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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of GS&T, its wholly owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control. All intercompany accounts and transactions have been eliminated in consolidation.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2010 (the “2010 10-K”). The results of operations for the periods ended September 30, 2011 are not necessarily indicative of the operating results for the full year.

Vessels, net

Depreciation expense is calculated based on cost less the estimated residual scrap value. The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment. Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense. Expenditures for routine maintenance and repairs are expensed as incurred. Scrap value is estimated by the Company by taking the cost of steel times the weight of the ship noted in lightweight tons (lwt). Effective January 1, 2011, the Company increased the estimated scrap value of the vessels from $175/lwt to $245/lwt prospectively based on the 15-year average scrap value of steel. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets. During the three and nine months ended September 30, 2011, the increase in the estimated scrap value resulted in a decrease in depreciation expense of $625 and $1,854, respectively. The decrease in depreciation expense resulted in a $0.01 increase of the basic and diluted earnings per share during the three months ended September 30, 2011. The decrease in depreciation expense resulted in a $0.05 increase of the basic and diluted earnings per share during the nine months ended September 30, 2011.

Noncontrolling interest

Net loss (income) attributable to noncontrolling interest during the three and nine months ended September 30, 2011 and 2010 reflects the noncontrolling interest’s share of the net loss (income) of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters. The spot market represents immediate chartering of a vessel, usually for single voyages. At September 30, 2011, the noncontrolling interest held a 74.78% economic interest in Baltic Trading while only holding 16.50% of voting power.

Income taxes

Pursuant to certain agreements, GS&T technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided. These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes. As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services. Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.

Total revenue earned for these services during the three months ended September 30, 2011 and 2010 was $1,588 and $1,683, respectively, of which $760 and $1,221, respectively, eliminated upon consolidation. After allocation of certain expenses, there was taxable income of $668 associated with these activities for the three months ended September 30, 2011. This resulted in estimated tax expense of $319 for the three months ended September 30, 2011. After allocation of certain expenses, there was taxable income of $972 associated with these activities for the three months ended September30, 2010. This resulted in income tax expense of $438 for the three months ended September 30, 2010.

Total revenue earned for these services during the nine months ended September 30, 2011 and 2010 was $4,689 and $4,119, respectively, of which $2,232 and $3,650, respectively, eliminated upon consolidation. After allocation of certain expenses, there was taxable income of $2,113 associated with these activities for the nine months ended September 30, 2011. This resulted in estimated tax expense of $1,010 for the nine months ended September 30, 2011. After allocation of certain expenses, there was taxable income of $2,570 associated with these activities for the nine months ended September 30, 2010. This resulted in income tax expense of $1,157 for the nine months ended September 30, 2010.

Baltic Trading is subject to income tax on its United States source income. During the three months ended September 30, 2011 and 2010, Baltic Trading had United States operations which resulted in United States source income of $452 and $1,439, respectively. Baltic Trading’s United States income tax expense for the three months ended September 30, 2011 and 2010 was $9 and $29, respectively.

During the nine months ended September 30, 2011 and 2010, Baltic Trading had United States operations which resulted in United States source income of $2,909 and $1,439, respectively. Baltic Trading’s United States income tax expense for the nine months ended September 30, 2011 and 2010 was $31 and $29, respectively.

Voyage expense recognition

In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. There are certain other non-specified voyage expenses such as commissions which are typically borne by the Company. At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses.