UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549




FORM
10-Q


(Mark
One)




x Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For
the quarterly period ended September 30, 2008




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 000-51368




TBS
INTERNATIONAL LIMITED




(Exact name of registrant as specified
in its charter)


Bermuda
            98-0225954(State
      or other jurisdiction of
              incorporation
      or organization)
            (IRS
      Employer Identification No.)Commerce
      Building,
              Chancery
      Lane,
              Hamilton
      HM 12, Bermuda(Address
      of principal executive offices)(441)
      295-9230(Registrant's
      telephone number, including area
code)




N/A(Former
      name, former address and former fiscal year, if changed since last
      report)




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  ̈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  ̈        Accelerated
      Filer x
      Non-accelerated Filer  ̈
      Smaller Reporting Company   ̈Indicate
      by check mark whether the registrant is a shell company (as defined by
      Rule 12b-2 of the
      Act).                               Yes  ̈  No x





As
      of November 7, 2008, the registrant had outstanding 17,504,496 Class A
      common shares, par value $0.01 per share, and 12,390,461 Class B common
      shares, par value $0.01 per share.














TBS INTERNATIONAL LIMITED


2008
FORM 10-Q


Table of Contents




PagePART
      I:  FINANCIAL INFORMATIONItem
      1
            Financial StatementsConsolidated Balance Sheets as of September 30, 2008
      (Unaudited) and December 31, 2007 and
            
            3Consolidated Statements of Income (Unaudited) for
      the three and nine months ended September 30, 2008 and September 30,
      2007
            
            4Consolidated Statements of Cash Flows (Unaudited) for
      the nine months ended September 30, 2008 and September 30,
      2007
            
            5Consolidated Statement of Changes in
      Shareholders' Equity (Unaudited) for the nine  months ended
      September 30, 2008
            
            6Notes to Consolidated Financial
      Statements
            
            7Item
      2
            Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            
            21Item
      3
            Quantitative and Qualitative Disclosure About
      Market Risk
            
            41Item
      4
            Controls and Procedures
            
            41PART
      II:  OTHER INFORMATIONItem
      1
            Legal Proceedings
            
            42Item
      1A
            Risk Factors
            
            42Item
      2
            Unregistered Sales of Equity Securities and Use
      of Proceeds
            
            42Item
      3
            Defaults Upon Senior Securities
            
            42Item
      4
            Submission of Matters to a Vote of Security
      Holders
            
            42Item
      5
            Other Information
            
            42Item
      6
            Exhibits
            
            43Signatures































Table of Contents
 2




Part I.    FINANCIAL
INFORMATION


Item
1.    Financial Statements




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(in
thousands, except par value per share)




September
      30,
            
            
            December
      31,2008
            
            
            2007(unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
            
            $
            89,981
            
            
            $
            30,498Charter
      hire receivable, net of allowance of $500 in 2008and
      $490 in 2007
            
            
            56,792
            
            
            
            30,081Fuel
      and other inventories
            
            
            17,996
            
            
            
            11,123Prepaid
      expenses and other current assets
            
            
            9,864
            
            
            
            7,742Advances
      to affiliates
            
            
            3,622
            
            
            
            918Total
      current assets
            
            
            178,255
            
            
            
            80,362Deposit
      for vessel purchase
            
            
            4,120
            
            
            
            14,836Fixed
      assets, net
            
            
            774,372
            
            
            
            444,082Goodwill
            
            
            8,426
            
            
            
            8,426Other
      assets and deferred charges
            
            
            17,289
            
            
            
            11,407Total
      assets
            
            $
            982,462
            
            
            $
            559,113Liabilities
      and Shareholders' EquityCurrent
      liabilitiesDebt,
      current portion
            
            $
            83,236
            
            
            $
            22,699Accounts
      payable
            
            
            11,164
            
            
            
            11,723Accrued
      expenses
            
            
            45,273
            
            
            
            36,713Voyages
      in progress
            
            
            11,397
            
            
            
            7,016Advances
      from affiliates
            
            
            179
            
            
            
            467Total
      current liabilities
            
            
            151,249
            
            
            
            78,618Debt,
      long-term portion
            
            
            252,293
            
            
            
            157,467Other
      liabilities
            
            
            4,087
            
            
            
            3,465Total
      liabilities
            
            
            407,629
            
            
            
            239,550COMMITMENTS
      AND CONTINGENCIES (Note 12)Shareholders'
      equityCommon
      shares, Class A, $.01 par value, 75,000,000authorized,
      17,514,496 shares issued and 17,504,496 shares outstanding in 2008 and
      14,350,996 shares issued and outstanding in 2007
            
            
            175
            
            
            
            143Common
      shares, Class B, $.01 par value, 30,000,000authorized,
      12,390,461 shares issued and outstanding in 2008 and 13,404,461 shares
      issued and outstanding in 2007
            
            
            124
            
            
            
            134Warrants
            
            
            21
            
            
            
            21Additional
      paid-in capital
            
            
            186,196
            
            
            
            88,530Accumulated
      other comprehensive (loss)
            
            
            (2,088
            )
            
            
            (2,897
            )Retained
      earnings
            
            
            390,794
            
            
            
            233,632Less:
      Treasury stock (10,000 shares)
            
            
            (389
            )Total
      shareholders' equity
            
            
            574,833
            
            
            
            319,563Total
      liabilities and shareholders' equity
            
            $
            982,462
            
            
            $
            559,113


The
accompanying notes are an integral part of these consolidated financial
statements.





Table of Contents
 3




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 (in
thousands, except per share amounts and outstanding shares)


Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)RevenueVoyage
      revenue
            
            $
            161,397
            
            
            $
            70,873
            
            
            $
            388,253
            
            
            $
            183,196Time
      charter revenue
            
            
            19,308
            
            
            
            20,557
            
            
            
            77,292
            
            
            
            54,748Logistics
      revenue
            
            
            2,045
            
            
            
            
            
            
            
            5,288Other
      revenue
            
            
            572
            
            
            
            140
            
            
            
            1,012
            
            
            
            614Total
      revenue
            
            
            183,322
            
            
            
            91,570
            
            
            
            471,845
            
            
            
            238,558Operating
      expensesVoyage
            
            
            52,882
            
            
            
            22,942
            
            
            
            126,731
            
            
            
            61,657Logistics
            
            
            1,726
            
            
            
            
            
            
            
            4,417Vessel
            
            
            30,759
            
            
            
            22,192
            
            
            
            78,508
            
            
            
            62,690Depreciation
      and amortization of vesselsand
      other fixed assets
            
            
            19,980
            
            
            
            9,032
            
            
            
            49,988
            
            
            
            25,869General
      and administrative
            
            
            14,121
            
            
            
            7,960
            
            
            
            41,184
            
            
            
            22,804Loss
      from sale of vessel
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            814Total
      operating expenses
            
            
            119,468
            
            
            
            62,126
            
            
            
            300,828
            
            
            
            173,834Income
      from operations
            
            
            63,854
            
            
            
            29,444
            
            
            
            171,017
            
            
            
            64,724Other
      (expenses) and incomeInterest
      expense
            
            
            (5,041
            )
            
            
            (2,603
            )
            
            
            (12,318
            )
            
            
            (7,772
            )Loss
      on extinguishment of debt
            
            
            
            
            
            
            
            
            
            
            (2,318
            )Gain
      on sale and insurance recovery of vessel
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,034Interest
      and other income (expense)
            
            
            330
            
            
            
            162
            
            
            
            781
            
            
            
            109Total
      other (expenses) and income, net
            
            
            (4,711
            )
            
            
            (2,441
            )
            
            
            (13,855
            )
            
            
            (1,629
            )Net
      income
            
            $
            59,143
            
            
            $
            27,003
            
            
            $
            157,162
            
            
            $
            63,095Earnings
      per shareNet
      income per common shareBasic
            
            $
            1.96
            
            
            $
            0.96
            
            
            $
            5.42
            
            
            $
            2.25Diluted
            
            $
            1.96
            
            
            $
            0.96
            
            
            $
            5.41
            
            
            $
            2.25Weighted
      average common shares outstandingBasic
            
            
            30,104,863
            
            
            
            28,044,310
            
            
            
            28,980,101
            
            
            
            28,024,295Diluted
            
            
            30,145,204
            
            
            
            28,081,678
            
            
            
            29,036,752
            
            
            
            28,059,545


The
accompanying notes are an integral part of these consolidated financial
statements.





Table of Contents
 4




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)





Nine
      Months Ended September 30,2008
            
            
            2007(unaudited)
            
            
            (unaudited)Cash
      flows from operating activitiesNet  income
            
            $
            157,162
            
            
            $
            63,095Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesGain
      on sale and insurance recovery of vessel
            
            
            
            
            
            
            (6,034
            )Loss
      on sale of vessel
            
            
            
            
            
            
            814Depreciation
      and amortization
            
            
            49,988
            
            
            
            25,869Loss
      on change in value of interest swap contract
            
            
            234
            
            
            
            432Amortization
      and write-off of deferred financing costs
            
            
            3,342
            
            
            
            792Non
      cash stock based compensation
            
            
            1,949
            
            
            
            261Drydocking
      expenditures
            
            
            (9,138
            )
            
            
            (2,919
            )(Income)
      loss in joint venture
            
            
            (226
            )
            
            
            288Changes
      in operating assets and liabilities(Increase)
      decrease in charter hire receivable
            
            
            (26,711
            )
            
            
            407(Increase)
      in fuel and other inventories
            
            
            (6,873
            )
            
            
            (2,669
            )(Increase)
      decrease in prepaid expenses and other current assets
            
            
            (2,122
            )
            
            
            1,100(Increase)
      in other assets and deferred charges
            
            
            (3,973
            )
            
            
            (819
            )Increase
      (decrease) in accounts payable
            
            
            (559
            )
            
            
            (189
            )Increase
      (decrease) in accrued expenses
            
            
            8,171
            
            
            
            (689
            )Increase  in
      voyages in progress
            
            
            4,381
            
            
            
            1,105(Decrease)  in
      advances from/to affiliates, net
            
            
            (2,993
            )
            
            
            (694
            )Net
      cash provided by operating activities
            
            
            172,632
            
            
            
            80,150Cash
      flows from investing activitiesProceeds
      on sale of vessels
            
            
            
            
            
            
            62,014Vessel
      acquisitions / capital improvement costs
            
            
            (356,304
            )
            
            
            (107,554
            )Deposit
      for vessel purchases
            
            
            (4,120
            )
            
            
            (10,070
            )Return
      of investment in security
            
            
            
            
            
            
            160Investment
      in government securities
            
            
            
            
            
            
            (250
            )Return
      of dividend from joint venture
            
            
            100Repayment
      (loans) made to joint venture
            
            
            760
            
            
            
            (360
            )Net
      cash (used) by investing activities
            
            
            (359,564
            )
            
            
            (56,060
            )Cash
      flows from financing activitiesProceeds
      from issuance of shares in secondary public offering ,net
      of offering costs
            
            
            95,739Repayment
      of debt principal
            
            
            (162,636
            )
            
            
            (101,338
            )Proceeds
      from debt
            
            
            318,000
            
            
            
            126,000Payment
      of deferred financing costs
            
            
            (4,688
            )
            
            
            (3,933
            )Reduction
      of obligations under capital leases
            
            
            
            
            
            
            (3,020
            )Net
      cash provided by (used in) financing activities
            
            
            246,415
            
            
            
            17,709Net
      increase (decrease) in cash and cash equivalents
            
            
            59,483
            
            
            
            41,799Cash
      and cash equivalents beginning of period
            
            
            30,498
            
            
            
            12,007Cash
      and cash equivalents end of period
            
            
            89,981
            
            
            $
            53,806Supplemental
      cash flow information:Interest
      paid, net of amounts capitalized
            
            $
            10,207
            
            
            $
            6,298




Noncash
      Investing activities:For
      the nine months ended September 30, 2007, the proceeds on the
      sale-leaseback of the vessels Laguna
      Belle and Seminole Maiden excludes the noncash portion of
      $5.5 million, which was retained by the buyer/lessor as a deposit on the
      bareboat charters.




The
accompanying notes are an integral part of these consolidated financial
statements.




Table of Contents
 5




TBS
INTERNATIONAL LIMITED. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
 (in
thousands, except shares)
 (unaudited)


AccumulatedOther
      Com-Additional
            
            
            
            prehensiveCommon
      Shares
            
            Treasury
      Stocks
            
            Warrants
            
            Paid-in
            
            Retained
            
            IncomeShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Earnings
            
            (Loss)
            
            TotalBalance
      at December 31, 2007
            
            
            27,755,457
            
            $
            277
            
            
            
            $
            
            
            
            288,853
            
            $
            21
            
            $
            88,530
            
            $
            233,632
            
            $
            (2,897
            )
            $
            319,563Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            157,162
            
            
            
            
            
            157,162Unrealized
      gain on cash flow hedges
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            809
            
            
            809Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            157,971Stock
      based compensation
            
            
            149,500
            
            
            2
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,947
            
            
            
            
            
            
            
            
            1,949Secondary
      public offering,net
      of expenses
            
            
            2,000,000
            
            
            20
            
            
            
            
            
            
            
            
            
            
            
            
            
            95,719
            
            
            
            
            
            
            
            
            95,739Increase
      in Warrants due toanti-dilutive
      provisions
            
            
            
            
            
            
            
            
            
            
            
            
            
            23,050Reacquired
      stock
            
            
            
            
            
            
            
            10,000
            
            
            (389
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (389
            )Balance
      at September 30, 2008
            
            
            29,904,957
            
            $
            299
            
            10,000
            
            $
            (389
            )
            
            311,903
            
            $
            21
            
            $
            186,196
            
            $
            390,794
            
            $
            (2,088
            )
            $
            574,833

















The
accompanying notes are an integral part of these consolidated financial
statements.





Table of Contents
 6




Note 1 — Basis of Presentation
 TBS
International Limited ("TBSI") and its subsidiaries (the "Company, "we" or
"our") are engaged in the ocean transportation of dry cargo offering shipping
solutions through liner, parcel, bulk and vessel chartering services. TBS
Logistics Incorporated ("Logistics") is a wholly owned subsidiary that
provides fully-integrated cargo and transport management services. Logistics
augments our ocean transportation services. Substantially all related
corporations of TBSI are foreign corporations and conduct their business
operations worldwide. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine month
period ended September 30, 2008 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2008.
 The
consolidated balance sheet at December 31, 2007 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
 For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2007 included in TBSI's Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on
March 14, 2008.
 The
Company's consolidated statements of cash flows for the nine months ended
September 30, 2007 have been revised to change the classification of drydocking
expenditures from net cash used by investing activities to net cash flows
provided by operating activities. The revision decreased net cash provided by
operating activities by $2.9 million.
 To
conform to the 2008 presentation, we reclassified 2007 despatch expenses, which
were included in voyage expense, to voyage revenue. This reclassifications did
not impact net income.
 
