS International Limited
 
There currently is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our subsidiary TBS International Limited.  We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to TBS International Limited  or any of its  operations, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by TBS International Limited  in respect of real property owned or leased by us in Bermuda.
 
Marshall Islands Taxation of TBS International plc
 
Pursuant to the Marshall Islands Revised Code, a Marshall Islands non-resident corporation is exempt from any corporate profit tax, income tax, withholding tax on revenues of the entity, asset tax, tax reporting requirement on revenues of the entity, stamp duty, exchange controls or other fees.  There is an agreement between the Marshall Islands and the United States for the exchange of information with respect to taxes.
 

We make all of our filings with the SEC, including this annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all related amendments, available free of charge on our website at http://www.tbsship.com, under the Investor Relations tab, "SEC Filings" section.  These reports are available soon after they are filed electronically with the SEC.  Our SEC filings are also available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.  Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access our SEC filings.

 Additionally, our corporate governance materials, including the charters of the Audit, Compensation, and Nominating and Corporate Governance Committees, the Corporate Governance Guidelines, and the Code of Business Conduct and Ethics may also be found under the "Governance" section of our website at http://www.tbsship.com.  A copy of the foregoing corporate governance materials is available free of charge upon written request.  In addition, we intend to post on our website at http://www.tbsship.com any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, corporate controller and other employees performing similar functions within four business days following the date of such amendment or waiver.
 

The following risk factors and other information included in or incorporated by reference into this report should be carefully considered.  The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also adversely affect us.  If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected and the trading price of our Class A ordinary shares could decline.
 
    Risk Factors Relating to the Shipping Industry and Current Economic Conditions
 
We have recently experienced severe and rapid declines in industry conditions that have required us to restructure our outstanding indebtedness.

Starting in late May 2010, the Baltic Dry Index, which measures the demand for shipping capacity versus the supply of dry bulk carriers, started to decline dramatically from a high of 4,209 on May 26, 2010 to a recent low of 1,043 on February 4, 2011. Our management believes that there are many reasons for this decline, including the large amount of additional tonnage from recent newbuilds in all vessel sizes as well as natural occurrences that significantly depressed the amount of available cargoes, such as the harsh summer in the grain growing regions of Russia and Ukraine and the recent devastating floods in Australia and Brazil. As a direct result of this imbalance of supply and demand, freight rates across the ocean shipping industry in all vessel sizes have declined dramatically as owners and charterers compete for cargoes. The reduction in our freight rates in this market environment has directly and adversely affected our revenues and cash flows and caused us to enter into negotiations with our lenders to seek modifications of certain financial covenants in our credit facilities. With the consent of our lenders, in September 2010, we ceased paying installments of principal due on our indebtedness. Our lenders agreed not to take any action as a result while we collectively sought to negotiate new terms of our existing debt.

    Effective January 28, 2011, we and our lenders agreed on a restructuring of our debt repayment schedules and modifications of the covenants under our credit facilities, and our lenders agreed to waive any existing defaults under those agreements. Our lenders, as a condition to the restructuring of our credit facilities, required three significant shareholders, who also are key members of our management, to agree to provide up to $10.0 million of new equity in the form of Series B Preference Shares.
 
    Due to the continuing imbalance of supply and demand, we are operating at freight and charter rates that would cause us to fail to comply with certain financial covenants in our credit facilities, even as recently modified. Unless the Baltic Dry Index, and in particular the freight and charter rates that we are able to obtain, strengthen significantly in the near future, it is likely that by June 30, 2011 we would fail to meet the tests under certain of our financial covenants and that we would need to enter into further negotiations with our lenders to seek further modifications of those financial covenants.  Failure to comply with our financial covenants or obtain modifications or waivers of such covenants would have a material adverse affect on our business operations, financial condition, and liquidity, and would raise substantial doubt about our ability to continue as a going concern.

In addition, we filed for bankruptcy in 2000. Our ability to generate net income is influenced by a number of factors that are difficult to predict, including changes in global and regional economic conditions and international trade. For example, the losses and bankruptcy in 2000 were attributable in part to the acute decline in the Asian and South American economies in 1998 and 1999.  We cannot assure you that similar declines will not occur in the future.

We and the shipping industry experience very high volatility in revenues and costs.

Due to fluctuations in the level and pattern of global economic activity and oil prices, as well as heavy competition, the shipping industry historically has experienced very high volatility in freight rates and costs. Fluctuations in freight rates affect our revenues, vessel charter rates and vessel values, and we experience fluctuations in our costs resulting from changes in the cost of fuel oil, crew expenses, port charges and currency exchange rates.  In addition, increasing regulation of the sulfur content of fuel oil has caused and in the future may cause increases in our fuel costs. Changes in marine regulatory regimes in the ports at which our vessels call also may increase our costs.

Shipping revenue is influenced by a number of factors that are difficult to predict with certainty, including global and regional economic conditions, developments in international trade, changes in seaborne and other transportation patterns, the effects of global climate change on developing economies and agricultural production, weather patterns, port congestion, canal closures, political developments, armed conflicts, acts of terrorism, embargoes and strikes.

Demand for our transportation services is influenced by the demand for the goods shipped, including steel products, agricultural commodities, metal concentrates and aggregates, which in turn is affected by general economic conditions, commodity prices and competition. Steel products, agricultural commodities, metal concentrates and aggregates accounted for approximately 35.7%, 12.3%, 13.9%, and 13.7%, respectively, of our total voyage revenues in the year ended December 31, 2010. The softened demand for these products and commodities from 2008 through 2010 translated into a decreased demand for shipping.  Continuing or further declines in worldwide economic conditions could result in reduced demand for steel products, metal concentrates and aggregates, which could adversely affect our results of operations.

Significant recent additions to the fleets of many ocean shipping companies have contributed to an excess supply of dry bulk vessels in all classes and resulted in heavy pressure on freight rates.

The worldwide supply of shipping capacity is influenced by the number of newbuilding deliveries, the scrapping of older vessels, vessel casualties and the number of vessels that are out of service.  As the global economy expanded in the years leading up to 2008, many ocean shipping companies placed orders for significant additions to their fleets.  Many of these new vessels began operating just as the credit crisis and global economic slowdown began.  As owners and operators struggled to find cargoes for these new vessels at a time when letters of credit and other financing arrangements that underpin the global economy disappeared, freight rates dropped precipitously.  Although the global economy has recovered from the end of 2008 and the beginning of 2009, the oversupply of vessels has continued to depress freight rates.  We cannot assure you that the industry as a whole will take action to reduce the supply of vessels or that freight rates will recover at any time in the foreseeable future.

Adverse weather conditions have significantly decreased the volume of many dry bulk cargoes.

        As the global economy improved in 2010, unusually adverse weather conditions such as the extended heat wave in the grain growing regions of Russia and Ukraine and recent devastating floods in Australia and Brazil significantly reduced the quantity of cargoes that traditionally are shipped by dry bulk carriers.  The impact of these reductions in supply of cargoes, coupled with the increase in capacity resulting from the influx of newbuild vessels, materially and adversely affected freight rates as ship owners and operators competed for available cargo. We cannot assure you that this imbalance of supply and demand will not continue for an extended period.

        The increases in supply of and reductions in demand for, vessel capacity have materially and adversely affected, and may continue to affect, demand for shipping services and shipping rates.  There continues to be substantial weakness in the demand for and rates that will be paid for shipping services.  For example, the Baltic Dry Index, which measures the demand for shipping capacity versus the supply of dry bulk carriers, started to decline dramatically in May 2010 from a high of 4,209 on May 26, 2010 to a recent low of 1,043 on February 4, 2011.  This weakness in demand and rates is having a material adverse effect on our results of operations and financial condition and has caused us to recognize a noncash impairment in the carrying values of our vessels.  Unless rates improve significantly in the near turn, we anticipate that by June 30, 2011 we would be unable to comply with certain financial covenants in our credit facilities.  A failure to comply with those covenants would require us to enter into negotiations with our lenders and would raise substantial doubt about our ability to continue as a going concern.

High or volatile oil prices could adversely affect the global economy and our results of operations, and we may be unable to pass along increased fuel costs to our customers.

        Rising or prolonged volatility in oil prices could weaken the global economy, which would significantly reduce the demand for ocean freight and increase our fuel costs.  A significant reduction in the demand for ocean freight would have a material and adverse impact on our revenues, results of operations and financial condition.  Oil prices recently have spiked as a result of turmoil in certain key oil producing nations in the Middle East and North Africa.  We may be unable to pass along increased fuel costs to our customers, which would adversely affect our results of operations. We are particularly affected by rising fuel prices because a majority of our revenue is derived from freight voyages for which we bear the fuel expense, in contrast to charters, for which the charterer bears the fuel expense.  Fuel expense represented approximately 48% and 49% of our voyage expense for the years ended December 31, 2010 and 2009, respectively.
 
Rising inflation in China could result in decreased demand for shipping services and further declines in shipping rates.

        The inflation rate in China increased in 2010 and is expected to continue to rise in 2011, which may increase the cost of raw materials and finished goods exported from China.  Increases in the cost of Chinese goods may reduce the global demand for Chinese goods and the volume of cargoes shipped from China, which could materially decrease the worldwide demand for shipping services, and may result in further declines in shipping rates and adversely affect our results of operations and cash flows.


Risks Related to Our Business and Operations

Our business depends to a significant degree on the stability and continued growth of the Asian and Latin American economies.

        Growth in the shipping industry in recent years has been attributable, to a significant degree, to the rapid growth of the Chinese economy. Economic growth in China caused unprecedented demand for raw materials from Latin America, including iron ore, bauxite, soybeans, timber, zinc, manganese and copper. These raw materials generally are transported by ocean freight. The growth of the Chinese economy stimulated growth in other Asian economies as well. Any pronounced slowdown or decline in the Chinese economy could be expected to have significant adverse effects on the economies of Latin American and Asian countries and on the demand for our services and could be expected to result in declines in freight rates and the value of our vessels. We expect that a significant decline in the Asian and Latin American economies would have a materially adverse effect on our results of operations.

Certain of our vessel expenses are primarily inelastic, and any unexpected decrease in revenue would harm our results.

        Generally, vessel expenses, such as fuel, lube oil, crew wages, insurance, bunkers, stores, repairs and maintenance, do not vary significantly with freight rates or the amount of cargo carried. As a result, a change in the number of tons of cargo carried or a decrease in freight rates would have a disproportionate effect on our results of operations and cash flows. Any pronounced slowdown or decline in demand for shipping may require us to run voyages at less than full capacity in an effort to maintain all of our shipping routes. Our inability to fully book a ship would reduce revenue for a voyage, while the vessel and voyage costs would remain fairly constant. We do not have long-term contracts with our customers and, if we are unable to fully book our vessels, we may operate voyages at a loss. Accordingly, our profitability and liquidity would be adversely affected.

