Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Ultrapetrol (Bahamas) Limited
(Exact name of registrant as specified in its charter)
Commonwealth of The Bahamas 4412 N/A
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
Ultrapetrol (Bahamas) Limited Seward & Kissel LLP
Attention: Felipe Menendez R. Attention: Lawrence Rutkowski, Esq.
Ocean Centre, Montagu Foreshore One Battery Park Plaza
East Bay St. New York, New York 10004
Nassau, Bahamas (212) 574-1200
P.O. Box SS-19084 (Name, address and telephone
(242) 364-4755 number of agent for service)
(Address and telephone number of
Registrant's principal executive offices)
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Copies to:
Lawrence Rutkowski, Esq. William J. Whelan, III, Esq.
Seward & Kissel LLP Cravath, Swaine & Moore LLP
One Battery Park Plaza Worldwide Plaza
New York, New York 10004 825 Eighth Avenue
(212) 574-1200 (telephone number) New York, New York 10019
(212) 480-8421 (facsimile number) (212) 474-1000 (telephone number)
(212) 474-3700 (facsimile number)
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Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Proposed
Title of Maximum
Each Class of Maximum Aggregate
Securities to Number Price Offering Amount of
be Registered of Shares Per Share Price(1)(2) Registration Fee
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Common Stock,
par value $.01 per share $201,250,000 $6,200
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes common stock, if any, that may be sold pursuant to the
underwriters' over-allotment option.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PRELIMINARY PROSPECTUS Subject to Completion , 2007
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Ultrapetrol (Bahamas) Limited
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The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and we are not soliciting
offers to buy these securities in any jurisdiction where the offer or sale is
not permitted.
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COMMON STOCK
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We are offering shares of our common stock in this offering, and the selling
shareholders identified in this prospectus are offering shares of our common
stock. We will not receive any of the proceeds from any shares of common stock
sold by the selling shareholders.
Our common stock is listed on The Nasdaq Global Market under the symbol "ULTR."
On , 2007, the closing price of our common stock on the Nasdaq Global
Market was $ per share.
Investing in our common stock involves a high degree of risk. Before buying any
shares, you should carefully read the discussion of material risks of investing
in our common stock in "Risk factors" beginning on page 13 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Per Share Total
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Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to us $ $
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Proceeds, before expenses, to the selling shareholders $ $
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The underwriters may purchase from one of our selling shareholders an additional
shares of our common stock at the public offering price, less
the underwriting discounts and commissions, to cover over-allotments, if any,
within 30 days from the date of this prospectus. If the underwriters exercise
this option in full, the total underwriting discount and commissions will be $
and the total proceeds to the selling shareholders, before expenses, will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about , 2007.
UBS Investment Bank Bear, Stearns & Co. Inc.
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Jefferies & Company Raymond James DVB Capital Markets
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You should rely only on the information contained in this prospectus or to which
we have referred you. We have not, and the underwriters have not authorized
anyone to provide you with additional or different information. We are not, and
the underwriters are not offering to sell these securities in any jurisdiction
where the offer or sale is not permitted. The information in this prospectus may
only be accurate on the date of this prospectus regardless of the time of
delivery of this prospectus or of any sale of shares
of our common stock.
TABLE OF CONTENTS
Page
Enforceability of civil liabilities...................................... iii
Industry................................................................. iii
Summary.................................................................. 1
Risk factors............................................................. 13
Forward-looking statements............................................... 32
Use of proceeds.......................................................... 33
Dividend policy.......................................................... 34
Capitalization........................................................... 35
Selected financial and other data........................................ 38
Management's discussion and analysis of financial
condition and results of operations................................... 40
The international shipping industry...................................... 60
Business................................................................. 75
Management............................................................... 92
Principal and selling shareholders....................................... 96
Related party transactions............................................... 97
Shares eligible for future sale.......................................... 100
Description of capital stock............................................. 102
Description of credit facilities and other
indebtedness.......................................................... 106
Bahamian company considerations.......................................... 109
Tax considerations....................................................... 111
Underwriting............................................................. 118
Notice to investors...................................................... 121
Other expenses of issuance and distribution.............................. 123
Legal matters............................................................ 124
Experts.................................................................. 124
Where you can find additional information................................ 124
Glossary of shipping terms............................................... 125
Index to financial statements............................................ F-
ENFORCEABILITY OF CIVIL LIABILITIES
We are a Bahamian corporation. Our subsidiaries are incorporated in Argentina,
The Bahamas, Brazil, Chile, Colombia, Liberia, Mexico, Panama, Paraguay, Spain,
the United Kingdom, the United States of America, Uruguay and Venezuela. All of
our vessels and barges are flagged in Argentina, Bolivia, Brazil, Chile,
Liberia, Panama or Paraguay. Most of our and our subsidiaries' offices,
administrative activities and other assets, as well as those of the independent
registered public accountants and the expert named herein, are located outside
the United States. In addition, some of our directors and officers, and the
directors and officers of our subsidiaries, are residents of jurisdictions other
than the United States, and all or a substantial portion of the assets of such
persons are or may be located outside the United States. As a result, it may be
difficult for you to effect service of process within the United States upon us
or our subsidiaries or such persons, and it may be difficult for you to enforce
judgments obtained in United States courts against us or our subsidiaries, our
directors and officers, the directors and officers of our subsidiaries, the
independent registered public accountants or the expert named herein, or the
assets of any such parties located outside the United States. Further, it may be
difficult for you to enforce judgments obtained in United States courts,
including those predicated upon the civil liability provision of the federal
securities laws of the United States, against such parties in courts outside of
the United States.
INDUSTRY
The discussions relating to the international shipping industry contained under
the sections of this prospectus entitled "Summary," "The international shipping
industry" and "Business" have been reviewed by Doll Shipping Consultancy, or
DSC, which has confirmed to us that the discussion contained in those sections
accurately describes the international shipping markets subject to the
reliability of the data supporting the statistical and graphical information
present in this prospectus.
DSC is an independent company based in the United Kingdom that provides market
analysis and strategic planning services to the shipping industry, and has
provided us with statistical and other data regarding the shipping industry and
the particular markets in which we operate. You can find these data in this
prospectus in, among other locations, the section entitled "The international
shipping industry." DSC has advised us that these data are drawn from published
and private industry sources. DSC has also advised us that:
o some industry data they provided are based upon estimates or subjective
judgments in circumstances where data for actual market transactions either
do not exist or are not publicly available;
o the published information of other maritime data collection experts may
differ from the data provided to us by DSC; and
o while DSC has taken reasonable care in the compilation of the data it has
provided to us and believes such data to be accurate, data collection is
subject to limited audit and validation procedures.
Neither we nor any of our affiliates have independently verified the information
supplied to us by DSC and neither we nor any of our affiliates make any
representations regarding its accuracy.
ULTRAPETROL (BAHAMAS) LIMITED
SUMMARY ORGANIZATIONAL CHART
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| Ultrapetrol (Bahamas) Limited |
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100% | 94.45%(1) | 100% | 100% | 100% |
| | | | |
|----------| |-----------| |----------| |-----------| |--------------|
| | | Offshore | | | | | | Ship |
| River | | Supply | | Ocean | | Passenger | | Management |
| Business | | Business | | Business | | Business | | "Ravenscroft"|
| "UABL" | | "UP | | | | | | |
| | | Offshore" | | | | | | |
|----------| |-----------| |----------| |-----------| |--------------|
> 44 Tank > 4 Platform > 8 Vessels > 2 Vessels > Technical
Barges Supply > Total of > 1,585 Total management
> 458 Dry Vessels 651,147 Berths for
Barges ("PSVs")in dwt Ultrapetrol's
> 24 Pushboats service vessels as
> 1 Transfer > 2 PSVs under well as
Station construction third party
> Total in Brazil technical
828,000 > 2 PSVs under and/or
dwt capacity construction commercial
> Two port in India management.
facilities > 4,200 dwt > Owns a
(50% owned) and 840 sq. 16,007
> Two shipyards meters of square foot
(one owned; deck space building
one leased) each in Coral
Gables,
Florida
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(1) Our partner in Brazil, Comintra Enterprises Ltd., or Comintra, owns 5.55%
of UP Offshore (Bahamas) Ltd.
SUMMARY
This summary highlights selected information in this prospectus. It may not
contain all the information that may be important to you. You should review
carefully the risk factors and the more detailed information and financial
statements contained elsewhere in this prospectus, for a more complete
understanding of our business and this offering. In this prospectus, unless the
context otherwise indicates, the terms "we," "us" and "our" (and similar terms)
refer to Ultrapetrol (Bahamas) Limited and its subsidiaries. Unless otherwise
indicated, all references to currency amounts in this prospectus are in U.S.
Dollars. See the "Glossary of shipping terms" included in this prospectus for
definitions of certain terms used in this prospectus that are commonly used in
the shipping industry.
OUR COMPANY
We are an industrial transportation company serving the marine transportation
needs of our clients in the markets on which we focus. We serve the shipping
markets for grain, minerals, crude oil, petroleum, refined petroleum products
and forest products, as well as the offshore oil platform supply market, and the
leisure passenger cruise market through our operations in the following four
segments of the marine transportation industry.
o Our River Business, with 502 barges, is the largest owner and operator of
river barges and pushboats that transport dry bulk and liquid cargos
through the Hidrovia Region of South America, a large area with growing
agricultural, forest and mineral related exports. This region is crossed by
navigable rivers that flow through Argentina, Bolivia, Brazil, Paraguay and
Uruguay to ports serviced by ocean export vessels.
o Our Offshore Supply Business owns and operates vessels that provide
critical logistical and transportation services for offshore petroleum
exploration and production companies, in the North Sea and the coastal
waters of Brazil. Our Offshore Supply Business fleet currently consists of
proprietarily designed, technologically advanced platform supply vessels,
or PSVs. We have four PSVs in operation and four under construction. Two
PSVs are under construction in Brazil and are contracted to be delivered in
the second quarter of 2007 and in 2008, respectively. We recently
contracted with a shipyard in India to construct two PSVs for delivery
commencing in 2009, with an option to build two more.
o Our Ocean Business owns and operates eight oceangoing vessels, including
three Handysize/small product tankers which we intend to use in the South
American coastal trade where we have preferential rights and customer
relationships, three versatile Suezmax Oil-Bulk-Ore, or Suezmax OBO,
vessels, one Aframax tanker and one semi-integrated tug/barge unit. Our
Ocean Business fleet has an aggregate carrying capacity of approximately
651,000 deadweight tons, or dwt, and our three Suezmax OBOs are capable of
carrying either dry bulk or liquid cargos, providing flexibility as
dynamics change between these market sectors.
o Our Passenger Business fleet consists of two vessels with a total carrying
capacity of approximately 1,600 passengers, and operates primarily in the
European cruise market. We currently employ our largest passenger vessel
under a multi-year seasonal charter with a European tour operator and the
other passenger vessel in the Aegean Sea for the European summer season of
2007. In addition, we have operated one of our vessels during periods
outside the European travel season for certain events.
We have a diverse customer base including large and well-known petroleum,
agricultural, mining and tour operating companies. Some of our significant
customers over the last three years include affiliates of Archer Daniels
Midland, British Gas, Cargill, Chevron, Continental Grain, Empresa Nacional de
Petroleo (ENAP), the national oil company of Chile, Industrias Oleaginosas,
Panocean, Petrobras, the national oil company of Brazil, Petropar, the national
oil company of Paraguay, Rio Tinto, Swissmarine, Total, Trafigura, Travelplan,
and Vicentin.
We are focused on growing our businesses while maintaining the versatility of
our fleet and the diversity of industries that we serve. We believe maintaining
this versatility and diversity will maximize our ability to pursue new growth
opportunities and minimize our dependence on any particular sector of the marine
transportation industry.
OUR COMPETITIVE STRENGTHS
We believe that the following strengths have contributed to our success.
o Multiple Growth Opportunities. We believe that we have successfully
identified a series of growth opportunities in the marine transportation
industry and have built businesses with competitive advantages that have
grown rapidly by meeting the needs of a range of multinational customers.
o Diversification. We believe that our diversification across multiple
segments of the marine transportation industry provides significant
protection against business cycles in any particular segment.
o Large Scale Generates Efficiencies. We are the largest provider of river
transportation services in the Hidrovia Region, which gives us economies of
scale and increased negotiating power. Our size has enabled us, alone among
our competitors in the Hidrovia Region, to implement an operational system
through which we provide our customers with a continuous stream of
available barges while reducing our operating costs on a per ton basis.
o Advanced Technology. Our PSVs have advanced dynamic positioning systems and
benefit from our proprietary design that includes oil recovery capabilities
in most of our PSVs, azimuth thrusters, and greater cargo capacity and deck
space than most PSVs of standard design. These capabilities enable us to
better serve clients operating in challenging offshore environments. Our
River Business uses a navigational system that allows around-the-clock
operation on a river system that lacks the signals otherwise necessary for
night navigation.
o Versatile Ocean Fleet. We can readily switch our Suezmax OBOs between dry
bulk and liquid cargo carriage to take advantage of rate differentials in
these markets. Further, because of her narrow beam, our Aframax tanker is
able, despite her large Aframax dwt, to transit the Panama Canal. Our
Handysize/small product tankers can transport a variety of different
cargos, from heated crudes to multiple light products such as gasoline and
jet fuel.
o Long-Term Customer Relationships. We have long-standing relationships with
large, stable customers, including affiliates of major international oil
and agriculture companies, including Petrobras and Cargill, which have been
our customers for 13 years and nine years, respectively, as well as Archer
Daniels Midland, Continental Grain and ENAP.
o High Standards of Performance and Safety. The quality of our vessels and
the expertise of our vessel managers, crews and engineering resources help
us maintain safe, reliable and consistent performance.
o Established History and Experienced Management Team. Our management team is
led by members of the Menendez family, which has been in the shipping
industry since 1876. Our senior executive officers have on average 34 years
of experience in the shipping industry.
o Preferential Treatment in Certain Markets. Certain countries provide
preferential treatment for vessels that are flagged in their jurisdiction
or chartered in for operation by local ship operators. Brazilian law
provides a preference for the utilization of Brazilian-flagged vessels in
its cabotage trade. Through one of our Brazilian subsidiaries, we have the
competitive advantage of being able to trade most of our PSVs in the
Brazilian cabotage market, enabling them to obtain employment in preference
to vessels without those cabotage privileges. In addition, certain of our
ocean vessels enjoy special privileges in Argentina and Chile.