 Note
2 — New Accounting Pronouncements
  In October 2008, the Financial
Accounting Standards Board ("FASB") issued FASB Staff Position No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active("FSP
157-3") which clarifies the application of FASB Statement of Financial
Accounting Standards ("SFAS") No. 157, Fair Value Measurements when
determining the fair value of a financial asset when the market for that
financial asset is not active. FSP 157-3 is effective upon issuance. FSP-157-3
did not have a material impact on TBSI's financial statements because the fair
value of its financial assets and liabilities are determined based upon active
market inputs.
  In September 2008, the FASB issued FSP
133-1 and FASB Interpretation ("FIN") 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of theEffective Date of FASB Statement No.
161.The FSP requires additional disclosures by sellers of credit
derivatives within the scope of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and hybrid instruments that have embedded credit
derivatives. The FSP also amends FIN No. 45,Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require additional disclosure about the
current status of the payment /performance risk of a guarantee. Further, this
FSP clarifies the effective date of SFAS No. 161, Disclosures about
DerivativeInstruments and Hedging
Activities. The FSP is effective for fiscal years and interim periods
ending after November 15, 2008. We are currently evaluating the FSP and at this
time we do not believe it will have a significant impact on the Company's
financial statements.
  In
May 2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS
162"). SFAS 162 identifies the sources of accounting principles and the
framework for selecting principles used in the preparation of financial
statements, presented in conformity with generally accepted accounting
principles, of US non-governmental entities. SFAS 162 is effective 60 days
following the SEC's approval of the Public Company Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.Any effects of
applying the provisions of SFAS 162 are to be reported as a change in accounting
principle in accordance with FASB Statement No. 154, Accounting Changes and Error
Corrections. SFAS 162 will not have a significant impact on TBSI's
financial statements.
  Table of Contents
 7
 In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133 Accounting for Derivative
Instruments and Hedging Activities("SFAS 161"). SFAS 161 changes the
disclosure requirements for derivative instruments and hedging activities
requiring enhanced disclosures about: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 and its related interpretations; and how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. SFAS 161 intends to enhance the
current disclosure framework in FASB Statement No. 133 by requiring: objectives
for using derivative instruments and related hedged items be disclosed in terms
of underlying risk that an entity is trying to manage; tabular presentation of
the fair values, gains and losses of derivative instruments; disclosure of
credit-risk-related contingent features; and cross referencing within financial
statement footnotes. SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. The
Company has early adopted SFAS 161 (refer to Note 8 - Derivative Financial
Instruments for adopted disclosures).
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB (Accounting Research
Bulletin)  No. 51("SFAS 160"). SFAS 160 establishes accounting and
reporting standards for entities (excluding not-for-profit organizations) with
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The objective of SFAS 160 is to improve the
relevance, comparability and transparency of financial information that a
reporting entity provides in its consolidated financial statements. The
standards require: ownership interests in subsidiaries held by parties other
than the parent be clearly identified and presented within equity but separate
from the parent's equity in the consolidated statement of financial position;
net income attributable to the parent and the noncontrolling interest be
identified and presented on the face of the consolidated statement of income;
changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be consistently accounted for
as equity transactions; any retained noncontrolling equity investment in a
former deconsolidated subsidiary be initially measured at fair value and that
any gain or loss on the deconsolidation of a subsidiary be measured using fair
value of the noncontrolling equity investment rather than the carrying amount of
that retained investment; and entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and
noncontrolling owners. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of SFAS 160 is not expected to have a material impact on the Company's
consolidated financial statements.
  In
December 2007, the FASB issuedSFAS No. 141 (revised
2007),Business
Combinations ("SFAS 141(R)"). SFAS 141(R) establishes principles and
requirements for how an acquiring entity measures and recognizes in its
financial statements: the identifiable assets acquired; the liabilities assumed;
any noncontrolling interest in the acquiree; goodwill acquired or a gain from a
bargain purchase. SFAS 141(R) sets forth disclosure criteria to enable a better
understanding of the nature and effects of a business combination. SFAS 141(R)
was revised to improve the relevance, and comparability of financial statement
information about business combinations and their effect. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the first annual reporting period beginning on or after December 15, 2008.
The adoption of SFAS 141(R) is not expected to have a material impact on the
Company's consolidated financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115 ("SFAS 159"). SFAS 159 provides all entities with the option to
measure many financial instruments and certain other items at fair value. If a
company elects the fair value option for an eligible item, then it will report
unrealized gains and losses on those items at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. Upon
adoption, we did not elect the fair value option for any items within the scope
of SFAS 159 and, therefore, the adoption of SFAS 159 did not have an impact on
our consolidated financial statements.
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157"), which is effective for fiscal years beginning after November 15,
2007 and for interim periods within those years.  SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements.  SFAS 157 applies under other
accounting pronouncements that require or permit fair value
measurements.  SFAS 157 indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
  Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases ("SFAS
13") and its related interpretive accounting pronouncements that address leasing
transactions, while FSP 157-2 delays the effective date of the application of
SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis.
  We
adopted SFAS 157 as of January 1, 2008, with the exception of the application of
the statement to non-recurring nonfinancial assets and nonfinancial liabilities.
Non-recurringnonfinancial assets and
nonfinancial liabilities for which we have not applied the provisions of SFAS
157 include those measured at fair value in goodwill impairment testing, and
indefinite lived intangible assets measured at fair value for impairment
testing.
  Table of Contents
 8
 Note
3 — Fuel and Other Inventories
  Fuel
and other inventories consist of the following (in thousands):
  September
      30,
                
                
                December
      31,Description
                
                2008
                
                
                2007Fuel
                
                $
                13,383
                
                
                $
                7,703Lubricating
      oil
                
                
                4,050
                
                
                $
                2,770Other
                
                
                563
                
                
                $
                650TOTAL
                
                $
                17,996
                
                
                $
                11,123
 Note
4 — Advances to / from Affiliates
  Advances
to/from affiliates, which are entities related by common shareholders, are
non-interest-bearing, due on demand and expected to be collected or paid in the
ordinary course of business, generally within the year. The Company
typically advances funds to affiliates in connection with the payment of
management fees, commissions and consulting fees. Advances from affiliates
originated primarily from amounts due to affiliates for management fees,
commissions and consulting fees earned.
  Note
5 — Fixed Assets
  Fixed
assets consist of the following (in thousands):
 
 Description
                
                September
      30,2008
                
                
                December
      31, 2007Vessels
                
                $
                657,301
                
                
                $
                364,239Vessel
      improvements and other equipment
                
                
                124,338
                
                
                
                91,182Deferred
      drydocking costs
                
                
                23,128
                
                
                
                13,990Vessel
      construction in process
                
                
                102,863
                
                
                
                62,835Other
      fixed assets
                
                
                18,407
                
                
                
                13,513926,037
                
                
                
                545,759Less
      accumulated depreciation and amortization
                
                
                (151,665
                )
                
                
                (101,677
                )$
                774,372
                
                
                $
                444,082
  During
the nine months ended September 30, 2008, the Company took delivery of the
following ten vessels:
 
 New
                
                Former
                
                
                
                
                
                PurchaseVessel
      Name
                
                Vessel
      Name
                
                Delivery
      Date
                
                Vessel
      Type
                
                Price(in
      thousands)Zuni  Princess
                
                Ypermachos
                
                January
      29, 2008
                
                Bulk
      carrier
                
                $
                25,960Oneida
      Princess
                
                Gebe
      Oldendorff
                
                February
      11, 2008
                
                Bulk
      carrier
                
                
                32,320Hopi
      Princess
                
                African
      Sanderling
                
                February
      15, 2008
                
                Multipurpose
      tweendecker
                
                
                18,185Mohave
      Maiden
                
                Diasozousa
                
                February
      19, 2008
                
                Bulk
      carrier
                
                
                26,013Caribe
      Maiden
                
                Frijsenborg
                
                March
      11, 2008
                
                Multipurpose
      tweendecker
                
                
                23,230Ottawa
      Princess
                
                Wedellsborg
                
                March
      25, 2008
                
                Multipurpose
      tweendecker
                
                
                23,230Canarsie
      Princess
                
                Athinoula
                
                June
      17, 2008
                
                Bulk
      carrier
                
                
                30,603Houma
      Belle
                
                North
      Star
                
                June
      18, 2008
                
                Bulk
      carrier
                
                
                34,021Tupi
      Maiden
                
                Ken
      Blossom
                
                August
      11, 2008
                
                Bulk
      carrier
                
                
                44,000Fox
      Maiden
                
                Desert
      Explorer
                
                August
      22, 2008
                
                Bulk
      carrier
                
                
                35,500Total
                
                
                
                $
                293,062
  On
September 8, 2008, we signed a Memorandum of Agreement and made a deposit of
$4.1 million to purchase the heavylift tweendeckerCEC Cardigan for $20.6
million. The vessel, which will be renamedZia Belle, is expected
to be delivered during the fourth quarter of 2008.
  Table of Contents
 9
  Note
6 — Accrued Expenses
  Accrued
expenses consist of the following (in thousands):
  September
      30,
                
                December
      31,Description
                
                2008
                
                2007Voyage
      and vessel expenses
                
                $
                31,171
                
                $
                26,981Payroll
      and related costs
                
                
                13,313
                
                
                9,353Commissions
                
                
                789
                
                
                379Total
                
                $
                45,273
                
                $
                36,713
 Note
7 — Financing
  The
Company's outstanding debt balances consist of (in thousands):
  Interest
      Rate
                    September
      30, 2008
                  
                  
                  September
      30, 2008
                  
                  December
      31, 2007Bank
      of America - term credit facility
                  
                  
                  
                  
                  $
                  
                  $
                  50,446Bank
      of America - revolving credit facility
                  
                  
                  
                  
                  
                  
                  
                  70,375Bank
      of America - term credit facility,expires
      December 31, 2011
                  
                  
                  6.01
                  %
                  
                  
                  123,500The
      Royal Bank of Scotland credit facility
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,345The
      Royal Bank of Scotland credit facility,new
      vessel buildings,  expires December  31,
      2020
                  
                  
                  5.51
                  %
                  
                  
                  55,000
                  
                  
                  35,000Credit
      Suisse credit facility,expires
      December 12, 2017 and  February 19, 2018
                  
                  3.86%
      & 3.87%
                  
                  
                  
                  36,250
                  
                  
                  20,000DVB
      Group Merchant Bank (Asia) Ltd credit facility,expires
      January 23, 2013
                  
                  
                  5.30
                  %
                  
                  
                  65,216AIG
      Commercial Equipment Finance, Inc. credit facility,expires
      April 1, 2012
                  
                  
                  5.00
                  %
                  
                  
                  32,375Commerzbank
      AG credit facility,expires
      June 2, 2011
                  
                  
                  4.31
                  %
                  
                  
                  11,000Berenberg
      Bank credit facility,expires
      June 19, 2012
                  
                  
                  4.76
                  %
                  
                  
                  12,188Debt
      balance
                  
                  
                  
                  
                  
                  $
                  335,529
                  
                  $
                  180,166
  The
repayment of debt over the next five years and thereafter is as follows (in
thousands):
 
 2008
      (October 1, 2008 through December 31, 2008)
                
                $
                20,8302009
                
                
                84,4052010
                
                
                83,0262011
                
                
                72,6982012
                
                
                29,073Thereafter
                
                
                45,497$
                335,529
  Table of Contents
 10
 Bank of America Credit
Facility
 
 On March
26, 2008, the Company, through its subsidiaries, entered into a credit agreement
to amend and restate the existing Bank of America credit facility ("BA Credit
Facility"). The amendment increased the total syndicated BA Credit Facility to
$267.5 million from $160 million, increasing both the loan facility ("BA Term
Credit Facility") and the revolving credit facility ("BA Revolving Credit
Facility"). The BA Term Credit Facility was increased to $142.5 million from $80
million and the BA Revolving Credit Facility was increased to $125 million from
$80 million.
 
 The
Company made a full drawdown of $142.5 million on the amended BA Term Credit
Facility to pay outstanding principal and interest due on the existing Bank of
America credit facility, closing costs, financing costs and for general
corporate purposes. No drawdown of the BA Revolving Credit Facility has been
made.
 
 The BA
Term Credit Facility is repayable over four years in 15 quarterly installments
of $9.5 million with the last installment due December 31, 2011. The BA
Revolving Credit Facility is due March 26, 2012. Interest on the BA Credit
Facility is at the 30-day, 60-day, or 90-day Eurodollar LIBOR rate or the Base
rate, as defined in the credit agreement, as selected by the Company, plus a
loan margin rate based on the Company’s consolidated leverage ratio. The
interest rate margin is initially fixed at 2.25% and will become adjustable
after September 30, 2008 but no later than November 14, 2008, based on the
consolidated leverage ratio at September 30, 2008. Once the margin becomes
adjustable, it can vary quarterly in 0.50% increments between four pricing
levels ranging from 1.25% to 2.75 %.
 
 In
connection with the amendment and restatement of the existing Bank of America
credit facility, the Company incurred deferred financing costs of $2.4
million. Applying the guidance of the FASB Emerging Issues Task Force
("EITF") issue 96-19, which is applicable to the BA Term Credit Facility, and
EITF issue 98-14, which is applicable to the BA Revolving Credit
Facility, $2.3 million of unamortized financing costs, previously incurred
on the credit facility prior to the amendment, was charged to consolidated
income during the first quarter of 2008 under the caption "Loss on
extinguishment of debt". The $2.4 million incurred as a result of the amendment
and restatement of the Bank of America credit facility is being amortized over
the term of the BA Credit Facility.
 
 The
amended BA Credit Facility is collateralized primarily by 25 of our vessels
having a net book value at September 30, 2008 of $282.4 million, as well as by
TBSI’s equity interests in the subsidiaries that own the vessels. Each
subsidiary of TBSI with an ownership interest in the collateralized vessels has
provided an unconditional guaranty and pledged any insurance proceeds received
related to the vessels. The BA Credit Facility is guaranteed by TBSI and
other non-borrowing subsidiaries.
  The
amended BA Credit Facility agreement contains certain financial and
non-financial covenants. The non-financial covenants include customary
restrictions on the Company’s ability to incur indebtedness or grant liens, pay
dividends under certain circumstances, enter into transactions with affiliates,
merge, consolidate, or dispose of assets, and change the nature of its business.
The financial covenants require that we maintain certain fixed charge and
leverage ratios, as well as maintain tangible net worth within defined limits.
We are also required to maintain minimum cash and cash equivalent balances and
collateral coverage. In addition, the BA Credit Facility restricts the payment
of dividends, and the amount of leverage, investment and capital expenditures
without consent of the lender. Further, mandatory prepayment or delivery of
additional security is required in the event that the fair market value of the
vessels falls below limits specified in the loan agreement. At September 30,
2008 the Company was in compliance with all covenants.
  The
Royal Bank of Scotland Credit Facility
 
 On
February 22, 2008, The Royal Bank of Scotland credit facility loan
collateralized by the vessel Wichita Belle was repaid.
This vessel is one of several vessels collateralizing the amended BA Credit
Facility.
 
 The
Royal Bank of Scotland Credit Facility - New Vessel Buildings
 
 On March
29, 2007, the Company, through six wholly owned subsidiaries, entered into
a credit agreement with a syndicate of lenders led by The Royal Bank of Scotland
plc for a $150.0 million term loan credit facility (the "RBS Credit Facility")
to finance the building and purchase of six new Multi-Purpose vessels with
retractable tweendecks. The RBS Credit Facility is made up of six $25.0
million individual term loans designated individually as Loan A through Loan
F. The loans become available through May 31, 2009, November 30, 2009,
April 30, 2010, August 31, 2010, June 30, 2010 and October 31, 2010,
respectively, or such later date as agreed upon by the lenders. Advances under
the RBS Credit Facility will be drawn by the borrowing subsidiaries in specified
amounts upon the completion of the milestones as shown in the table
below:
  Table of Contents
 11
  Loan
      A
                
                Loan
      B
                
                Loan
      C
                
                Loan
      D
                
                Loan
      E
                
                Loan
      FArgyle
                  Maritime
                  Corp.
                
                Caton
                  Maritime
                  Corp.
                
                Dorchester
                  Maritime
                  Corp.
                
                Longwoods
                  Maritime
                  Corp.
                
                McHenry
                  Maritime
                  Corp.
                
                Sunswyck
                  Maritime
                  CorpMilestone
                
                Hull
      No NYHS200720
                
                Hull
      No NYHS200721
                
                Hull
      No NYHS200722
                
                Hull
      No NYHS200723
                
                Hull
      No YHS200724
                
                Hull
      No NYHS200725Contract
      Signing
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionSteel
      Cutting
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionKeel
      Laying
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionLaunching
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionDelivery
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
  As of
September 30, 2008, the Company had borrowed $55.0 million, consisting of $30.0
million drawn down shortly after the signing of the contracts, $10.0 million
drawn down on the steel cutting and keel laying of Hull No NYHS20720, $5.0
million drawn down on the steel cutting of Hull No NYHS20721, $5.0 million drawn
down on the steel cutting of Hull No NYHS20722 and $5.0 million drawn down on
the steel cutting of Hull No NYHS200724. The advances due at the time of
delivery, as shown in the above table, are subject to adjustment if the total
advanced by the lenders, including the scheduled delivery advance, exceeds 75%
of the value of the vessel at the time of delivery. The RBS Credit Facility is
collateralized by the respective shipbuilding contracts while the vessels are
under construction and, after delivery of the respective vessel, by Preferred
Ship Mortgages (as defined in the loan agreement) on the new vessels and
assignment of freight revenue and insurance. TBSI guarantees the obligations of
the borrowing subsidiaries under the RBS Credit Facility.
 
 Interest
on the RBS Credit Facility is at LIBOR plus a margin of 1.75% prior to the
drawdown of the advance at the time of delivery and at LIBOR plus a margin of
1.50% after the delivery advance is drawn down. Interest is payable either
monthly, quarterly or semi-annually depending on the interest period selected by
the Company. Each of the loans made under the RBS Credit Facility is payable in
40 quarterly installments of $0.4 million beginning three months after the
drawdown of the delivery advance with a final payment of $8.3 million due when
the last quarterly payment is made. If the delivery advance is not advanced
in full, the repayment installments will be reduced pro-rata.
 
 The RBS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on the
borrowing subsidiaries' ability to incur indebtedness or grant liens, enter into
transactions with affiliates, merge, consolidate, or dispose of assets, change
the nature of their business and materially amend or fail to enforce the
shipbuilding contracts with China Communications Construction Company Ltd. and
Nantong Yahua Shipbuilding Co., Ltd. The borrowing subsidiaries are also
required to, among other things, maintain the vessels when delivered, comply
with all applicable laws, keep proper books and records, preserve their
corporate existence, maintain insurance and pay taxes in a timely manner.
Further, the fair market value of the vessels subject to the mortgage must be at
least 125% of the outstanding loan amount. The financial covenants require that
the Company maintain certain fixed charge and leverage ratios, as well as
maintain tangible net worth within defined limits. We are also required to
maintain minimum cash and cash equivalent balances and collateral coverage.
TBSI as Guarantor, as defined in the loan agreement, is restricted from
paying dividends or making other distributions that would (1) result in a
default of the RBS Credit Facility, (2) exceed 50% of consolidated net
income for the fiscal year the dividend or distributions are made or (3) cause
the Company to be out of compliance with the minimum Consolidated Fixed Charge
Coverage Ratio as defined in the loan agreement. At September 30, 2008 the
Company was in compliance with all covenants.
 
 Concurrent
with the TBSI's subsidiaries entering into the RBS Credit Facility, the
borrowing subsidiaries entered into an agreement ("Guarantee Facility") to have
The Royal Bank of Scotland plc guarantee payments due under the shipbuilding
contracts. Under the Guarantee Facility, The Royal Bank of Scotland plc has
agreed to guarantee the second, third, and fourth installments due by the
borrowing subsidiaries under their respective shipbuilding contracts. The
Guarantee Facility provides for a guarantee of up to $14.0 million for each
borrower subsidiary for an aggregate guarantee of $84.0 million. The
Guarantee Facility for each borrower subsidiary expires twelve months after the
anticipated delivery date of the respective vessel. The Company guarantees
the obligations of the borrower subsidiary under the Guarantee
Facility.
 