A significant number of our vessels will exceed their estimated economic useful life during the next three years.

We estimate that the economic useful life of most multipurpose tweendeckers and handysize/handymax bulk carriers is approximately 30 years, depending on market conditions, the type of cargo being carried and the level of maintenance. We expect that 17 vessels out of our controlled fleet of 49 vessels at December 31, 2010, will reach 30 years old on or before December 31, 2014—three vessels in 2012, three vessels in 2013 and 11 in 2014. If we are unable to use these vessels profitably or replace these vessels after they exceed their estimated economic useful lives, our results of operations and cash flows may be materially adversely affected.

As our fleet ages, the risks associated with older vessels could adversely affect our operations.

In general, the costs to maintain an ocean-going vessel in good operating condition increase with the age of the vessel. As of December 31, 2010, the average age of the 49 vessels in our controlled fleet was 21.8 years. Some of our dry bulk carriers are used to transport products such as coal, salt or fertilizer that may damage our vessels and reduce their useful lives, if we do not follow specified maintenance and cleaning routines. Older vessels may develop unexpected mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel. Governmental regulations and safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment, to our vessels and may restrict the type of activities in which our vessels may engage. We cannot assure you that we will be able to operate our vessels profitably during the remainder of their projected useful lives or that we will be able to sell them profitably when we can no longer utilize them in our fleet.

We may not be able to grow our vessel fleet or effectively manage our growth.

A principal focus of our long-term strategy is to continue to grow by increasing the number of vessels in our fleet and by taking advantage of changing market conditions, which may include increasing the frequency of service on routes we already operate or adding new routes and expanding into other regions.  Our future growth will depend upon a number of factors, some of which we or our affiliated service company, TBS Commercial Group, can control and some of which neither we nor TBS Commercial Group can control. These factors include our ability to:

·
identify vessels for acquisitions;
·
integrate any acquired vessels successfully with our existing operations;
·
hire, train and retain qualified personnel to manage and operate our growing business and fleet;
·
identify additional new markets and trade routes;
·
recruit, train and retain port captains and other local staff required for our affiliated service companies to provide the necessary level of service in any new or expanded markets;
·
improve our operating and financial systems and controls; and
·
obtain required financing for our existing and new operations on acceptable terms.

    The failure to effectively identify, purchase, develop and integrate any newly acquired vessels could adversely affect our business, financial condition and results of operations. Our current operating and financial systems may not be adequate as we expand the size of our fleet and our attempts to improve those systems may be ineffective. As our fleet expands, we may have excess capacity if demand for our services does not grow as we expect. In addition, as we expand our fleet, our service companies will need to hire suitable additional management and administrative personnel and our affiliated service companies will need to recruit and train port captains and other local staff necessary to meet the needs of our growing business. We cannot assure you that we will be able to hire suitable employees as we expand our business. If our operating and financial systems are not effective or if we or our affiliated service companies cannot recruit and retain suitable employees as we grow, our future operations could be adversely affected.
 
In addition, our ability to increase the size of our fleet will be limited by the provisions of our credit facilities which restrict our ability to borrow funds for the purpose of acquiring new vessels.

There are risks associated with the purchase and operation of secondhand vessels.

Part of our previous business strategy involved growing our fleet through the purchase of secondhand vessels. Global economic conditions and the reduction in demand for shipping services have caused us to reevaluate acquiring secondhand vessels. Pending any dramatic change in global economic conditions we have decided to suspend any further acquisitions of secondhand vessels. Secondhand vessels generally carry no warranties from the sellers or manufacturers. Although we inspected secondhand vessels prior to purchase, an inspection normally would not provide us with the same knowledge about their condition that we would have if they had been built for and operated exclusively by us. Secondhand vessels may have conditions or defects that we were not aware of when we bought them and that may require us to undertake costly repairs. These repairs may require us to put a vessel into drydock, which would reduce our fleet utilization. The costs of drydock repairs are unpredictable and can be substantial. We may not have insurance sufficient to cover all of these repair costs or losses and may have to pay drydocking costs not covered by our insurance. The loss of earnings while our vessels were being repaired in drydock and repositioned, as well as the actual cost of those repairs, would decrease our income from operations. Additionally, our future operating results could be adversely affected if some of the secondhand vessels do not perform as we expect.
 
Vessel drydockings could adversely affect our operations.

        Under applicable regulations, vessels must be drydocked twice during a five-year cycle.  At December 31, 2010, we had a controlled fleet of 49 vessels, of which three are newly built vessels and the remaining 46 vessels would require approximately 92 drydockings over five years or to an average of 18 vessels per year. The first drydocking of a newly constructed vessel, which would be a special survey of the vessel, is typically done five years after delivery of the vessel from the shipyard. We estimate that vessel drydockings that require less than 100 metric tons of steel renewal will take from 25 to 35 days and that vessel drydockings that require 100 to 500 metric tons of steel renewal will take from 35 to 55 days. We capitalize vessel improvements, including steel renewal and reinforcement, in connection with the first drydocking after we acquire a vessel. In addition, we will need to reposition our vessels or charter-in outside vessels to accommodate our drydocking schedule and business needs. Approximately 30 of our vessels regularly trade in the Atlantic and Middle East region; consequently, drydocking our vessels in Chinese shipyards require complex logistics planning.  We are investigating whether the drydockings are feasible at shipyards closer to where some of our vessels operate.

        In addition, it may be necessary to unexpectedly drydock a vessel if it suffers damage.  The costs of drydock repairs are unpredictable and can be substantial.  The loss of earnings while any vessel is drydocked, as well as the repositioning of our vessels in response to the drydocking and the actual costs of the drydocking and possible charter-in expense in response to the drydocking could have a material adverse effect on our cash flows and results of operations.  Furthermore, we may not have insurance sufficient to cover all of the costs or losses associated with an unexpected drydocking.

The South American joint venture, Log-Star, could result in unmet strategic business expectations and a greater than expected commitment of resources.

    In January 2010, we entered into a joint venture agreement and formed, Log-Star, a Brazilian corporation, to expand our business, strengthen our operational base and provide additional future growth by providing cabotage service in the Brazilian coast and Amazon River Basin.  The success of this joint venture is dependent on a growing Brazilian economy, successfully competing in the Brazilian marketplace, maintaining vessels, efficient and economical operations and the overall global economic recovery.  In the event of adverse changes in economic conditions or circumstances in the Brazilian marketplace, the success of the joint venture may be adversely affected.
 
    During 2010, we incurred significant expenses and advanced funds in connection with our joint venture, Log-Star.  Although we believe that we have a right to be compensated for a significant portion of these amounts, we determined that as of September 30, 2010 only $2.5 million of this amount was collectible.  In early December 2010, we reviewed the transactions with our joint venture partner and concluded that the $2.5 million receivable we recorded as of September 30, 2010 would not be reimbursed by our joint venture partner.  The 2010 results of Log-Star’s operations include the $2.5 million uncollectible expenses.

We depend upon a limited number of customers for a large part of our revenue.

Our top ten customers by revenue, accounted for, in the aggregate, 30.8% of our total consolidated revenue for 2010.  If any of these customers were to significantly reduce the amount of cargoes shipped using our vessels, our results of operations could be adversely affected.
 
Our competitive advantage in niche markets may be eliminated.

Our fleet primarily consists of vessels suited to niche markets not efficiently served by container ships or large dry bulk vessels. If the markets in which we successfully compete upgrade their port infrastructure to accommodate larger vessels, or if the volume of cargo shipped from these markets increases sufficiently, container ships or large dry bulk vessels would be able to serve these markets more efficiently. Because operators of container ships and large dry bulk vessels have significantly lower costs per cargo ton than we do, their entry into our markets could result in increased price competition and affect our ability to maintain our rates. Our future operating results could be adversely affected if we are unable to identify and efficiently serve new niche markets in the face of more effective competition in our current markets.

In the highly competitive international shipping market, we may not be able to compete with new entrants or established companies with greater resources.
        
We employ our vessels in highly competitive markets that are capital-intensive and highly fragmented. Competition arises primarily from other vessel owners, many of whom have substantially greater resources than we have. Competition for the transportation of cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators. Due in part to the high fragmentation of the market, competitors with greater resources could enter our market and operate larger fleets through consolidation or acquisitions and may be able to offer lower rates and higher quality vessels than we are able to offer.

Shortages of and rising costs to hire qualified crews, officers and engineers could adversely affect our business.

        Crew costs are a significant operating expense for our operations. Crew costs have increased as wage levels have increased in non-U.S. markets and may continue to increase. The cost of employing suitable crew is unpredictable and fluctuates based on events outside our control, including the supply and demand for crew and the wages paid by other shipping companies. In addition, newbuilding programs, including our own, have increased the demand for qualified crew, officers and engineers to work on our vessels, and stringent certification standards required by national and international regulations, such as "Standards of Training, Certification and Watchkeeping for Seafarers," promulgated by the International Maritime Organization, or IMO, make it difficult to recruit qualified crewmembers. We use three unaffiliated manning agents, Aboitiz Jebsen Bulk Transport Corp., Intermodal Shipping, Inc., and C.F. Sharp Crew Management, Inc. to provide Filipino officers and non-officers to crew our vessels.

        Any increase in crew costs may adversely affect our results of operations.  Furthermore, if we are unable to recruit and retain enough crew, engineers or vessel captains with the appropriate skills, we may be unable to satisfy any increased demand for our shipping services, which could have an adverse effect on our business, financial condition and results of operations.

We recorded a significant charge to earnings for the fourth quarter of 2010 because our long-lived assets were impaired and we may in the future be required to record significant charges to earnings if our long lived assets or goodwill become impaired.
     
We are required to review long-lived assets for impairment whenever events or circumstances suggest that long-lived assets may not be recoverable.  Events or circumstances that might trigger an impairment analysis include significant declines in freight rates or the market value or physical condition of our vessels, significant decreases in charter rates, or the existence of operating or cash flow losses associated with the use of our vessels.  Once a triggering event or circumstance arises, we perform an impairment analysis.  If the carrying value of our vessels or other long-lived assets exceeds the forecasted undiscounted cash flows for such assets, we are required to write down the carrying value of the assets to the estimated fair value. If we were to determine that our long-lived assets are impaired, we would be required to record a significant charge to earnings in our financial statements.