OUR BUSINESS STRATEGY
Our business strategy is to continue to operate as a diversified marine
transportation company with an aim to maximize our growth and profitability
while limiting our exposure to the cyclical behavior of individual sectors of
the marine transportation industry. We plan to implement our business strategy
by pursuing the following objectives.
o Capitalizing on Attractive Fundamentals in Our River Business. We plan to
use our leading market position in the Hidrovia Region to grow our River
Business by capitalizing on the region's growing agricultural, iron ore and
other commodity exports, the cost effectiveness of river transport compared
to available alternatives and our proprietary transportation
infrastructure. We plan to increase the size and capacity of many of our
existing barges and invest in river infrastructure in order to take
advantage of this opportunity. We may also seek to add capacity by
acquiring assets or companies currently operating in the Hidrovia Region.
o Expansion of Our Barge Construction Capability. We intend to use a portion
of the proceeds of the offering to expand our shipyard in Argentina to
facilitate the building of new barges, enabling us to design and construct
barges that are best suited for the characteristics of our River Business.
Certain new mining concerns have announced plans to produce and ship
through the river system significant additional volumes of iron ore. This
presents the challenge of creating significant new capacity in a
cost-effective manner. We believe that having our own barge producing
capability will enable us to meet this challenge at lower cost than
purchasing the barges overseas and transporting them to South America.
o Expanding Our Offshore Supply Business. We have taken delivery of four
proprietarily designed PSVs for our Offshore Supply Business and have four
more PSVs under construction, with an option for another two PSVs, which,
if exercised, would give us a total fleet of ten vessels.
o Growing Our Ocean Fleet. We plan on incorporating additional
chemical/product tankers into our ocean fleet. We believe that these ships
will fill a demand from our existing customers for vessels to service
routes where both the point of origin and destination are in South America.
In addition, we are studying alternative, efficient ways of expanding our
ocean fleet in the current market, in which vessels generally sell at a
premium by modifying or converting existing tonnage.
o Redeploying Vessels to the Most Attractive Markets. Under appropriate
market conditions, we intend to take advantage of the versatility of some
of our vessels and to alter the geographic and industry focus of our
operations by redeploying vessels to the most profitable markets. In
addition, we actively manage the deployment of our fleet between
longer-term and shorter-term time charters.
o Expanding Our Passenger Fleet. We intend to further expand our Passenger
Business through timely and selective acquisitions of secondhand passenger
vessels in accordance with identified customer needs and to increase
revenue by also employing our vessels outside of the European travel
season.
o Generating Operational Efficiencies. We have identified opportunities and
are implementing our plans to improve overall efficiency and profitability.
For example, in our River Business, we plan to increase the size and
capacity of many of our existing barges and invest in new engines that burn
less expensive fuel for our line pushboats, which we use on our longer
river voyages. We will also continue to focus on optimizing our barge and
tug scheduling, maximizing loads and convoy size and minimizing empty
return voyages.
CHARTERING STRATEGY AND FLEET MANAGEMENT
We continually monitor developments in the shipping industry and make
charter-related decisions on an individual vessel and segment basis as well as
our view of overall market conditions.
We conduct the day-to-day management and administration of our operations
in-house and through our subsidiaries. Our subsidiary, Ravenscroft, provides
technical ship management for the vessels in our Offshore Supply, Ocean and
Passenger Businesses while our subsidiary, UABL Limited, or UABL, manages our
River Business. In addition to servicing our own vessels, Ravenscroft also
manages vessels owned by third parties.
IMPORTANT DEVELOPMENTS AND CURRENT INITIATIVES
We believe the following developments and initiatives will have a significant
impact on the operations of our various businesses.
River Business
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o New vessels. On March 7, 2007, we acquired ownership of an existing
competitor in our river system adding to our fleet one 4,500 HP shallow
drafted pushboat and twelve Jumbo 2,500 dwt barges, all of which were built
in the United States in 1995.
o Expansion and fuel efficiency initiatives. We have begun a three year
program to expand the size of approximately 130 of our barges. To date, we
have expanded 12 barges, and we expect to have a total of 62 expanded by
the end of 2007. We are also working on a four year program to replace the
diesel engines in 16 of our line pushboats with new engines that will burn
less expensive heavy fuel oil. We have to date contracted to purchase six
of these new engines from MAN Diesel with expected delivery dates in July
and November of 2007.
o Expansion of our barge construction capability. We plan to expand our
shipyard in Argentina and adequately equip it to build new barges and grow
our fleet in order to meet our expected future incremental demand in a cost
effective manner. We expect that the most significant impact from these
programs on our operations will occur after 2007.
Offshore Supply Business
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o Acquisition of additional 66.67% interest. On March 21, 2006, we acquired
an additional 66.67% of UP Offshore, which is the holding company for our
Offshore Supply Business, raising our ownership to 94.45%. Prior to this
transaction, we used the equity method of accounting for our investment in
UP Offshore. Since the date of the transaction, we consolidate UP Offshore
into our financial results.
o New vessels. Our 2006 operating results reflect the partial year operations
of two newly built PSVs, one that we received and placed into service in
March 2006, and one that we received in August 2006 and placed into service
in September 2006. We expect to take delivery of two more sister vessels
currently under construction in Brazil in the second quarter 2007 and in
2008, respectively. In addition, we have recently signed contracts with a
shipyard in India for the construction of two additional vessels to be
delivered in 2009, with an option to build two more.
Ocean Business
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o Vessel acquisitions and dispositions in our Ocean Business. On October 23,
2006, we purchased our Amadeo, a 39,530 mt dwt crude and product carrier.
Upon delivery in December 2006, we sent this vessel to a Romanian shipyard
where we have contracted for retro-fitting to double hull. We expect this
vessel to commence service in South America in the second quarter 2007. On
January 5, 2007 we took delivery of our new acquisition, Alejandrina, a
9,200 metric tons dwt 2006 built double hull product carrier which will
commence service in South America in late March 2007.
Passenger Business
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o Vessel deployment in our Passenger Business. We completed a refurbishment
of all passenger accommodations on the New Flamenco in February 2006 and
she has secured employment at increased rates for the European summer
season of 2007 with an option for the 2008 summer season. We have entered
into an agreement with Monarch Classic Cruises for the Grand Victoria (to
be renamed Blue Monarch) to participate in their program in the Aegean Sea
during the European summer season of 2007.
OUR CORPORATE HISTORY
We were originally formed by members of the Menendez family with a single
oceangoing vessel in 1992, and were incorporated in our current form as a
Bahamas corporation on December 23, 1997.
Our Ocean Business has grown through the investment of capital from the
operation of our fleet along with other sources of capital to acquire additional
vessels. In 1998, we issued $135.0 million of 10 1/2% First Preferred Ship
Mortgage Notes due 2008, or the Prior Notes. By 2001, our fleet reached 13
oceangoing vessels with a total carrying capacity of 1.1 million dwt. During
2003, in an effort to remain ahead of changing environmental protection
regulations, we began to sell all of our single hull Panamax and Aframax tankers
(five vessels in total), a process that we completed in early 2004.
We began our River Business in 1993 with a fleet consisting of one pushboat and
four barges. In October 2000, we formed a joint venture with American Commercial
Barge Lines Ltd., or ACL. From 2000 to 2004, we built UABL into the leading
river barge company in the Hidrovia Region of South America. Using some of the
proceeds from the sale of our single hull Panamax tankers, in 2004, we purchased
from ACL their 50% equity interest in UABL.
During 2000, we received a $50.0 million equity investment from an affiliate of
Solimar Holdings, Ltd., or Solimar, a wholly-owned subsidiary of the AIG-GE
Capital Latin American Infrastructure Fund L.P., or the Fund. The Fund was
established at the end of 1996 to make equity investments in Latin America and
the Caribbean countries. The Fund has also been our partner in other ventures,
including UP Offshore.
In December 2002, we began our relationship with International Finance
Corporation, or IFC, which is the private sector arm of the World Bank Group
that provides loans, equity, and other services to support the private sector in
developing countries. In total, IFC, together with its participant banks and
co-lender, KfW, has provided us with $115.0 million of credit and equity
commitments to support our River and Offshore Supply Businesses.
We formed our Offshore Supply Business during 2003 in a joint venture with a
wholly-owned subsidiary of the Fund and Comintra. We capitalized the business
with $45.0 million of common equity and $70.0 million of debt and preferred
equity from IFC to construct our initial fleet of six PSVs. On March 21, 2006,
we separately purchased 66.67% of the issued and outstanding capital stock of UP
Offshore (Bahamas) Ltd., or UP Offshore, a company through which we operate our
Offshore Supply Business from an affiliate of Solimar, one of the selling
shareholders, for a purchase price of $48.0 million. Following this acquisition,
we hold 94.45% of the issued and outstanding shares of UP Offshore.
In November 2004, we issued $180.0 million of 9% First Preferred Ship Mortgage
Notes due 2014, or the Notes. The proceeds of the Notes offering were used
principally to prepay the Prior Notes and to buy an additional Ocean Business
asset, further invest in our River Business, and to diversify into the Passenger
Business with the acquisition of two passenger vessels.
In October 2006, we completed our initial public offering (our "IPO") of 12.5
million shares of our common stock, which generated gross proceeds of $137.5
million. On November 10, 2006, the Underwriters of our IPO exercised their
over-allotment option to purchase from the selling shareholders in our IPO an
additional 232,712 shares of our common stock. We did not receive any of the
proceeds from the sale of shares by these shareholders in the over-allotment
option.
CORPORATE INFORMATION
We are incorporated in the Commonwealth of The Bahamas under the name
Ultrapetrol (Bahamas) Limited. Our principal offices in The Bahamas are located
at Ocean Centre, Montagu Foreshore, East Bay St., P.O. Box SS-19084, Nassau,
Bahamas. Our telephone number there is 1 (242) 364-4755.
THE OFFERING
Common stock offered by us.................... shares.
Common stock offered by the
selling shareholders......................... shares.
Underwriters' over-allotment option........... shares from one of our
selling shareholders.
Common stock to be outstanding
immediately after this offering............... shares.
Use of proceeds............................... We expect to use the net
proceeds of this offering
as follows:
o $13.8 million to
replace cash on hand
used to fund
Otto Candies acquisition,
including related
expenses;
o $43.3 million to
fund construction
costs of the two new
PSVs being built in
India, including
$8.7 million to
replenish cash on
hand used to fund
the first advance
under the
construction
contracts and $34.6
million to be held
as working capital
to fund the balance
of the construction
costs;
o $6.0 million to fund
the expansion of our
shipyard in
Argentina for
construction of new
barges; and
o the remainder for
general corporate
purposes.
We will not receive any of the
proceeds from any sale of our
common stock by the selling
shareholders. See "Use of
proceeds."
Dividend policy............................... We anticipate retaining most
of our future earnings, if
any, for use in our operations
and the expansion of our
business. Any determination as
to dividend policy will be
made by our board of directors
and will depend on a number of
factors, including the
requirements of Bahamian law,
our future earnings, capital
requirements, financial
condition and future
prospects, restrictions
imposed by the terms of our
indebtedness, and such other
factors as our board of
directors may deem relevant.
See "Dividend policy."
Nasdaq Global Market listing.................. Our common stock is listed on
The Nasdaq Global Market under
the symbol "ULTR."
Special Voting Rights......................... Under our Amended and Restated
Memorandum of Association, the
selling shareholders are
expressly entitled to seven
votes per share on all shares
held directly by them and all
other holders of shares of our
common stock are entitled to
one vote per share. The
special voting rights of the
selling shareholders are
transferable to each other but
are not transferable to any
other shareholders, and apply
only to shares held by them on
October 12, 2006 and not to
any shares they subsequently
purchase or repurchase. Our
Amended and Restated
Memorandum of Association also
provides certain protections
for our shareholders that do
not have these special voting
rights including certain
tag-along rights. After giving
effect to this offering, the
selling shareholders will have
% of the voting power of our
common stock. Please see
"Description of capital stock"
elsewhere in this prospectus.
Unless we indicate otherwise or the context otherwise requires, all information
in this prospectus:
o assumes that the underwriters do not exercise their over-allotment option;
o does not give effect to the warrant in favor of Solimar representing
146,384 shares of our common stock.
RISK FACTORS
Investing in our common stock involves substantial risks. We summarize some of
these risks below.
o Some of the sectors of the shipping industry in which we operate are
cyclical and volatile. Some of our businesses operate in highly volatile
and cyclical markets characterized by large fluctuations in demand and
charter rates. If these businesses suffer from adverse market conditions,
our results of operations will be adversely affected.
o Our River Business can be affected by adverse weather conditions that
reduce production of the goods we transport or navigability of the river
system on which we operate. Droughts and other adverse weather conditions,
such as floods, have in the past and could in the future result in a
decline in production of the agricultural products we transport. Further,
certain conditions, such as low water levels, could reduce or limit our
ability to effectively transport cargo on the rivers.
o Our vessels are at risk of being damaged due to operational risks that may
lead to unexpected consequences, which may adversely affect our
earnings. Our vessels and their cargos are at risk of being damaged or lost
because of events we cannot control, such as marine disasters, bad weather,
mechanical failures, human error, war, terrorism, piracy and other
circumstances or events. Although we insure our vessels against those types
of risks commonly insured against by vessel owners and operators, we may
not be adequately insured against all risks.
o We are an international company that is exposed to the risks of doing
business in many different and often less developed emerging market
countries. We conduct almost all of our operations outside of the United
States, including in countries that are less developed, such as Argentina,
Bolivia, Brazil, Chile, China, Paraguay, South Africa and Uruguay. By
operating in these countries, we are subject to numerous risks, including
political and economic instability, unfavorable legal, regulatory and tax
changes, and others.
o Certain of our existing shareholders control the outcome of matters on
which our shareholders are entitled to vote following this offering.
Certain of our existing shareholders control a majority of the voting power
of our common stock after this offering, in part because shares of common
stock held by them prior to this offering have seven votes and shares of
common stock held by others have one vote. In cases where their interests
differ from yours, they will have the ability to control the management of
our company.
o The price of our common stock has been volatile and after this offering may
continue to be volatile. The market price of our common stock has
historically fluctuated over a wide range and may continue to fluctuate
significantly. You may encounter difficulties in trying to sell your shares
of our common stock in the future.
This is not a comprehensive list of risks to which we are subject, and you
should carefully consider all the information in this prospectus prior to
investing in our common stock. In particular, we urge you to consider carefully
the additional factors set forth in the section of this prospectus entitled
"Risk factors" beginning on page 13.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial information
and other operating data. You should carefully read our audited consolidated
financial statements, and the information set forth under "Management's
discussion and analysis of financial condition and results of operations"
included elsewhere in this prospectus for additional financial information about
us. We derived our summary consolidated statement of operations data for the
fiscal years ended December 31, 2004, 2005 and 2006, and our summary
consolidated balance sheet data as of December 31, 2005 and 2006, from our
audited consolidated financial statements included elsewhere in this prospectus.
We derived our summary consolidated balance sheet data as of December 31, 2004
from our audited consolidated statements not included in this prospectus. We
refer you to the footnotes to our consolidated financial statements for a
discussion of the basis on which our consolidated financial statements are
presented.