 The
Company capitalized financing costs, including loan origination fees and bank
guarantee fees totaling $2.1 million.
  Table of Contents
 12
 Credit
Suisse Term Loan Facility
  On
December 7, 2007, the Company, through two of its subsidiaries, entered
into a credit agreement with Credit Suisse for a $40.0 million term loan credit
facility (the "CS Credit Facility") to replenish working capital used to
purchase theArapaho
Belle andOneida
Princess. The loan was fully drawn down shortly after the delivery of the
Oneida Princess on
February 19, 2008.
  The CS
Credit Facility is repayable over ten years in quarterly installments of $1.5
million for the first eight quarters and $0.9 million for the remaining 32
quarters. Interest is payable quarterly in arrears at LIBOR plus 1.05% if the
outstanding balance of the loan is at or below 65% of the vessels' market value
or 1.20% if the outstanding balance of the loan is above 65% of the vessels'
market value.
  The
Company incurred deferred financing costs of $0.5 million that are being
amortized over the term of the CS Credit Facility. The CS Credit Facility
is collateralized primarily by the two vessels, which had a net book value at
September 30, 2008 of $62.6 million, and a pledge of any insurance proceeds
received related to the vessels. The CS Credit Facility is guaranteed by
TBSI.
  The CS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on
the Company’s ability to incur indebtedness or grant liens, pay dividends under
certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business. The financial covenants require that we maintain certain fixed
charge and leverage ratios, as well as maintain tangible net worth within
defined limits. We are also required to maintain minimum cash and cash
equivalent balances and collateral coverage. The CS Credit Facility requires
minimum collateral coverage, restricts the payment of dividends and the amount
of leverage, investment and capital expenditures without consent of the lender.
In addition, mandatory prepayment or delivery of additional security is required
in the event that the fair market value of the vessels falls below limits
specified in the loan agreement. At September 30, 2008 the Company was in
compliance with all covenants.
 
 The
DVB Credit Facility
 
 On
January 16, 2008, the Company, through seven of its subsidiaries, entered into a
$75.0 million credit facility with a syndication of lenders led by DVB
Group Merchant Bank (Asia) Ltd. ("DVB Credit Facility"). The proceeds were
used to replenish working capital used to exercise a purchase option for seven
multipurpose tweendeck vessels chartered in under a sale-leaseback arrangement,
and for general corporate purposes. These vessels have been part of our
operational fleet since 2003 under a 66 month sale-leaseback contract which
provided purchase options.
 
 The loan
is repayable over five years in quarterly installments of $4.9 million for the
first ten quarters and $2.6 million for the remaining ten quarters.
Interest is at LIBOR plus 2.50% payable quarterly in arrears.
 
 The
Company incurred deferred financing costs of $1.3 million that are being
amortized over the term of the DVB Credit Facility. The DVB Credit Facility
is collateralized primarily by the seven vessels, which had a net book value at
September 30, 2008 of $36.6 million, and a pledge of any insurance proceeds
received related to the vessels. The DVB Credit Facility is guaranteed by
TBSI.
  The DVB
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain fixed charge
and leverage ratios, minimum cash and cash equivalent balances and collateral
coverage, and tangible net worth within defined limits. Non-financial
covenants include, among others, compliance with maritime laws and regulations,
maintenance of the vessels consistent with first-class ship ownership and
management practice, keep appropriate accounting records and maintain adequate
insurance. At September 30, 2008 the Company was in compliance with all
covenants.
 
 AIG
Commercial Equipment Finance Borrowing
 
 On
February 29, 2008, the Company, through three of its subsidiaries, borrowed
$35.0 million from AIG Commercial Equipment Finance, Inc. ("AIG Credit
Facility"). The loan proceeds were used to replenish working capital used
to acquire theHopi
Princess,Mohave
Maiden andZuni
Princess. The AIG Credit Facility is repayable over four years in
quarterly installments of $2.63 million for the first eight quarters and $1.75
million for the remaining eight quarters. Interest is at LIBOR plus an interest
margin of 1.75%, with an interest rate floor of 5.0%.
 
 Upon
borrowing under the AIG Credit Facility, the Company incurred deferred financing
costs of $0.5 million that are being amortized over the term of the AIG Credit
Facility. The AIG Credit Facility is collateralized primarily by the three
vessels, which had a net book value at September 30, 2008 of $67.1 million, and
a pledge of any insurance proceeds received related to the vessels. The AIG
Credit Facility is guaranteed by TBSI.
  Table of Contents
 13
 The AIG
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain fixed charge
and leverage ratios, minimum cash and cash equivalent balances and collateral
coverage, and tangible net worth within defined limits. The non-financial
covenants require the Company, among other things, to maintain the vessels,
comply with applicable laws, maintain proper books and records preserve its
corporate existence and maintain adequate insurance. At September 30, 2008
the Company was in compliance with all covenants.
 
 Commerzbank
AG
  On June
2, 2008, the Company, through a subsidiary, borrowed $12.5 million from
Commerzbank AG to finance part of the acquisition costs of the vessel Caribe Maiden, whose purchase
price was $23 million (the "Commerzbank AG Loan"). The Commerzbank AG Loan is
guaranteed by TBS International Limited.
  The
Commerzbank AG Loan is repayable over three years in 12 quarterly installments.
Payments are $1.5 million for the first four installments, followed by six
installment payments of $1.0 million and $0.25 million for the remaining two
installments. Interest is at LIBOR plus 1.5% payable quarterly in
arrears.
  The
Company incurred deferred financing costs of $0.1 million that are being
amortized over the term of the Commerzbank AG Loan. The Commerzbank AG Loan is
collateralized by the vessel, which had a net book value of $23.4 million at
September 30, 2008, and assignment of freight and insurance
proceeds.
  The
Commerzbank AG Loan contains certain financial and non-financial covenants. The
financial covenants require that we maintain certain fixed charge and leverage
ratios, minimum cash and cash equivalent balances and collateral coverage, and
tangible net worth within defined limits and the provision of financial
statements on a quarterly and annual basis. The non-financial covenants
require the Company, among other things, to: maintain vessels when delivered,
comply with applicable laws, preserve its corporate existence and maintain
adequate insurance. At September 30, 2008 the Company was in compliance with all
covenants.
  Berenberg
Bank
  On June
19, 2008, the Company, through a subsidiary, borrowed $13.0 million from Joh.
Berenberg, Gossler & Co. KG (the "Berenberg Bank Loan") to finance part of
the acquisition cost of the vessel Ottawa Princess, whose
purchase price was $23 million. The Berenberg Bank Loan is guaranteed by TBS
International Limited.
  The
Berenberg Bank Loan is repayable over four years in 16 consecutive quarterly
installments of $812,500 each. Interest is at LIBOR plus 1.7% payable quarterly
in arrears.
  The
Company incurred deferred financing costs of $0.1 million that are being
amortized over the term of the Berenberg Bank Loan. The Berenberg Bank Loan is
collateralized by the vessel, which had a net book value of $24.2 million at
September 30, 2008 and assignment of freight and insurance
proceeds.
  The
Berenberg Bank Loan agreement contains certain financial and non-financial
covenants. The financial covenants require collateral coverage and the provision
of financial statements on an annual and quarterly basis. The non-financial
covenants require the Company, among other things, to maintain the vessel,
comply with applicable laws, preserve its corporate existence and maintain
adequate insurance. At September 30, 2008 the Company was in compliance
with all covenants.
  Note
8 — Derivative Financial Instruments
  The
Company is exposed to certain financial risks relating to its ongoing business
operations. Currently, the only risk managed by using derivative instruments is
interest rate risk.  Interest rate swaps are contracted to manage interest
rate risk associated with the Company’s floating-rate borrowings. FASB Statement
No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133") requires
companies to recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance
with SFAS 133, the Company designates interest rate swaps as cash flow hedges of
floating-rate borrowings. The Company uses the "matched terms" accounting
method as provided by Derivative Implementation Group Issue G9, Assuming No Ineffectiveness When
Critical Terms of the Hedging Instruments and the Hedge Transaction Match in a
Cash Flow Hedge, and the methodology prescribed by Derivative
Implementation Group Issue G7, Cash Flow Hedges Measuring the
Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the Shortcut
Method Is Not Applied, to account for interest rate
contracts.
 
 Table of Contents
 14
  As of
September 30, 2008, the total notional amount of the Company’s
receive-variable/pay-fixed interest rate swaps was $258.7 million. Interest rate
contracts have fixed interest rates ranging from 2.92% to 5.24%, with a weighted
average rate of 3.85%. Interest rate swaps having a notional amount of
$188.7 million at September 30, 2008, decrease as principal payments on the
respective debt are made. Information on the location and amounts of
derivative fair values in the consolidated balance sheets and derivative gains
and losses in the consolidated income statements is shown below:
 
 Asset
      Derivatives(in
      thousands)
                September
      30, 2008
                
                December
      31, 2007Balance
      Sheet Location
                
                Fair
      Value
                
                Balance
      Sheet Location
                
                Fair
      ValueDerivatives
      designated as hedging instruments
                  under
      SFAS 133Interest
      rate contracts
                Other
      assets and deferred charges
                
                $
                1,197
                
                Other
      assets and deferred charges
                
                $Derivatives
      not designated as hedging instruments under SFAS 133Interest
      rate contracts
                Other
      assets and deferred charges
                
                
                
                
                Other
      assets and deferred chargesTotal
      asset derivatives
                
                
                $
                1,197
                
                
                
                $Liability
      Derivatives(in
      thousands)
                September
      30, 2008
                
                December
      31, 2007Balance
      Sheet Location
                
                Fair
      Value
                
                Balance
      Sheet Location
                
                Fair
      ValueDerivatives
      designated as hedging instruments under SFAS 133Interest
      rate contracts
                Other
      liabilities
                
                $
                3,285
                
                Other
      liabilities
                
                $
                2,897Derivatives
      not designated as hedging instruments under SFAS 133Interest
      rate contracts
                Other
      liabilities
                
                
                802
                
                Other
      liabilities
                
                
                568Total
      liability derivatives
                
                
                $
                4,087
                
                
                
                $
                3,465
  (in
      thousands)
                    
                    Amount
      of Gain or (Loss) Recognized in OCI on Derivatives (Effective
      Portion)Derivatives
      in SFAS 133 Cash Flow Hedging Relationships
                    
                    September
      30, 2008
                    
                    
                    December
      31, 2007Interest
      rate contracts
                    
                    $
                    (2,088
                    )
                    
                    $
                    (2,897
                    )
  Table of Contents
 15
 
 (in
      thousands)
                    
                    
                    
                    Amount
      of Gain or (Loss) Recognized in Income on DerivativesFor
      the Three Months Ended
                    
                    For
      the Nine Months EndedDerivatives
      Not Designated as Hedging Instruments under
                      SFAS
      133
                    
                    Location
      of Gain or (Loss)  Recognized in Income on
      Derivatives
                    
                    September
      30, 2008
                    
                    September
      30, 2007
                    
                    September
      30, 2008
                    
                    September
      30, 2007Interest
      rate contracts
                    
                    Interest
      expense
                    
                    $                       (153)
                    
                    $
                    
                    $                       (234)
                    
                    $                       (432)
  No
amounts were recognized in income on the ineffective portion of derivatives
during the three and nine months ended September 30, 2008 and 2007
respectively. A deferred starting interest rate contract, which starts
December 29, 2014 and continues through December 29, 2019 for the notional
amount of $20.0 million of debt, is callable at the bank’s option at anytime
during the contract. Accordingly, changes to the value of the swap contract
do not qualify for hedge accounting treatment and are included as a component of
interest expense in the consolidated statement of income.
 
 We do not
obtain collateral or other security to support financial instruments
subject to credit risk. We monitor the credit risk of our counterparties and
enter into agreements only with banking institutions with strong financial
resources.
 
  Note
9 — Fair Value Measurements
  Effective
January 1, 2008, the Company adopted SFAS 157, which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The fair value hierarchy for disclosure of fair
value measurements under SFAS 157 is as follows:
  Level 1 –
Quoted prices in active markets for identical assets or liabilities
  Level 2 –
Quoted prices for similar assets and liabilities in active markets or inputs
that are observable
  Level 3 –
Inputs that are unobservable (for example cash flow modeling inputs based on
assumptions)
   The
following table summarizes assets and liabilities measured at fair value on
recurring basis at September 30, 2008, as required by SFAS 157:
  (in
      thousands)Level
      1
                
                
                Level
      2
                
                
                Level
      3AssetsInterest
      rate contracts
                
                $
                
                
                
                $
                1,197
                
                
                $LiabilitiesInterest
      rate contracts
                
                $
                
                
                
                $
                4,087
                
                
                $
  Our
interest rate swap contracts are traded in the over-the-counter market. The fair
value is based on the quoted market price for a similar liability or determined
using inputs that use as their basis readily observable market data that are
actively quoted and can be validated through external sources.
  Note
10 — Equity Transactions
  Class
A and Class B Common Shares
  The
Company has two classes of common shares that are issued and outstanding - Class
A common shares, which are listed on the NASDAQ Global Select Market under the
symbol "TBSI", and Class B common shares. The Class A common shares and Class B
common shares have identical rights to dividends, surplus and assets on
liquidation; however, the holders of Class A common shares are entitled to one
vote for each Class A common share on all matters submitted to a vote of the
holders of common shares, while holders of Class B common shares are entitled to
one-half of a vote for each Class B common share.
  Table of Contents
 16
 The
holders of Class A common shares can convert their Class A common shares into
Class B common shares, and the holders of Class B common shares can convert
their Class B common shares into Class A common shares at any time. Further, the
Class B common shares will automatically convert into Class A common shares upon
transfer to any person other than another holder of Class B common shares, in
each case as long as the conversion will not cause the Company to become a
controlled foreign corporation, as defined in the Internal Revenue Code of 1986,
as amended ("Code"), or the Class A common shares cease to be regularly traded
on an established securities market for purposes of Section 883 of the
Code.
  In
conjunction with the secondary public offering completed on May 28, 2008
shareholders of Class B shares elected to convert an aggregate of 1,014,000
Class B common shares to Class A common shares. On September 30, 2008 there were
17,514,496 Class A common shares issued, of which 17,504,496 are outstanding,
and 12,390,461 Class B common shares issued and outstanding.
  Warrants
  Warrants
were issued by the Company in connection with its emergence from bankruptcy in
2001 and became exercisable on June 29, 2005. The warrant agreement
includes an anti-dilution provision that adjusts the number of shares issuable
upon exercise of the warrants whenever the Company issues additional common
shares or engages in similar transactions.
  As a
result of additional shares issued in connection with our secondary public
offering and through our Employee Incentive Plan, shares exercisable under
outstanding warrants increased by 7,845 Class A and 15,205 Class B common
shares. Accordingly at September 30, 2008, there were outstanding exercisable
warrants to purchase 106,156 Class A common shares and 205,747 Class B common
shares held by parties not affiliated with existing shareholders. The warrants
are exercisable for a period of ten years following the date on which their
exercise condition was met (February 8, 2005), at a price of $.01 per
share.
  Secondary
Public Offering
  On
May 28, 2008, TBSI and certain of its shareholders completed the sale of
3,400,000 of the Company's Class A common shares for $51.00 per share. The
Company issued 2,000,000 Class A common shares and existing shareholders sold
1,400,000 Class A common shares. The proceeds to the Company, after underwriting
fees but prior to the deducting of offering expenses, totaled $96.4 million. The
amounts shown in the accompanying "Consolidated Statement of Shareholders'
Equity", as additions to additional paid-in capital, represent payments received
for the issuance of shares on May 28, 2008 in excess of their par value, less
underwriting fees.
  Treasury
Stock
  In
June 2008, an officer of the Company elected to receive on a net settlement
basis 25,000 Class A common shares, from a previously issued stock grant,
vesting in June 2008. The Company's Equity Incentive Plan permits stock grant
recipients to elect a net settlement. Under the terms of a net settlement, the
Company will retain a specified number of shares to cover the recipient's
estimated statutory minimum tax liability. The retained shares are held in the
company's treasury ("Treasury Stock"). In the case of the officer's stock grant,
10,000 Class A common shares were retained as Treasury Stock. On September 30,
2008, there were 10,000 Treasury Stock shares held by the Company valued at
$389,000.
  Table of Contents
 17
 Note
11 — Earnings Per Share
  In
accordance with FASB Statement No. 128, Earnings per Share, the
following table sets forth the computation of basic and diluted net income per
share for the three and nine months ended September 30, 2008 and
2007:
  Three
      Months Ended September 30,
                
                Nine
      Months Ended September 30,2008
                
                2007
                
                2008
                
                2007(In
      thousands, except number of shares and earnings per share
      amounts)Numerators:Net
      income
                
                $
                59,143
                
                $
                27,003
                
                $
                157,162
                
                $
                63,095Denominators:Basic-weighted
      average common shares outstanding
                
                
                30,104,863
                
                
                28,044,310
                
                
                28,980,101
                
                
                28,024,295Weighted
      average restricted stock issued to employees and directors
                
                
                40,341
                
                
                37,368
                
                
                56,651
                
                
                35,250Diluted-weighted
      average common shares and potential common shares
    outstanding
                