Based on our impairment analyses performed at year-end 2010, management concluded that events and circumstances during the fourth quarter of 2010 suggested a possible impairment of our long-lived assets.  As a result, we performed an impairment assessment of our long-lived assets.  The significant factors and assumptions we used in estimating undiscounted cash flows included revenues, cargo volumes, capital expenditures, and operating expenses.  We based our revenue assumptions on a number of factors estimated over the remaining life of our vessels, including historical and projected freight and charter rates, current market conditions and the age of our vessels.  We estimated operating expenses using an annual escalation factor.  Our historical experience with the shipping industry also confirmed our assumptions and estimates. At December 31, 2010, we recognized a noncash impairment charge of $201.7 million, which reduced our net fixed assets at December 31, 2010 by an equal amount.

The assumptions and estimates we used in our impairment analysis are highly subjective and could be negatively affected by further declines in freight or charter rates or in the market value of vessels or other factors, which could require us to record additional material impairment charges in future periods.

Goodwill is required to be tested for impairment at least annually or when events or changes in circumstances indicate the carrying value may not be recoverable.  Factors that may be considered a change in circumstances indicating that the carrying value of goodwill may not be recoverable include a decline in stock price and market capitalization and other materially adverse events.  Our most recent tests did not indicate any impairment of goodwill because the reporting units had negative carrying amounts.  Under current accounting guidance an entity can assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired.  In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)”, to change FASB Accounting Standards Codification (“ASC”) Topic 350 – Intangibles – Goodwill and Other.  The amendments in this update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts and are effective for the quarter ending March 31, 2011.  We are assessing the potential impact of this new guidance on our consolidated financial statements which could result in an impairment of our goodwill.  As of December 31, 2010, our net fixed assets were $576.3 million and our goodwill was $8.4 million.  In the period of adoption of this guidance, any impairment of goodwill will be charged to shareholders’ equity.

We are subject to regulation and liability under environmental laws that could require significant expenditures and adversely affect our financial condition, results of operations and cash flows.

Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, we may not be able to predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted, which could limit our ability to do business, cause us to incur the costs of retrofitting our vessels or result in financial penalties, thereby adversely affecting our financial condition, results of operations and cash flows.
 
We are required by various governmental and quasi-governmental agencies and other regulatory authorities to obtain permits, licenses and certificates in connection with our operations. Some countries in which we operate have laws that restrict the carriage of cargoes depending on the registry of a vessel, the nationality of its crew and prior and future ports of call, as well as other considerations relating to particular national interests. We cannot assure you that any failure to comply with these requirements would not have a material adverse effect on our results of operations.

Failure to comply with international safety regulations could subject us to increased liability, adversely affect our insurance coverage and result in a denial of access to, or detention in, certain ports.

The operation of our vessels is affected by the requirements of the IMO's International Safety Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Any material failure to comply with the ISM Code could subject us to increased liability, could invalidate existing insurance or decrease available insurance coverage for the affected vessels and could result in a denial of access to or detention in certain ports, all of which could materially and adversely affect our results of operations and liquidity. Our owned vessels and Roymar, the technical manager for our vessels, are ISM Code certified. However, we cannot assure you that such certification will be maintained.
 
The shipping industry has inherent operational risks, which may not be adequately covered by insurance.

The operation of any oceangoing vessel carries with it an inherent risk of marine disaster, environmental mishap and collision or property loss. In the course of operating a vessel, marine disasters such as oil spills and other environmental mishaps, cargo loss or damage, business interruption due to political developments, labor disputes, strikes and adverse weather conditions could result in loss of revenues, liabilities or increased costs. We transport bulk cargoes such as fertilizer, salt and coal which, if not transported properly, could pose a risk to our vessels and to the environment. We cannot assure you that any insurance we maintain would be sufficient to cover the cost of damages or the loss of income resulting from a vessel being removed from operation or that any insurance claims would be paid or that insurance will be obtainable at reasonable rates in the future. Any significant loss or liability for which we are not insured, or for which our insurers fail to pay us, could have a material adverse effect on our financial condition. In addition, the loss of a vessel would adversely affect our cash flows and results of operations.

Compliance with environmental and other laws and regulations could adversely affect our business.

Extensive and changing environmental protection and other laws and regulations directly affect the operation of our vessels. These laws and regulations take the form of international conventions and agreements, including the IMO conventions and regulations and the International Convention for the Safety of Life at Sea, or SOLAS, which are applicable to all internationally trading vessels, and national, state and local laws and regulations, all of which are amended frequently. Under these laws and regulations, various governmental and quasi-governmental agencies and other regulatory authorities may require us to obtain permits, licenses and certificates in connection with our operations. Some countries in which we operate have laws that restrict the carriage of cargoes depending on the registry of a vessel, the nationality of its crew and prior and future ports of call, as well as other considerations relating to particular national interests. Changes in governmental regulations and safety or other equipment standards may require unbudgeted expenditures for alterations, drydocking or the addition of new equipment for our vessels. Port authorities in various jurisdictions may demand that repairs be made before allowing a vessel to sail, even though that vessel may be certified as "in class" and in compliance with all relevant maritime conventions. Compliance with these laws and regulations may require significant expenditures, including expenses for ship modifications and changes in operating procedures or penalties for failure to comply with these laws and regulations, which could adversely affect our results of operations.

Pursuant to regulations promulgated by the U.S. Coast Guard, responsible parties (as defined in such regulations) must establish and maintain evidence of financial responsibility. The P&I Associations, which historically provided shipowners and operators financial assurance, have refused to furnish evidence of insurance to responsible parties, and therefore responsible parties have obtained financial assurance from other sources at additional cost, including evidence of surety bond, guaranty or self-insurance. Any inability on our part to continue to comply with these Coast Guard regulations would have a material adverse effect on our results of operations.

Port state authorities in general and in certain jurisdictions in particular have become more active in inspecting older vessels visiting their ports and, in certain instances, demanding that repairs be made before allowing a vessel to sail, even though that vessel may be fully insured, in class and in compliance with all relevant maritime conventions including SOLAS. Vessels under certain flags are more likely to be subject to inspections by the Port state authorities. Additional expenses may be incurred for unscheduled repairs mandated by port state authorities.

The IMO has adopted regulations that are designed to reduce oil pollution in international waters. In complying with U.S. Oil Pollution Act of 1990, or OPA 90, and IMO regulations and other regulations that may be adopted, shipowners and operators may be forced to incur additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Additional laws and regulations may be adopted that could have a material adverse effect on our results of operations. In the United States and in other countries where we operate, we are subject to various federal, state or local environmental laws, ordinances and regulations and may be required to clean up environmental contamination resulting from a discharge of oil or hazardous substances, such as a discharge of fuel. We also may be held liable to a governmental entity or to third parties in connection with the contamination. These laws typically impose cleanup responsibility. Liability under these laws has been interpreted to be strict, joint and several, and subject to very limited statutory defenses. The costs of investigation, remediation or removal of such substances and damages resulting from such releases could be substantial and could adversely affect our results of operations.

If we have U.S. source income, we will have to pay U.S. federal income tax on it, which would reduce our earnings.

        Under the Internal Revenue Code, 50% of the gross shipping income of a corporation that owns or charters vessels that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source transportation income. Our U.S. source transportation income will be subject to either a 4% U.S. federal income tax without allowance for any deductions or, if such income is effectively connected with business in the United States, a net basis tax at regular graduated U.S. federal income tax rates, and, possibly, an additional 30% branch profits tax on our effectively connected earnings and profits, unless an exemption is available.

        We currently qualify for exemption under Section 883 of the Internal Revenue Code, because we and our subsidiaries currently are incorporated in jurisdictions that satisfy the country of organization requirement and we satisfy the publicly traded test by virtue of our Class A ordinary being primarily traded on the Nasdaq Global Select Market. Furthermore, the aggregate ownership of all non-qualified 5% shareholders is less than 50% of the total value of the Class A ordinary shares. If at any time we fail to satisfy the publicly traded test and we were unable to qualify for another applicable exemption, our U.S. source shipping income would be subject to U.S. federal income tax.

        Our ability to continue to qualify for the exemption depends on circumstances related to the ownership of our ordinary shares that are beyond our control and on interpretations of existing regulations of the U.S. Treasury Department. In particular, if 50% or more of our Class A ordinary shares are held by one or more non-qualified U.S. shareholders, each of whom owns 5% or more of the shares, the exemption would not be available. We estimate that as of February 28, 2011, non-qualified U.S. shareholders who own 5% or more of our shares owned an aggregate of 29.7% of our Class A ordinary shares. We cannot assure you that we will qualify for exemption under Section 883 in the future.

        Changes in the Internal Revenue Code, Treasury regulations or the interpretation thereof by the Internal Revenue Service or the courts could also adversely affect our ability to take advantage of the exemption under Section 883.

We may be treated as a passive foreign investment company in the future, which would result in adverse tax consequences to holders of our Class A ordinary shares.

        Based upon the nature of our current and projected income, assets and activities, we do not believe that we are, and we do not expect the Class A ordinary shares to be considered shares of, a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. However, the determination of whether the Class A ordinary shares constitute shares of a PFIC is a factual determination made annually, and we cannot assure you that we will not be considered a PFIC in the future. If we were treated as a PFIC, a holder of our Class A ordinary shares would be subject to special rules with respect to any gain realized on the sale or other disposition of the Class A ordinary shares and any "excess distribution" by us to the holder (generally, any distribution during a taxable year in which distributions to the holder on the Class A ordinary shares exceed 125% of the average annual taxable distribution the holder received on the Class A ordinary shares during the preceding three taxable years or, if shorter, the holder's holding period for the Class A ordinary shares). Under those rules, the gain or excess distribution would be allocated ratably over the holder's holding period for the Class A ordinary shares, the amount allocated to the taxable year in which the gain or excess distribution is realized and to taxable years before the first day we became a PFIC would be taxable as ordinary income, the amount allocated to each other year, with certain exceptions, would be subject to tax at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such year.

The majority of our revenue is derived from operations outside the United States and may be adversely affected by actions taken by foreign governments or other forces or events over which we have no control.

        We derive a significant portion of our voyage revenue from operations in Latin America, Asia, Africa and the Middle East. Our profitability may be affected by changing economic, political and social conditions in these regions. In particular, our operations may be affected by war, terrorism, expropriation of vessels, the imposition of taxes, increased regulation or other circumstances, any of which could reduce our profitability, impair our assets or cause us to curtail our operations. The economies of the Latin American countries where we conduct operations have been volatile and subject to prolonged, repeated downturns, recessions and depressions. Adverse economic or political developments or conflicts in these countries could have a material adverse effect on our operations.

Foreign currency exchange rates may adversely affect our results.

        We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates. During 2010, we incurred approximately 9% of our operating expenses in currencies other than U.S. dollars. At December 31, 2010, approximately 5% of our outstanding accounts payable were denominated in currencies other than U.S. dollars. As a result, if the U.S. dollar weakens in relation to the currencies of the countries where we incur expenses, our U.S. dollar reported expenses will increase and our income will decrease. Changes in the relative values of currencies occur from time to time and may, in some instances, have a significant effect on our operating results.

