Business And Basis Of Presentation

6 Months Ended

Jun. 30, 2011

Business And Basis Of Presentation

Business And Basis Of Presentation

Note 1 — Business and Basis of Presentation

Nature of Business

TBS International plc ("TBSI") and all of its directly and indirectly owned subsidiaries (collectively with TBSI, the "Company", "we", "us" or "our") are engaged in the ocean transportation of dry cargo offering shipping solutions through liner, parcel, and bulk services, as well as vessel chartering supported by a fleet of multi-purpose tweendeckers and handysize and handymax bulk carriers.  Substantially all subsidiaries of TBSI are non-U.S. corporations and conduct their business operations worldwide.

Basis of Presentation

The unaudited consolidated financial statements presented herein have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting ("GAAP") and with Article 10 of Regulation S-X and the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.  In the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, that are considered necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows for the interim periods.  Operating results for the three and six month periods ended June 30, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011.  These consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

Effective January 28, 2011, the Company and its lenders amended various terms of the credit agreements to which they are parties, including the principal repayment schedules and waived any existing defaults.  However, the Company has continued to experience a further deterioration of freight voyage rates in 2011 and along with a combination of worldwide factors, such as industry over-capacity and the negative impact on shipping demand due to adverse weather conditions and natural disasters, management does not believe that there is hope of an immediate recovery.  These factors continue to adversely affect the Company's revenues, market values of its vessels, and its future ability to maintain financial ratios as required by its credit facilities.  On April 18, 2011, the Company and its lenders agreed to temporarily modify the financial covenants related to the Company's consolidated leverage ratio, consolidated interest coverage ratio and minimum cash balance, and modified certain other terms through December 31, 2011.

Under the modified credit agreements, the minimum consolidated interest charge coverage ratio has been reduced for the quarter ended June 30, 2011, and for the quarters ending through December 31, 2011 from 3.35 to 1.00 to 2.50 to 1.00.  In addition, the amendments increased the maximum consolidated leverage ratio for the same periods from 4.00 to 1.00 to 5.10 to 1.00 and reduced the minimum average weekly cash requirement from $15.0 million to $10.0 million beginning the week ending July 1, 2011 through the week ending January 1, 2012.  Thereafter, the financial covenant requirements revert back to the levels set in the January 28, 2011 amendments.  At June 30, 2011 and December 31, 2010, the Company was in compliance with all financial covenants relating to its debt. However, absent waivers, the Company would not have been in compliance with the value to loan requirements of the Berenberg credit facility at December 31, 2010 or June 30, 2011.  In addition, absent such a waiver, the Company would not have been in compliance with the value to loan requirements of the Credit Suisse credit facility at December 31, 2010.  GAAP requires that long-term loans be classified as current liabilities when either a covenant violation that gives the lender the right to call the debt has occurred at the balance sheet date, or such covenant violation would have occurred absent a waiver of those covenants, and in either case it is probable that the covenant violation will not be cured within the next twelve months.  Consequently, long term debt is classified as a current liability in the consolidated balance sheet at both June 30, 2011 and December 31, 2010.

The Company will need to raise additional funds to facilitate principal repayments due September 30, 2011, and to remain in compliance with the minimum cash liquidity covenant.  Absent the ability to raise additional capital and a significant near-term improvement in freight and charter rates, the Company will need to enter into negotiations with its lenders to seek further modifications or waivers to the financial covenants since failure to meet any of the covenants, or the Company's inability to obtain waivers of such future covenant violations, continues to raise substantial doubt about the Company's ability to continue as a going concern.  The Company will continue its efforts to reduce operating costs and has engaged an investment banking firm to assist in obtaining additional funding.  There is no guarantee that any or all of the Company's efforts to strengthen its financial position will be successful.