                
                30,145,204
                
                
                28,081,678
                
                
                29,036,752
                
                
                28,059,545Income
      per common share:Basic
                
                $
                1.96
                
                $
                0.96
                
                $
                5.42
                
                $
                2.25Diluted
                
                $
                1.96
                
                $
                0.96
                
                $
                5.41
                
                $
                2.25
  At
September 30, 2008 and 2007, there were outstanding exercisable warrants to
purchase 106,156 Class A common shares and 205,747 Class B common shares and
98,311 Class A common shares and 190,542 Class B common shares respectively,
held by parties not affiliated with existing shareholders. The warrants have
been treated as outstanding for purposes of basic earnings per share for the
three and nine months ended September 30, 2008 and 2007, because they are
issuable for nominal consideration upon exercise of the warrants.
  Note
12 — Commitments and Contingencies
  Commitments
 
 Charters-in
of Vessels
  The
Company charters-in two vessels (Laguna Belle andSeminole Princess) under
long-term noncancelable operating leases (bareboat charters) that were part of a
sale-leaseback transaction. Both bareboat charters expire on January 30,
2014.  Each bareboat charter requires charter hire payments of $10,500
per day for the first two years of the charter, $10,000 per day during the third
year of the charter and $7,350 per day during the fourth through seventh years
of the charter. The charter agreements allow for the purchase of the respective
vessel at the end of the fifth, sixth or seventh year of the charter period at a
vessel price of $11.1 million, $9.15 million, or $6.75 million, respectively and
for the purchase options to be exercised at any other date during the option
period at a pro-rata price. The leases under the sale-leaseback
transactions were classified as operating leases. Deposits of $2.75 million, to
be held by the lessor for each charter during the charter period, were required
at the inception of the lease. The deposits are to be returned, without
interest, at the expiration of the charter period, unless applied earlier toward
the amounts due upon exercise of the purchase option. Deferred leasing costs of
$1.2 million, incurred in connection with the origination of the charters, are
being amortized over the terms of the leases. As mentioned above, the bareboat
charters contain predetermined fixed decreases of the charter hire payments due
under the charters. The Company recognizes the related rental expense on a
straight-line basis over the term of the charters and records the difference
between the amounts charged to operations and amounts paid as deferred rent
receivable. At September 30, 2008 and December 31, 2007, deferred rent
receivable was $2.3 million and $1.1 million, respectively.
  Table of Contents
 18
 Other
Leases
  The
Company leases two properties, which are used by TBSI’s service company
subsidiaries Roymar Ship Management, Inc. ("Roymar") and TBS Shipping Services
Inc. ("TBS Shipping") for the administration of their operations. The main
office space is rented from Joseph E. Royce, our chairman and chief executive
officer, by TBS Shipping. The lease, which was to expire December 31, 2007, was
renewed under the first of five one-year renewal options until December 31,
2008. The lease provides for monthly rent of $20,000 per month, plus
operating expenses including real estate taxes.
  Roymar
renewed its existing lease under the first of two one-year renewal options
though October 31, 2008, and rented additional space beginning July 1,
2008. The total monthly rent of $30,017 includes $4,959 rent for the additional
space. The lease requires Roymar to pay additional rent for real estate tax
escalations.
  As of
September 30, 2008 future minimum commitments under operating leases with
initial or remaining lease terms exceeding one-year are as follows (in
thousands):
  OfficeAt
      September 30, 2008
                
                Vessel
      Hire
                
                Premises
                
                Total2008  (October
      1, 2008 through December 31, 2008)
                
                $
                1,932
                
                $
                90
                
                $
                2,0222009
                
                
                7,910
                
                
                
                
                
                7,9102010
                
                
                5,951
                
                
                
                
                
                5,9512011
                
                
                5,351
                
                
                
                
                
                5,3512012
                
                
                5,366
                
                
                
                
                
                5,366Thereafter
                
                
                5,792
                
                
                
                
                
                5,792$
                32,302
                
                $
                90
                
                $
                32,392
  Purchase
Obligations –New Vessel Buildings
  At
September 30, 2008, the Company had purchase obligations totaling $122.5 million
in connection with its new vessel building program, including obligations under
a contract for the supervision and inspection of vessels under
construction. The obligations will become payable as the shipyard meets
several milestones through June 2010. As of September 30, 2008, $122.5
million of the purchase obligation was scheduled to be paid as
follows: $14.2 million in 2008, $71.4 million in 2009 and $36.9 million in
2010. The timing of actual payments will vary based upon when the
milestones are met.
  Purchase
Obligations – Vessel
  On
September 8, 2008, we signed a Memorandum of Agreement and made a deposit of
$4.1 million to purchase the heavylift tweendeckerCEC Cardigan for $20.6
million. The vessel, which will be renamedZia Belle, is expected
to be delivered during the fourth quarter of 2008.
 
 Contingencies
  The
Company is periodically a defendant in cases involving personal injury and other
matters that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of these lawsuits or claims, individually or combined, will not
materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company.
  Note
13 — Business Segment
  The
Company is managed as a single business unit that provides worldwide ocean
transportation of dry cargo to its customers through the use of owned and
chartered vessels.  The vessels are operated as one fleet and when
making resource allocation decisions, our chief operating decision maker
evaluates voyage profitability data, which considers vessel type and route
economics, but gives no weight to the financial impact of the resource
allocation decision on an individual vessel basis. The Company's objective in
making resource allocation decisions is to maximize its consolidated financial
results, not the individual results of the respective vessels or
routes.
 
 Table of Contents
 19
  The
Company transports cargo throughout the world, including the United States.
Voyage revenue is attributed to foreign countries based on the loading port
location. Time charter revenue by country cannot be allocated because the
Company does not control the itinerary of the vessel.
  Voyage
revenue generated in countries excluding the U.S. (in thousands):
 
 Three
      Months Ended September 30,
                
                Nine
      Months Ended September 30,Country
                
                2008
                
                2007
                
                2008
                
                2007Brazil
                
                $
                35,265
                
                $
                17,440
                
                $
                101,755
                
                $
                51,063Japan
                
                
                20,239
                
                
                10,374
                
                
                60,995
                
                
                27,519United
      Arab Emirates
                
                
                22,200
                
                
                5,271
                
                
                50,058
                
                
                17,289Peru
                
                
                12,790
                
                
                7,045
                
                
                36,788
                
                
                21,232Chile
                
                
                13,288
                
                
                3,457
                
                
                34,561
                
                
                7,675Korea
                
                
                3,044
                
                
                948
                
                
                12,007
                
                
                4,388China
                
                
                21,498
                
                
                7,360
                
                
                29,542
                
                
                16,902Venezuela
                
                
                3,074
                
                
                82
                
                
                8,730
                
                
                3,258Others
                
                
                13,591
                
                
                12,977
                
                
                30,705
                
                
                17,899Total
                
                $
                144,989
                
                $
                64,954
                
                $
                365,141
                
                $
                167,225
  No
customers accounted for 10.0% or more of charter hire receivables at September
30, 2008. One  customer accounted for 12.4% and 13.2% of voyage and
time charter revenue for the three months ended September 30, 2008 and 2007,
respectively. Additionally, this customer accounted for 12.2% and 15.8% of
voyage and time charter revenue for the nine months ended September 30, 2008 and
2007, respectively. A different customer accounted for 13.1% of charter hire
receivables at December 31, 2007.
  Note
14 — Subsequent Events
  On
October 9, 2008, the Company drew down $25.0 million on its BA Revolving Credit
Facility, leaving  $100.0 million available for future draw
down.
   Table of Contents
 20
  Item 2.    Management's Discussion
and Analysis of Financial Condition and Results of Operations
  This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are only our
management's current expectations. They are based on our management's beliefs
and assumptions and on information currently available to our management.
Forward-looking statements include, among other things, the information
concerning our possible or assumed future results of operations, business
strategies, financing plans, competitive position, potential growth
opportunities and the effects of future regulation and competition.
Forward-looking statements include all statements that are not historical facts
and can be identified by the use of forward-looking terminology such as the
words "anticipates," "believes," "estimates," "expects," "future," "intends,"
"plans" and similar terms.
  Forward-looking
statements involve risks, uncertainties and assumptions. Although the Company
does not make forward-looking statements unless it believes it has a reasonable
basis for doing so, it cannot guarantee their accuracy. Actual results may
differ materially from those expressed in these forward-looking statements due
to a number of uncertainties and risks, including the risks disclosed in our
Annual Report on Form 10-K filed with the SEC on March 14, 2008, and in this
Quarterly Report, as well as other unforeseen risks. You should not rely on
any forward-looking statements.
  Recent
Developments
  The company focuses on
providing complete and complex transportation solutions to our clients to
optimize their global supply chains. This distinguishes us from traditional dry
cargo shipping companies. 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 have expanded and upgraded our fleet which now numbers 46
vessels. Additionally, we have secured funding for six new vessels to be
delivered through 2010.
  The global financial
crisis has resulted in a reduction in the demand for shipping services due to
reduced liquidity, and accordingly, a significant downturn in spot freight and
time charter rates. A reduction in the availability of vessel acquisition
funding has caused potential buyers to delay, postpone or abandon their vessel
acquisition plans.
  Earlier in 2008, we were
actively pursuing opportunities to build additional Roymar Class ships in China
for delivery through 2011. In October, we temporarily suspended these efforts in
consideration of the current shipping market turmoil.
  Considering the decline
in the spot shipping and financial credit markets, the Company updated its
analysis of estimated undiscounted future cash flows for its fleet of vessels in
accordance with SFAS 144 Accounting for the Impairment or
Disposal of Long-Lived Assets. Its analysis indicated that
no impairment was evidenced and accordingly, the Company determined that there
was no impairment of long-lived assets at September 30, 2008. The Company
will continue to monitor projected undiscounted future cash flows to determine
if impairment of long-lived assets becomes evident.
  Management istaking
appropriate measures to manage the business during the global economic crisis
and to be well positioned for recovery.
  On September 8, 2008, we
signed a Memorandum of Agreement and made a deposit of $4.1 million to purchase
the heavylift tweendeckerCEC
Cardigan for $20.6 million. The vessel, which will be renamedZia Belle, is expected
to be delivered during the fourth quarter 2008.
  On September 16, 2008,
the Company remitted $2.6 million to an escrow account in connection with
the acquisition of a 50% interest in a company that owns a limestone mine
located in the Dominican Republic. The acquisition is contingent upon the
selling party meeting certain conditions as defined in the agreement. It is
anticipated that the acquisition will close in November 2008.
  Table of Contents
 21
 General
  The
following is a discussion of our financial condition at September 30, 2008 and
December 31, 2007 and our results of operations comparing the three and nine
months ended September 30, 2008 with the three and nine months ended September
30, 2007.
 
 To
conform to the 2008 presentation, we reclassified 2007 despatch expenses, which
were included in voyage expense, to voyage revenue. Despatch transactions
represent a negotiated payment for loading and unloading cargo faster than
agreed and reflect an adjustment to revenue rather than an expense. These
reclassifications did not impact net income. We also reclassified drydock
expenditures from an investing activity to an operating activity.
  TBS
Logistics Incorporated ("Logistics"), a wholly owned subsidiary that started
operations in the fourth quarter 2007, provides fully-integrated cargo and
transport management services. Logistics augments our ocean transportation
services. We presented Logistics operations separately because of its recent
growth.
  You
should read this section in conjunction with the consolidated financial
statements including the related notes to those financial statements included
elsewhere in this Quarterly Report.
  Overview
  We are an
ocean transportation services company that offers worldwide shipping solutions
through liner, parcel, bulk and vessel chartering services. We offer our
services globally in more than 20 countries to over 300 customers through a
network of affiliated service companies. The Company's results for three and
nine months ended September 30, 2008 have been very strong. However, current
economic conditions and a protracted global recession could adversely affect
future results.
 
 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;
  ·
              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,
                fuel,
      commission expense and stevedore and other cargo-related
      expenses.
  Drydocking
  In the
last three years, our fleet has grown from 29 to 46 vessels. These vessels must
be drydocked twice during a five-year cycle. Thus, our controlled fleet of 46
vessels at September 30, 2008 would result in 92 drydockings over five years, or
an average of 18 vessels per year.
  We strive
to maintain and upgrade our vessels to the highest standards. The vessels
in our fleet have an average age of 21.5 years. Accordingly, we have decided to
accelerate the timing of steel renewals and reinforcements on many of the
vessels that were drydocked in 2007 as well as vessels scheduled for drydocking
in 2008. We expect that these renewals and reinforcements would have been
required in the next five to ten years.
  Below is
a summary of our quarterly drydocking activity during the nine months ended
September 30, 2008:
  ·
              During
      the first quarter of 2008, one vessel that entered into drydock during the
      fourth quarter of 2007 continued its drydocking for 15 days and four
      vessels entered drydock for a total of 132
days.
  ·
              During
      the second quarter of 2008, three vessels that entered into drydock during
      the first quarter of 2008 continued their drydockings for 48 days and five
      vessels entered drydock for a total of 144
  days.
   Table of Contents
 22
 ·
              During
      the third quarter of 2008, four vessels that entered into drydock during
      the second quarter of 2008 continued their drydockings for 112 days and
      five vessels entered drydock for a total of 117
  days.
  Our
schedule of vessels anticipated to be drydocked during the fourth quarter of
2008, including estimated number of drydock days and metric tons of steel
renewal, is as follows:
  Anticipated
      Number of vessels entering drydock during quarter
                
                Anticipated
      Number of drydock days during quarter
                
                
                Estimated
      metric tons of steel to be installedFourth
      Quarter 2008
                
                
                2
                
                
                190
                
                (a)
                
                810
  (a)
              The
      anticipated number of drydock days during the quarter includes estimated
      drydock days of the three vessels that entered into drydock during the
      third quarter of 2008 and continued into the fourth quarter of
      2008.
  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 75 days. Our
estimates are based on current and anticipated congestion in the repair
shipyards, which could be adversely affected by any unanticipated weather or
congestion in the shipyard. First drydocking after the vessel acquisitions,
which includes steel renewal and reinforcement, are capitalized as vessel
improvements. Further, our fourth quarter 2008 drydock schedule is subject
to change based on unanticipated commercial needs of our business.
  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. Voyage revenue and expenses for
each reporting period include estimates for voyages in progress at the end of
the period. Estimated profits from voyages in progress are recognized on a
percentage of completion basis by prorating the estimated final voyage revenue
and expenses using the ratio of voyage days completed through period end to
total voyage days. 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. Revenue from time charters in progress is calculated using the daily
charter hire rate, net of daily expenses multiplied by the number of voyage days
on-hire through period end.
  Voyage revenueconsists 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 that
vessels are chartered out and the daily charter hire rates.
  Voyage
expenses consist primarily of fuel, port costs, stevedoring, commissions
and lashing materials, which are paid by our subsidiaries.
  Vessel
expensesare 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, and charter hire fees we pay to owners for use of their
vessels. These costs are paid by our subsidiaries.
  Depreciation and
amortizationexpense is computed on
the basis of 30-year useful lives for our vessels.
  Commissions on
freight and port agency fees are paid to unrelated companies and TBS
Commercial Group Ltd., a company that is owned by our principal
shareholders. Renewal of the current management agreements with TBS
Commercial Group Ltd. and approval of any new management agreements or
amendments to the current management agreements with TBS Commercial Group Ltd.
are subject to approval by the Compensation Committee of our Board of
Directors.
  Table of Contents
 23
 Results
of Operations
  Comparison
of the three months ended September 30, 2008 and September 30, 2007
  Three
      Months Ended
                
                Three
      Months EndedSeptember
      30, 2008
                
                September
      30, 2007
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                PercentageVoyage
      revenue
                
                $
                161,397
                
                
                88.0
                
                $
                70,873
                
                
                77.4
                
                $
                90,524
                
                
                127.7Time
      charter revenue
                
                
                19,308
                
                
                10.5
                
                
                20,557
                
                
                22.4
                
                
                (1,249
                )
                
                (6.1
                )Logistics
      revenue
                
                
                2,045
                
                
                1.1
                
                
                
                
                
                
                
                
                2,045Other
      revenue
                
                
                572
                
                
                0.4
                
                
                140
                
                
                0.2
                
                
                432Total
      revenue
                
                
                183,322
                
                
                100.0
                
                
                91,570
                
                
                100.0
                
                
                91,752
                
                
                100.2Voyage
      expense
                
                
                52,882
                
                
                28.8
                
                
                22,942
                
                
                25.1
                
                
                29,940
                
                
                130.5Logistics
      expense
                
                
                1,726
                
                
                0.9
                
                
                
                
                
                
                
                
                1,726Vessel
      expense
                
                
                30,759
                
                
                16.9
                
                
                22,192
                
                
                24.2
                
                
                8,567
                
                
                38.6Depreciation
      and amortization
                
                
                19,980
                
                
                10.9
                
                
                9,032
                
                
                9.9
                
                
                10,948
                
                
                121.2General
      and administrative
                
                
                14,121
                
                
                7.7
                
                
                7,960
                
                
                8.7
                
                
                6,161
                
                
                77.4Total
      operating expenses
                
                
                119,468
                
                
                65.2
                
                
                62,126
                
                
                67.9
                
                
                57,342
                
                
                92.3Income
      from operations
                
                
                63,854
                
                
                34.8
                
                
                29,444
                
                
                32.1
                
                
                34,410
                
                
                116.9Other
      (expenses) and incomeInterest
      expense
                
                
                (5,041
                )
                
                (2.7
                )
                
                (2,603
                )
                
                (2.8
                )
                
                (2,438
                )
                
                93.7Other
      income (expense)
                
                
                330
                
                
                0.2
                
                
                162
                
                
                0.2
                
                
                168
                
                
                103.7Net  income
                
                $
                59,143
                
                
                32.3
                
                $
                27,003
                
                
                29.5
                
                $
                32,140
                
                
                119.0
  Voyage
revenue
 Voyage
revenue increased to $161.4 million for the three months ended September 30,
2008. The increase in our voyage revenue is attributable primarily to an
increase in revenue tons carried, coupled with an increase in average freight
rates. The key factors driving voyage revenue are the number of vessels in the
fleet, freight voyage days, freight rates, and tons carried.
 Revenue
tons carried increased 967,324 tons or 58.2% to 2,628,585 tons for the three
months ended September 30, 2008 from 1,661,261 tons for the same period in
2007. The increase in revenue tons carried is principally due to an
increase in aggregate cargoes carried.
  Average
freight rates for the three months ended September 30, 2008, as compared to the
same period in 2007, increased $18.74 per ton, or 43.9%, to $61.40 per ton from
$42.66 per ton.  The increase in average freight rates was due to the
strength of the freight market for all our major cargoes, including our
high-volume, low-freighted aggregates bulk cargo, that we handled in 2008 as
compared to 2007. Excluding aggregates bulk cargo the average freight rates
would have increased $26.61 per ton or 38.4% to $95.85 per ton for the three
months ended September 30, 2008 as compared to $69.24 per ton for the same
period in 2007.  In October 2008, we saw a significant downturn in the
freight market due to worldwide economic turmoil, which we believe will have an
impact on freight rates for next quarter and possibly beyond. The average
freight rates on aggregates bulk cargo increased to $18.30 per ton from $7.38
per ton for the same period in 2007. While average freight rates on aggregates
bulk cargo are lower than average freight rates on other types of cargoes,
voyage costs also are lower resulting in comparable daily time charter
equivalent rates. For the three months ended September 30, 2008, and 2007, we
had contracts of affreightment, expiring late 2009, under which we carried
approximately 1,653,000 and 1,068,000 revenue tons and generated $61.1 million
and $21.8 million of voyage revenue, respectively.
  Table of Contents
 24
 The
weighted average number of vessels in the fleet, freight voyage days, the days
on hire, excluding vessels time-chartered out, freight rates (overall freight
rates and freight rates excluding aggregates) and the daily time charter
equivalent rates for the three months ended September 30, 2008 and 2007 are as
follows:
  Three
      Months Ended September 30,2008
                
                
                2007Number
      of vessels (1)
                
                
                36
                
                
                
                23Freight
      voyage days (2)
                
                
                3,296
                
                
                
                2,157Days
      on hire (3)
                
                
                3,347
                
                
                
                2,169Revenue
      tons carried (thousands) (4)For
      all cargoes
                
                
                2,628
                
                
                
                1,661Excluding
      aggregates
                
                
                1,461
                
                
                
                947Aggregates
                
                
                1,167
                
                
                
                714Freight
      Rates (5)For
      all cargoes
                
                $
                61.40
                
                
                $
                42.66Excluding
      aggregates
                
                $
                95.85
                
                
                $
                69.24Daily
      time charter equivalent rates (6)
                
                $
                33,143
                
                
                $
                22,527
  (1)
              Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
              Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
              Number
      of days that our vessels were available for hire, 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)
              Time
      Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the period divided by the number of available
      freight voyage days during the period. 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 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
following table shows revenues attributed to our principal
cargoes:
 
 Three
      Months EndedSeptember
      30, 2008
                  
                  September
      30, 2007
                  
                  Increase
      (Decrease)Description
                  
                  In
      Thousands
                  
                  As
      a % of Total Voyage Revenue
                  
                  In
      Thousands
                  
                  As
      a % of Total Voyage Revenue
                  
                  In
      Thousands
                  
                  %Steel
      products
                  
                  $
                  41,364
                  
                  
                  25.6
                  
                  $
                  23,951
                  
                  
                  33.8
                  
                  $
                  17,413
                  
                  
                  72.7Metal
      concentrates
                  
                  
                  26,241
                  
                  
                  16.3
                  
                  
                  9,387
                  
                  
                  13.2
                  
                  
                  16,854
                  
                  
                  179.5Agricultural
      products
                  
                  
                  27,011
                  
                  
                  16.7
                  
                  
                  12,507
                  
                  
                  17.7
                  
                  
                  14,504
                  
                  
                  116.0Aggregates
                  
                  
                  21,370
                  
                  
                  13.2
                  
                  
                  5,271
                  
                  
                  7.4
                  
                  
                  16,099
                  
                  
                  305.4Other
      bulk cargo
                  
                  
                  18,194
                  
                  
                  11.3
                  
                  
                  5,803
                  
                  
                  8.2
                  
                  
                  12,391
                  
                  
                  213.5Project
      cargo
                  
                  
                  5,938
                  
                  
                  3.7
                  
                  
                  269
                  
                  
                  0.4
                  
                  
                  5,669Rolling
      stock
                  
                  
                  6,479
                  
                  
                  4.0
                  
                  
                  3,158
                  
                  
                  4.5
                  
                  
                  3,321
                  
                  
                  105.2Automotive
      products
                  
                  
                  3,142
                  
                  
                  1.9
                  
                  
                  1,412
                  
                  
                  2.0
                  
                  
                  1,730
                  
                  
                  122.5General
      cargo
                  
                  
                  4,006
                  
                  
                  2.5
                  
                  
                  2,271
                  
                  
                  3.2
                  
                  
                  1,735
                  
                  
                  76.4Fertilizers
                  
                  
                  6,095
                  
                  
                  3.8
                  
                  
                  5,037
                  
                  
                  7.1
                  
                  
                  1,058
                  
                  
                  21.0Other
                  
                  
                  1,557
                  
                  
                  1.0
                  
                  
                  1,807
                  
                  
                  2.5
                  
                  
                  (250
                  )
                  
                  (13.8
                  )Total
      voyage revenue
                  
                  $
                  161,397
                  
                  
                  100.0
                  
                  $
                  70,873
                  
                  
                  100.0
                  
                  $
                  90,524
                  
                  
                  127.7
 Table of Contents
 25
 Time
charter revenue
 
 Time
charter revenue decreased to $19.3 million for the three months ended September
30, 2008. The key factors driving time charter revenue are the number of
days that vessels are chartered out and the daily charter hire
rates.
  Time
charter revenue decreased because of a decrease in the chartered vessel days,
which decreased 230 days or 28.5% to 577 days for the three months ended
September 30, 2008, as compared to 807 days for the same period in 2007. The
decrease in time charter-out days is due mainly to the reduced number of vessels
available for time charter-out caused by the increased use of our controlled
vessels in our established voyage business. The decrease in time charter-out
days was offset by an increase in the average charter hire rate, which increased
$7,990 per day or 31.4% to $33,464 per day for the three months ended September
30, 2008 from $25,474 per day for the comparable period in 2007. The
increase in the average charter hire rate per day is primarily due to the
strength in the worldwide shipping market. Charter hire rates are set, to a
significant degree, by the market and depend on the relationship between the
demand for ocean freight transportation and the availability of appropriate
vessels. In October 2008, we saw a significant downturn in the freight
market due to worldwide economic turmoil, which we believe will have an impact
on charter hire rates for next quarter and possibly
beyond.
  The
number of vessels time chartered out, time charter days, average daily charter
rates and daily time charter equivalent rates for the three months ended
September 30, 2008 and 2007 are as follows:
  Three
      Months Ended September 30,2008
                
                
                2007Number
      of vessels (1)
                
                
                6
                
                
                
                9Time
      Charter days (2)
                
                
                577
                
                
                
                807Daily
      charter hire rates (3)
                
                $
                33,464
                
                
                $
                25,474Daily
      time charter equivalent rates (4)
                
                $
                32,206
                
                
                $
                24,656
  (1)
              Weighted
      average number of vessels chartered out.(2)
              Number
      of days the vessels earned charter hire.(3)
              Weighted
      average charter hire rates.(4)
              Time
      Charter Equivalent or "TCE" rates for vessels that are time chartered out,
      are defined as time charter revenue during the period reduced by
      commissions divided by the number of available time charter days during
      the period. Commissions for vessels that are time chartered out for
      the three months ended September 30, 2008 and September 30, 2007 were $0.7
      million and $0.7 million, respectively. No deduction is made for vessel or
      general and administrative expenses. 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. No voyage expenses are deducted because they are not
      applicable.
 
 Voyage
expense
 
 Voyage
expense consists of costs attributable to specific voyages. The number of
voyage days is a significant determinant of voyage expense, which consists of
fuel costs, commissions, port call, stevedoring and miscellaneous voyage
expense. The following table shows the change in the number of voyage days
for the three months ended September, 2008 as compared to the same period in
2007:
  Three
      Months Ended September 30,
                
                Increase
      (Decrease)2008
                
                2007
                
                Days
                
                PercentageFreight
      voyage days
                
                
                3,296
                
                
                2,157
                
                
                1,139
                
                
                52.8Time
      charter out days
                
                
                577
                
                
                807
                
                
                (230
                )
                
                (28.5
                )Total
      voyage days
                
                
                3,873
                
                
                2,964
                
                
                909
                
                
                30.7
   Table of Contents
 26
 The
principal components of voyage expense were as follows:
  Three
      Months Ended
                
                Three
      Months EndedSeptember
      30, 2008
                
                September
      30, 2007
                
                
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of 2007 Expense
                
                As
      a % of RevenueFuel
      expense
                
                $
                28,297
                
                
                53.6
                
                
                15.4
                
                $
                10,689
                
                
                46.7
                
                
                11.7
                
                $
                17,608
                
                
                164.7
                
                
                3.7Commission
      expense
                
                
                9,111
                
                
                17.2
                
                
                5.0
                
                
                3,957
                
                
                17.2
                
                
                4.3
                
                
                5,154
                
                
                130.3
                
                
                0.7Port
      call expense
                
                
                7,694
                
                
                14.5
                
                
                4.2
                
                
                4,732
                
                
                20.6
                
                
                5.2
                
                
                2,962
                
                
                62.6
                
                
                (1.0
                )Stevedore
      and othercargo-related
      expense
                
                
                4,813
                
                
                9.1
                
                
                2.6
                
                
                2,728
                
                
                11.9
                
                
                3.0
                
                
                2,085
                
                
                76.4
                
                
                (0.4
                )Miscellaneous
      voyageexpense
                
                
                2,967
                
                
                5.6
                
                
                1.6
                
                
                836
                
                
                3.6
                
                
                0.9
                
                
                2,131
                
                
                254.9
                
                
                0.7Voyage
      expense
                
                $
                52,882
                
                
                100.0
                
                
                28.8
                
                $
                22,942
                
                
                100.0
                
                
                25.1
                
                $
                29,940
                
                
                130.5
                
                
                3.7
  Voyage
expenses increased to $52.9 million representing 28.8% of total revenue for the
three months ended September 30, 2008 as compared to the $22.9 million and 25.1%
of total revenue for the same period in 2007. The increase is principally
attributable to an increase in fuel, commission and miscellaneous
expense.
  The $17.6
million increase in fuel expense was due to an increase in the average price per
metric ton ("MT"), and an increase in fuel consumption. For the three months
ended September 30, 2008, the average price per MT increased to $664 per MT as
compared to $416 per MT for the same period in 2007. Consumption increased for
the three months ended September 30, 2008 to 42,653 MT from 25,719 MT for the
same period in 2007. Average fuel cost per freight voyage day was $8,585
during the three months ended September 30, 2008 and $4,956 during the same
period in 2007.
  The $5.1
million increase in commission expense for the three months ended September 30,
2008 as compared to the same period in 2007 was primarily due to the increase in
revenue and, to a lesser extent, an increase in the rate of commissions paid to
TBSI's affiliates. Beginning October 1, 2007, TBSI's affiliates were paid an
additional 1.25% commission. Approximately $1.3 million of the $5.1 million
increase in commission expense is attributable to the increased rate change for
TBSI affiliates.
  Port call
expense will vary from period to period depending on the number of port calls,
port days and cost structure of the ports called upon. The $3.0 million
increase in port call expense is primarily attributable to an increase in the
number of port calls, which increased to 335 port calls for the three months
ended September 30, 2008 from 236 port calls during the same period in
2007. Adding to the increase was an increase in the average cost per
port call, resulting primarily from more port calls being made at ports with
higher cost structures during the three months ended September 30, 2008 as
compared to the same period in 2007. To a lesser extent, the increase in the
number of port days, which increased to 1,598 port days for the three months
ended September 30, 2008 from 988 port days as compared to the same period in
2007, contributed to the increase in port call expense.
 
 The $2.0
million increase in stevedore and other cargo-related expense for the three
months ended September 30, 2008 as compared to the same period in 2007 was
primarily due to a change in the mix of revenue booked under different shipping
terms and increased volume of cargo requiring the company to pay for
stevedoring. During the three months ended September 30, 2008 as compared to the
same period in 2007, more port calls were made to and from the Far East
resulting in higher cargo volumes. Stevedore and other cargo-related costs also
increased due to a higher percentage of cargo being booked under "full liner"
terms and a combination of "free-in free-out" terms. For analysis purposes we
group cargoes into three categories: (1) cargo booked under "free-in free-out"
terms which are shipments that the customer pays the costs of loading and
unloading; (2) cargo booked under "full liner" terms, which are shipments where
we bear the costs of loading and unloading; and (3) a combination of free-in
free-out and full liner terms.
  Logistics
  Logistics
is a cargo and transport management subsidiary started during the fourth quarter
of 2007. Logistics expense of $1.7 million for the three months ended
September 30, 2008 represents the cost incurred by the subsidiary. The revenue
for Logistics was $2.0 million for the three months ended September 30,
2008.
  Table of Contents
 27
 Vessel
expense
  Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage, such as charter hire rates for vessels we
charter-in, maintenance, insurance and crewing expenses for vessels we own or
control. The following table sets forth the basic components of vessel
expense:
  Three
      Months Ended
                
                Three
      Months EndedSeptember
      30, 2008
                
                September
      30, 2007
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Vessel Expense
                
                In
      Thousands
                
                As
      a % of Vessel Expense
                
                In
      Thousands
                
                PercentageOwned
      vessel expense
                
                $
                25,753
                
                
                83.7
                
                $
                14,229
                
                
                64.1
                
                $
                11,524
                
                
                81.0Chartered-in
      vessel expense
                
                
                2,311
                
                
                7.5
                
                
                6,235
                
                
                28.1
                
                
                (3,924
                )
                
                (62.9
                )Controlled
      vessel expense
                
                
                1,632
                
                
                5.3
                
                
                1,728
                
                
                7.8
                
                
                (96
                )
                
                (5.6
                )Space
      charter expense
                
                
                1,063
                
                
                3.5
                
                
                
                
                
                
                
                
                1,063Vessel
      expense
                
                $
                30,759
                
                
                100.0
                
                $
                22,192
                
                
                100.0
                
                $
                8,567
                
                
                38.6
  The
increase in vessel expense for the three months ended September 30, 2008 as
compared to the same period in 2007 was primarily due to an increase in
operating expense day rates and number of vessel days for owned/controlled
vessels.
 
 The
increase in owned vessel expense for the three months ended September 30, 2008,
as compared to the same period in 2007 was due to an increase in the average
operating expense day rate, which increased $1,537 per day. For the three months
ended September 30, 2008 the average operating expense day rate was $6,224 as
compared to $4,687 per day for the same period in 2007. Average operating
expense day rates increased principally due to increases in the crew and crew
related costs and repair and maintenance. Adding to the increase in owned
vessel expense was an increase in the average number of controlled vessels in
the fleet, which increased to an average of 45 vessels during the three months
ended September 30, 2008, as compared to an average of 33 vessels for the same
period in 2007. Increases in our controlled fleet translated to an increase
in vessel days, which are the total days we operate our controlled
vessels. During the third quarter of 2008, vessel days increased 1,102 days
to 4,138 days from 3,036 days for the comparable period in 2007.
  Chartered-in
vessel expense consists of charter-in hire costs for vessels under charter
agreements that do not have a purchase option. The $3.9 million decrease in
chartered-in vessel expense for the three months ended September 30, 2008, as
compared to the same period in 2007, was primarily due to a decrease in the days
that we chartered in vessels. The charter-in of vessels decreased 162 vessel
days to 97 days for the three months ended September 30, 2008 as compared to 259
days for the same period in 2007. The average charter-in rate per day
decreased $253 per day to $23,821 per day for the three months ended September
30, 2008 from $24,074 per day for the same period in 2007.
 
 Controlled
vessel expense consists of charter-in hire costs under the bareboat charters for
the Laguna Belle and
Seminole Princess both
of which were part of a sale-leaseback transaction that we entered into in
January 2007.
 
 Depreciation
and amortization
 
 The $11.0
million increase in depreciation and amortization expense was due to an increase
in the average vessel cost of newly acquired vessels, increased vessel
improvements and the overall growth of the fleet. The average cost of vessels
acquired in 2008 increased 41% over the average cost of vessels acquired in
2007. The average number of vessels in our fleet for the three months ended
September 30, 2008 was 45 as compared to 33 vessels for the same period in
2007.
 
 General
and administrative expense
 
 General
and administrative expense increased primarily due to an increase in salary and
related expenses of $4.4 million, which increased because of higher bonus
accrual, and to a smaller extent higher staff levels and higher stock-based
compensation costs. We have a discretionary cash bonus program under which
employees may receive an annual cash bonus payment based on our annual operating
performance. For the three months ended September 30, 2008, we accrued
bonuses to our officers and employees of $4.0 million as compared to $1.7
million for the same period in 2007.
 