Acts of piracy on ocean-going vessels have increased recently in frequency and magnitude, which could adversely affect our business.

        During the past few years, acts of piracy have risen steeply.  While international efforts have been and continue to be made to prevent them, acts of piracy continue to occur, particularly off the coast of Somalia in the Gulf of Aden and in the South China Sea. If piracy attacks occur in regions in which our vessels are deployed that become characterized by insurers as "war risk" zones or "war and strikes" listed areas, premiums payable for such insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain. Crew costs, including those due to employing on-board security guards, could increase in such circumstances. In addition, while we believe the time charterer remains liable for charter payments when a vessel is seized by pirates for the period specified in the charter agreement, the charterer may dispute this belief and withhold charter fees until the vessel is released. A charterer also may claim that a vessel seized by pirates was not "on-hire" for a certain number of days and that it is therefore entitled to cancel the charter, a claim that we would dispute. The detention of any of our vessels hijacked as a result of an act of piracy and any unrecoverable costs, increases in insurance premiums payable, or losses due to the unavailability of insurance coverage, could have a material adverse impact on our financial condition, results of operations and cash flows.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

        The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance program, we cannot assure you that our internal control policies and procedures always will protect us from acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our business and operations.
 
Marine claimants could arrest our vessels, which could damage our on-time performance reputation and result in a loss of cash flow.

        Under general maritime law in many jurisdictions, crew members, tort claimants, claimants for breach of certain maritime contracts, vessel mortgagors, suppliers of fuel, materials, goods and services to a vessel and shippers and consignees of cargo may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many circumstances, a maritime lien holder may bring an action to enforce its lien by "arresting" a vessel. In some jurisdictions, under the "sister ship" theory of liability, a claimant may arrest not only the vessel subject to the claimant's maritime lien, but also any "associated" vessel owned or controlled by the legal or beneficial owner of that vessel. The arrest of one or more of our vessels could result in a loss of cash flow or require us to pay substantial amounts to have the arrest lifted. Any interruption in our sailing schedule and our on-time performance could adversely affect our customer relationships.

Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.

        A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, however, governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels could have a material adverse effect on our cash flows and results of operations.

Risks Related to Our Indebtedness

We have substantial indebtedness, which could adversely affect our financial health.

        Giving effect to the amendments to our various credit facilities we had $332.4 million in aggregate principal amount of indebtedness outstanding as of January 28, 2011.  We incurred an additional $7.4 million of indebtedness in connection with the delivery of a new vessel in February 2011, and we expect to incur an additional $7.4 million of indebtedness within the next six months.  Our indebtedness could have important consequences including:

·
making it more difficult for us, or making us unable, to pay dividends on preference shares;
·
increasing our vulnerability to general adverse economic and industry conditions by making it more difficult for us to react quickly to changing conditions;
·
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements; and
·
requiring us to use a substantial portion of our cash flow from operations for the payment of debt service, which would reduce our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements.
 
 

Financial covenants in our credit facilities require us to maintain specified financial ratios and satisfy financial covenants.

        Our credit facilities contain financial covenants that require us to maintain certain levels of cash flow, collateral value and liquidity. Events beyond our control, including changes in the economic and business conditions in the markets in which we operate and decreases in the market values of our vessels, may affect our ability to comply with these covenants. Unless the Baltic Dry Index, and in particular the freight and charter rates that we are able to obtain, strengthen significantly in the near future, it is likely that by June 30, 2011 we would fail to meet the tests under certain of these financial covenants and that we would need to enter into further negotiations with our lenders to seek further modifications of those financial covenants.  Failure to meet these tests would have a material adverse affect on our business operations, financial condition, and liquidity, and would raise substantial doubt about our ability to continue as a going concern.  We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders would waive any failure to do so. In addition, we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to satisfy our financial covenants.

        If the value of the collateral securing any one of our credit facilities falls below the required level, we would be in default under that facility and as a result, in default under our other credit facilities. We also would be required to prepay the loans or provide additional collateral to the extent necessary to bring the value of the collateral as compared to the aggregate amount of the secured debt back to the required level. We cannot assure you that we would have the funds to prepay the credit facilities or that we would have sufficient unencumbered assets available as additional collateral.
       
A breach of any of the financial covenants would result in a default.  Moreover, any acceleration of the debt outstanding under our credit facilities upon a declaration of default could result in a default under our other agreements.
 
We face risks related to our debt maturities, including refinancing risk.

        Giving effect to the January 2011 amendments to our various credit facilities, we had $332.4 million in aggregate principal amount of indebtedness outstanding as of January 28, 2011.  We incurred an additional $7.4 million of indebtedness in connection with the delivery of a new vessel in February, 2011, and we expect to incur an additional $7.4 million of indebtedness within the next six months.  Approximately $134.5 million of that principal amount is payable in installments before June 30, 2014, and $212.7 million principal amount, commonly known as a "balloon payment," is due June 30, 2014 on our various credit facilities.  We may not have the cash resources available to repay either the installment payments or balloon payments when due. In order to pay the balloon payments, we will have to raise funds either through the issuance of additional equity, additional borrowings or refinancing or asset sales.  We cannot assure you that we will be able to raise additional capital when needed on favorable terms or at all.  To the extent we cannot refinance debt on favorable terms or at all, we may be forced to attempt to renegotiate with our lenders or to dispose of assets on disadvantageous terms, either of which would adversely affect our financial position, results of operations and cash flows.

Operating covenants in our credit facilities may restrict our business in many ways, including by limiting our current and future operations.

        Our credit facilities do or may contain various operating and other covenants that significantly limit our ability and certain of our subsidiaries' ability to, among other things:

·
incur additional indebtedness or issue certain capital or preferred stock;
·
pay dividends on, redeem or repurchase our shares or make other restricted payments or investments;
·
create certain liens;
·
transfer or sell assets;
·
agree to certain restrictions on the ability of restricted subsidiaries to make payments to us;
·
amalgamate, merge, consolidate or sell all or substantially all of our properties and assets;
·
engage in certain transactions with affiliates; and
·
designate unrestricted subsidiaries.
      
We also may be subject to leverage, fixed charge coverage and cash balance requirements pursuant to our credit facilities. Our credit facilities may require us to make mandatory prepayment or deliver additional security in the event that the fair market value of the vessels securing these credit facilities falls below limits specified in our credit facilities.
 
We will require a significant amount of cash to service our debt obligations and our ability to generate sufficient cash to service our debt obligations depends upon many factors, some of which are beyond our control.

        Our ability to make payments on and refinance our indebtedness and to fund working capital needs and planned capital expenditures depends on our ability to generate adequate cash flow in the future. Our ability to generate adequate cash flow is subject, to a significant degree, to general economic, financial, competitive and regulatory factors and other factors that are beyond our control, including the supply and demand for ocean shipping.  Unless freight and charter rates improve significantly, we do not expect that our business will be able to generate cash flow from operations at sufficient levels.  In addition, our cash and working capital needs might increase for various reasons, including the need to drydock vessels and make upgrades to vessels.

        If our cash flows and capital resources are insufficient to fund our debt service obligations and meet our other needs, we may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Without sufficient operating results or resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our credit facilities may restrict our ability to dispose of assets, use the proceeds from any such disposition of assets and refinance our indebtedness. We may not be able to consummate those dispositions or obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

        Certain portions of some of our borrowings are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. Giving effect to the amendments to our various credit facilities that were effective as of January 28, 2011, approximately 39% of our loans were hedged. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same and our net income would decrease. Pursuant to the indenture governing certain loans, we were required to enter into interest rate swaps, involving the exchange of floating for fixed rate interest payments, or other forms of derivative transactions, to reduce interest rate volatility.

The global nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

        We are incorporated under the laws of Ireland and most of our subsidiaries are incorporated under the laws of the Republic of the Marshall Islands. Our operations are conducted in countries around the world. Consequently, in the event of any bankruptcy, insolvency or similar proceedings involving us or one of our subsidiaries, bankruptcy laws other than those of the United States could apply. We have limited operations in the United States. If we become a debtor under the United States bankruptcy laws, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. We cannot assure you, however, that we would become a debtor in the United States or that a United States bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case or that courts in other countries that have jurisdiction over us and our operations would recognize a United States bankruptcy court's jurisdiction if any other bankruptcy court would determine it had jurisdiction.

Risk Factors Related to Our Corporate Structure and the Jurisdictions of Incorporation of International and the Guarantors

TBSI is a holding company and depends on the ability of its subsidiaries to distribute funds to it in order to meet its financial and other obligations.

        TBSI is a holding company with no significant assets other than the shares of capital stock of our subsidiaries that conduct all of our operations and own all of our vessels. TBSI derives all of its cash flow from dividends and other payments from our subsidiaries, which in turn derive all of their cash flows from payments from their direct and indirect operations. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness and our share capital. Each subsidiary is a distinct legal entity with no obligation to provide us with funds for our repayment obligations, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness or our share capital.

The laws of Ireland differ from the laws in effect in the United States.

        As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders. These differences include, among others, differences relating to interested director and officer transactions and shareholder lawsuits. In addition, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against a company's directors or officers and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our ordinary shares and Series A Preference Shares may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.

We have relied, and will continue to rely, to a significant degree upon affiliated service companies.

        We have relied upon and will continue to rely upon TBS Commercial Group and Beacon Holdings Ltd., both affiliated service companies, for agency services that are critical to our business. These companies employ sales and customer service professionals who meet with shippers and consignees to anticipate the needs and address the concerns of our customers. Our business, results of operations and liquidity may be materially adversely affected if we lose our relationship with TBS Commercial Group or Beacon Holdings Ltd., or if they become unable to perform these services or their key employees leave their respective company.

TBS Commercial Group is a privately held company, and there is little or no publicly available information about it.

        The ability of TBS Commercial Group and Beacon Holdings Ltd. to continue providing critical services for our benefit will depend in part on their own financial strength. Circumstances beyond our control could impair their financial strength and, because TBS Commercial Group and Beacon Holdings Ltd. are privately held, it is unlikely that information about their financial strength would become public. As a result, a holder of our shares might have little advance warning of problems affecting TBS Commercial Group and Beacon Holdings Ltd., even though these problems could have a material adverse effect on us.
 
The interests of certain shareholders that own a significant number of our shares could be adverse to your interests as a public shareholder.

        Certain of our shareholders who own a significant number of our shares control TBS Commercial Group and Beacon Holdings Ltd. It is possible that these shareholders could use their relationship with us and their control over TBS Commercial Group or Beacon Holdings Ltd. to shift revenues and operating income from us to TBS Commercial Group or Beacon Holdings Ltd. for their individual benefit and contrary to the interests of our public shareholders. For example, these individuals could cause us to pay above-market fees to TBS Commercial Group or Beacon Holdings Ltd. or to permit TBS Commercial Group or Beacon Holdings Ltd. to take advantage of corporate opportunities. We cannot assure you that these potential conflicts of interest will be handled in the best interests of our public shareholders.