Year ended December 31,
----------------------------------
2004(1) 2005 2006(2)
(Dollars in thousands)
Statement of Income Data:
Revenues:................................. $ 95,160 $ 125,361 $ 173,466
Operating expenses(3)..................... (40,815) (73,061) (97,610)
Depreciation and amortization........... (18,688) (21,333) (28,340)
Management fees to related parties(4)... (1,513) (2,118) (511)
Administrative and commercial expenses.. (7,494) (7,617) (13,905)
Other operating income (expenses)(5).... 784 22,021 (198)
Operating profit.......................... 27,434 43,253 32,902
Financial expense......................... (16,134) (19,141) (19,025)
Financial gain (loss) on extinguishment
of debt(6).............................. (5,078) - (1,411)
Financial income.......................... 119 1,152 733
Investment in affiliates(7)............... 406 (497) 588
Other income (expenses)................... 174 384 859
Income before income tax and minority
interest................................ 6,921 25,151 14,646
Income taxes.............................. (642) (786) (2,201)
Minority interest(8)...................... (1,140) (9,797) (1,919)
---------- ---------- ----------
Net income................................ $ 5,139 $ 14,568 $ 10,526
========== ========== ==========
Basic net income per share................ $ 0.33 $ 0.94 $ 0.59
========== ========== ==========
Diluted net income per share.............. $ 0.33 $ 0.94 $ 0.58
========== ========== ==========
Basic weighted average number of shares... 15,500,000 15,500,000 17,965,753
========== ========== ==========
Diluted weighted average number of shares. 15,500,000 15,500,000 18,079,091
========== =========== ==========
Balance Sheet Data (end of period):
Cash and cash equivalents................. $ 11,602 $ 7,914 $ 20,648
Current restricted cash................... 2,975 3,638 -
Working capital(9)........................ 13,441 26,723 31,999
Vessels and equipment, net................ 160,535 182,069 333,191
Total assets.............................. 273,648 278,282 426,379
Total debt................................ 220,413 211,275 220,685
Shareholders' equity...................... 28,910 43,474 179,429
Other Financial Data:
Net cash provided by operating activities. $ 23,129 $ 16,671 $ 28,801
Net cash used in investing activities..... (57,556) (26,725) (104,029)
Net cash provided by financing activities. 37,781 6,366 87,962
EBITDA(10)(11)............................ 45,681 55,828 62,417
Selected Fleet Data (end of period):
River Business
Dry barges................................ 411 446 446
Tank barges............................... 44 44 44
Total barges.............................. 455 490 490
Total barge capacity (approximate dwt) ... 744,000 798,000 798,000
Number of pushboats....................... 21 23 23
Offshore Supply Business
Large PSVs................................ -- -- 4
Ocean Business
Total ocean vessels....................... 6 6 7
Total ocean vessel capacity (approximate dwt) 747,000 602,000 643,000
Passenger Business
Passenger vessels........................ -- 2 2
Total passenger berths................... -- 1,585 1,585
----------
(1) In a series of related transactions, on April 23, 2004, through two wholly
owned subsidiaries, we acquired from American Commercial Barge Lines Ltd.,
or ACBL, the remaining 50% equity interest in UABL Limited, or UABL, that
we did not previously own, along with a fleet of 50 river barges and seven
river pushboats. The results of UABL's operations have been included in our
consolidated financial statements since that date.
(2) On March 21, 2006 we acquired an additional 66.67% of UP Offshore, which is
the holding company for our Offshore Supply Business, raising our ownership
to 94.45%. The results of UP Offshore's operations have been included in
our consolidated financial statements since that date.
(3) Operating expenses are voyage expenses and running costs. Voyage expenses,
which are incurred when a vessel is operating under a contract of
affreightment (as well as any time when they are not operating under time
or bareboat charter), comprise all costs relating to a given voyage,
including port charges, canal dues and fuel (bunkers) costs, are paid by
the vessel owner and are recorded as voyage expenses. Voyage expenses also
include charter hire payments made by us to owners of vessels that we have
chartered in. Running costs, or vessel operating expenses, include the cost
of all vessel management, crewing, repairs and maintenance, spares and
stores, insurance premiums and lubricants and certain drydocking costs.
(4) Management fees to related parties included payments to our related
companies Ravenscroft Shipping (Bahamas) S.A., or Ravenscroft, and
Oceanmarine S.A., or Oceanmarine, for ship management and administration
services that they provide to us. We purchased the business of Ravenscroft
and hired the administrative personnel and purchased the administrative
related assets of Oceanmarine on March 21, 2006; accordingly, ship
management and administration costs appear as in-house expenses in our
results from that date.
(5) Other operating income in 2005 includes $21.8 million gain from the sale of
our Capesize bulk carrier, the Cape Pampas. This vessel was owned directly
by Ultracape (Holdings) Ltd., or Ultracape, a company of which we owned
60%. Accordingly, the gain on sale attributable to the remaining 40% that
we did not own is deducted from income as minority interest.
(6) During 2004, we repurchased $5.7 million principal amount of our Prior
Notes for a price of $4.3 million and realized a gain of $1.3 million, and
we incurred $6.4 million in expenses in relation to our tender offer and
repurchase of our Prior Notes. During 2006, there was an early redemption
of our indebtedness in our River Business and we incurred a loss of $1.4
million related to the unamortized balance of issuance costs.
(7) Prior to April 2004, we owned 50% of UABL through a joint venture with ACBL
and, accordingly, we accounted for it using the equity method. Also, prior
to March 2006, we owned 27.78% of UP Offshore (Bahamas) Ltd. and,
accordingly, we accounted for it using the equity method.
(8) We own 60% of Ultracape, which owned the Capesize bulk carrier Cape Pampas
prior to its sale in May 2005, and accordingly recognized minority interest
for the 40% we did not own. Figures in 2004 principally represent 40% of
the income earned by Ultracape, from operation of the Cape Pampas. The
figure in 2005 represents 40% of the income from operations of the Cape
Pampas as well as 40% of the gain on the sale of the vessel in May 2005.
Minority interest in 2006 includes a loss of $0.9 million incurred through
redemption of the preferred shares issued by our subsidiary UP Offshore
owned by IFC, which was part of the use of proceeds from our IPO.
(9) Current assets less current liabilities.
(10) EBITDA consists of net income (loss) prior to deductions for interest
expense and other financial gains and losses, income taxes, depreciation of
vessles and equipment and amortization of drydock expense, intangible
assets, financial gain (loss) on extinguishment of debt and a premium paid
for redemption of preferred shares. We have provided EBITDA in this report
because we use it to, and believe it provides useful information to
investors to, measure our performance and evaluate our ability to incur and
service indebtedness. We also use EBITDA to assess the performance of our
business units. We believe that EBITDA is intended to exclude all items
that affect results relating to financing activities. The gain and losses
associated with extinguishment of debt, including preferred shares issued
for our subsidiaries, are a direct financing item that affects our results,
and as such we exclude these items in our calculation of EBITDA. We do not
intend for EBITDA to represent cash flows from operations, as defined by
GAAP (on the date of calculation) and it should not be considered as an
alternative to net income as an indicator of our operating performance or
to cash flows from operations as a measure of liquidity. This definition of
EBITDA may not be comparable to similarly titled measures disclosed by
other companies. Generally, funds represented by EBITDA are available for
management's discretionary use.
The following table reconciles our EBITDA to our net income:
Year ended December 31,
2004 2005 2006
---- ---- ----
(Dollars in thousands)
Net income $5,139 $14,568 $10,526
Plus
Financial expense 16,134 19,141 19,025
Financial gain on extinguishment of debts (1,344) -- --
Financial losses on extinguishment of debts 6,422 -- 1,411(a)
Income taxes 642 786 2,201
Depreciation and amortization 18,688 21,333 28,340
Premium paid for redemption of preferred
shares(b) -- -- 914
------------------------------
EBITDA $45,681 $55,828(c) $62,417
------------------------------
----------
(a) Corresponds to the loss incurred in the fourth quarter of 2006 through the
early repayment of the loans granted by IFC to UABL, which was part of the
use of proceeds from our IPO.
(b) See note 8 above.
(c) EBITDA for 2005 includes $13.1 million, net of minority interest from the
gain on the sale of Cape Pampas in May 2005. See "Management discussion and
analysis of financial condition and results of operations-Developments in
2005."
(11) The following table reconciles our EBITDA to our operating profit for each
of our business segments:
Year Ended December 31, 2006
----------------------------
(Dollars in thousand)
---------------------
Offshore
River Supply Ocean Passenger
Business Business Business Business Total
--------- --------- --------- --------- ---------
Segment operating profit ........... $ 10,755 $ 11,480 $ 5,566 $ 5,101 $ 32,902
Depreciation and amortization ...... 8,136 2,340 14,238 3,626 28,340
Minority interest .................. (285) (1,409) (225) -- (1,919)
(Loss) income from
investment in affiliates ........... (124) 328 384 -- 588
Other, net (a) ..................... -- 67 792 -- 859
Premium paid for redemption of
preferred shares(b) ................ -- -- -- -- 914
Segment EBITDA ..................... $ 18,482 $ 13,720 $ 20,755 $ 8,727 $ 61,684
Items not included in segment EBITDA
Financial income ................... ................................................... $ 733
Consolidated EBITDA (c) ............ ................................................... $ 62,417
=========
(a) Individually not significant.
(b) Correspond to a loss of $0.9 million incurred through redemption
of the preferred shares issued by our subsidiary UP Offshore owned
by IFC, which was part of the use of proceeds of our IPO.
(c) The reconciliation of our consolidated EBITDA to our net income is set
forth in note 10 above.
Year Ended December 31, 2005
-----------------------------
(Dollars in thousand)
----------------------
Offshore
River Supply Ocean Passenger
Business Business Business Business Total
-------- ----------- ----------- -------------- --------------
Segment operating profit ............ $ 366 $183 $39,289(a) $ 3,415 $ 43,253
Depreciation and amortization ....... 7,166 -- 13,063 1,104 21,333
Minority interest ................... (386) -- (9,411)(a) -- (9,797)
(Loss) income from
investment in affiliates ............ (306) (12) (179) -- (497)
Other, net (b) ...................... -- -- 384 -- 384
Segment EBITDA ...................... $6,840 $171 $43,146 $ 4,519 $ 54,676
Items not included in segment EBITDA
Financial income .................... .............................................................. $ 1,152
Consolidated EBITDA(b) ..................... ....................................................... $ 55,828
========
----------
(a) For our Ocean Business, segment operating profit includes a $21.8 million
gain on the sale of the Cape Pampas, and minority interest includes a
deduction of $8.7 million related to that sale as well as the operating
income from the vessel prior to its sale. See notes 5 and 8 above.
(b) Individually not significant.
(c) The reconciliation of our consolidated EBITDA to our net income is set
forth in note 10 above.
(12) During 2005, UP Offshore owned two PSVs. Because we owned only 27.78% of UP
Offshore's equity interest at year's end, we do not show these vessels as
being part of our fleet. We do recognize the revenue from these vessels in
our consolidated statement of income because we operated them under a
bareboat charter from UP Offshore. This revenue was substantially offset by
related operating expenses and charterhire.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should
consider carefully the following factors, as well as the other information set
forth in this prospectus, before making an investment in our common stock. Some
of the following risks relate principally to the industry in which we operate
and our business in general. Other risks relate principally to the securities
market and ownership of our stock. Any of these risk factors could significantly
and negatively affect our business, financial condition or operating results and
the trading price of our stock. As a result of these risks, you may lose all or
part of your investment.
RISKS RELATING TO OUR INDUSTRY
The oceangoing cargo transportation industry is cyclical and volatile, and this
may lead to volatility in, and reductions of, our charter rates and volatility
in our results of operations.
The oceangoing cargo transportation industry is both cyclical and volatile, with
frequent and large fluctuations in charter rates. The charter rates earned by
the vessels in our Ocean Business will depend in part upon the state of the
vessel market at the time we seek to charter them. We cannot control the forces
affecting the supply and demand for these vessels or for the goods that they
carry or predict the state of the vessel market on any future date. If the
vessel market is in a period of weakness when our vessels' charters expire, we
may be forced to re-charter our vessels at reduced rates or even possibly at a
rate at which we would incur a loss on operation of our vessels.
Some of the factors that influence the demand for oceangoing vessel capacity
include:
o global production of and demand for petroleum and petroleum products and
dry bulk commodities;
o the distance that these products and commodities must be transported by
sea;
o the globalization of manufacturing and other developments in international
trade;
o global and regional economic and political conditions;
o environmental and other regulatory developments;
o weather; and
o changes in seaborne and other transportation patterns and the supply of and
rates for alternative means of transportation.
Some of the factors that influence the supply of oceangoing vessel capacity
include:
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o the price of steel;
o the number of vessels that are out of service at a given time;
o changes in environmental and other regulations that may limit the useful
life of vessels; and
o port or canal congestion.
Our River Business can be affected by factors beyond our control, particularly
adverse weather conditions that can affect production of the goods we transport
and navigability of the river system on which we navigate.
We derive a significant portion of our River Business revenue from transporting
soybeans and other agricultural products produced in the Hidrovia Region.
Droughts and other adverse weather conditions, such as floods, could result in a
decline in production of these products, which would likely result in a
reduction in demand for our services. In 2005, our results of operations and
financial condition were negatively impacted due to the decline in soybean
production associated with that year's drought. Drought conditions also affected
the size of the Paraguayan soybean crop in 2006. Further, most of the operations
in our River Business occur on the Parana and Paraguay Rivers, and any changes
adversely affecting navigability of either of these rivers, such as low water
levels, could reduce or limit our ability to effectively transport cargo on the
rivers.
The rates we charge and the quantity of freight we transport in our River
Business can also be affected by:
o demand for the goods we ship on our barges;
o adverse river conditions, such as flooding or lock outages, that slow or
stop river traffic;
o any accidents or operational disruptions to ports, terminals or bridges
along the rivers on which we operate;
o changes in the quantity of barges available for river transport through the
entrance of new competitors or expansion of operations by existing
competitors;
o the availability of transfer stations and cargo terminals for loading of
cargo on and off barges; and
o the availability and price of alternate means of transporting goods out of
the Hidrovia Region.
A prolonged drought or other series of events that is perceived by the market to
have an impact on the region, the navigability of the Parana or Paraguay Rivers
or our River Business in general may, in the short term, result in a reduction
in the market value of the barges and pushboats that we operate in the region.
These barges and pushboats are designed to operate in wide and relatively calm
rivers, of which there are only a few in the world. If it becomes difficult or
impossible to operate our barges and pushboats profitably in the Hidrovia Region
and we are forced to sell them to a third party located outside of the region,
there is a limited market in which we would be able to sell these vessels, and
accordingly we may be forced to sell them at a substantial loss.
Demand for our PSVs depends on the level of activity in offshore oil and gas
exploration, development and production.
The level of offshore oil and gas exploration, development and production
activity has historically been volatile and is likely to continue to be so in
the future. The level of activity is subject to large fluctuations in response
to relatively minor changes in a variety of factors. A prolonged, material
downturn in oil and natural gas prices is likely to cause a substantial decline
in expenditures for exploration, development and production activity, which
would likely result in a corresponding decline in the demand for PSVs and thus
decrease the utilization and charter rates of our PSVs. Such decreases could
have an adverse effect on our financial condition and results of operations.
Moreover, increases in oil and natural gas prices and higher levels of
expenditure by oil and gas companies may not result in increased demand for our
PSVs. The factors affecting the supply and demand for PSVs are outside of our
control, and the nature, timing and degree of changes in industry conditions are
unpredictable. If the PSV market is in a period of weakness when our vessels'
charters expire, we may be forced to re-charter our vessels at reduced rates or
even possibly at a rate at which we would incur a loss on operation of our
vessels.
Some of the factors that influence the supply and demand for PSVs include:
o worldwide demand for oil and natural gas;
o prevailing oil and natural gas prices and expectations about future prices
and price volatility;
o the cost of offshore exploration for, and production and transportation of,
oil and natural gas;
o consolidation of oil and gas service companies operating offshore;
o availability and rate of discovery of new oil and natural gas reserves in
offshore areas;
o local and international political and economic conditions and policies;
o technological advances affecting energy production and consumption;
o weather conditions;
o environmental regulation;
o volatility in oil and gas exploration, development and production activity;
o the number of newbuilding deliveries; and
o deployment of PSVs to areas in which we operate.
Our vessels and our reputation are at risk of being damaged due to operational
risks that may lead to unexpected consequences, which may adversely affect our
earnings.
Our vessels and their cargos are at risk of being damaged or lost because of
events such as marine disasters, bad weather, mechanical failures, structural
failures, human error, war, terrorism, piracy and other circumstances or events.
All of these hazards can also result in death or injury to persons, loss of
revenues or property, environmental damage, higher insurance rates or loss of
insurance cover, damage to our customer relationships that could limit our
ability to successfully compete for charters, delay or rerouting, each of which
could adversely affect our business. Further, if one of our vessels were
involved in an accident with the potential risk of environmental contamination,
the resulting media coverage could adversely affect our business.
If our vessels suffer damage, they may need to be repaired. The costs of repairs
are unpredictable and can be substantial. We may have to pay repair costs that
our insurance does not cover in full. The loss of revenue while these vessels
are being repaired and repositioned, as well as the actual cost of these
repairs, would decrease our earnings. In addition, space at repair facilities is
sometimes limited and not all repair facilities are conveniently located. We may
be unable to find space at a suitable repair facility or we may be forced to
travel to a repair facility that is not conveniently located near our vessels'
positions. The loss of earnings while these vessels are forced to wait for space
or to travel to more distant drydocking facilities would decrease our earnings.
Because the fair market value of vessels fluctuates significantly, we may incur
losses when we sell vessels.
Vessel values have historically been very volatile. The market value of our
vessels may fluctuate significantly in the future, and we may incur losses when
we sell vessels, which would adversely affect our earnings. Some of the factors
that affect the fair market value of vessels, all of which are beyond our
control, are:
o general economic, political and market conditions affecting the shipping
industry;
o number of vessels of similar type and size currently on the market for
sale;
o the viability of other modes of transportation that compete with our
vessels;
o cost and number of newbuildings and vessels scrapped;
o governmental or other regulations;
o prevailing level of charter rates; and
o technological advances that can render our vessels inferior or obsolete.
Compliance with safety, environmental, governmental and other requirements may
be very costly and may adversely affect our business.
The shipping industry is subject to extensive and changing international
conventions and treaties, national, state and local environmental and
operational safety laws and regulations in force in international waters and the
jurisdictional waters of the countries in which the vessels operate, as well as
in the country or countries in which such vessels are registered. These laws and
regulations govern, among other things, the management and disposal of hazardous
materials and wastes, the cleanup of oil spills and other contamination, air
emissions, water discharges and ballast water management, and include (i) the
U.S. Oil Pollution Act of 1990, as amended, or OPA, (ii) the International
Convention on Civil Liability for Oil Pollution Damage of 1969, and its
protocols of 1976, 1984, and 1992, (iii) International Convention for the
Prevention of Pollution from Ships or, MARPOL, (iv) the International Maritime
Organization, or IMO, International Convention for the Safety of Life at Sea of
1974, or SOLAS, (v) the International Convention on Load Lines of 1966, (vi) the
U.S. Maritime Transportation Security Act of 2002 and (vii) the International
Ship and Port Facility Security Code, among others. In addition, vessel
classification societies also impose significant safety and other requirements
on our vessels. Many of these environmental requirements are designed to reduce
the risk of oil spills and other pollution, and our compliance with these
requirements can be costly.
These requirements can affect the resale value or useful lives of our vessels,
require a reduction in cargo capacity or other operational or structural
changes, lead to decreased availability of insurance coverage for environmental
matters, or result in the denial of access to, or detention in, certain ports.
Local, national and foreign laws, as well as international treaties and
conventions, can subject us to material liabilities in the event that there is a
release of petroleum or other hazardous substances from our vessels. We could
also become subject to personal injury or property damage claims relating to
exposure to hazardous materials associated with our current or historic
operations. In addition, environmental laws require us to satisfy insurance and
financial responsibility requirements to address oil spills and other pollution
incidents, and subject us to rigorous inspections by governmental authorities.
Violations of such requirements can result in substantial penalties, and in
certain instances, seizure or detention of our vessels. Additional laws and
regulations may also be adopted that could limit our ability to do business or
increase the cost of our doing business and that could have a material adverse
effect on our operations. Government regulation of vessels, particularly in the
areas of safety and environmental impact, may change in the future and require
us to incur significant capital expenditure on our vessels to keep them in
compliance, or to even scrap or sell certain vessels altogether. For example,
beginning in 2003, we sold all of our single hull oceangoing tanker vessels in
response to regulatory requirements in Europe and the United States. In
addition, Annex VI of MARPOL, which became effective May, 2005, sets limits on
sulphur oxide, nitrogen oxide and other emissions from vessel exhausts and
prohibits deliberate emissions of ozone depleting substances, such as
chlorofluorocarbons. Future changes in laws and regulations may require us to
undertake similar measures, and any such actions may be costly. We believe that
regulation of the shipping industry will continue to become more stringent and
more expensive for us and our competitors. For example, various jurisdictions
are considering regulating the management of ballast water to prevent the
introduction of non-indigenous species considered to be invasive, which could
increase our costs relating to such matters.
All of our vessels will be subject to Annex VI regulations. While we expect that
our newbuilding vessels will meet relevant Annex VI requirements at the time of
their delivery and that our existing fleet will comply with such requirements,
subject to classification society surveys, such compliance could require
modifications to the engines or the addition of expensive emissions control
systems, or both, as well as the use of low sulphur fuels. We expect that any
such modifications will be fitted to existing vessels in the next intermediate
or special survey for each vessel. We are still evaluating the costs of
implementing these requirements, but do not expect them to have a material
adverse effect on our operating costs.
MARPOL requirements impose phase-out dates for vessels that are not certified as
double hull. Our new acquisition Alejandrina as well as our Aframax vessel
Princess Marina and two of our Suezmax vessels, Princess Nadia and Princess
Susana, are fully certified by class as double hull vessels. Our Princess
Katherine currently does not meet the configuration criteria and will require
modifications to comply with these criteria before the end of 2010. These
modifications will not involve major steel work. Our vessel, Miranda I, does not
currently comply with the double hull requirement unless she limits her loading
to center tanks only. However, we expect to retrofit her to full double hull
compliance during the second quarter of 2007. Our vessel Amadeo is currently
being retrofitted to double hull at a shipyard in Romania and we expect to have
her fully certified in the second quarter of 2007. Our oceangoing barge Alianza
G3 although of double hull construction does not meet the minimum height
criteria in double bottoms required by Rule 13G and therefore currently has a
phase out date of December 2008. However, we are in the process of applying for
an exemption, which if granted, will permit this unit to operate in her present
state until the end of her useful life.
In the United States, OPA provides that owners, operators and bareboat
charterers are strictly liable for the discharge of oil in U.S. waters,
including the 200 nautical mile zone off the U.S. coasts. OPA provides for
unlimited liability in some circumstances, such as a vessel operator's gross
negligence or willful misconduct. OPA also permits states to set their own
penalty limits. Most states bordering navigable waterways impose unlimited
liability for discharges of oil in their waters. The IMO has adopted a similar
liability scheme that imposes strict liability for oil spills, subject to limits
that do not apply if the release is caused by the vessel owner's intentional or
reckless conduct. The IMO and the European Union, or EU, also have adopted
separate phase-out schedules applicable to non-double hull tankers operating in
international and EU waters. These regulatory programs may require us to
introduce modifications or changes to tank configuration to meet the EU double
hull standards for our vessels or otherwise remove them from operation.
Under OPA, with certain limited exceptions, all newly built or converted tankers
operating in U.S. waters must be built with double hulls conforming to
particular specifications. Tankers that do not have double hulls are subject to
structural and operational measures to reduce oil spills and will be precluded
from operating in U.S. waters in most cases by 2015 according to size, age, hull
configuration and place of discharge unless retrofitted with double hulls. In
addition, OPA specifies annual inspections, vessel manning, equipment and other
construction requirements applicable to new and existing vessels that are in
various stages of development by the U.S. Coast Guard, or USCG.
Under OPA, and per USCG interpretations, our Aframax and Suezmax OBOs will be
precluded from operation in U.S. waters in 2014. The following information has
been extracted from the TVEL/COC corresponding to the vessels' last inspection
at a U.S. port.
Last TVEL/COC
Name Phase-out date* issuance date**
---- --------------- ---------------
Princess Katherine.................. N/A March 26, 2003
Princess Nadia...................... January 2014 August 26, 2001
Princess Susana..................... November 2014 February 18, 2003
Princess Marina..................... March 2014 August 29, 2002
----------
* As per the last Tank Vessel Examination Letter, or TVEL/Certificate of
Compliance, or COC.
** The USCG inspects vessels upon entry to U.S. ports and determines when such
vessels will be phased out under OPA, the dates of which are recorded in
the TVEL or the COC. On April 30, 2001, the USCG replaced the TVEL with a
newly generated document, the COC. The USCG issues the COC for each tanker
if and when the vessel calls on a U.S. port and the COC is valid for a
period of two years, with mid-period examination. All above TVEL are
therefore expired and these vessels must be re-inspected upon their next
entry into a U.S. port.
There was no phase-out date imposed on Princess Katherine at the time of its
last inspection by the USCG. Although Princess Nadia, Princess Marina and
Princess Susana are double hull vessels, due to configuration requirements under
the U.S. double hull standards, the phase-out dates indicated above are
applicable. For the same reasons, Princess Katherine could be given a phase out
date if or when next inspected by the USCG.
In 2010, the IMO will enforce mandatory SOLAS requirements so that all passenger
vessels operating must be built under regulation SOLAS 60, Part H, restricting
use of combustible material and requiring that all passenger vessels be fully
outfitted with sprinklers in both the passenger and engine room spaces.
The Grand Victoria was built according to the rules of regulation SOLAS 60, but
using method II, along with a sprinkler system installed during construction.
However, under method II generally there was no restriction on any type of
internal division and this method allowed combustible material to be used during
construction which is now generally not permissible pursuant to the SOLAS
amendments. Therefore, for trading beyond 2010, this vessel will require a
complete refurbishment that we cannot assure you will be economically viable.
The oceangoing cargo transportation industry is highly competitive, and we may
not be able to compete successfully for charters with new entrants or
established companies with greater resources.
We employ our vessels in highly competitive markets. The oceangoing market is
international in scope and we compete with many different companies, including
other vessel owners and major oil companies, such as Transpetro, a subsidiary of
Petrobras. In our Offshore Supply Business, we compete with companies that
operate PSVs, such as Maersk, Seacor and Tidewater. Some of these competitors
are significantly larger than we are and have significantly greater resources
than we do. This may enable these competitors to offer their customers lower
prices, higher quality service and greater name recognition than we do.
Accordingly, we may be unable to retain our current customers or to attract new
customers. Further, some of these competitors, such as Transpetro, are
affiliated with or owned by the governments of certain countries, and may
receive government aid or legally imposed preferences or other assistance, that
are unavailable to us.
Our OBOs are less desired by certain charterers in the tanker market.
OBOs are versatile because they can transport both petroleum products and dry
bulk cargos. Unlike the more traditional type of tanker, an OBO has fewer tanks,
but each tank is generally larger. Prior to the advent of computerized loading
systems, the possibility of cargo shifting that could result in a vessel
becoming unstable, required the use of extra caution when loading an OBO. While
this issue, like other concerns originally linked to OBOs, has been solved with
new technology, OBOs are still less desired by certain charterers who prefer to
use the more traditional form of tanker to transport oil and other petroleum
products. To the extent any charterers elect not to use our OBOs and instead use
standard tankers, this could have a negative impact on our business and
financial results.
Increased inspection procedures and tighter import and export controls could
increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and
related procedures in countries of origin and destination. Inspection procedures
can result in the seizure of our vessels or their cargos, delays in the loading,
offloading or delivery and the levying of customs duties, fines or other
penalties against us.
Future changes to inspection procedures could impose additional financial and
legal obligations on us. Furthermore, changes to inspection procedures could
also impose additional costs and obligations on our customers and may, in
certain cases, render the shipment of certain types of cargo uneconomical or
impractical. Any such changes or developments may have a material adverse effect
on our business, financial condition, results of operations and ability to pay
dividends.
Compliance with safety and other vessel requirements imposed by classification
societies or flag states may be very costly and may adversely affect our
business.
The hull and machinery of our offshore supply fleet, ocean fleet, passenger
fleet and parts of our river fleet are classed by a classification society. The
classification society certifies that a vessel is in class, and may also issue
the vessel's safety certification in accordance with the applicable rules and
regulations of the country of registry of the vessel and SOLAS. Our classed
vessels are currently enrolled with classification societies that are members of
the International Association of Classification Societies.
A classed vessel must undergo Annual Surveys, Intermediate Surveys and Special
Surveys. In lieu of a Special Survey, a vessel's machinery may be placed on a
continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. Our vessels are on Special Survey cycles
for hull inspection and continuous survey cycles for machinery inspection.
Generally, classed vessels are also required to be drydocked every two to three
years for inspection of the underwater parts of such vessels. However, classed
vessels must be drydocked for inspection at least twice every five years.
If a vessel does not maintain its class, that vessel will, in practical terms,
be unable to trade and will be unemployable, which would negatively impact our
revenues, and could cause us to be in violation of certain covenants in our loan
agreements and/or our insurance policies.
Our vessels could be subject to seizure through maritime arrest or government
requisition.