 Table of Contents
 28
 Income
from operations
  The $34.4
million increase in income from operations for the three months ended
September 30, 2008, as compared to the three months ended September 30,
2007, was mainly attributable to an increase in revenue resulting from
increased freight rates and cargo volumes. The increase in revenue was
partially offset by an increase in voyage expense, particularly fuel and
commission expense, as well as vessel expense, depreciation and general and
administrative expenses. For the same reasons, our operating margin increased to
34.8% for the three
months ended September 30, 2008 from 32.1 % for the same period in
2007.
  Interest
expense
 
 Interest
expense increased $2.4 million for the three months ended September 30,
2008 as compared to the same period in 2007 principally due to higher debt
levels, higher fees and amortization of financing costs.  For the
three months ended September 30, 2008, our debt levels averaged $289.2 million
as compared to $111.0 million during the same period in 2007. Debt levels
increased to fund recent vessel acquisitions. Increases to interest expense
were partially offset by a decrease in our cost of borrowing when we repaid our
capital lease obligation with loan proceeds having a lower borrowing
cost. As a result, our average effective interest rate decreased to
approximately 6.4% during the three months ended September 30, 2008, as compared
to approximately 7.3% during the same period in 2007.
   Comparison
of the nine months ended September 30, 2008 and September 30, 2007
  Nine
      Months Ended
                  
                  Nine
      Months EndedSeptember
      30, 2008
                  
                  September
      30, 2007
                  
                  Increase
      (Decrease)In
      Thousands
                  
                  As
      a % of Total Revenue
                  
                  In
      Thousands
                  
                  As
      a % of Total Revenue
                  
                  In
      Thousands
                  
                  PercentageVoyage
      revenue
                  
                  $
                  388,253
                  
                  
                  82.3
                  
                  $
                  183,196
                  
                  
                  76.8
                  
                  $
                  205,057
                  
                  
                  111.9Time
      charter revenue
                  
                  
                  77,292
                  
                  
                  16.4
                  
                  
                  54,748
                  
                  
                  22.9
                  
                  
                  22,544
                  
                  
                  41.2Logistics
      revenue
                  
                  
                  5,288
                  
                  
                  1.1
                  
                  
                  
                  
                  
                  
                  
                  
                  5,288Other
      revenue
                  
                  
                  1,012
                  
                  
                  0.2
                  
                  
                  614
                  
                  
                  0.3
                  
                  
                  398
                  
                  
                  64.8Total
      revenue
                  
                  
                  471,845
                  
                  
                  100.0
                  
                  
                  238,558
                  
                  
                  100.0
                  
                  
                  233,287
                  
                  
                  97.8Voyage
      expense
                  
                  
                  126,731
                  
                  
                  26.9
                  
                  
                  61,657
                  
                  
                  25.8
                  
                  
                  65,074
                  
                  
                  105.5Logistics
      expense
                  
                  
                  4,417
                  
                  
                  0.9
                  
                  
                  
                  
                  
                  
                  
                  
                  4,417Vessel
      expense
                  
                  
                  78,508
                  
                  
                  16.6
                  
                  
                  62,690
                  
                  
                  26.3
                  
                  
                  15,818
                  
                  
                  25.2Depreciation
      and amortization
                  
                  
                  49,988
                  
                  
                  10.7
                  
                  
                  25,869
                  
                  
                  10.8
                  
                  
                  24,119
                  
                  
                  93.2General
      and administrative
                  
                  
                  41,184
                  
                  
                  8.7
                  
                  
                  22,804
                  
                  
                  9.6
                  
                  
                  18,380
                  
                  
                  80.6Loss
      from sale of vessel
                  
                  
                  
                  
                  
                  
                  
                  
                  814
                  
                  
                  0.3
                  
                  
                  (814
                  )
                  
                  (100.0
                  )Total
      operating expenses
                  
                  
                  300,828
                  
                  
                  63.8
                  
                  
                  173,834
                  
                  
                  72.8
                  
                  
                  126,994
                  
                  
                  73.1Income
      from operations
                  
                  
                  171,017
                  
                  
                  36.2
                  
                  
                  64,724
                  
                  
                  27.2
                  
                  
                  106,293
                  
                  
                  164.2Other
      (expenses) and incomeInterest
      expense
                  
                  
                  (12,318
                  )
                  
                  (2.6
                  )
                  
                  (7,772
                  )
                  
                  (3.3
                  )
                  
                  (4,546
                  )
                  
                  58.5Loss
      on extinguishment of debt
                  
                  
                  (2,318
                  )
                  
                  (0.5
                  )
                  
                  
                  
                  
                  
                  
                  
                  (2,318
                  )Gain
      on sale and insurancerecovery
      of vessel
                  
                  
                  
                  
                  
                  
                  
                  
                  6,034
                  
                  
                  2.5
                  
                  
                  (6,034
                  )
                  
                  (100.0
                  )Other
      income (expense)
                  
                  
                  781
                  
                  
                  0.2
                  
                  
                  109
                  
                  
                  
                  
                  
                  672Net  income
                  
                  $
                  157,162
                  
                  
                  33.3
                  
                  $
                  63,095
                  
                  
                  26.4
                  
                  $
                  94,067
                  
                  
                  149.1
  Voyage
revenue
 The
increase in our voyage revenue for the nine months ended September 30, 2008, as
compared to the comparable period in 2007, was due to an increase in revenue
tons carried, coupled with an increase in average freight rates. As
mentioned above, the key factors driving voyage revenue are the number of
vessels in the fleet, the days on hire, the freight rates and tons
carried.
 Revenue
tons carried for the nine months ended September 30, 2008 as compared to the
comparable period in 2007 increased 2,176,369 tons or 45.5% to 6,960,262 tons
from 4,783,893 tons for the same period in 2007.
  Table of Contents
 29
 Freight
rates for the nine months ended September 30, 2008 as compared to the comparable
period in 2007, increased $17.49 per ton or 45.7% to $55.78 per ton from $38.29
per ton for the same period of 2007. To a significant degree, freight
rates, not under contract, are set by the market and depend on the relationship
between the demand for ocean freight transportation and the availability of
appropriate vessels. In October 2008, we saw a significant downturn in the
freight market due to worldwide economic turmoil, which we believe will have an
impact on freight rates for next quarter and possibly beyond.
  For the
nine months ended September 30, 2008, and 2007, we had contracts of
affreightment, expiring through late 2009, under which we carried approximately
4,839,000 and 3,096,000 revenue tons, and generated $165.7 million and $49.2
million of voyage revenue, respectively.
  Included
in voyage revenue is revenue from high-volume, low-freighted aggregates bulk
cargo. Excluding this type of bulk cargo, of which we carried 3,272,211
tons and 2,187,893 tons for the nine months ended September 30, 2008 and 2007,
respectively, average freight rates would have been $91.92 per ton and $63.91
per ton for the nine months ended September 30, 2008 and 2007,
respectively.
  The
weighted average number of vessels in the fleet, freight voyage days, the days
on hire, excluding vessels time-chartered out, freight rates (overall freight
rates and freight rates excluding aggregates) and the daily time charter
equivalent rates for the nine months ended September 30, 2008 and 2007 are as
follows:
  Nine
      Months Ended September 30,2008
                
                
                2007Number
      of vessels (1)
                
                
                31
                
                
                
                22Freight
      voyage days (2)
                
                
                8,429
                
                
                
                6,064Days
      on hire (3)
                
                
                8,648
                
                
                
                6,124Revenue
      tons carried (thousands) (4)For
      all cargoes
                
                
                6,960
                
                
                
                4,784Excluding
      aggregates
                
                
                3,688
                
                
                
                2,596Aggregates
                
                
                3,272
                
                
                
                2,188Freight
      Rates (5)For
      all cargoes
                
                $
                55.78
                
                
                $
                38.29Excluding
      aggregates
                
                $
                91.92
                
                
                $
                63.91Daily
      time charter equivalent rates (6)
                
                $
                31,463
                
                
                $
                20,392
  (1)
              Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
              Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
              Number
      of days that our vessels were available for hire, 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)
              Time
      Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the period divided by the number of available
      freight voyage days during the period. Voyage expenses include the
      following expenses: 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 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.
 Table of Contents
 30
 The
following table shows revenues attributed to our principal
cargoes:
 Nine
      Months EndedSeptember
      30, 2008
                  
                  September
      30, 2007
                  
                  Increase
      (Decrease)Description
                  
                  In
      Thousands
                  
                  As
      a % of Total Voyage Revenue
                  
                  In
      Thousands
                  
                  As
      a % of Total Voyage Revenue
                  
                  In
      Thousands
                  
                  %Steel
      products
                  
                  $
                  104,535
                  
                  
                  26.9
                  
                  $
                  60,588
                  
                  
                  33.1
                  
                  $
                  43,947
                  
                  
                  72.5Metal
      concentrates
                  
                  
                  69,838
                  
                  
                  18.0
                  
                  
                  25,640
                  
                  
                  14.0
                  
                  
                  44,198
                  
                  
                  172.4Agricultural
      products
                  
                  
                  62,065
                  
                  
                  16.0
                  
                  
                  34,219
                  
                  
                  18.7
                  
                  
                  27,846
                  
                  
                  81.4Aggregates
                  
                  
                  49,229
                  
                  
                  12.7
                  
                  
                  17,289
                  
                  
                  9.4
                  
                  
                  31,940
                  
                  
                  184.7Other
      bulk cargo
                  
                  
                  40,698
                  
                  
                  10.4
                  
                  
                  13,456
                  
                  
                  7.4
                  
                  
                  27,242
                  
                  
                  202.5Project
      cargo
                  
                  
                  17,531
                  
                  
                  4.5
                  
                  
                  2,063
                  
                  
                  1.1
                  
                  
                  15,468Rolling
      stock
                  
                  
                  14,531
                  
                  
                  3.7
                  
                  
                  8,906
                  
                  
                  4.9
                  
                  
                  5,625
                  
                  
                  63.2Automotive
      products
                  
                  
                  7,626
                  
                  
                  2.0
                  
                  
                  3,385
                  
                  
                  1.8
                  
                  
                  4,241
                  
                  
                  125.3General
      cargo
                  
                  
                  11,525
                  
                  
                  3.0
                  
                  
                  4,654
                  
                  
                  2.5
                  
                  
                  6,871
                  
                  
                  147.6Fertilizers
                  
                  
                  6,095
                  
                  
                  1.6
                  
                  
                  9,327
                  
                  
                  5.1
                  
                  
                  (3,232
                  )
                  
                  (34.7
                  )Other
                  
                  
                  4,580
                  
                  
                  1.2
                  
                  
                  3,669
                  
                  
                  2.0
                  
                  
                  911
                  
                  
                  24.8Total
      voyage revenue
                  
                  $
                  388,253
                  
                  
                  100.0
                  
                  $
                  183,196
                  
                  
                  100.0
                  
                  $
                  205,057
                  
                  
                  111.9
 Time
charter revenue
 
 Time
charter revenue increased to $77.3 million for the nine months ended September
30, 2008 from $54.7 million for the comparable period in 2007. The key factors
driving time charter revenue are the number of days that vessels are chartered
out and the daily charter hire rates.
  The
increase in time charter revenue was due to a rise in the average charter hire
rate, which increased $11,683 per day to $32,421 for the nine months ended
September 30, 2008 from $20,738 for the comparable period in 2007. This
increase is primarily due to the strength in the worldwide shipping
market. Charter hire rates are set, to a significant degree, by the market
and depend on the relationship between the demand for ocean freight
transportation and the availability of appropriate vessels. In October
2008, we saw a significant downturn in the freight market due to worldwide
economic turmoil, which we believe will have an impact on charter hire
rates for next quarter and possibly beyond. The increase in average
charter rates was partially offset by a decrease in the chartered vessel days,
which decreased 256 days to 2,384 for the nine months ended September 30, 2008
compared to 2,640 days for the same period in 2007.
  The
number of vessels time chartered out, time charter days, average daily charter
rates and daily time charter equivalent rates for the nine months ended
September 30, 2008 and 2007 are as follows:
  Nine
      Months Ended September 30,2008
              
              
              2007Number
      of vessels (1)
              
              
              9
              
              
              
              10Time
      Charter days (2)
              
              
              2,384
              
              
              
              2,640Daily
      charter hire rates (3)
              
              $
              32,421
              
              
              $
              20,738Daily
      time charter equivalent rates (4)
              
              $
              30,876
              
              
              $
              19,935
  (1)
              Weighted
      average number of vessels chartered out.(2)
              Number
      of days vessels earned charter hire.(3)
              Weighted
      average charter hire rates.(4)
              Time
      Charter Equivalent or "TCE" rates for vessels that are time chartered out,
      are defined as time charter revenue during the period reduced by
      commissions divided by the number of available time charter days during
      the period. Commissions for vessels that are time chartered out for
      the nine months ended September 30, 2008 and September 30, 2007 were $3.7
      million and $2.1 million, respectively. No deduction is made for vessel or
      general and administrative expenses. 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. No voyage expenses are deducted because they are not
      applicable.
 
 Table of Contents
 31
 Voyage
expense
 
 Voyage
expense consists of costs attributable to specific voyages. The number of voyage
days is a significant determinant of voyage expense, which consists of fuel
costs, commissions, port call, stevedoring and miscellaneous voyage expense. The
following table shows the change in the number and composition of voyage days
for the nine months ended September 30, 2008 as compared to the same period in
2007.
  Nine
      Months Ended September 30,
                
                Increase
      (Decrease)2008
                
                2007
                
                Days
                
                PercentageFreight
      voyage days
                
                
                8,429
                
                
                6,064
                
                
                2,365
                
                
                39.0Time
      charter out days
                
                
                2,384
                
                
                2,640
                
                
                (256
                )
                
                (9.7
                )Total
      voyage days
                
                
                10,813
                
                
                8,704
                
                
                2,109
                
                
                24.2
  The
principal components of voyage expense were as follows:
  Nine
      Months Ended
                
                Nine
      Months EndedSeptember
      30, 2008
                
                September
      30, 2007
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of 2007 Expense
                
                As
      a % of RevenueFuel
      expense
                
                $
                62,659
                
                
                49.4
                
                
                13.3
                
                $
                27,623
                
                
                44.8
                
                
                11.5
                
                $
                35,036
                
                
                126.8
                
                
                1.8Commission
      expense
                
                
                23,928
                
                
                18.9
                
                
                5.1
                
                
                9,975
                
                
                16.2
                
                
                4.2
                
                
                13,953
                
                
                139.9
                
                
                0.9Port
      call expense
                
                
                19,722
                
                
                15.6
                
                
                4.2
                
                
                12,331
                
                
                20.0
                
                
                5.2
                
                
                7,391
                
                
                59.9
                
                
                (1.0
                )Stevedore
      and othercargo-related
      expense
                
                
                13,351
                
                
                10.5
                
                
                2.8
                
                
                7,829
                
                
                12.7
                
                
                3.3
                
                
                5,522
                
                
                70.5
                
                
                (0.5
                )Miscellaneous
      voyageexpense
                
                
                7,071
                
                
                5.6
                
                
                1.5
                
                
                3,899
                
                
                6.3
                
                
                1.6
                
                
                3,172
                
                
                81.4
                
                
                (0.1
                )Voyage
      expense
                
                $
                126,731
                
                
                100.0
                
                
                26.9
                
                $
                61,657
                
                
                100.0
                
                
                25.8
                
                $
                65,074
                
                
                105.5
                
                
                1.1
  Voyage
expense increased 105.5% for the nine months ended September 30, 2008 as
compared to the same period in 2007. The increase in voyage expense is primarily
attributable to the increase in fuel expenses and higher commissions
paid.
  The
increase in fuel expense was due to an increase in the average price per metric
ton ("MT") and an increase in consumption. Average price per MT increased to
$604 per MT for the nine months ended September 30, 2008 as compared to $370 per
MT for the same period in 2007. For the nine months ended September 30,
2008, consumption increased to 103,720 MT from 74,605 MT for the same period in
2007 due to an increase in our fleet. Average fuel cost per freight voyage
day was $ 7,434 during the nine months ended September 30, 2008 and $4,555
during the same period in 2007.
  The
increase in commission expense for the nine months ended September 30, 2008 as
compared to the same period in 2007 was due to the increase in revenue and an
increase in the rate of commissions paid to TBS affiliates. Beginning October 1,
2007, TBS affiliates were paid an additional 1.25% commission, which increased
commission expense for 2008 by approximately $3.5 million.
  Table of Contents
 32
 Port call
expense will vary from period to period depending on the number of port calls,
port days and cost structure of the ports called upon. The $7.4 million
increase in port call expense is primarily attributable to an increase in the
number of port calls, which increased to 890 port calls for the nine months
ended September 30, 2008 from 658 port calls during the same period in
2007. Adding to the increase was an increase in the average cost per port
call, resulting primarily from more port calls being made at ports with higher
cost structures during the nine months ended September 30, 2008 as compared to
the same period in 2007. To a lesser extent, the increase in the number of port
days, which increased to 4,135 port days for the nine months ended September 30,
2008 from 2,945 port days as compared to the same period in 2007, contributed to
the increase in port call expense.
 