Legislative or regulatory action could materially and adversely affect us.

        Our tax position could be adversely affected by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. For example, legislative proposals have been introduced in the U.S. Congress that, if enacted, could override tax treaties upon which we expect to rely, or could change the circumstances under which we would be treated as a U.S. person for U.S. federal income tax purposes, each of which could materially and adversely affect our effective tax rate and require us to take further action, at potentially significant expense, to seek to preserve our effective tax rate. We cannot predict the outcome of any specific legislative proposals. However, if proposals were enacted limiting our ability as an Irish company to take advantage of the tax treaties between Ireland and the United States, we could be subjected to increased taxation and/or potentially significant expense. In addition, any future amendments to the current income tax treaties between Ireland and other jurisdictions, including the United States, could subject us to increased taxation and potentially significant expense. Also, various U.S. federal and state legislative proposals have been introduced or enacted in recent years that deny government contracts to certain U.S. companies that reincorporate or have reincorporated outside the United States. While we are not a company that was a U.S. company that moved outside the United States, our status as an Irish company may not eliminate the risk that these contract bans and other legislative proposals could be enacted in a way to affect us.

 As an Irish company, we are required to comply with numerous Irish and European Union legal requirements. Compliance with the laws and regulations of Ireland and the European Union may have a material and adverse effect on our financial condition and results of operations.

It may be difficult for shareholders to enforce judgments against International or its directors and executive officers.

It may not be possible to enforce court judgments obtained in the United States against International in Ireland, based on the civil liability provisions of the U.S. federal or state securities laws. One of TBSI’s directors is not a resident of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to enforce in the United States judgments obtained in U.S. courts against us based on the civil liability provisions of the U.S. securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against TBSI or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland or in countries other than the United States where we have assets.

 
    None.


Our fleet is described in "Item 1. Business - Fleet Overview".  All of our vessels are mortgaged to secure our credit facilities.

At December 31, 2010 we leased four properties, which are used by TBSI’s service company subsidiaries, TBS Shipping Services and its subsidiaries, and Roymar for the administration of their operations.  Our principal office, which is leased through our subsidiary TBS Shipping Services, is located in Yonkers, New York and is approximately 15,000 square feet.  The office space is leased from our chairman and chief executive officer.  A lease renewal option was exercised on December 1, 2010 extending the lease until December 31, 2011 at a lower monthly rent of $10,000 plus operating expenses including real estate taxes.  The lease can be renewed for three additional one-year periods at a monthly rent of $20,000 plus operating expenses including real estate taxes.  We also leased 7,232 square feet of office space used by our TBS Houston office that is located in Houston, Texas.   The lease, which runs from October 1, 2009 to September 30, 2014, provides for monthly rent of $8,255 through October 2011, after which monthly rent increases to $8,463 through October 2012, $8,677 through October 2013 and $8,898 through October 2014.  We lease a 40,000 square feet warehouse located in Houston, Texas pursuant to a lease agreement expiring June 30, 2012.  On November 1, 2010, the entire warehouse was sub-leased to a third party at the same monthly rental that we are obligated to pay under the lease.  Under the sub-lease, which expires June 30, 2012, the monthly rent payable is $22,400 through June 2011 and $22,800 through June 2012.

We lease approximately 12,520 square feet of office space located in Scarsdale, New York at a monthly rent of approximately $20,867 plus an additional charge for real estate tax escalations. The lease expires on December 1, 2011.

We believe that our facilities are generally adequate for current and anticipated future use.


We are periodically a defendant in cases involving personal injury, property damage claims and other matters that arise in the normal course of business. While any pending or threatened litigation has an element of uncertainty, we believe that the legal proceedings pending against us, individually or in the aggregate, will not materially adversely affect our consolidated financial position, results of operations or cash flows.



PART II
 

 
Market Information
 
During 2010, the Class A common shares of TBS International Ltd. traded on the NASDAQ Global Select Market ordinary shares under the symbol "TBSI".  Our Class A ordinary shares began to trade on the NASDAQ Global Select Market under the same symbol on January 7, 2010.  Our Class B ordinary shares and Series B preference shares are not publicly traded.  We refer to both the Class A common shares and Class A ordinary shares as our “Class A ordinary shares”.

The following table sets forth, for the periods indicated, the high and low prices for the Class A ordinary shares as reported on the NASDAQ Global Select Market:
 
   
Price of one TBSI Ordinary Share
 
Year Ended December 31, 2010
 
HIGH
 
LOW
 
Fourth Quarter
    $ 5.57     $ 2.71  
Third Quarter
    $ 6.79     $ 5.25  
Second Quarter
    $ 8.97     $ 6.07  
First Quarter
    $ 7.70     $ 5.21  
                   
   
Price of one TBSI Common Share
 
Year Ended December 31, 2009
 
HIGH
 
LOW
 
Fourth Quarter
    $ 9.97     $ 7.17  
Third Quarter
    $ 9.78     $ 6.15  
Second Quarter
    $ 11.90     $ 6.35  
First Quarter
    $ 13.95     $ 5.04  
 
The graph and accompanying table below sets forth, for the periods shown, a comparison of the change in the cumulative total shareholder return on the Class A ordinary shares against the cumulative total return of the NASDAQ Composite Index, a broad-based market index, and the NASDAQ Transportation Index, a peer group of common stocks of companies in the transportation industry, assuming an initial investment of $100.  Such returns are based on historical results and are not intended to suggest future performance.
 
graph
 
 
   
Cumulative Return Comparison
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
   
2006
   
2007
   
2008
   
2009
   
2010
 
TBS International plc ("TBSI")
    86.11       325.71       98.82       72.41       28.57  
NASDAQ Transportation Index
    124.67       129.06       90.98       94.20       123.68  
NASDAQ Composite Index
    117.42       128.94       76.67       110.32       128.97  
 

Holders
 
As of March 2, 2011, there were 7,131 holders of record of our Class A ordinary shares, 12 holders of record of our Class B ordinary shares, and 3 holders of our Series B preference shares.

Dividend and Dividend Policy
 
Distributions made by us will generally be subject to dividend withholding tax at Ireland’s standard rate of income tax (currently 20%). For dividend withholding tax purposes, a dividend includes any distribution made by TBS International plc to its shareholders, including cash dividends, non-cash dividends and additional stock or units taken in lieu of a cash dividend. TBS International plc is responsible for withholding dividend withholding tax and forwarding the relevant payment to the Irish Revenue Commissioners.
 
U.S. Holders
 
Dividends paid to U.S. residents will not be subject to Irish dividend withholding tax provided that:
 
·  
in the case of shareholders who hold TBS International plc shares beneficially through banks, brokers, trustees, custodians or other nominees, which in turn hold those shares through DTC, the address of the beneficial owner in the records of his or her broker is in the United States and this information is provided by the broker to the qualifying intermediary of TBS International plc; or
 
·  
in the case of other shareholders, the shareholder has provided to the transfer agent of TBS International plc a valid W-9 showing either a U.S. address or a valid taxpayer identification number.
 
Irish income tax may also arise with respect to dividends paid on the ordinary shares of TBS International plc.  A U.S. resident who meets one of the exemptions from dividend withholding tax described above and who does not hold shares in the Company through a branch or agency in Ireland through which a trade is carried on generally will not have any Irish income tax liability on a dividend paid by TBS International plc. In addition, if a U.S. shareholder is subject to the dividend withholding tax, the withholding payment discharges any Irish income tax liability, provided the shareholder furnishes to the Irish Revenue authorities a statement of the dividend withholding tax imposed.
 
While the U.S./Ireland Double Tax Treaty contains provisions regarding withholding tax, due to the wide scope of the exemptions from dividend withholding tax available under Irish domestic law, in general it would be unnecessary for a U.S. resident shareholder to rely on the treaty provisions.
 
Relevant territory holders
 
Dividends paid to “relevant territory” residents will not be subject to Irish Dividend Withholding Tax (“DWT”) provided that the holders have filed the relevant Irish DWT exemption forms, in the case of shares held directly, with the company or its transfer agent, and, in the case of shares held beneficially through DTC, with their broker who then transmits the forms to the Company.

Equity Compensation Plans
 
Information regarding our equity compensation plans as of December 31, 2010 is disclosed in "Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and in "Note 15 – Stock Plans" to our consolidated financial statements.
 
Irish Restrictions on Import and Export of Capital 
 
The Financial Transfers Act 1992 provides that the Irish Minister of Finance can make provision for the restriction of financial transfers between Ireland and other countries.  For the purposes of this Act, “financial transfers” include all transfers which would be movements of capital or payments within the meaning of the treaties governing the European Communities if they had been made between Member States of the Communities. This Act has been used by the Minister of Finance to implement European Council Directives, which provide for the restriction of financial transfers to certain countries, organizations and people including Belarus, Burma/Myanmar, Democratic People’s Republic of Korea, Democratic Republic of Congo, Iran, Iraq, Ivory Coast, Lebanon, Liberia, Republic of Serbia, Slobodan Milosevic and associated persons, Somalia, Sudan, Osama Bin Laden, Al-Qaeda and the Taliban of Afghanistan, Uzbekistan and Zimbabwe.
 
Irish Taxation

TBS International plc, the successor issuer to TBS International Limited, is incorporated in Ireland. TBS International plc as a separate entity is subject to tax in Ireland on its worldwide income and gains at 25% with the exception of dividend income received from its subsidiaries that are sourced from active trading profits, which is subject to tax in Ireland at 12.5%. TBS International plc should be considered an investment company for Irish tax purposes and should be allowed to deduct expenses of management against its income and gains. However, as it is not anticipated that TBS International plc will receive any significant dividends from its subsidiaries in the foreseeable future it is not expected that TBS International plc will have any material income subject to Irish taxation.



The selected historical consolidated financial data presented below should be read in conjunction with the consolidated financial statements and notes thereto and "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations", included in this Report.
 