Crew members, suppliers of goods and services to a vessel, shippers of cargo,
and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime
lienholder may enforce its lien by arresting the vessel or, under the "sister
ship" theory of liability followed in some jurisdictions, arrest the vessel that
is subject to the claimant's maritime lien or any other vessel owned or
controlled by the same owner. In addition, a government could seize ownership of
one of our vessels or take control of a vessel and effectively become her
charterer at charter rates dictated by the government. Generally, such
requisitions occur during a period of war or emergency. The maritime arrest,
government requisition or any other seizure of one or more of our vessels could
interrupt our operations, reducing related revenue and earnings, and may require
us to pay very large sums of money to have the arrest lifted.
The impact of terrorism and international conflict on the global or regional
economy could lead to reduced demand for our services, which would adversely
affect our revenues and earnings.
Terrorist attacks such as the attacks on the United States on September 11,
2001, and the continuing response of the United States to these attacks, as well
as the threat of future terrorist attacks, continue to cause uncertainty in the
world markets and may affect our business, results of operations and financial
condition. The conflict in Iraq may lead to additional acts of terrorism,
regional conflict and other armed conflict around the world, which may
contribute to further instability in the global markets. In addition, future
terrorist attacks could result in an economic recession affecting the United
States or the entire world. The effects of terrorism on financial markets could
also adversely affect our ability to obtain additional financing on terms
acceptable to us or at all.
Terrorist attacks have, in the past, targeted shipping interests, including
ports or vessels. For example in October 2002, there was a terrorist attack on
the VLCC Limburg, a vessel not related to us. Any future attack in the markets
we serve may negatively affect our operations or demand for our services, and
such attacks may also directly impact our vessels or our customers. Further,
insurance may not cover our loss or liability for terrorist attacks on our
vessels, cargo or passengers either fully or at all. Any of these occurrences
could have a material adverse impact on our operating results, revenue and
costs.
Demand for cruises in our Passenger Business may be affected by many factors
that are outside our control.
Demand for cruises in our Passenger Business may be affected by a number of
factors. Sales are dependent on the underlying economic strength of the
countries in which we operate and the country of origin of our passengers, which
is currently primarily countries in Europe. Adverse economic conditions can
reduce the level of consumers' disposable income that is available for their
vacation choices. In addition, events or circumstances that make cruises
relatively less attractive relative to other vacation or leisure alternatives
will reduce consumer demand for cruises. Finally, the overall increase in
passenger capacity in the cruise industry could lead to reduced demand for our
vessels, and if the charterer of one of our vessels does not perform under the
charter, we will be unable to re-charter that vessel in the middle of a cruise
season. When our vessels are not operating under charter, we do not have a
guaranteed minimum number of passengers and we may not be able to attract enough
passengers to fully cover our costs.
Moreover, adverse incidents involving passenger vessels and adverse media
publicity concerning the cruise industry in general or our vessels in particular
may reduce demand. The operation of passenger vessels involves the risk of
accidents, fires, sicknesses and other incidents, which may bring into question
passenger safety and security and adversely affect future industry performance.
Any accidents and other incidents involving our passenger vessels would
adversely affect our future revenues and earnings. In addition, accidents
involving other cruise businesses or other adverse media publicity concerning
the cruise industry in general could impact customer demand and, therefore, have
an adverse impact on our revenues and earnings.
In addition, armed conflicts or political instability in areas where our
passenger vessels operate can adversely affect demand for our cruises to those
areas. Also, acts of terrorism and threats to public health can have an adverse
effect on the public's attitude toward the safety and security of travel and the
availability of air service and other forms of transportation, which some of our
passengers use to travel.
Environmental, health, safety and security legislation and regulation of
passenger vessels could increase our operating costs in our Passenger Business.
Some environmental groups have lobbied for more stringent regulation of
passenger vessels. Some groups also have generated negative publicity about the
cruise industry and its environmental impact. As a result of these and other
actions, governmental and regulatory authorities around the world may enact new
environmental, health, safety and security legislation and regulations, such as
those governing wastewater discharges. Stricter environmental, health, safety
and security legislation and regulations could increase the cost of compliance
and adversely affect the cruise industry.
In addition, as a result of the 2002 Protocol of the Athens Convention, and any
similar legislation, vessel operators are, and may be in the future, required to
adopt enhanced security procedures and approved vessel security plans. Stricter
environmental, health, safety, insurance and security legislation and
regulations could increase the cost of compliance and adversely affect the
cruise industry. We cannot assure you that our costs of complying with current
and future laws and regulations, or liabilities arising from past or future
releases of, or exposure to, hazardous substances, or to vessel discharges, will
not have a material adverse effect on our financial results.
RISKS RELATING TO OUR COMPANY
We are an international company that is exposed to the risks of doing business
in many different, and often less developed and emerging market countries.
We are an international company and conduct almost all of our operations outside
of the United States, and we expect to continue doing so for the foreseeable
future. Some of these operations occur in countries that are less developed and
stable than the United States, such as Argentina, Bolivia, Brazil, Chile, China,
Paraguay, South Africa and Uruguay. Some of the risks we are exposed to by
operating in these countries include among others:
o political and economic instability, changing economic policies and
conditions, and war and civil disturbances;
o recessions in economies of countries in which we have business operations;
o the imposition of additional withholding taxes or other taxes on our
foreign income, tariffs or other restrictions on foreign trade or
investment, including currency exchange controls and currency repatriation
limitations;
o the imposition of executive and judicial decisions upon our vessels by the
different governmental authorities associated with some of these countries;
o the imposition of or unexpected adverse changes in foreign laws or
regulatory requirements;
o longer payment cycles in foreign countries and difficulties in collecting
accounts receivable;
o difficulties and costs of staffing and managing our foreign operations; and
o acts of piracy or terrorism.
These risks may result in unforeseen harm to our business and financial
condition. Also, some of our customers are headquartered in South America, and a
general decline in the economies of South America, or the instability of certain
South American countries and economies, could adversely affect that part of our
business.
Our business in emerging markets requires us to respond to rapid changes in
market conditions in these countries. Our overall success in international
markets depends, in part, upon our ability to succeed in different legal,
regulatory, economic, social and political conditions. We may not continue to
succeed in developing and implementing policies and strategies which will be
effective in each location where we do business. Further, the occurrence of any
of the foregoing factors may have a material adverse effect on our business and
results of operations.
Our earnings may be lower and more volatile if we do not efficiently deploy our
vessels between longer term and shorter term charters.
We employ our ocean and offshore vessels on spot voyages, which are typically
single voyages for a period of less than 60 days for our ocean vessels and five
days for our PSVs, and on time charters and contracts of affreightment, which
are longer term contracts for periods of typically three months to three years
or more. As of December 31, 2006, four of our eight oceangoing vessels were
employed under time charters expiring on dates ranging between four and 20
months, the vast majority of our fleet of pushboats and barges in our River
Business were employed under contracts of affreightment ranging from one month
to four years, and both of our PSVs operating in the North Sea were chartered
for a period of three to five months. In addition, our two PSVs operating in
Brazil and our PSV to be delivered in the second quarter of 2007 were time
chartered to Petrobras for periods from eight to sixteen months.
Although time charters and contracts of affreightment provide steady streams of
revenue, vessels committed to such contracts are unavailable for spot voyages or
for entry into new longer term time charters or contracts of affreightment. If
such periods of unavailability coincide with a time when market prices have
risen, such vessels will be unable to capitalize on that increase in market
prices. If our vessels are available for spot charter or entry into new time
charters or contracts of affreightment, they are subject to market prices, which
may vary greatly. If such periods of availability coincide with a time when
market prices have fallen, we may have to deploy our vessels on spot voyages or
under long term time charters or contracts of affreightment at depressed market
prices, which would lead to reduced or volatile earnings and may also cause us
to suffer operating losses.
We may not be able to grow our business or effectively manage our growth.
A principal focus of our strategy is to continue to grow, in part by increasing
the number of vessels in our fleet. The rate and success of any future growth
will depend upon factors which may be beyond our control, including our ability
to:
o identify attractive businesses for acquisitions or joint ventures;
o identify vessels for acquisitions;
o integrate any acquired businesses or vessels successfully with our existing
operations;
o hire, train and retain qualified personnel to manage and operate our
growing business and fleet;
o identify new markets;
o expand our customer base;
o improve our operating and financial systems and controls; and
o obtain required financing for our existing and new operations.
We may not be successful in executing our growth plans and could incur
significant expenses and losses in connection therewith.
Furthermore, because the volume of cargo we ship in our River Business is at or
near the capacity of our barges during the peak season, our ability to increase
volumes shipped in our River Business is limited by our ability to increase our
barge fleet's carrying capacity, either through purchasing additional barges or
increasing the size of our existing barges.
Our planned investments in our River Business vessels are subject to significant
uncertainty.
We intend to invest in expanding the size of our barges, expanding our Argentine
shipyard to build new barges and installing new engines that burn less expensive
fuel in our line pushboats. It is possible that these initiatives will fail to
result in increased revenues and lower fuel costs, fail to result in
cost-effective barge construction, or that they will lead to other complications
that would adversely affect our business.
The increased capacity created by expanding the size of our existing barges and
by building new barges may not be utilized by the local transportation market at
prevailing prices or at all. Our expansion activities may also be subject to
delays, which may result in cost overruns or lost revenues. Any of these
developments would adversely affect our revenue and earnings.
While we expect the heavier fuel that our new engines burn to continue to be
available at a discount to the price of the fuel that we currently use, the
heavier fuel may not be available at such a large discount or at any discount at
all. In addition, operating our new engines will require specially trained
personnel, and such personnel may not be readily available. Higher fuel or
personnel costs would adversely affect our profitability. The operation of these
new engines may also result in other complications that cannot easily be
foreseen and that may adversely affect the quantity of cargo we carry or lead to
additional costs, which could adversely affect our revenue and earnings.
We may not be able to charter our new PSVs at attractive rates.
We have contracted with a shipyard in Brazil to construct two new PSVs and
expect to take delivery of these vessels during the second quarter of 2007 and
in 2008 and have also contracted with a shipyard in India to build two PSVs for
delivery commencing in 2009, with an option to build two additional vessels
beyond 2009. Most of these vessels are not currently subject to charters and may
not be subject to charters on their date of delivery. Although we intend to
charter these vessels to Petrobras and other charterers, we may not be able to
do so. Even if we do obtain charters for these vessels, the charters may be at
rates lower than those that currently prevail or those that we anticipated at
the time we ordered the vessels. If we fail to obtain charters or if we enter
into charters with low charter rates, our financial condition and results of
operations could suffer.
We may face delays in delivery under our newbuilding contracts for PSVs which
could adversely affect our financial condition and results of operations.
Our four PSVs currently under construction and additional newbuildings for which
we may enter into contracts may be subject to delays in their respective
deliveries or non-delivery from the shipyards. The delivery of our PSVs could be
delayed, canceled, become more expensive or otherwise not completed because of,
among other things:
o quality or engineering problems;
o changes in governmental regulations or maritime self-regulatory
organization standards;
o work stoppages or other labor disturbances at the shipyard;
o bankruptcy or other financial crises of the shipyard;
o economic factors affecting the yard's ability to continue building the
vessels as originally contracted;
o a backlog of orders at the shipyard;
o weather interference or a catastrophic event, such as a major earthquake or
fire or any other force majeure;
o our requests for changes to the original vessel specifications;
o shortages of or delays in the receipt of necessary construction materials,
such as steel or machinery, such as engines;
o our inability to obtain requisite permits or approvals or to receive the
required classifications for the vessels from authorized classification
societies; or
o a shipbuilder's failure to otherwise meet the scheduled delivery dates for
the PSVs or failure to deliver the vessels at all.
If the delivery of any PSV is materially delayed or canceled, especially if we
have committed that PSV to a charter for which we become responsible for
substantial liquidated damages to the customer as a result of the delay or
cancellation, our business, financial condition and results of operations could
be adversely affected. Although the building contracts typically incorporate
penalties for late delivery, we cannot assure you that the vessels will be
delivered on time or that we will be able to collect the late delivery payment
from the shipyards.
We cannot assure you that we will be able to repossess the vessels under
construction or their parts in case of a default of the shipyards and, in those
cases where we may have performance guarantees, we cannot assure that we will
always be able to collect or that it will be in our interest to collect these
guarantees.
We depend on a few significant customers for a large part of our revenues, and
the loss of one or more of these customers could adversely affect our revenues.
In each of our business segments, we derive a significant part of our revenues
from a small number of customers. In 2006, our largest customer, Cargill,
accounted for 14% of our total revenues, our second largest customer,
Swissmarine Services, accounted for 11% of our total revenues, our third one,
Travelplan, accounted for 10% of our total revenue and our five largest
customers in terms of revenues, in aggregate, accounted for 48% of our total
revenues. In addition, some of our customers, including many of our most
significant customers such as Petrobras and Archer Daniels Midland, operate
vessels of their own. These customers may decide to cease or reduce the use of
our services for any number of reasons, including in order to utilize their own
vessels. The loss of any one or a number of our significant customers, whether
to our competitors or otherwise, could adversely affect our revenues and
earnings.
Rising fuel prices may adversely affect our profits.
Fuel is the largest operating expense in our River Business where most of our
contracts are contracts of affreightment under which we are paid per ton of
cargo shipped. Currently, many of these agreements permit the adjustment of
freight rates based on changes in the price of fuel. We may not be able to
include this provision in these contracts when they are renewed or in future
contracts with new customers. In our Ocean, Offshore Supply and Passenger
Businesses, the risk of variation of fuel prices under the vessels' current
employment is generally borne by the charterers, since the charterers are
generally responsible for the supply of fuel, with the exception of our Blue
Monarch's employment in the Aegean in 2007, where we will bear the risk of
variation in fuel prices. In the future, we may become responsible for the
supply of fuel to such vessels, in which case variations in the price of fuel
could affect our earnings.
To the extent our contracts do not pass on changes in fuel prices, we will be
forced to bear the cost of fuel price increases. We may hedge in the futures
market all or part of our exposure to fuel price variations. We cannot assure
you that we will be successful in hedging our exposure. In the event of a
default by our charterers or other circumstance affecting the performance of a
contract of affreightment, we are subject to exposure under, and may incur
losses in connection with, our hedging instruments.
In certain jurisdictions, the price of fuel is affected by high local taxes and
may become more expensive than prevailing international prices. We may not be
able to pass onto our customers the additional cost of such taxes and may suffer
losses as a consequence.
Our success depends upon our management team and other employees, and if we are
unable to attract and retain key management personnel and other employees, our
results of operations may be negatively impacted.