 The $5.5
million increase in stevedore and other cargo-related expense for the nine
months ended September 30, 2008 as compared to the same period in 2007 was
primarily due to a change in the mix of revenue booked under different shipping
terms and increased cargo volume of cargo requiring the company to pay for
stevedoring. During the nine months ended September 30, 2008 as compared to the
same period in 2007, more port calls were made to and from the Far East
resulting in higher cargo volumes. Stevedore and other cargo-related costs also
increased due to a higher percentage of cargo being booked under "full liner"
terms and a combination of "free-in free-out" terms. For analysis purposes we
group cargoes into three categories: (1) cargo booked under “free-in free-out"
terms, which are shipments that the customer pays the costs of loading and
unloading, (2) cargo booked under "full liner" terms, which are shipments where
we bear the costs of loading and unloading; and (3) a combination of free-in
free-out and full liner terms.
  Logistics
  Logistics
is a cargo and transport management subsidiary started during the fourth quarter
of 2007. Logistics expense of $4.4 million for the nine months ended
September 30, 2008 represents the cost incurred by the subsidiary. The revenue
for Logistics was $5.3 million for the nine months ended September 30,
2008.
  Vessel
expense
 
 Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage, such as charter hire rates for vessels we
charter-in and maintenance, insurance and crewing expenses for vessels we
control. The following table sets forth the basic components of vessel
expense:
 
 Nine
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30, 2008
                
                
                September
      30, 2007
                
                
                Increase
      (Decrease)In
      Thousands
                
                
                As
      a % of Vessel Expense
                
                
                In
      Thousands
                
                
                As
      a % of Vessel Expense
                
                
                In
      Thousands
                
                
                PercentageOwned
      vessel expense
                
                $
                63,793
                
                
                
                81.3
                
                
                $
                40,492
                
                
                
                64.6
                
                
                $
                23,301
                
                
                
                57.5Chartered-in
      vessel expense
                
                
                8,918
                
                
                
                11.3
                
                
                
                17,671
                
                
                
                28.2
                
                
                
                (8,753
                )
                
                
                (49.5
                )Controlled
      vessel expense
                
                
                4,734
                
                
                
                6.0
                
                
                
                4,403
                
                
                
                7.0
                
                
                
                331
                
                
                
                7.5Space
      charter expense
                
                
                1,063
                
                
                
                1.4
                
                
                
                124
                
                
                
                0.2
                
                
                
                939Vessel
      expense
                
                $
                78,508
                
                
                
                100.0
                
                
                $
                62,690
                
                
                
                100.0
                
                
                $
                15,818
                
                
                
                25.2
  Vessel
expense for the nine months ended September 30, 2008 as compared to the same
period in 2007, increased $15.8 million.  Specific expense categories
varied due to a change in the composition of our fleet. For the nine months
ended September 30, 2008, our fleet averaged 42 owned vessels as compared to an
average of 33 owned vessels for the same period in 2007.
 
 The
increase in owned vessel expense for the nine months ended September 30, 2008,
as compared to the same period in 2007 was primarily due to an increase in the
average operating expense day rate, which increased $1,107 per day. For the
nine months ended September 30, 2008, the average operating expense day rate was
$5,554 as compared to $4,447 per day for the same period in 2007. Average
operating expense day rates increased principally due to increases in the crew
and crew related costs and repair and maintenance. Adding to the increase
in owned vessel expense was an increase in the average number of controlled
vessels, which increased to an average of 42 vessels during the nine months
ended September 30, 2008, as compared to an average of 33 vessels for the same
period in 2007. Increases in our controlled fleet translated to an increase in
vessel days, which are the total days we operate our controlled
vessels. During the nine months ended September 30, 2008, vessel days
increased 2,380 days to 11,485 days from 9,105 days for the comparable period in
2007.
  Table of Contents
 33
 Chartered-in
vessel expense consists of charter-in hire costs for vessels under charter
agreements that do not have a purchase option. The 49.5% decrease in
chartered-in vessel expenses for the nine months ended September 30, 2008 as
compared to the same period in 2007 resulted from a decrease in the days that we
chartered in vessels and charter-in rates. The average charter-in rate per day
decreased $2,372 per day, or 9.3%, to $23,164 per day for the nine months ended
September 30, 2008 from $25,536 per day for the same period in 2007.
Chartered-in vessel days decreased by 307 vessel days to 385 days for the nine
months ended September 30, 2008 as compared to 692 days for the same period in
2007.
 
 Controlled
vessel expense consists of charter-in hire costs under the bareboat charters for
the Laguna Belle and
Seminole Princess both
of which were part of a sale-leaseback transaction that we entered into in
January 2007.
 
 Depreciation
and amortization
 
 The $24.1
million increase in depreciation and amortization expense is attributable to an
increase in the average vessel cost of newly acquired vessels, increased vessel
improvements and the overall growth of the fleet. The average cost of vessels
acquired in 2008 increased 41% over the average costs of vessels acquired in
2007. The growth of our owned/controlled fleet increased to an average number of
42 vessels for the nine months ended September 30, 2008 as compared to 33
vessels for the nine months ended September 30, 2007.
 
 General
and administrative expense
 
 General
and administrative expense increased $18.4 million primarily due to a $14.1
million increase in salary and related expenses, which increased because of
higher bonus accruals, and to a smaller extent, higher staff levels and higher
stock-based compensation costs. We have a discretionary cash bonus program
under which employees may receive an annual cash bonus payment based on our
annual operating performance. For the nine months ended September 30, 2008,
we accrued bonuses to our officers and employees of $11.7 million as compared to
$4.8 million for the same period in 2007.
 
 Loss
on sale of vessel
 
 On March
13, 2007, we sold the vesselMaya Princess for $13.0 million and realized a loss of approximately $0.8
million.
 
 Income
from operations
 
 The
$106.3 million increase in income from operations for the nine months ended
September 30, 2008, as compared to the nine months ended September 30,
2007, was mainly attributable to an increase in revenue resulting from
increased freight rates and cargo volumes. The increase in revenue was
offset by an increase in voyage expense, particularly fuel and commission
expense, as well as vessel expense, depreciation and general and administrative
expenses. For the same reasons, our operating margin increased to 36.2% for the
ninemonths endedSeptember30, 2008
from 27.2% for the same period in 2007.
 
 Interest
expense
 
 Interest
expense increased $4.5 million for the nine months ended September 30, 2008
as compared to the same period in 2007 principally due to higher debt levels,
higher fees and amortization of financing costs. For the nine months ended
September 30, 2008, our debt levels averaged $284.9 million as compared to
$105.6 million during the same period in 2007. Debt levels increased to
fund recent vessel acquisitions. Increases to interest expense were
partially offset by a decrease in our costs of borrowing when we repaid our
capital lease obligation with loan proceeds having a lower borrowing
cost. As a result, our average effective interest rate decreased to
approximately 5.5% during the first nine months of 2008, as compared to
approximately 8.5% during the same period in 2007.
 
 Loss
on extinguishment of debt
 
 The $2.3
million loss on extinguishment of debt in 2008 was due to the write-off of
unamortized deferred financing costs in connection with the March 2008
refinancing of our original Bank of America credit
facility.
 
 Gain
on sale and insurance recovery of vessel
 
 TheHuron Maiden was severely
damaged in a grounding accident on an uncharted rock while on passage near
Indonesia on March 9, 2007. On April 4, 2007, the vessel was declared a
constructive total loss. Accordingly, we received a net amount of $8.0
million from our Hull & Machinery/Increased Value insurances after a scrap
value credit of $2.0 million. We retained the proceeds on the sale of the
vessel for scrap, which was sold and delivered to the buyer on May 4, 2007 for
$2.8 million. After deducting the cost of vessel and improvements less
accumulated depreciation and expenses incurred in connection with the
accident and the sale of the vessel the Company realized a gain on the sale of
the vessel and insurance recovery of approximately $6.0 million.
  Table of Contents
 34
 Balance
Sheet
  Charter
Hire Receivables
  Our gross
charter hire receivables balance at September 30, 2008
was $57.3 million ($56.8 million net of allowance for doubtful accounts)
and at December 31,
2007 was$30.6 million ($30.1 million net of allowance for doubtful
accounts). The increase in receivables was principally due to higher revenue
volume and the timing of payments received on voyages loading near the end of
the period. At November 7, 2008 we collected approximately 66% of the
September 30, 2008 outstanding charter hire receivable
balance.
  In
accordance with our reserve policy, we review the outstanding receivables by
customer and voyage at the close of each quarter and identify those receivables
which are deemed to be at risk for collection and reserve the appropriate
amount. At September
30, 2008, our reserve totaled $0.5 million, which was approximately the
same as the reserve atDecember 31, 2007.
 
 Fuel
and Other Inventories
  Fuel and other
inventories increased $6.9 million to $18.0 million at September 30, 2008 from
the December 31, 2007 balance of $11.1 million. Approximately $2.6 million or
45.6% of the increase in fuel inventory at September 30, 2008 as compared to
December 31, 2007 was due to an increase in average fuel prices. At September
30, 2008, the combined average price for industrial fuel oil/marine diesel oil
("IFO/MDO") increased to $666 per metric ton from a combined average price of
$537 per metric ton at December 31, 2007. Adding to the increase was an
increase of $3.1 million due to higher quantities of fuel on board the vessels
at September 30, 2008 as compared to December 31, 2007. Changes in fuel
quantities result principally from the timing of vessel refueling and the
number of vessels having fuel inventory. The number of vessels having fuel
inventory will fluctuate from period to period based on the number of vessels on
time charter. When a vessel is time chartered out, the fuel on board the
vessel is sold to the charterer and later repurchased at a price stipulated in
the charter party agreement. Vessels having fuel included in inventory
increased to 40 vessels as of September 30, 2008 as compared to 24 vessels as of
December 31, 2007. There was also an increase of $1.2 million in lubricating oil
on board vessels at September 30, 2008, which results principally from the
timing of deliveries to the vessels.
 
 Prepaid
Expenses and Other Current Assets
  Prepaid Expenses and Other
Current Assets at September 30, 2008 increased $2.1 million from the December 31,
2007 balance. The increase is primarily due to a claim of $2.4 million
for the Chesapeake Belle related to a grounding
incident.
  Other
Commitments
  Our
contractual obligations as of September 30, 2008 are shown in the following
table (in thousands):
  Total
                
                Less
      than 1 year
                
                1-3
      years
                
                3-5
      years
                
                More
      than 5 yearsDebt
      Obligations (1)
                
                $
                335,530
                
                $
                83,236
                
                $
                159,674
                
                $
                59,868
                
                $
                32,752Estimated
      variable interest payments (2 )
                
                
                45,963
                
                
                14,283
                
                
                18,132
                
                
                10,485
                
                
                3,063Operating
      Lease obligations (3)
                
                
                31,498
                
                
                7,511
                
                
                11,372
                
                
                10,746
                
                
                1,869Other
      Purchase obligations (4) (5) (6)
                
                
                138,980
                
                
                94,880
                
                
                44,100Total
      contractual cash obligations
                
                $
                551,971
                
                $
                199,910
                
                $
                233,278
                
                $
                81,099
                
                $
                37,684
  (1)
              As
      of September 30, 2008, we had $335.5 million of indebtedness outstanding
      under loans to our subsidiaries that we guarantee. Outstanding
      indebtedness consisted of: $36.2 million under the credit facility with
      Credit Suisse; $65.2 million under the credit facility with DVB Group
      Merchant Bank (Asia) Ltd.; $32.4 million under the credit facility with
      AIG Commercial Equipment Finance; $123.5 million under  term
      credit facility with Bank of America; $11.0 million under the credit
      facility with Commerzbank AG; $12.2 million under the credit facility with
      Berenberg Bank and $55.0 million under the credit facility with The Royal
      Bank of Scotland for the new vessel building.  The above
      schedule does not reflect future advances of $95.0 million under the
      $150.0 million credit facility with The Royal Bank of Scotland for the new
      vessel building.
  Table of Contents
 35
  (2)
              Amounts
      for all periods represent estimated future interest payments on debt
      facilities based upon amounts outstanding at September 30, 2008 using
      an annual interest rate of 5%, which approximates the average interest
      rate on all outstanding debt at September 30, 2008, excluding swap
      interest rates.
  (3)
              Operating
      lease obligations include obligations under two seven-year bareboat
      charters for the Seminole
      Princess and the Laguna
      Belle and our office leases.
  (4)
              On
      September 8, 2008, we entered into a Memorandum of Agreement to purchase
      the CEC
      Cardigan (to be renamed Zia
      Belle) for $20.6 million.  We paid a deposit of $4.1
      million on September 10, 2008 and the balance of $16.5 million is to be
      paid upon delivery during the fourth quarter of
  2008.
  (5)
              We
      had the following outstanding purchase obligations at September 30, 2008
      to build and purchase six new vessels (in
  thousands):
   Owning
      Subsidiary
                
                Hull
      Number
                
                Total
                
                Less
      than 1 year
                
                1-3
      yearsArgyle
      Maritime Corp.
                
                NYHS200720
                
                $           14,400
                
                $        14,400
                
                $Caton
      Maritime Corp.
                
                NYHS200721
                
                21,400
                
                21,400Dorchester
      Maritime Corp.
                
                NYHS200722
                
                21,400
                
                14,000
                
                7,400Longwoods
      Maritime Corp.
                
                NYHS200723
                
                21,400
                
                7,000
                
                14,400McHenry
      Maritime Corp.
                
                NYHS200724
                
                21,400
                
                14,000
                
                7,400Sunswyck
      Maritime Corp.
                
                NYHS200725
                
                21,400
                
                7,000
                
                14,400Total
                
                $         121,400
                
                $        77,800
                
                $              43,600
  Approximately $95.0 million
of the purchase obligation for the new vessels will be funded under the $150.0
million credit facility with The Royal Bank of Scotland for the new vessel
building program.
 
 (6)
              In
      connection with the new building program we entered into a contract for
      the supervision and inspection of vessels under construction. As of
      September 30, 2008, commitments under the contract were $1.1 million, with
      $0.6 million due within one year and $0.5 million due between one and
      three years.
  Liquidity
and Capital Resources
  Our
principal sources of funds are operating cash flows, long-term bank borrowings
and the issuance of common shares. Our principal uses of funds are capital
expenditures to grow and maintain the quality of our fleet and keep us in
compliance with international shipping standards and regulations, working
capital requirements, principal and interest repayments on outstanding loan
facilities.
 
 We are
exposed to financial market risk resulting from the possible loss of deposits
held by financial institutions; an inability to access our committed revolving
credit facility; and changes in interest rates. Recent developments in the
financial markets have increased our exposure to these possible credit risks. We
monitor the depository institutions that hold our cash and cash equivalents. Our
emphasis is primarily on safety of principal and secondarily on maximizing the
yield on those funds. We diversify our cash and cash equivalents
among strong financial institutions to minimize our exposure. As of
September 30, 2008 we had $125.0 million available under our revolving credit
facility. In October 2008 we drew down $25.0 million from our revolving
credit facility and we have not experienced any limitation on our ability to
access this source of liquidity. Our revolving credit facility expires on
March 26, 2012. In order to hedge our interest rate risk we entered into
interest rate swap contracts that hedged approximately 77.1% of our outstanding
debt at September 30, 2008. We had interest rate swap contracts to pay an
average fixed rate of 3.85% before loan margin on approximately $258.7 million
of debt.
 
 Our
business is capital intensive and its future success will depend on our ability
to maintain a high-quality fleet through the ongoing maintenance of our
currently owned ships and the acquisition of newer ships. These acquisitions
will be principally subject to management's expectation of future market
conditions as well as our ability to acquire appropriate ships on favorable
terms.
 