       
Year Ended December 31,
 
   
 
 
2010
   
2009
   
2008
   
2007
   
2006
 
       
(In thousands, except for share and per share amounts)
 
Revenue
                             
 
Voyage revenue
  $ 295,830     $ 247,980     $ 518,907     $ 261,509     $ 187,147  
 
Time charter revenue
    105,824       51,201       83,883       88,365       63,114  
 
Logistics revenue (1)
    9,479       2,689       7,000       668          
 
Other revenue
    700       646       1,843       2,379       1,460  
Revenue
    411,833       302,516       611,633       352,921       251,721  
                                             
Operating expenses
                                       
 
Voyage
    144,533       113,084       172,929       89,241       81,389  
 
Logistics (1)
    6,543       2,193       5,717       557       -  
 
Vessel
    120,769       104,046       110,354       85,958       63,205  
 
Depreciation of vessels
                                       
   
and other fixed assets
    103,637       95,870       73,479       36,022       29,867  
 
General and administrative
    49,357       37,265       39,879       38,703       27,256  
 
Loss (gain) from sale of vessels  (2)
    5,154                       814       (2,180 )
 
Vessels impairment (3)
    201,700                                  
   
Total operating expenses
    631,693       352,458       402,358       251,295       199,537  
(Loss) income from operations
    (219,860 )     (49,942 )     209,275       101,626       52,184  
                                             
Other (expenses) and income
                                       
 
Interest expense
    (27,486 )     (17,119 )     (17,228 )     (10,394 )     (11,577 )
 
Other income
    (216 )     21       2,048       983       1,810  
 
(Loss) on early extinguishment of debt (4)
    (200 )             (2,318 )             (3,357 )
 
Gain on sale and insurance recovery of vessel (5)
                            6,034          
   
Total other (expenses) and income
    (27,902 )     (17,098 )     (17,498 )     (3,377 )     (13,124 )
                                             
Net (loss) income
    (247,762 )     (67,040 )     191,777       98,249       39,060  
                                             
 
Less: Net (loss) attributable to
                                       
   
noncontrolling interest
    (2,496 )                                
                                             
Net (loss) income attributable to TBS International plc
  $ (245,266 )   $ (67,040 )   $ 191,777     $ 98,249     $ 39,060  
                                             
Net (loss) income per ordinary share
                                       
 
Basic (6)
  $ (8.12 )   $ (2.25 )   $ 6.53     $ 3.49     $ 1.39  
 
Diluted (6)
  $ (8.12 )   $ (2.25 )   $ 6.53     $ 3.49     $ 1.39  
Weighted average ordinary shares outstanding
                                       
 
Basic (6)
    30,217,210       29,843,566       29,263,292       28,029,340       27,998,843  
 
Diluted (6)
    30,217,210       29,843,566       29,263,292       28,029,340       27,998,843  
                                             



   
December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(In thousands)
 
Balance Sheet Data:
                             
Cash and cash equivalents
  $ 18,976     $ 51,040     $ 131,150     $ 30,498     $ 12,007  
Working capital
    (299,616 )     (285,823 )     104,311       1,744       (3,816 )
Total assets
    686,321       953,588       1,041,685       559,113       403,091  
Total Debt
    332,259       351,247       383,074       180,166       125,804  
Obligations under capital leases, including
                                       
   current portion
                                    21,355  
Total shareholders' equity
    296,874       537,728       598,296       319,563       223,604  

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Other Operating Data:
                             
Controlled vessels (at end of period) (7)
    49       48       47       36       34  
Chartered vessels (at end of period)  (8)
    3                       1       1  
Voyage Days (9)
    11,435       11,470       14,904       11,868       12,119  
Vessel days (10)
    18,359       17,567       16,337       13,236       12,701  
Tons of cargo shipped (in thousands)
    10,329       8,788       9,315       6,621       4,368  
Revenue per ton (11)
  $ 28.64     $ 28.22     $ 55.70     $ 39.49     $ 42.85  
Tons of cargo shipped, excluding
                                       
   aggregates (in thousands) (12)
    4,706       4,727       5,109       3,447       3,227  
Revenue per ton, excluding
                                       
   aggregates (11) (12)
  $ 54.30     $ 45.36     $ 88.08     $ 68.79     $ 54.67  
Chartered -out days
    5,818       4,733       3,004       3,659       4,301  
Chartered -out rate per day
  $ 18,189     $ 10,818     $ 27,924     $ 24,150     $ 14,674  
 
 
(1)
Represents revenue and related costs for cargo and transportation management services.
 
(2)
Represents a 2010 loss of $5.2 million on the sale of the Savannah Belle, a 2007 loss of $0.8 million on the sale of the Maya Princess and a 2006 gain of $2.2 million on the sale of the Dakota Belle.
 
(3)
 
 
Based on our evaluation of the events and circumstances surrounding the valuation of our vessels during the fourth quarter of 2010 including continued significant declines in freight and charter rates and decreases in vessel values, we conducted an impairment analysis of our long-lived assets as of December 31, 2010.  Based on our analysis, a $201.7 million noncash impairment on our vessels was recorded at December 31, 2010.   Basic and diluted earnings per ordinary share for the year ended December 31, 2010 decreased $6.67 as a result of the noncash impairment charge.
 
(4)
The 2010 loss on extinguishment of debt represents the write off of unamortized deferred financing costs for the Bank of America (“BOA”) Credit Facility made in connection with the final loan amendments and waivers to our credit facilities.  The 2008 loss on extinguishment of debt represents the write off of unamortized deferred finance costs in connection with the March 2008 refinancing of the Bank of America credit facility.  The 2006 loss on early extinguishment of debt represents the write-off of unamortized debt finance costs of $1.3 million and the payment of loan prepayment fees of $2.1 million when we repaid most of our then existing credit facilities in July 2006.
 
(5)
We recognized a gain on the sale and insurance recovery of the Huron Maiden.  The vessel was severely damaged in a grounding accident on an uncharted rock while on passage near Indonesia in March 2007.  The vessel was declared a constructive total loss, and we received a net insurance recovery of $8.0 million, after a scrap value credit of $2.0 million.  We then sold the vessel for scrap for $2.8 million.  After expenses in connection with the accident and sale of the vessel of approximately $1.2 million, we realized a net gain on the casualty and sale of the vessel of approximately $6.0 million. 
 
(6)
In 2009, we adopted the applicable provisions of FASB ASC Topic 260 – Earnings per Share and computed earnings per ordinary share using the two-class method for participating securities and nonvested share-based payment awards that contain non-forfeitable rights to dividends. The adoption of the provisions did not have a material impact on the Company’s previously issued consolidated financial statements; however, for comparability purposes, we recalculated and restated our previously reported earnings per share. Basic earnings per ordinary share for the years ended December 31, 2008, 2007 and 2006 decreased $0.02, $0.02 and $0.01, respectively, from the amounts previously disclosed in our prior filings.  Diluted earnings per ordinary share for the years ended December 31, 2008 and 2007 decreased $0.01 from the amounts previously disclosed in our prior filings and there was no change for the year ended December 31, 2006.
 
(7)
Controlled vessels are vessels that we own or charter-in with an option to purchase. As of December 31, 2010, two vessels in our controlled fleet were chartered-in with an option to purchase.
 
(8)
Represents vessels that we charter-in under short-term charters (less than one year at the start of the charter) and charter-in of vessels under long-term charters without an option to purchase.  Includes three Brazilian flagged vessels chartered in under a bareboat charter through our joint venture Log-Star as of December 31, 2010.
 
(9)
Represents the number of days controlled and time-chartered vessels were operated by us, excluding off-hire days.
 
(10)
Represents the number of days that relate to vessel expense for controlled and time-chartered vessels. Vessel expense relating to controlled vessels is based on a 365-day year. Vessel expense relating to chartered-in vessels is based on the actual number of days we operated the vessel, excluding off-hire days.
 
(11)
Revenue tons is a measurement on which shipments are freighted. Cargoes are rated as weight (based on metric tons) or measure (based on cubic meters); whichever produces the higher revenue will be considered the revenue ton.
 
(12)
Aggregates represent high-volume, low-freighted cargo. Including aggregates, therefore, can overstate the amount of tons that we carry on a regular basis and reduce our revenue per ton. We regularly carried aggregates in all years represented in the table above except 2005 when we temporarily suspended the transport of aggregates. We believe that the exclusion of aggregates better reflects our cargo shipped and revenue per ton data for our principal services.

 

 

General
 
    The following is a discussion of our financial condition at December 31, 2010 and 2009 and our results of operations comparing the years ended December 31, 2010 and 2009 and years ended December 31, 2009 and 2008.  You should read this section in conjunction with our consolidated financial statements, including the related notes to those financial statements included elsewhere in this Annual Report.
 
Overview
 
    We are an ocean transportation services company that provides worldwide shipping solutions to a diverse client base of industrial shippers.  We operate liner, parcel and bulk services and vessel chartering supported by a fleet of multipurpose tweendeckers and handysize/handymax bulk carriers. We differentiate ourselves from traditional dry cargo shipping companies by offering our Five Star Service: ocean transportation, projects, operations, port services, and strategic planning.

We have a strong position in various trade lanes in the Far East, South America, North America, the Caribbean, the Middle East and Africa. We offer our services globally in more than 20 countries to over 300 customers through a network of affiliated service companies.

    Our financial results are largely driven by the following factors:
 
·  
macroeconomic conditions in the geographic regions where we operate;
 
·  
general economic conditions in the industries in which our customers operate;
 
·  
the availability of liquidity and credit to fund our suppliers’ and customers’ businesses;
 
·  
changes in our freight and sub-time charter rates - rates we charge for vessels we charter out - and, in periods when our voyage and vessel expenses increase, our ability to raise our rates to pass such cost increases through to our customers;
 
·  
the extent to which we are able to efficiently utilize our controlled fleet and optimize its capacity; and
 
·  
the extent to which we can control our fixed and variable costs, including those for port charges, stevedore and other cargo-related expenses, fuel, and commission expenses.
 
    Freight voyage rates were almost flat in 2010 as compared to 2009; however, we were able to take advantage of the availability of our vessels to serve the time charter market where the rates were higher in 2010 as compared to 2009.  Towards the end of 2010, a combination of factors such as bad weather and natural disasters worldwide dampened any hopes of recovery.  These factors continue to adversely affect our revenues, market values of our vessels, and our ability to maintain financial ratios as required by our credit facilities.  In early 2011, we have experienced further deterioration in the daily revenue rates and we are unable to predict with any degree of certainty how global economic conditions will affect the shipping industry and us.
 
We took certain countermeasures in 2010 such as issuing equity to our executives and employees in lieu of cash compensation, freezing salaries, continuing our cost cutting program, negotiating loan modifications, reducing capital expenditures and continuing to scale back our accelerated steel renewal and reinforcement program.  We plan to continue and intensify these efforts.

Going Concern
 
With the consent of our lenders, in September 2010, we ceased paying installments of principal due on our indebtedness. Our lenders agreed not to take any action as a result while we collectively sought to negotiate new terms of our existing debt.  Effective January 28, 2011, we and our lenders agreed on a restructuring of our debt repayment schedules and modifications of the covenants under our credit facilities, and our lenders agreed to waive any existing defaults under those agreements.  Our lenders, as a condition to the restructuring of our credit facilities, required three significant shareholders who also are key members of our management to agree to provide up to $10.0 million of new equity in the form of Series B Preference Shares.
 