Our success depends to a significant extent upon the abilities and efforts of
our management team and our ability to retain them. In particular, many members
of our senior management team, including our CEO and Executive Vice President,
have extensive experience in the shipping industry and have held their roles
with us since our inception. If we were to lose their services for any reason,
it is not clear whether any available replacements would be able to manage our
operations as effectively. The loss of any of the members of our management team
could adversely affect our business prospects and results of operations and
could lead to an immediate decrease in the price of our common stock. We do not
maintain "key man" insurance on any of our officers. Further, the efficient and
safe operation of our vessels requires skilled and experienced crew members.
Difficulty in hiring and retaining such crew members could adversely affect the
operation of our vessels, and in turn, adversely affect our results of
operations.
We may use the proceeds of this offering for general corporate purposes with
which you may not agree.
We will use a portion of the proceeds of this offering for general corporate
purposes. In addition, if the shipyard in India, where we intend to have our two
additional PSVs built, fails to deliver the PSVs to us as agreed, if we cancel a
contract because the shipyard has not met its obligations, if we decide that
continuing with this program is no longer desirable, or if we decide to
refinance the PSVs at some point in the future, our management will have the
discretion to apply the $43.3 million of proceeds of this offering that we would
have used to purchase those PSVs to acquire other vessels or for general
corporate purposes. Similarly, we may decide not to complete the expansion of
our shipbuilding facility, in which case, our management will have the
discretion to apply $6.0 million to other uses, including general corporate
purposes. You may not agree with the purposes for which we use such proceeds. We
will not escrow the proceeds from this offering and will not return the proceeds
to you if we do not take delivery of one or more PSVs or if we do not execute
our plans to expand our shipbuilding facility. It may take a substantial period
of time before we can locate and purchase other suitable vessels. During this
period, the portion of the proceeds of this offering originally planned for
these purposes may only be invested on a short-term basis and therefore may not
yield returns at rates comparable to those these PSVs might have earned.
Secondhand vessels are more expensive to operate and repair than newbuildings
and may have a higher likelihood of accidents.
We purchased all of our oceangoing vessels, and substantially all of our other
vessels with the exception of our PSVs, secondhand and our current business
strategy generally includes growth through the acquisition of additional
secondhand vessels. While we inspect secondhand vessels prior to purchase, we
may not discover defects or other problems with such vessels prior to purchase.
Any such hidden defects or problems, when detected, may be expensive to repair,
and if not detected, may result in accidents or other incidents for which we are
liable to third parties.
New vessels may experience initial operational difficulties.
New vessels, during their initial period of operation, have the possibility of
encountering structural, mechanical and electrical problems. Normally, we will
receive a warranty from the shipyard but we cannot assure you that it will
always be effective to resolve the problem without additional costs to us.
As our fleet ages, the risks and costs associated with older vessels increase.
The costs to operate and maintain a vessel in operation increase with the age of
the vessel. Charterers may prefer newer vessels which carry lower cargo
insurance rates and are more fuel-efficient than older vessels. Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which these vessels may
engage. As our vessels age, market conditions may not justify the expenditures
necessary for us to continue operation of our vessels, and charterers may no
longer charter our vessels at attractive rates or at all. Either development
could adversely affect our earnings.
We may not have adequate insurance to compensate us if our vessels or property
are damaged or lost or if we harm third parties or their property or the
environment.
We insure against tort claims and some contractual claims (including claims
related to environmental damage and pollution) through memberships in protection
and indemnity, or P&I, associations, or clubs. We also procure hull and
machinery insurance and war risk insurance for our fleet. In some instances, we
do not procure loss of hire insurance, which covers business interruptions that
result in the loss of use of a vessel. We cannot assure you that such insurance
will continue to be available on a commercially reasonable basis.
In addition to the P&I entry that we currently maintain for the PSVs in our
fleet, we maintain third party liability insurance covering contractual
claims that may not be covered by our P&I entry in the amount of $50.0 million.
If claims affecting such policy exceed the above amount, it could have a
material adverse effect on our business and the results of operations.
All insurance policies that we carry include deductibles (and some include
limitations on partial loss) and since it is possible that a large number of
claims may be brought, the aggregate amount of these deductibles could be
material. Further, our insurance may not be sufficient to fully compensate us
against losses that we incur, whether resulting from damage to or loss of our
vessels, liability to a third party, harm to the environment or other
catastrophic claims. For example, our protection and indemnity insurance has a
coverage limit of $1.0 billion for oil spills and related harm to the
environment, $2.0 billion for passenger claims and $3.0 billion for passenger
and seamen claims. Although the coverage amounts are significant, the amounts
may be insufficient to fully compensate us, and, thus, any uninsured losses that
we incur may be substantial and may have a very significant effect on our
financial condition. In addition, our insurance may be voidable by the insurers
as a result of certain of our actions, such as our ships failing to maintain
certification with applicable maritime self-regulatory organizations or lack of
payment of premiums.
We cannot assure you that we will be able to renew our existing insurance
policies on the same or commercially reasonable terms, or at all, in the future.
For example, more stringent environmental regulations have led in the past to
increased costs for, and in the future may result in lack of availability of,
protection and indemnity insurance against risks of environmental damage or
pollution. Each of our policies is also subject to limitations and exclusions,
and our insurance policies may not cover all types of losses that we could
incur. Any uninsured or under-insured loss could harm our business, financial
condition and operating results. Furthermore, we cannot assure you that the P&I
clubs to which we belong will remain viable. We may also become subject to
funding calls due to our membership in the P&I clubs which could adversely
affect our profitability. Also, certain claims may be covered by our P&I
insurance, but subject to the review and at the discretion of the board of the
P&I club. We can not assure you that the board will exercise its discretion to
vote to approve the claim.
Labor disruptions in the shipping industry could adversely affect our business.
As of December 31, 2006, we employed 188 land-based employees and approximately
667 seafarers as crew on our vessels. These seafarers are covered by
industry-wide collective bargaining agreements that set basic standards
applicable to all companies who hire such individuals as crew. Because most of
our employees are covered by these industry-wide collective bargaining
agreements, failure of industry groups to renew these agreements may disrupt our
operations and adversely affect our earnings. In addition, we cannot assure you
that these agreements will prevent labor interruptions. Any labor interruptions
could disrupt our operations and harm our financial performance.
Certain conflicts of interest may adversely affect us.
Certain of our directors and officers hold similar positions with other related
companies. Felipe Menendez R., who is our President, Chief Executive Officer,
and a Director, is a Director of Oceanmarine, a related company that previously
provided administrative services to us and has entered into joint ventures with
us in salvage operations. Oceanmarine also operates slot charter container
services between Argentina and Brazil, an activity in which we do not engage at
the present time. Ricardo Menendez R., who is our Executive Vice President and
one of our Directors, is the President of Oceanmarine, and is also the Chairman
of The Standard Steamship Owners' Protection and Indemnity Association (Bermuda)
Limited, or Standard, a P&I club with which some of our vessels are entered.
Both Mr. Ricardo Menendez R. and Mr. Felipe Menendez R. are Directors of
Maritima SIPSA, a company owned 49% by us and 51% by SIPSA S.A. (a related
company), which has entered into agreements to purchase and resell from and to
our subsidiaries our vessel Princess Marina, and Directors of Shipping Services
Argentina S.A. (formerly I. Shipping Services), a company that provides vessel
agency services for third parties in Argentina and occasionally for our vessels
calling at Buenos Aires and other Argentinean ports. We are not engaged in the
vessel agency business and the consideration we paid for the services provided
by Shipping Services Argentina S.A. to us amounted to less than $0.1 million in
2006. Although these directors and officers attempt to perform their duties
within each company independently, in light of their positions with such
entities, these directors and officers may face conflicts of interest in
selecting between our interests and those of Oceanmarine, Shipping Services
Argentina S.A. and the Standard. In addition, Shipping Services Argentina S.A.
and Oceanmarine are indirectly controlled by the Menendez family, including
Felipe Menendez R. and Ricardo Menendez R. These conflicts may limit our fleet's
earnings and adversely affect our operations. We refer you to "Related party
transactions" for more information on related party transactions.
To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the
Notes and any amounts borrowed under any of our subsidiaries' credit facilities,
and to fund our operations, will depend on our ability to generate cash in the
future, which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We cannot assure you that our business will generate sufficient cash
flow from operations, that currently anticipated business opportunities will be
realized on schedule or at all, or that future borrowings will be available to
us in amounts sufficient to enable us to service our indebtedness, including the
Notes and any amounts borrowed under our subsidiaries' credit facilities, or to
fund our other liquidity needs.
If we cannot service our debt, we will have to take actions such as reducing or
delaying capital investments, selling assets, restructuring or refinancing our
debt, or seeking additional equity capital. We cannot assure you that any of
these remedies could, if necessary, be effected on commercially reasonable
terms, or at all. In addition, the indenture for the Notes and the credit
agreements governing our subsidiaries' various credit facilities may restrict us
from adopting any of these alternatives. If we are not successful in, or are
prohibited from, pursuing any of these remedies and cannot service our debt, our
secured creditors may foreclose on our assets over which they have been granted
a security interest.
We may not be able to obtain financing for our growth or to fund our future
capital expenditures, which could negatively impact our results of operations
and financial condition.
In order to follow our current strategy for growth, we will need to fund future
vessel acquisitions, increased working capital levels and increased capital
expenditures. In the future, we will also need to make capital expenditures
required to maintain our current fleet and infrastructure. We do not currently
believe that cash generated from our earnings will be sufficient to fund all of
these measures. Accordingly, we will need to raise capital through borrowings or
the sale of debt or equity securities. Our ability to obtain bank financing or
to access the capital markets for future offerings may be limited by our
financial condition at the time of any such financing or offering, as well as by
adverse market conditions resulting from, among other things, general economic
conditions and contingencies and uncertainties that are beyond our control. If
we fail to obtain the funds necessary for capital expenditures required to
maintain our fleet and infrastructure, we may be forced to take vessels out of
service or curtail operations, which would harm our revenue and profitability.
If we fail to obtain the funds necessary to acquire new vessels, or increase our
working capital or capital expenditures, we would not be able to grow our
business and our earnings could suffer. Furthermore, any issuance of additional
equity securities could dilute your interest in us and the debt service required
for any debt financing would limit cash available for working capital and the
payment of dividends, if any.
We do not currently have a revolving credit facility that could fund any short
term liquidity needs.
We do not currently have a revolving credit facility. Accordingly, if we should
need additional liquidity, we will need to obtain additional financing in the
form of debt or equity. Events that could require us to obtain such financing
include seasonal fluctuations, acquisitions of vessels or businesses,
interruptions in the operations of one or more of our businesses, market
downturns, growth in working capital demands, damage to our vessels or
infrastructure, and other events. Furthermore, any of these events could be
unforeseen or unexpected and require us to obtain additional financing in a very
short period of time. If we should require additional liquidity, we may not be
able to obtain necessary financing on attractive terms or at all due to a number
of factors that could exist at the time, including adverse financial markets,
adverse developments in our business or industry, a short time frame in which to
obtain such financing, and other factors. If we are unable to obtain any
financing required to fund our short term liquidity needs, our financial
condition and results of operations would be adversely affected, and we may be
unable to make required payments under some or all of our obligations.
We may not be able to fulfill our obligations in the event we suffer a change of
control.
If we suffer a change of control, we will be required to make an offer to
repurchase the Notes at a price of 101% of their principal amount plus accrued
and unpaid interest. Under certain circumstances, a change of control of our
company may also constitute a default under our credit facilities resulting in
our lenders' right to accelerate their loans. We may not be able to satisfy our
obligations if a change of control occurs.
Our subsidiaries' credit facilities and the indenture governing our Notes impose
significant operating and financial restrictions on us that may limit our
ability to successfully operate our business.
Our subsidiaries' credit facilities and the indenture governing the Notes impose
significant operating and financial restrictions on us, including those that
limit our ability to engage in actions that may be in our long term interests.
These restrictions limit our ability to, among other things:
o incur additional debt;
o pay dividends or make other restricted payments;
o create or permit certain liens;
o make investments;
o engage in sale and leaseback transactions;
o sell vessels or other assets;
o create or permit restrictions on the ability of our restricted subsidiaries
to pay dividends or make other distributions to us;
o engage in transactions with affiliates; and
o consolidate or merge with or into other companies or sell all or
substantially all of our assets.
See "Description of credit facilities and other indebtedness." These
restrictions could limit our ability to finance our future operations or capital
needs, make acquisitions or pursue available business opportunities.
In addition, some of our subsidiaries' credit facilities require that our
subsidiaries maintain specified financial ratios and satisfy financial
covenants. We may be required to take action to reduce our debt or to act in a
manner contrary to our business objectives to meet these ratios and satisfy
these covenants. Events beyond our control, including changes in the economic
and business conditions in the markets in which our subsidiaries operate, may
affect their ability to comply with these covenants. We cannot assure you that
our subsidiaries will meet these ratios or satisfy these covenants or that our
subsidiaries' lenders will waive any failure to do so. A breach of any of the
covenants in, or our inability to maintain the required financial ratios under,
our subsidiaries' credit facilities would prevent our subsidiaries from
borrowing additional money under the facilities and could result in a default
under them.
If a default occurs under our credit facilities or of those of our subsidiaries,
the lenders could elect to declare that debt, together with accrued interest and
other fees, to be immediately due and payable and proceed against the collateral
securing that debt. Moreover, if the lenders under a credit facility or other
agreement in default were to accelerate the debt outstanding under that
facility, it could result in a default under other debt. If all or any part of
our debt were to be accelerated, we may not have or be able to obtain sufficient
funds to repay it or to repay the Notes upon acceleration.
If we are unable to fund our capital expenditures, we may not be able to
continue to operate some of our vessels, which would have a material adverse
effect on our business and financial condition or our ability to pay dividends.
In order to fund our capital expenditures, we may be required to incur
borrowings or raise capital through the sale of debt or equity securities. Our
ability to obtain credit facilities and access the capital markets through
future offerings may be limited by our financial condition at the time of any
such offering as well as by adverse market conditions resulting from, among
other things, general economic conditions and contingencies and uncertainties
that are beyond our control. Our failure to obtain the funds necessary for
future capital expenditures would limit our ability to continue to operate some
of our vessels and could have a material adverse effect on our business, results
of operations and financial condition and our ability to pay dividends. Even if
we are successful in obtaining such funds through financings, the terms of such
financings could further limit our ability to pay dividends.
We are a holding company, and we depend entirely on the ability of our
subsidiaries to distribute funds to us in order to satisfy our financial and
other obligations.
We are a holding company, and as such we have no significant assets other than
the equity interests of our subsidiaries. Our subsidiaries conduct all of our
operations and own all of our operating assets. As a result, our ability to pay
dividends and service our indebtedness depends on the performance of our
subsidiaries and their ability to distribute funds to us. The ability of our
subsidiaries to make distributions to us may be restricted by, among other
things, restrictions under our credit facilities and applicable laws of the
jurisdictions of their incorporation or organization. For example, some of our
subsidiaries' existing credit agreements contain significant restrictions on the
ability of our subsidiaries to pay dividends or make other transfers of funds to
us. See "Description of credit facilities and other indebtedness." Further, some
countries in which our subsidiaries are incorporated require our subsidiaries to
receive central bank approval before transferring funds out of that country. In
addition, under limited circumstances, the indenture governing the Notes permits
our subsidiaries to enter into additional agreements that can limit our ability
to receive distributions from such subsidiaries. If we are unable to obtain
funds from our subsidiaries, we will not be able to service our debt or pay
dividends, should we decide to do so, unless we obtain funds from other sources,
which may not be possible.