 We
believe that our current cash balance, as well as operating cash flows and
available borrowings under our existing credit facilities, will be sufficient to
meet our liquidity needs for the next year.
  Below is
a summary of investing and financing activities for the nine months ended
September 30, 2008 and 2007:
  Table of Contents
 36
 Financing
Activities 2008
 
 During
2008, we increased our working capital by the following activities:
 
 ·
              We
      made debt repayments totaling $ 162.6 million consisting of $37.4 million
      in scheduled debt principal payments and $125.2 million to payoff former
      Bank of America and RBS credit
facilities.
  ·
              In
      June, we received $ 95.7 million in net proceeds from the issuance of
      Class A common shares in our secondary public
  offering;
  ·
              We
      borrowed $12.5 million from Commerzbank AG in June. The proceeds of this
      loan together with working capital were used to purchase the vessel, Caribe
      Maiden;
  ·
              Also
      in June, we borrowed $13.0 million from Berenberg Bank. The proceeds of
      this loan together with working capital were used to purchase the vessel,
      Ottawa
      Princess;
  ·
              In
      March, we amended and restated our existing Bank of America Credit
      Facility.  In connection with the amendment, we increased the
      term loan facility to $142.5 million and the revolving credit facility to
      $125.0 million. We borrowed $142.5 million under the term loan credit
      facility to repay the existing credit facility and pay closing costs and
      fees. After the repayment of principal, interest and fees, the remaining
      amount of $18.9 million was used for general corporate purposes. At
      September 30, 2008, we had no borrowings outstanding under the revolving
      credit facility;
  ·
              We
      borrowed an additional $20.0 million in February 2008 under our $150.0
      million credit facility with The Royal Bank of Scotland to fund the
      construction payments due on the building of six new multipurpose vessels
      with retractable tweendecks;
  ·
              In
      February, we borrowed the remaining $20.0 million available under the
      Credit Suisse credit facility. The proceeds of this loan together with
      available working capital were used to purchase the vessel, Oneida
      Princess;
  ·
              We
      borrowed $35.0 million from AIG Commercial Equipment Finance, Inc. in
      February to replenish operating funds used to purchase the Mohave Maiden, Zuni Princessand Hopi Princess;and
  ·
              In
      January, we borrowed $75.0 million, under a syndicated credited facility
      with DVB Group Merchant Bank (Asia) Ltd. The funds were used to replenish
      funds used to exercise a purchase option for seven tweendeck vessels
      chartered-in under a sale-leaseback arrangement, to fund additional
      vessel acquisitions and for general corporate
  purposes.
   Investing
Activities 2008
  Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
  Nine
      Months Ended September 30,2008
                
                
                2007(in
      millions)Vessels
      purchased
                
                $
                293.1
                
                
                $
                17.0Vessel
      improvements and other equipment
                
                
                33.2
                
                
                
                29.9Construction
      in progress
                
                
                40.0
                
                
                
                59.3Other
      fixed assets
                
                
                4.8
                
                
                
                3.1Sub
      total
                
                
                371.1
                
                
                
                109.3Less:
      Vessel deposits paid in prior years
                
                
                (14.8
                )
                
                
                (1.7
                )Total
      Vessel acquisitions / capital improvement
                
                $
                356.3
                
                
                $
                107.6
   Table of Contents
 37
  ·
              We
      acquired ten vessels that were delivered during the first nine months of
      2008 for a total purchase price of $293.1 million, including $14.8 million
      in deposits paid in 2007.  We spent $33.2 million for vessel
      improvements and vessel equipment additions. We used cash from borrowings
      and operations to fund the
acquisitions;
 
 ·
              Vessel
      improvements and other equipment includes steel renewal and replacement,
      major overhauls, new equipment, and takeover costs, including the cost of
      first drydocking after acquisition;
 
 ·
              Inconnection with our construction program to build six newly
      designed multipurpose vessels with retractable tweendecks, we made
      payments to the ship building yard and incurred capitalized costs totaling
      $40.0 million. These ships were designed by a TBS team drawn from all
      phases of our operations specifically to optimize our efficient cargo
      transportation in our trade lanes, support the requirements of our loyal
      customer base and enhance the growth of our business. Two of the
      vessels are scheduled for delivery in2009, and four vessels are
      scheduled for delivery in 2010. The project is being funded from our
      $150.0 million credit facility with The Royal Bank of Scotland and
      operating cash flow;
 
 ·
              We
      made a deposit of $4.1 million for the CEC Cardigan(to be renamed
      the Zia Belle)
      which is scheduled to be delivered within the fourth quarter of
      2008.
 
 
 Financing
Activities 2007
 
 During
the first nine months of 2007, we had the following financing
activities:
  ·
              We
      made debt repayments totaling $101.3 million, consisting of $15.9 million
      in scheduled debt principal payments and $85.4 million in pay downs of the
      Bank of America revolving credit
facility;
  ·
              We
      received proceeds on debt of $126.0 million, consisting of $5.0 million
      added to the Bank of America term credit facility, $35.0 million from The
      Royal Bank of Scotland credit facility funding the new vessel building
      program and $86.0 million of additional draw downs against the revolving
      credit facility with Bank of
America;
  ·
              We
      paid $ $3.9 million in deferred financing costs related to The Royal Bank
      of Scotland credit facility funding the new vessel building program;
      and
 
 ·
              We paid$3.0 million towards obligations under capital
      leases.
  Investing
Activities 2007
 
 During
the nine months ended September 30, 2007 net cash used for investing activity
was $59.0 million as follows:
  ·
              We
      received  $62.0 million consisting of proceeds on the sale of
      the Maya Princess($12.8 million), the sale-leaseback of the Seminole Princess and
      Laguna Belle
      ($45.0 million gross proceeds less sellers credit of $5.5 million ), and
      on the casualty loss and sale of the Huron Maiden ($9.7
      million);
  ·
              Our
      vessel acquisition and capital improvements totaled $107.6 million which
      consisted of $59.1 million in payments to the shipyard and capitalized
      interest costs for vessels under construction; $17.0 million, less a
      deposit of $1.7 million made in 2006, for the acquisition of the
      vesselNanticoke Bell; capital
      improvements and drydockings of $30.1 million; and $3.1 million for
      the purchase of other assets. The 2007 second and subsequent drydocking
      expenditures of $2.9 million were reclassified as operating activities to
      conform with the presentation in the 2008 Cash Flows
      Statement;
  ·
              We
      made a deposits totaling $10.1 million on the following vessels: Yakima (renamed Yakima Princess),Elsa Oldendorff(renamed Arapaho
      Belle),Atlantis
      Charm(renamed Savannah Belle)and Gebe Oldendorff(renamed Oneida
      Princess)in the amounts of $2.9 million, $2.9 million, $1.1
      million and $3.2 million,
respectively;
   Table of Contents
 38
  ·
              We
      received a return of investment of $0.2 million because the initial public
      offering of Dangote Sugar ptl was
  oversubscribed;
 
 ·
              We
      deposited $0.2 million for the purchase of a US Treasury Bill;
      and
 
 ·
              We
      made an additional loan to GMT Shipping Line Ltd. of $0.4
      million.
 
 Dividend
Policy
   We have
not declared or paid and do not anticipate declaring or paying any cash
dividends on our common shares in the foreseeable future. The provisions of
some of our debt instruments and related loan agreements prevent some of our
subsidiaries from paying dividends to TBSI, which may restrict our ability to
pay dividends on our common shares. The timing and amount of future cash
dividends, if any, would be determined by our board of directors and would
depend upon our earnings, financial condition, cash requirements and obligations
to lenders at the time.
  Pursuant
to Bermuda law, we cannot declare or pay a dividend, or make a distribution out
of contributed surplus, if there are reasonable grounds for believing that we
are, or after the payment would be, unable to pay our liabilities as they become
due, or that the realizable value of our assets would thereby be less than the
aggregate of our liabilities, our issued share capital and our share premium
accounts.
  Because
we are a holding company with no material assets other than the stock of our
subsidiaries, our ability to pay dividends will depend on the earnings and cash
flow of our subsidiaries and their ability to pay dividends to us.
  New
Accounting Pronouncements
 In October
2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active("FSP
157-3") which clarifies the application of FASB Statement of Financial
Accounting Standards ("SFAS") No. 157, Fair Value Measurements when
determining the fair value of a financial asset when the market for that
financial asset is not active. FSP 157-3 is effective upon issuance. FSP-157-3
did not have a material impact on TBSI's financial statements because the fair
value of its financial assets and liabilities are determined based upon active
market inputs.
  In September
2008, the FASB issued FSP 133-1 and FASB Interpretation ("FIN") 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of theEffective Date of FASB Statement No.
161.The FSP requires additional disclosures by sellers of credit
derivatives within the scope of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and hybrid instruments that have embedded credit
derivatives. The FSP also amends FIN No. 45,Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require additional disclosure about the
current status of the payment /performance risk of a guarantee. Further, this
FSP clarifies the effective date of SFAS No. 161, Disclosures about
DerivativeInstruments and Hedging
Activities. The FSP is effective for fiscal years and interim periods
ending after November 15, 2008. We are currently evaluating the FSP and at this
time we do not believe it will have a significant impact on the Company's
financial statements.
  In
May 2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS
162"). SFAS 162 identifies the sources of accounting principles and the
framework for selecting principles used in the preparation of financial
statements, presented in conformity with generally accepted accounting
principles, of US non-governmental entities. SFAS 162 is effective 60 days
following the SEC's approval of the Public Company Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.Any effects of
applying the provisions of SFAS 162 are to be reported as a change in accounting
principle in accordance with FASB Statement No. 154, Accounting Changes and Error
Corrections. SFAS 162 will not have a significant impact on TBSI's
financial statements.
  Table of Contents
 39
 
 Disclosures about Derivative
Instruments and Hedging Activities Accounting for Derivative
Instruments and Hedging Activities  In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB (Accounting Research
Bulletin)  No. 51("SFAS 160"). SFAS 160 establishes accounting and
reporting standards for entities (excluding not-for-profit organizations) with
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The objective of SFAS 160 is to improve the
relevance, comparability and transparency of financial information that a
reporting entity provides in its consolidated financial statements. The
standards require: ownership interests in subsidiaries held by parties other
than the parent be clearly identified and presented within equity but separate
from the parent's equity in the consolidated statement of financial position;
net income attributable to the parent and the noncontrolling interest be
identified and presented on the face of the consolidated statement of income;
changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be consistently accounted for
as equity transactions; any retained noncontrolling equity investment in a
former deconsolidated subsidiary be initially measured at fair value and that
any gain or loss on the deconsolidation of a subsidiary be measured using fair
value of the noncontrolling equity investment rather than the carrying amount of
that retained investment; and entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and
noncontrolling owners. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of SFAS 160 is not expected to have a material impact on the Company's
consolidated financial statements.
  In
December 2007, the FASB issuedSFAS No. 141 (revised
2007),Business
Combinations ("SFAS 141(R)"). SFAS 141(R) establishes principles and
requirements for how an acquiring entity measures and recognizes in its
financial statements: the identifiable assets acquired; the liabilities assumed;
any noncontrolling interest in the acquiree; goodwill acquired or a gain from a
bargain purchase. SFAS 141(R) sets forth disclosure criteria to enable a better
understanding of the nature and effects of a business combination. SFAS 141(R)
was revised to improve the relevance, and comparability of financial statement
information about business combinations and their effect. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the first annual reporting period beginning on or after December 15, 2008.
The adoption of SFAS 141(R) is not expected to have a material impact on the
Company's consolidated financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115 ("SFAS 159"). SFAS 159 provides all entities with the option to
measure many financial instruments and certain other items at fair value. If a
company elects the fair value option for an eligible item, then it will report
unrealized gains and losses on those items at each subsequent reporting date.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. Upon
adoption, we did not elect the fair value option for any items within the scope
of SFAS 159 and, therefore, the adoption of SFAS 159 did not have an impact on
our consolidated financial statements.
  Table of Contents
 40
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157"), which is effective for fiscal years beginning after November 15,
2007 and for interim periods within those years.  SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements.  SFAS 157 applies under other
accounting pronouncements that require or permit fair value
measurements.  SFAS 157 indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
  Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases ("SFAS
13") and its related interpretive accounting pronouncements that address leasing
transactions, while FSP 157-2 delays the effective date of the application of
SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis.
  We
adopted SFAS 157 as of January 1, 2008, with the exception of the application of
the statement to non-recurring nonfinancial assets and nonfinancial liabilities.
Non-recurringnonfinancial assets and
nonfinancial liabilities for which we have not applied the provisions of SFAS
157 include those measured at fair value in goodwill impairment testing, and
indefinite lived intangible assets measured at fair value for impairment
testing.
  Item
3.Quantitative
and Qualitative Disclosure About Market
Risk
 
 Interest
Rate Risk:
 
 We are
exposed to various market risks associated with changes in interest rates
relating to our floating rate debt. To manage borrowing costs the Company uses
derivative instruments, interest rate swaps, to effectively convert floating
rate debt to fixed rate debt. All derivative contracts are for non-trading
purposes and are entered into with strong financial institutions thereby
minimizing counterparty risk.
  At
September 30, 2008 we had $335.5 million of floating debt
outstanding.  In order to hedge our interest rate risk we entered into
interest rate swap contracts that hedged approximately 77.1% of our outstanding
debt at September 30, 2008. We had interest rate swap contracts to pay an
average fixed rate of 3.85% before loan margin and receive a floating rate of
interest on the notional amount of $258.7 million. At September 30, 2008, the
fair value of interest rate swap agreements was $1.2 million in total asset
derivatives and $4.1 million in total liability derivatives. Interest loan
margins over LIBOR at September 30, 2008 ranged from 1.05% to 2.5%.
  As an
indication of the extent of our sensitivity to interest rate changes, an
increase in the LIBOR rate of 100 basis points would have decreased our net
income for the three months and nine months ending September 30, 2008 by
approximately $0.2 million and $0.6 million, respectively, based on our
non-hedged debt at September 30, 2008, of $76.8 million. The interest rate
change is based on the non-hedged portion of debt of $76.8 million.
 
 Foreign
Exchange Rate Risk:
  We
consider the U.S. dollar to be the functional currency for all of our entities.
Our financial results are affected by changes in foreign exchange rates. Changes
in foreign exchange rates could adversely affect our earnings. We generate all
of our revenues in U.S. dollars, but incur approximately 9.0% of our operating
expenses in currencies other than U.S. dollars. For accounting purposes,
expenses incurred in currencies other than U.S. dollars are converted into U.S.
dollars at the exchange rate prevailing on the date of each transaction. At September 30, 2008,
approximately 13.7% of our outstanding accounts payable were denominated in
currencies other than U.S. dollars.
 
 Item
4.Controls
and Procedures
 
 As of September 30,
2008, an evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
("CEO"), Chief Financial Officer ("CFO"), and Chief Accounting Officer ("CAO")
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Based on that evaluation, the Company's management, including the
CEO, CFO and CAO, concluded that the Company's disclosure controls and
procedures were effective as of September 30, 2008. There have been no changes
in the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting during the period covered by this quarterly
report.
  Table of Contents
 41


PART
II
 
 Item
1.Legal
Proceedings
 
 The
Company is periodically a defendant in cases involving personal injury and other
matters that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of these lawsuits or claims, individually or combined, will not
materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company. During the three months ended September
30, 2008, there have been no material changes to legal proceedings from those
considered in our Annual Report on Form 10-K for the year ended December 31,
2007.
 
 Item 1A. Risk Factors
 
 We
believe that there have not been any material changes to the risk factors as
previously disclosed in our Annual Report on Form 10-K filed with the SEC on
March 14, 2008. Thus, the risk factors included in our Form 10-K are hereby
incorporated in Part II, Item 1A of this Form 10-Q. The risk factors and
other information included in our Form 10-K, as well as the additional risk
factor below, should be carefully considered prior to making an investment
decision with respect to the Company’s stock.
 
 An
additional risk identified in Q3 that the Company faces is:
  A
protracted global recession could have a material adverse effect on our
operating income, financial condition, cash flows and the trading price of our
stock.
 
 A
long-term global recession could further reduce the demand for shipping services
while decreasing freight rates and increasing our costs, which could adversely
affect the results of our operations. For over a year, financial markets have
been experiencing volatility and disruption which has, in recent weeks, reached
unprecedented levels. International efforts to address the current global
credit and banking crisis may be unsuccessful in preventing a global recession.
Unfavorable market conditions could reduce the value of our vessels resulting in
losses from asset impairments. Further, a continued downturn in the economy
and our revenues could adversely affect our ability to maintain specified
financial ratios and satisfy financial covenants required by our credit
facilities.
 
 The
current worldwide financial crisis has reduced the availability of liquidity and
credit to borrowers.  Many lenders and institutional investors have
reduced and, in some cases, ceased to provide funding to borrowers. This
market turmoil and tightening of credit have led to a widespread reduction of
business activity generally, which may also adversely affect demand for our
services. If current market conditions continue for a protracted period,
our ability to access credit on favorable terms, or at all, may be adversely
affected, which may limit our ability to finance future operations or capital
needs, acquire vessels or pursue business opportunities.
 
 The risks
and uncertainties described in our Form 10-K and the aforementioned additional
risk are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the risks occur, our business, financial
condition, operating results and cash flows could be materially adversely
affected and the trading price of our common stock could
decline.
 
 Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
  
 None.
  Item 3. Defaults
Upon Senior Securities
  
 None.
  Item 4. Submission
of Matters to a Vote of Security Holders
  
 None.
  Item 5. Other Information
  On
November 5, 2008, Martin D. Levin resigned from his position as TBSI’s Director
– New Shipbuilding Projects, effective as of November 5, 2008. Mr.
Levin continues with TBSI in his capacity as President of TBSI New Shipbuilding
Corp., a wholly-owned subsidiary of the Company.
  Table of Contents
 42
 
 Item
6.Exhibits
  31.1*
              Certification
      of the Chief Executive Officer pursuant to rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of
2002
  31.2*
              Certification
      of the Chief Financial Officer pursuant to rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of
2002
  31.3*
              Certification
      of the Chief Accounting Officer pursuant to rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of
2002
  32.0**
              Certification
      of Chief Executive Officer, Chief Financial Officer and Chief Accounting
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
 
 ________
 *
                Filed
      herewith.
 
 **
                Pursuant
      to SEC Release No. 33-8212, this certification will be treated as
      "accompanying" this Quarterly Report on Form 10-Q and not "filed" as part
      of such report for purposes of Section 18 of the Securities Exchange Act
      of 1934, as amended, or otherwise subject the liability of Section 18 of
      the Securities Exchange Act of 1934, as amended, and this certification
      will not be deemed to be incorporated by reference into any filing under
      the Securities Act of 1933, as amended, or the Securities Exchange Act of
      1934, as amended, except to the extent that the registrant specifically
      incorporates it by reference.
 
 Table of Contents
 43
 TBS
INTERNATIONAL LIMITED & SUBSIDIARIES
 Signatures
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 7thday of
November 2008.
 
 TBS
      INTERNATIONAL LIMITED(Registrant)By:
              /s/ Joseph E.
      RoyceJoseph
      E. Royce
                President
      and Chief Executive OfficerBy:
              /s/ Ferdinand V.
      LepereFerdinand
      V. Lepere
                Senior
      Vice President, Chief Financial OfficerBy:
              /s/ Frank PittellaFrank
      Pittella
                Controller,
      Chief Accounting Officer