Starting in late May 2010, the Baltic Dry Index, which measures the demand for shipping capacity versus the supply of dry bulk carriers, started to decline dramatically from a high of 4,209 on May 26, 2010 to a recent low of 1,043 on February 4, 2011. Our management believes that there are many reasons for this decline, including the large amount of additional tonnage from recent newbuilds in all vessel sizes as well as natural occurrences that significantly depressed the amount of available cargoes, such as the harsh summer in the grain growing regions of Russia and Ukraine and the recent devastating floods in Australia and Brazil.  As a direct result of this imbalance of supply and demand, freight rates across the ocean shipping industry in all vessel sizes have declined dramatically as owners and charterers compete for cargoes. The reduction in our freight rates in this market environment has directly and adversely affected our revenues and cash flows and caused us to enter into negotiations with our lenders to seek modifications of certain financial covenants in our credit facilities.  In addition, oil prices recently have spiked as a result of turmoil in certain key oil producing nations in the Middle East and North Africa.
 
We currently are in compliance with all financial covenants relating to our debt.  However, absent waivers, we would not have been in compliance with loan to value requirements on the Credit Suisse and Berenberg lines of credit as of December 31, 2010.  Due to the continuing imbalance of supply and demand, we are operating at freight and charter rates that would cause us to fail to comply with certain financial covenants in our credit facilities, even as recently modified. Unless the Baltic Dry Index, and in particular the freight and charter rates that we are able to obtain, strengthen significantly in the near future, it is likely that by June 30, 2011 we would fail to meet the tests under certain of our financial covenants and that we would need to enter into further negotiations with our lenders to seek further modifications of those financial covenants.  Failure to meet these tests would have a material adverse affect on our business operations, financial condition, and liquidity, and would raise substantial doubt about our ability to continue as a going concern.

We cannot assure you that our lenders would be willing to negotiate further changes to our financial covenants if necessary due to any failure of our freight and charter rates to improve significantly in the near term.  In those circumstances, our lenders could declare the outstanding principal of all of our debt to be due and payable immediately and seek foreclosure upon all of our vessels and any other collateral securing our debt, and we would be required to seek protection under applicable bankruptcy laws.

Generally accepted accounting principles require that long-term debt be classified as a current liability when either a covenant violation that gives the lender the right to call the debt has occurred at the balance sheet date or such a covenant violation would have occurred absent a waiver of the covenant and, in either case, it is probable that the covenant violation will not be cured within the next 12 months. Accordingly, we have classified our long term debt as a current liability in our consolidated balance sheet at December 31, 2010. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

New Vessel Construction
 
The first of six newbuild vessels was delivered in 2009; two each were delivered during 2010 and the first quarter of 2011, and the remaining vessel is expected to be delivered during the second quarter of 2011.

Impairment

Our fleet at December 31, 2010 numbered 49 vessels.  We perform impairment analyses of long-lived assets when certain triggering events occur such as significant decreases in the assets market value, significant changes in the assets’ physical condition, and significant changes in the operating or cash flow losses associated with the use of the long-lived assets, combined with a history of operating or cash flow losses. Impairment is recognized when the estimate of undiscounted future cash flows expected to be generated by the asset is less than its carrying amount. Measurement of the impairment loss is calculated based upon comparison of the fair value to the carrying value of the asset. Historically, both freight rates and vessel values tend to be volatile. The carrying value of our fleet may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate. Our impairment calculations contain uncertainties because they require management to make assumptions about future cash flows. These assumptions are based on historical trends as well as future expectations. While management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective.

Based on our impairment analyses performed at year end 2010, management concluded that events and circumstances during the fourth quarter of 2010 suggested a possible impairment of our long-lived assets. As a result, we performed an impairment assessment of our long-lived assets. The significant factors and assumptions we used in estimating undiscounted cash flows included revenues, cargo volumes, capital expenditures and operating expenses. We based our revenue assumptions on a number of factors estimated over the remaining life of our vessels, including historical and projected freight and charter rates, current market conditions and the age of our vessels. We estimated operating expenses using an annual escalation factor. Our historical experience with the shipping industry also informed our assumptions and estimates. At December 31, 2010 we recognized a noncash impairment charge of $201.7 million, which reduced our net fixed assets at December 31, 2010 by an equal amount.

The assumptions and estimates we used in our impairment analysis are highly subjective and could be negatively affected by further declines in freight or charter rates, further decreases in the market value of vessels or other factors, which could require us to record additional material impairment charges in future periods.  See "Summary of Critical Accounting Policies and Basis of Presentation ".

As of May 31, 2010, we performed our annual impairment analysis of goodwill, which indicated that there was no impairment.  Subsequent to our analysis and as of December 31, 2010, no events occurred that indicated that there was an impairment of goodwill during the year 2010.  In December 2010, the FASB issued update No. 2010-28, "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force) ", to FASB ASC Topic 350 – Intangibles – Goodwill and Other requiring reporting units with zero or negative carrying amounts to test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists.   The new guidance must be applied for the first time during the quarter ending March 31, 2011.   Our most recent tests did not indicate any impairment of goodwill because the reporting units had negative carrying amounts.  Under current accounting guidance an entity can assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired.  We are assessing the potential impact of this new guidance on our consolidated financial statements which could result in an impairment of our goodwill which was $8.4 million at December 31, 2010.  In the period of adoption of this guidance, any impairment of goodwill will be charged to shareholders’ equity.
 
Non-GAAP Financial Measures
 
    “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) includes  financial measures prepared in accordance with United States generally accepted accounting principles (“GAAP”) and one non-GAAP financial measure, “Adjusted EBITDA”.  Adjusted EBITDA is calculated by adding to Net Income or (Loss) as presented in the Consolidated Statements of Operations:
 
i) 
net interest expense,
ii) 
income taxes,
iii) 
depreciation, and amortization charges,
iv)
noncash impairment charges relating to goodwill and vessels.

    This definition of Adjusted EBITDA includes an add back for noncash impairment charges relating to goodwill and vessels which may not be comparable to other definitions of EBITDA.  Adjusted EBITDA should not be used as a substitute for GAAP financial measures, or considered in isolation for the purpose of analyzing our operating performance or liquidity.

We use EBITDA as a liquidity measure.  We believe that EBITDA is useful to investors because our industry is capital intensive and this measure serves as an alternative indicator of our ability to satisfy our debt obligations and meet our covenant requirements (see "Note 11 – Financing" to our consolidated financial statements).  Adjusted EBITDA is the starting point in calculating EBITDA as defined for covenant calculations and is calculated by adding to Adjusted EBITDA:
 
i)
net losses from sales of vessels,
ii)
noncash equity compensation,
iii)
losses attributable to joint-ventures (Log-Star, GAT-TBS, Panamerican Port Services, ST Logistics, and the Jamaican Mine),
 
 and subtracting

i) 
all net gains from the sales of vessels, and
ii) 
any income or gains attributable to the joint-ventures listed above.
 
Drydocking
 
Vessels must be drydocked twice during a five-year cycle.  Excluding the three newly built vessels, our controlled fleet of 46 vessels, at December 31, 2010, would require approximately 92 drydockings over five years for an average of 18 vessels per year.  The first drydocking of a newly constructed vessel, which would be a special survey of the vessel, is typically done five years after delivery of the vessel from the shipyard.

    During 2010, 15 vessels, requiring approximately 1,571 metric tons of steel, were in drydock for 399 days.  A summary by quarter is as follows:
 
     
Number of vessels in drydock from previous quarter
   
Number of vessels entering drydock during quarter
   
Number of drydock days during quarter
 
Approximate metric tons (MT) of steel installed
Actual
                           
 
First Quarter 2010
    2       2       73  
 days
    85  
 MT
 
Second Quarter 2010
            5       110  
 days
    481  
 MT
 
Third Quarter 2010
    2       3       155  
 days
    400  
 MT
 
Fourth Quarter 2010
            3       61  
 days
    605  
 MT
 
Total for 2010
            13       399  
 days
    1,571  
 MT
                                       

    Presented in the table below is our preliminary quarterly drydock schedule for vessels we anticipate to be in drydock during 2011, including an estimated number of drydock days and metric tons of steel renewal. Our estimates are based on current and anticipated congestion in the repair shipyards, which could be adversely affected by unanticipated inclement weather or congestion in the shipyard.  Further, our drydock schedule is subject to changes based on unanticipated commercial and operational needs of our business.

     
Number of vessels in drydock from previous quarter
   
Number of vessels entering drydock during quarter
   
Number of drydock days during quarter
 
Approximate metric tons (MT) of steel installed
Actual
                           
 
First Quarter 2011
    1       5       148  
 days
    640  
 MT
 
Second Quarter 2011
    3       2       111  
 days
    175  
 MT
 
Third Quarter 2011
            4       115  
 days
    480  
 MT
 
Fourth Quarter 2011
            5       128  
 days
    470  
 MT
 
Total for 2011
            16       502  
 days
    1,765  
 MT
                                       
 
We estimate that vessel drydockings that require less than 100 metric tons of steel renewal will take from 25 to 35 days and that vessel drydockings that require 100 to 500 metric tons of steel renewal will take from 35 to 55 days. We capitalize vessel improvements, including steel renewal and reinforcement, in connection with the first drydocking after we acquire vessels.
 
Components of Revenue and Expense
 
We report our revenue as voyage revenue, reflecting the operations of our vessels that are not chartered out, and charter revenue, reflecting the operations of our vessels that have been chartered out to third parties.  For voyages in progress at December 31, 2010, 2009 and 2008, we recognized voyage expense as incurred and recognized voyage revenues ratably over the length of the voyage, all in accordance with the guidance outlined in FASB ASC Topic 605 - Revenue Recognition.  When a loss is forecast for a voyage, the full amount of the anticipated loss is recognized in the period in which that determination is made.  Probable losses on voyages are provided for in full at the time such losses can be estimated.  Based upon the terms of the customer agreement a voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo.  We apply the “discharge-to-discharge” method for recognizing revenues only on customer agreements that are non-cancelable.  Revenue from time charters in progress is calculated using the daily charter hire rate, net of daily expenses multiplied by the number of charter-out days that the vessel was on-hire through period end.  Vessel operating expenses for both voyage and time charters are expensed as incurred.

Voyage revenue consists of freight charges paid to our subsidiaries for the transport of customers' cargo.  Freight rates are set by the market and depend on the relationship between the demand for ocean freight transportation and the availability of appropriate vessels. The key factors driving voyage revenue are the number of vessels in the fleet, freight voyage days, revenue tons carried and the freight rates.