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations
that could harm our reported revenue and results of operations.
We are an international company and, while our financial statements are reported
in U.S. dollars, some of our operations are conducted in foreign currencies. For
example, in 2006, 77% of our revenues were denominated in U.S. dollars, 10% were
denominated in Euros, 12% were denominated in British pounds and 1% were
denominated in Brazilian reais. If the value of the dollar appreciates relative
to the value of these other currencies, the U.S. dollar value of the revenues
that we report on our financial statements could be materially adversely
affected. Changes in currency exchange rates could adversely affect our reported
revenues and could require us to reduce our prices to remain competitive in
foreign markets, which could also have a material adverse effect on our results
of operations. Further, we incur costs in multiple currencies that are different
than, or in a proportion different to, the currencies in which we receive our
revenues. Accordingly, if the currencies in which we incur a large portion of
our costs appreciate in value against the currencies in which we receive a large
portion of our revenue, our margins could be adversely affected. We have not
historically hedged our exposure to changes in foreign currency exchange rates
and, as a result, we could incur unanticipated losses.
We may have to pay tax on United States source income, which would reduce our
earnings and cash flows.
Under the United States Internal Revenue Code of 1986, as amended, or the Code,
50% of the gross shipping income of our vessel owning or chartering for non-U.S.
subsidiaries attributable to transportation that begins or ends, but that does
not both begin and end, in the U.S. will be characterized as U.S. source
shipping income. Such income will be subject to a 4% U.S. federal income tax
without allowance for deduction, unless our subsidiaries qualify for exemption
from tax under Section 883 of the Code and the Treasury Regulations promulgated
thereunder, which became effective for our calendar year subsidiaries on January
1, 2005.
Our non-U.S. subsidiaries filed U.S. tax returns for 2004 and 2003 and took the
position on those returns that they qualified for the exemption on their U.S.
source shipping income under Section 883 based on the determination that more
than 50% of their stock was beneficially owned by qualified shareholders.
However, that claim for exemption by our non-U.S. subsidiaries may not prevail
if challenged on audit. In the absence of the availability of the exemption for
2004 and 2003, our non-U.S. subsidiaries would be subject to a 4% federal income
tax of approximately $0 and $249,264, respectively. For the calendar years 2005
and 2006, our non-U.S. subsidiaries did not derive any U.S. source shipping
income. Therefore our non-U.S. subsidiaries should not be subject to any U.S.
federal income tax for either 2005 or 2006 regardless of their qualification for
exemption under Section 883.
For the 2007 tax year and each tax year thereafter, we believe that any U.S.
source shipping income of our non-U.S. subsidiaries will qualify for the
exemption from tax under Section 883 on the basis that our stock is primarily
and regularly traded on the Nasdaq. However, we cannot assure you that our
non-U.S. subsidiaries will qualify for that exemption. In addition, changes in
the Code, the Treasury Regulations or the interpretation thereof by the Internal
Revenue Service or the courts could adversely affect the ability of our non-U.S.
subsidiaries to qualify for such exemption. If our non-U.S. subsidiaries are not
entitled to that exemption, they would be subject to a 4% U.S. federal income
tax on their U.S. source shipping income. The imposition of this tax could have
a negative effect on our business and would result in decreased earnings.
Changes in tax laws or the interpretation thereof and other tax matters related
to our UK tonnage tax election may adversely affect our future results.
We elected the application of the UK tonnage tax instead of the corporate tax on
income from the qualifying shipping activities of our PSVs in the North Sea.
Changes in tax laws or the interpretation thereof and other tax matters related
to our UK tax election may adversely affect our future results as a tax on the
income from qualifying shipping activities likely will be higher than the UK
tonnage tax to which are currently subject.
RISKS RELATING TO THIS OFFERING AND OUR COMMON STOCK
The price of our common stock has been volatile and after this offering may
continue to be volatile.
The market price of our common stock has historically fluctuated and may
continue to fluctuate significantly. The price of our common stock after this
offering may be volatile, and may fluctuate due to factors such as:
o actual or anticipated fluctuations in quarterly and annual results;
o mergers and strategic alliances in the shipping industry;
o market conditions in the industry;
o changes in government regulation;
o our operating results falling short of those forecast by securities
analysts;
o announcements concerning us or our competitors;
o the general state of the securities market; and
o other developments affecting us, our industry or our competitors.
The market price for our common stock may be volatile. Consequently, you may not
be able to sell shares of our common stock at prices equal to or greater than
those paid by you in this offering.
The selling shareholders will control the outcome of matters on which our
shareholders are entitled to vote following this offering.
The selling shareholders will own, directly or indirectly, approximately %
of our outstanding common stock after this offering; % if the
underwriters' over-allotment option is fully exercised. Each share of our common
stock, when held by one of these shareholders, is entitled to seven votes while
shares held by all other shareholders are entitled to one vote, which means the
selling shareholders will control % of the voting power of our common
stock; % if the underwriters' over-allotment option is fully exercised.
This increased voting power gives our selling shareholders control over the
outcome of matters on which shareholders are entitled to vote, including the
election of directors, the adoption or amendment of provisions in our memorandum
of association or articles of association and possible mergers, corporate
control contests and other significant corporate transactions. Further, the
selling shareholders are party to a shareholders agreement pursuant to which
they have agreed to vote together on certain matters, including mergers and
acquisitions. This concentration of voting power may have the effect of
delaying, deferring or preventing a change in control, a merger, consolidation,
takeover or other business combination. This concentration of voting power could
also discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which could in turn have an adverse effect
on the market price of our common stock. Finally, the interests of the selling
shareholders may be different from your interests. For example, potentially
contrary to your interests, the selling shareholders may resist attempts to
change the current composition of the board of directors and attempts by outside
third parties to gain control of or acquire our company. For information
concerning our selling shareholders, see "Principal and selling shareholders."
You will experience immediate and substantial dilution as a result of this
offering and may experience additional dilution in the future.
If you purchase common stock in this offering, you will pay more for your shares
of common stock than the amounts paid by certain existing shareholders for their
shares. At the offering price of $ per share you will incur immediate and
substantial dilution of $ per share, representing the difference between
the offering price and our pro forma net tangible book value per share at
December 31, 2006, after giving effect to this offering. In addition, purchasers
of our common stock in this offering will have contributed approximately %
of the aggregate price paid by all purchasers of our common stock, but will own
only approximately % of the shares outstanding after this offering. In
addition, through our equity incentive plan or other plans or arrangements of
ours, we may issue additional shares that will be dilutive.
We are not a United States corporation, and our shareholders may be subject to
the uncertainties of a foreign legal system in protecting their interests.
Our corporate affairs are governed by our memorandum of association and articles
of association, and by the corporate laws of The Bahamas. The corporate laws of
The Bahamas may differ in material respects from the corporate laws in U.S.
jurisdictions. Thus, our shareholders may have more difficulty protecting their
interests in the face of actions by our management, directors or controlling
shareholders than would shareholders of a corporation organized in a U.S.
jurisdiction. It is unlikely that Bahamian courts would entertain original
actions against Bahamian companies predicated solely upon U.S. federal
securities laws. Furthermore, judgments based on any civil liability provisions
of the U.S. federal securities laws are not directly enforceable in The Bahamas.
Rather, a lawsuit must be brought in The Bahamas on any such judgment.
Generally, a final judgment obtained in a court of competent jurisdiction is
actionable in Bahamian courts and is impeachable only upon the grounds of fraud,
public policy and natural justice.
See "Bahamian company considerations."
Future sales of shares could depress our stock prices.
Upon consummation of this offering, certain of our existing shareholders will
own shares, or approximately %, of our outstanding common stock,
which may be resold subject to the volume, manner of sale and notice
requirements of Rule 144 under the Securities Act of 1933. Unless sold to
another existing shareholder, each share sold by such shareholders will have one
vote per share in the hands of the buyer. Shares held by certain of our existing
shareholders as well as our officers, directors and certain other shareholders
will be subject to the underwriters' lock-up agreement in which they have agreed
not to dispose of any shares of common stock, subject to limited exceptions, for
a period of 90 days after the date of this prospectus, without the consent of
the underwriters. Following the expiration or waiver of the lock-up agreement,
these share will be eligible for resale as described under the heading "Shares
eligible for future sale" in this prospectus. Sales or the possibility of sales
of substantial amounts of shares of our common stock by certain of our existing
shareholders in the public markets could adversely affect the market price of
our common stock in the future.
We have entered into a registration rights agreement with Inversiones Los
Avellanos S.A., or Los Avellanos, Hazels (Bahamas) Investments, Inc., or Hazels,
and Solimar, pursuant to which we granted them, and certain of their
transferees, the right, under certain circumstances and subject to certain
restrictions, including restrictions included in the lock-up agreements
described above, to require us to register under the Securities Act shares of
our common stock held by them. Under the registration rights agreement, Los
Avellanos, Hazels and Solimar each have the right to request that we register
the sale of shares held by it on its behalf and may require us to make available
shelf registration statements permitting sales of shares into the market from
time to time over an extended period. In addition, Los Avellanos, Hazels and
Solimar have the ability to exercise certain piggyback registration rights in
connection with registered offerings initiated by us. Also, Solimar will have
certain rights to sell its shares exclusively during the three-year period
following the first registration that meets certain specified criteria under the
registration rights agreement, subject to the right of Los Avellanos and Hazels
to sell a stated amount of shares. Registration of such shares under the
Securities Act would, except for shares purchased by affiliates, result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon their sale pursuant to an effective registration statement. In
addition, shares not registered pursuant to the registration rights agreement
may, subject to the lock-up agreements described above, be resold pursuant to an
exemption from the registration requirements of the Securities Act, including
the exemptions provided by Rule 144 under the Securities Act. We refer you to
the sections of this prospectus entitled "Related party transactions --
Registration rights agreement," "Shares eligible for future sale" and
"Underwriting" for further information regarding the circumstances under which
additional shares of our common stock may be sold.
Anti-takeover provisions in our organizational documents could make it difficult
for our shareholders to replace or remove our current board of directors or have
the effect of discouraging, delaying or preventing a merger or acquisition,
which could adversely affect the market price of our common stock.
Several provisions of our memorandum of association and articles of association
could make it difficult for our shareholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that shareholders may consider
favorable.
These provisions include:
o seven-to-one voting rights for shares held by our selling shareholders
prior to this offering;
o prohibiting cumulative voting in the election of directors; and
o limiting the persons who may call special meetings of shareholders.
These anti-takeover provisions substantially impede the ability of public
shareholders to benefit from a change in control and, as a result, may adversely
affect the market price of our common stock and your ability to realize any
potential change of control premium. In addition, our selling shareholders,
Solimar, Los Avellanos and Hazels, are party to a shareholders agreement
pursuant to which they have agreed to vote together on certain matters,
including mergers and acquisitions of us that makes it more difficult for a
third party to acquire us without the support of our board of directors and
selling shareholders.
Investor confidence and the market price of our common stock may be adversely
impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act
of 2002.
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires
us to include in our annual report on Form 20-F our management's report on, and
assessment of the effectiveness of, our internal control over financial
reporting. In addition, our independent registered public accounting firm will
be required to attest to and report on management's assessment of the
effectiveness of our internal control over financial reporting. We anticipate
these requirements to apply first to our annual report for the fiscal year
ending December 31, 2007. Any failure to comply with Section 404 could result in
an adverse reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our financial statements, which ultimately
could harm our business and could negatively impact the market price of our
common stock. We believe the total cost of our initial compliance and the future
ongoing costs of complying with these requirements may be substantial.
We may not pay any dividends.
We will make dividend payments to our shareholders only if our board of
directors, acting in its sole discretion, determines that such payments would be
in our best interest and in compliance with relevant legal and contractual
requirements. The principal business factors that our board of directors expects
to consider when determining the timing and amount of dividend payments will be
our earnings, financial condition and cash requirements at the time. Currently,
the principal contractual and legal restrictions on our ability to make dividend
payments are those contained in the Indenture governing the Notes, our
subsidiaries' loan agreements and those created by Bahamian law. Bahamian law
generally prohibits the payment of dividends other than from surplus or while a
company is insolvent or would be rendered insolvent upon the payment of such
dividends. To date, we have paid no dividends.
We may incur other expenses or liabilities that would reduce or eliminate the
cash available for distribution as dividends. We may also enter into new
agreements or new legal provisions may be adopted that will restrict our ability
to pay dividends.
U.S. tax authorities could treat us as a "passive foreign investment company,"
which could have adverse U.S. federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a "passive foreign investment company,"
or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of "passive income"
or (2) at least 50% of the average value of the corporation's assets produce or
are held for the production of those types of "passive income." For purposes of
these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute "passive income."
U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income
tax regime with respect to the income derived by the PFIC, the distributions
they receive from the PFIC and the gain, if any, they derive from the sale or
other disposition of their shares in the PFIC.
Based on our proposed method of operation, we do not believe that we will be a
PFIC with respect to any taxable year. In this regard, we intend to treat the
gross income we derive or are deemed to derive from our period chartering
activities as services income, rather than rental income. Accordingly, we
believe that our income from our period chartering activities does not
constitute "passive income," and the assets that we own and operate in
connection with the production of that income do not constitute passive assets.
There is, however, no direct legal authority under the PFIC rules addressing our
proposed method of operation. Accordingly, no assurance can be given that the
U.S. Internal Revenue Service, or IRS, or a court of law will accept our
position, and there is a risk that the IRS or a court of law could determine
that we are a PFIC. Moreover, no assurance can be given that we would not
constitute a PFIC for any future taxable year if there were to be changes in the
nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year,
our U.S. shareholders will face adverse U.S. tax consequences. Under the PFIC
rules, unless those shareholders make an election available under the Code
(which election could itself have adverse consequences for such shareholders, as
discussed below under "Tax considerations -- United States federal income
taxation of U.S. holders"), such shareholders would be liable to pay U.S.
federal income tax at the then prevailing income tax rates on ordinary income
plus interest upon excess distributions and upon any gain from the disposition
of our common stock, as if the excess distribution or gain had been recognized
ratably over the shareholder's holding period of our common stock. See "Tax
considerations -- United States federal income taxation of U.S. holders" for a
more comprehensive discussion of the U.S. federal income tax consequences to
U.S. shareholders if we are treated as a PFIC.