Time charter revenue consists of a negotiated daily hire rate for the duration of a voyage. The key factors driving time charter revenue are the number of days vessels are chartered out and the daily charter hire rates.

Voyage expenses consist of costs attributable to specific voyages. The number of voyage days is a significant determinant of voyage expense, which primarily consists of fuel costs, commissions, port call, stevedoring and lashing materials. The costs are paid by our subsidiaries.

Vessel expenses are vessel operating expenses that consist of crewing, stores, lube oil, repairs and maintenance including registration taxes and fees, insurance and communication expenses for vessels we control, charter hire fees we pay to owners for use of their vessels. The costs are paid by our subsidiaries.

Depreciation and amortization expense is computed for vessels and vessel improvements on the remaining useful life of each vessel, which is the period from the date we put the vessel into service to the date 30 years from the time that the vessel was initially delivered by the shipyard. Drydock costs are amortized on a straight-line basis over the period through the date of the next drydocking which is typically 30 months.  Other fixed assets, consisting principally of computer hardware, software and office equipment are depreciated on a straight-line basis using useful lives of from three to seven years. Grabs are depreciated on a straight-line basis using a ten year useful life.  Vessel leasehold improvements, which are included with vessel improvements and other equipment, are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease.

Commissions on freight and port agency fees are paid to unrelated companies and TBS Commercial Group and Beacon Holdings.  Management fees and commissions paid to TBS Commercial Group are fixed under agreements that are approved by our Board of Directors.
 
Lack of Historical Operating Data for Vessels Before their Acquisition
 
Consistent with shipping industry practices, there is no historical financial due diligence process when we acquire secondhand vessels other than the inspection of the physical condition of the vessels and examination of classification society records. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to investors in assessing our business or profitability.

Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel and does not provide for financial information or historical results for the vessel to be made available to the buyer. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.

Consistent with shipping industry practice, we treat the acquisition of a vessel, whether acquired with or without charter, as the acquisition of an asset rather than a business. Due to the differences between us and the prior owners of these vessels with respect to the routes we operate, the shippers and consignees we serve, the cargoes we carry, the freight rates and charter hire rates we charge and the costs we incur in operating our vessels, we believe that our operating results will be significantly different from the operating results of the vessels while owned by the prior owners.

The FASB, as outlined in ASC Topic 805 - Business Combinations, provides guidance for accounting for the acquisition of assets rather than a business.  It states that for a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its output to customers.  The purchase of a vessel alone cannot operate or generate revenue or constitute a business operation without the significant inputs and processes that we provide, as described below:
 
·
We provide our own captains, senior officers and crew to the vessels.
·
The vessels are managed by our subsidiary Roymar. All of the functions of vessel management, from technical ship management to crewing, vessel maintenance and drydocking, are conducted by Roymar, in a manner different from the prior manager, according to our standards.
·
The necessary commercial activities - maintaining customer relationships, providing local teams of commercial agents and port captains, and offering transportation management skills and logistics solutions - are provided by our subsidiary TBS Shipping Services and our affiliate TBS Commercial Group.
·
The vessels will operate under our trade name and carry our distinctive native peoples’ naming conventions.
   
    The revenue-producing activity of the vessels we purchase will be generated from carrying cargoes for our customers on the routes we serve. The vessels we purchase are operated by different parties than their former owners, serve different customers, carry different cargoes, charge different rates, cover different routes and, in all respects engage in a different business with different revenues, costs and operating margins. The profitable operation of the vessels we purchase will depend on our skill and expertise.

Results of Operations
 
Year ended December 31, 2010 compared to year ended December 31, 2009
 
     
Year Ended December 31,
           
     
2010
   
2009
   
Increase (Decrease)
 
     
In Thousands
 
As a % of Total Revenue
   
In Thousands
 
As a % of Total Revenue
   
In Thousands
 
Percentage
 
Voyage revenue
  $ 295,830     71.8     $ 247,980     82.0     $ 47,850   19.3  
Time charter revenue
    105,824     25.7       51,201     16.9       54,623   106.7  
Logistics revenue
    9,479     2.3       2,689     0.9       6,790      
Other revenue
    700     0.2       646     0.2       54   8.4  
 
Total revenue
  $ 411,833     100.0     $ 302,516     100.0     $ 109,317   36.1  
 
Voyage revenue
 
    To provide a more complete analysis of our operations, selected key metrics, including voyage days, revenue tons ("RT") and average freight rates are shown for all cargoes and separately, for non-aggregate cargoes and aggregate cargoes. Aggregate cargoes are high-volume, low freighted cargo consisting principally of construction materials such as crushed stone. While average freight rates on aggregate cargoes are lower than average freight rates on other types of cargoes, voyage costs are also lower resulting in comparable daily time charter equivalent rates. The table below shows key metrics related to voyage revenue:
 
     
Year ended December 31,
             
     
2010
   
2009
   
Increase (Decrease)
 
Voyage Revenue (in thousands)
  $ 295,830     $ 247,980     $ 47,850       19.3 %
Number of vessels (1)
    31       31                  
Days available for hire (2)
 
11,711 days
   
11,680 days
      31       0.3 %
Freight voyage days (3)
 
11,435 days
   
11,470 days
      (35 )     (0.3 )%
Revenue tons carried (thousands) (4)
                               
 
For all cargoes
 
10,329 RT
   
8,788 RT
      1,541       17.5 %
 
Other than aggregate cargoes
 
4,706 RT
   
4,727 RT
      (21     (0.4 )%
 
Aggregate cargoes
 
5,623 RT
   
4,061 RT
      1,562       38.5 %
Freight Rates (5)
                               
 
For all cargoes
  $ 28.64     $ 28.22     $ 0.42       1.5 %
 
Other than aggregate cargoes
  $ 54.30     $ 45.36     $ 8.94       19.7 %
 
Aggregate cargoes
  $ 7.17     $ 8.27     $ (1.10 )     (13.3 )%
Daily time charter equivalent rates (6)
  $ 13,721     $ 12,069     $ 1,652       13.7 %
                                   
 

(1)
Weighted average number of vessels in the fleet, not including vessels chartered out.
(2)
Number of days that our vessels were available for hire, not including vessels chartered out.
(3)
Number of days that our vessels were earning revenue, not including vessels chartered out.
(4)
Revenue tons is a measurement on which shipments are freighted.  Cargoes are rated as weight (based on metric tons) or measure (based on cubic meters); whichever produces the higher revenue will be considered the revenue ton.
(5)
Weighted average freight rates measured in dollars per revenue ton.
(6)
Daily Time Charter Equivalent or "TCE" rates are defined as voyage revenue less voyage expenses during the year divided by the number of available freight voyage days during the year. Voyage expenses include fuel, port call, commissions, stevedore and other cargo related and miscellaneous voyage expenses.  No deduction is made for vessel or general and administrative expenses. TCE includes the full amount of any probable losses on voyages at the time such losses can be estimated. TCE is an industry standard for measuring and analyzing fluctuations between financial periods and as a method of equating TCE revenue generated from a voyage charter to time charter revenue.
 
The 19.3% increase in voyage revenue during 2010 was driven both by an increase in voyage tons carried and freight rates.  Overall average freight rates for all cargoes increased slightly by $0.42 per ton, or 1.5%, to $28.64 per ton for the year ended December 31, 2010, as compared to $28.22 per ton in 2009.
 
Average freight rates for cargoes other than aggregates increased $8.94 per ton, or 19.7%, to $54.30 per ton for the year ended December 31, 2010, as compared to $45.36 in 2009.  This was primarily driven by a strengthening of freight rates for agricultural products, forest products, rolling stock, and concentrates.

Average freight rates for aggregate cargoes decreased $1.10 per ton, or 13.3%, to $7.17 per ton for the year ended December 31, 2010, as compared to $8.27 per ton in 2009.  The decrease in average freight rates for aggregates was mainly due to lower average revenue earned, which includes demurrage revenue, on each voyage caused by decreased port congestion that reduced demurrage revenue.  Demurrage revenue is the additional compensation for the detention of a vessel by a customer beyond the time allowed for loading or unloading.

Revenue tons carried increased approximately 1.5 million RT or 17.5% to 10.3 million RT for the year ended December 31, 2010 from 8.8 million RT in 2009.  This increase was primarily due to an increase of approximately 1.6 million RT in aggregates carried during the year ended December 31, 2010 as compared to 2009.  This can be attributed to an increase in the number of spot voyages of aggregates in 2010.  During the year ended December 31, 2010, our spot voyages of aggregates were higher than aggregate cargoes carried under contracts of affreightment as compared to 2009.  A Contract of Affreightment ("COA") obligates the charterers to transport a specified quantity, at a specified rate over a specified number of voyages or through a specified period of time.

For the years ended December 31, 2010 and 2009, we had COAs that expire through December 2013 and 2011, respectively, for principally aggregate cargoes, under which we carried approximately 3.3 million RT and 3.7 million RT, which generated $46.7 million and $53.6 million, of voyage revenue.  Revenue tons carried under COAs during the year ended December 31, 2010 decreased compared to 2009 because of the fulfillment of two large aggregates contracts prior to 2010.

The following table shows voyage revenues attributed to our principal cargoes:
 
     
Year Ended December 31,
             
 
   
2010
 
2009
   
Increase (Decrease)
 
Description
 
In Thousands
 
As a % of Total Voyage Revenue
 
In Thousands
 
As a % of Total Voyage Revenue
   
In Thousands
   
%
 
Steel products
  $ 105,607     35.7   $ 60,063     24.2     $ 45,544       75.8  
Metal concentrates
    41,171     13.9     37,469     15.1       3,702       9.9  
Aggregates
    40,295     13.7     33,561     13.5       6,734       20.1  
Agricultural products
    36,352     12.3     51,417     20.7       (15,065 )     (29.3 )
Other bulk cargo
    33,903     11.5     26,483     10.7       7,420       28.0  
General cargo
    11,328     3.8     9,826     4.0       1,502       15.3  
Rolling stock
    8,710     2.9     5,765     2.3       2,945       51.1  
Fertilizers
    6,928     2.3     4,488     1.8       2,440       54.4  
Project cargo
    5,188     1.8     10,067     4.1       (4,879 )     (48.5 )
Automotive products
    3,853     1.3     4,426     1.8       (573 )     (13.0 )
Other
    2,495     0.8     4,415     1.8       (1,920 )     (43.5 )
 
Total voyage revenue
  $ 295,830     100.0   $ 247,980     100.0     $ 47,850       19.3  
                                             

Time charter revenue

The key factors driving time charter revenue for the years 2010 and 2009 are as follows:
   
Year ended December 31,
             
   
2010
   
2009
   
Increase (Decrease)
 
Time Charter Revenue (in thousands)
  $ 105,824     $ 51,201     $ 54,623       106.7