Forward-looking statements
Our disclosure and analysis in this prospectus concerning our operations, cash
flows and financial position, including, in particular, the likelihood of our
success in developing and expanding our business, include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions, or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," "projects,"
"forecasts," "will," "may," "should," and similar expressions are
forward-looking statements. Although these statements are based upon assumptions
we believe to be reasonable based upon available information, including
projections of revenues, operating margins, earnings, cash flow, working
capital, and capital expenditures, they are subject to risks and uncertainties
that are described more fully in this prospectus in the section titled "Risk
factors." These forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus and are not intended to give
any assurance as to future results. As a result, you should not place undue
reliance on any forward-looking statements. We assume no obligation to update
any forward-looking statements to reflect actual results, changes in assumptions
or changes in other factors, except as required by applicable securities laws.
Factors that might cause future results to differ include, but are not limited
to, the following:
o future operating or financial results;
o pending or recent acquisitions, business strategy and expected capital
spending or operating expenses, including drydocking and insurance costs;
o general market conditions and trends, including charter rates, vessel
values, and factors affecting vessel supply and demand;
o our ability to obtain additional financing;
o our financial condition and liquidity, including our ability to obtain
financing in the future to fund capital expenditures, acquisitions and
other general corporate activities;
o our expectations about the availability of vessels to purchase, the time
that it may take to construct new vessels, or vessels' useful lives;
o our dependence upon the abilities and efforts of our management team;
o changes in governmental rules and regulations or actions taken by
regulatory authorities;
o adverse weather conditions that can affect production of the goods we
transport and navigability of the river system;
o the highly competitive nature of the oceangoing transportation industry;
o the loss of one or more key customers;
o fluctuations in foreign exchange rates and devaluations;
o potential liability from future litigation; and
o other factors discussed in this section titled "Risk factors."
Use of proceeds
We estimate the net proceeds to us of this offering will be approximately
$ million after deducting the underwriters' discount and the estimated
expenses payable by us related to this offering. These estimates are based on an
public offering price of $ per share, which is the last reported sale
price on .
We expect to use the net proceeds of this offering in the following manner:
o $13.8 million to replace cash on hand used to fund Otto Candies
acquisition, including related expenses;
o $43.3 million to fund construction costs of the two new PSVs being
built in India, including $8.7 million to replenish cash on hand used
to fund the first advance under the construction contracts and $34.6
million to be held as working capital to fund the balance of the
construction costs;
o $6.0 million to fund the expansion of our shipyard in Argentina for
construction of new barges; and
o the remainder for general corporate purposes.
We will use some of the proceeds of this offering for general corporate or
working capital purposes. See "Risk factors -- Risks related to our company --
We may use the proceeds of this offering for general corporate purposes with
which you may not agree" for a discussion of the risks associated with our use
of the proceeds.
We estimate that the net proceeds to the selling shareholders of this offering
will be approximately million ($ million if the underwriters exercise
their over-allotment option in full) after deducting the underwriters'
discounts. We will not receive any proceeds of the offering received by the
selling shareholders. See "Principal and selling shareholders."
Dividend policy
The payment of dividends is in the discretion of our board of directors, subject
to certain limitations described in this prospectus under "Dividend policy." We
have not paid a dividend to date, and we anticipate retaining most of our future
earnings, if any, for use in our operations and the expansion of our business.
Any determination as to dividend policy will be made by our board of directors
and will depend on a number of factors, including the requirements of Bahamian
law, our future earnings, capital requirements, financial condition and future
prospects, and such other factors as our board of directors may deem relevant.
Bahamian law generally prohibits the payment of dividends other than from
surplus, when a company is insolvent or if the payment of the dividend would
render the company insolvent.
Our ability to pay dividends is restricted by the Notes, which we issued in
2004. In addition, we may incur expenses or liabilities, including extraordinary
expenses, which could include costs of claims and related litigation expenses,
or be subject to other circumstances in the future that reduce or eliminate the
amount of cash that we have available for distribution as dividends or for which
our board of directors may determine requires the establishment of reserves. The
payment of dividends is not guaranteed or assured and may be discontinued at any
time at the discretion of our board of directors. Because we are a holding
company with no material assets other than the stock of our subsidiaries, our
ability to pay dividends is dependent upon the earnings and cash flow of our
subsidiaries and their ability to pay dividends to us. If there is a substantial
decline in any of the markets in which we participate, our earnings will be
negatively affected, thereby limiting our ability to pay dividends. We refer you
to "Risk factors -- Risks relating to our company -- We cannot assure you that
we will pay dividends" for a discussion of the risks related to our ability to
pay dividends.
Capitalization
The following table sets forth our consolidated capitalization at December 31,
2006:
o on an actual basis;
o as adjusted for certain subsequent events giving effect to (i) our
repayment of $25.3 million of our indebtedness owing to DVB NV, (ii)
our incurrence of $61.3 million of indebtedness under our loan
agreement with DVB AG, (iii) our incurrence of $13.6 million of
indebtedness under our loan agreement with Natixis, (iv) our payment
of $15.3 million to fund the balance of the purchase price of our
vessel Alejandrina, (v) our payment of $8.7 million as the first
advance for the construction of our PSVs in India, and (vi) our
payment of $13.8 million for the acquisition price and related
expenses for the Otto Candies acquisition; and
o further adjusted to give effect to our issuance and sale of
shares of common stock in this offering at an assumed offering price
of $ per share, which is the last reported sale price on
March , 2007, and the application of the net proceeds therefrom as
described under "Use of Proceeds".
You should read this table in conjunction with the information in the sections
entitled "Use of proceeds," "Management's discussion and analysis of financial
condition and results of operations," "Selected financial and other data" and
"Description of credit facilities and other indebtedness" and our historical
consolidated financial statements, together with the respective notes thereto,
included elsewhere in this prospectus.
At December 31, 2006
-----------------------------------
As
Adjusted for
As Subsequent
Adjusted for Events
Subsequent and this
Actual Events Offering
--------------------------------------------------------------------------------
(Dollars in thousands)
Cash and cash equivalents 20,648 32,412 55,590
Cash to fund remaining PSV construction
costs in India - - 34,640
-------- -------- --------
Total cash 20,648 32,412 90,230
======== ======== ========
Long term financial debts
(including current portion) 38,994 13,694 13,694
2014 Senior Notes 180,000 180,000 180,000
New DVB bank loan - 61,306 61,306
Natixis loan - 13,616 13,616
-------- ------- -------
Total debt(a) 218,994 268,616 268,616
Minority interest 3,091 3,091 3,091
Shareholders' equity:
Common stock(b) 283 283 283
Additional Paid-in capital(c) 173,826 173,826 237,546
Accumulated earnings (deficits) 5,231 5,231 5,231
-------- ------- -------
Accumulated other comprehensive income 89 89 89
======== ======== ========
Total shareholders' equity 179,429 179,429 243,149
======== ======== ========
Total capitalization 401,514 451,136 514,856
-------- ------- -------
----------
(a) The total debt amounts presented in this table do not include accrued
interest, an item included in the calculation of total debt used elsewhere
in this prospectus, amounting to $1.7 million in Actual and each of the As
Adjusted columns.
(b) 28,346,952 issued and outstanding shares, par value $0.01, actual and as
adjusted for subsequent events and issued and outstanding shares as
adjusted for subsequent events and this offering.
(c) Estimated underwriting discounts and commissions and offering expenses of
$ million have been deducted from the gross proceeds of the sale
of shares pursuant to this offering.
Market price of our common stock
Our common stock began trading under the symbol "ULTR" on The Nasdaq Global
Market on October 16, 2006. The following table shows the high and low sale
prices for the common stock as reported by The Nasdaq Global Market for the
periods indicated. These prices do not include retail markups, markdowns or
commissions.
High Low
---- ---
2007
From January 1, 2007 to January 31, 2007.............. 15.35 13.30
From February 1, 2007 to February 28, 2007............ 19.31 15.47
From March 1, 2007 to March , 2007................ 18.50 16.55
First Quarter (through March , 2007)............... 19.31 13.30
2006
From October 13, 2006 to October 31, 2006............. 10.81 10.00
From November 1, 2006 to November 30, 2006............ 11.84 10.61
From December 1, 2006 to December 31, 2006............ 13.30 12.10
Fourth Quarter (from October 13, 2006)................ 13.30 10.00
On March 20, 2007, the last sale reported price on The Nasdaq Global Market for
our common stock was $18.10 per share. There were approximately holders of
record of our common stock as of , 2007.
Selected financial and other data
We derived the following selected financial information for Ultrapetrol
(Bahamas) Limited for the year ended December 31, 2004 and as of and for the
years ended December 31, 2005 and 2006 from our audited consolidated financial
statements included elsewhere in this prospectus. We derived the following
selected financial information for Ultrapetrol (Bahamas) Limited as of and for
the years ended December 31, 2002 and 2003 and as of December 31, 2004, from our
audited consolidated financial statements not included in this prospectus. The
information below is selected information and should be read in conjunction with
our historical financial statements and related notes, and our Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere in this prospectus. The historical results below and
elsewhere in this prospectus may not be indicative of our future performance.
Year ended December 31,
----------------------------------------------------------------------
2002 2003 2004(1) 2005 2006(2)
----------------------------------------------------------------------
(Dollars in thousands)
Statement of Operations Data:
Revenues:.................................. $ 73,124 $ 75,233 $ 95,160 $ 125,361 $ 173,466
Operating expenses(3)...................... (37,582) (41,303) (40,815) (73,061) (97,610)
Depreciation and amortization............ (24,807) (22,567) (18,688) (21,333) (28,340)
Management fees to related parties(4).... (3,176) (2,863) (1,513) (2,118) (511)
Administrative and commercial expenses... (3,642) (4,955) (7,494) (7,617) (13,905)
Other operating income (expenses)(5)..... 1,741 (2,124) 784 22,021 (198)
Loss on involuntary conversion of Argentine
receivables (6)......................... (2,704) -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating profit........................... 2,954 1,421 27,434 43,253 32,902
Financial expense.......................... (16,763) (16,207) (16,134) (19,141) (19,025)
Financial gain (loss) on extinguishment
of debt(7)............................... -- 1,782 (5,078) -- (1,411)
Financial income........................... 326 201 119 1,152 733
Investment in affiliates(8)................ (45) 3,140 406 (497) 588
Other income (expenses).................... (43) (337) 174 384 859
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
minority interest........................ (13,571) (10,000) 6,921 25,151 14,646
Income taxes............................... (150) (185) (642) (786) (2,201)
Minority interest(9)....................... (132) (1,333) (1,140) (9,797) (1,919)
---------- ---------- ---------- ---------- ----------
Net income (loss).......................... $ (13,853) $ (11,518) $ 5,139 $ 14,568 $ 10,526
========== ========== ========== ========== ==========
Basic net income (loss) per share.......... $ (0.89) $ (0.74) $ 0.33 $ 0.94 $ 0.59
========== ========== ========== ========== ==========
Diluted net income (loss) per share........ $ (0.89) $ (0.74) $ 0.33 $ 0.94 $ 0.58
========== ========== ========== ========== ==========
Basic weighted average number of shares.... 15,500,000 15,500,000 15,500,000 15,500,000 17,965,753
========== ========== =========== ========== ==========
Diluted weighted average number of shares.. 15,500,000 15,500,000 15,500,000 15,500,000 18,079,091
========== ========== =========== ========== ==========
Balance Sheet Data (end of period):
Cash and cash equivalents.................. $ 4,724 $ 8,248 $ 11,602 $ 7,914 $ 20,648
Current restricted cash.................... 1,662 1,155 2,975 3,638 --
Working capital(10)........................ 21,013 15,416 13,441 26,723 31,999
Vessels and equipment, net................. 134,797 120,803 160,535 182,069 333,191
Total assets............................... 213,546 208,161 273,648 278,282 426,379
Total debt................................. 168,994 155,814 220,413 211,275 220,685
Shareholders' equity....................... 35,089 23,793 28,910 43,474 179,429
Other Financial Data:
Ratio of Earnings to Fixed Charges(11)..... N/A N/A 1.4 2.3 1.7
----------
(1) In a series of related transactions, on April 23, 2004, through two wholly
owned subsidiaries, we acquired from American Commercial Barge Lines Ltd.,
or ACBL, the remaining 50% equity interest in UABL Limited, or UABL, that
we did not previously own, along with a fleet of 50 river barges and seven
river pushboats. The results of UABL's operations have been included in our
consolidated financial statements since that date.
(2) On March 21, 2006 we acquired an additional 66.67% of UP Offshore, which is
the holding company for our Offshore Supply Business, raising our ownership
to 94.45%. The results of UP Offshore's operations have been included in
our consolidated financial statements since that date.
(3) Operating expenses are voyage expenses and running costs. Voyage expenses,
which are incurred when a vessel is operating under a contract of
affreightment (as well as any time when they are not operating under time
or bareboat charter), comprise all costs relating to a given voyage,
including port charges, canal dues and fuel (bunkers) costs, are paid by
the vessel owner and are recorded as voyage expenses. Voyage expenses also
include charter hire payments made by us to owners of vessels that we have
chartered in. Running costs, or vessel operating expenses, include the cost
of all vessel management, crewing, repairs and maintenance, spares and
stores, insurance premiums and lubricants and certain drydocking costs.
(4) Management fees to related parties included payments to our related
companies Ravenscroft Shipping (Bahamas) S.A., or Ravenscroft, and
Oceanmarine S.A., or Oceanmarine, for ship management and administration
services that they provide to us. We purchased the business of Ravenscroft
and hired the administrative personnel and purchased the administrative
related assets of Oceanmarine on March 21, 2006; accordingly, ship
management and administration costs appear as in-house expenses in our 2006
results.
(5) Other operating income in 2005 includes $21.8 million gain from the sale of
our Capesize bulk carrier, the Cape Pampas. This vessel was owned directly
by Ultracape (Holdings) Ltd., or Ultracape, a company of which we owned
60%. Accordingly, the gain on sale attributable to the remaining 40% that
we did not own is deducted from income as minority interest.
(6) This relates to a loss resulting from the involuntary conversion of certain
receivables from U.S. dollars to Argentine pesos. This conversion was the
result of legislation passed by the Argentine government in January 2002.
Under this legislation, U.S. dollar obligations between private parties due
after January 6, 2002 were to be liquidated in Argentine pesos at a
negotiated rate of exchange which reflects a sharing of the impact of the
devaluation. Our settlement in Argentine pesos of the U.S. dollar
denominated agreements was completed in 2002 and resulted in a loss of $2.7
million.
(7) During 2003, we repurchased $6.7 million principal amount of our 10 1/2%
First Preferred Ship Mortgage Notes due 2008, or the Prior Notes for a
price of $4.8 million and realized a gain of $1.8 million. During 2004, we
repurchased $5.7 million principal amount of our Prior Notes for a price of
$4.3 million and realized a gain of $1.3 million, and we incurred $6.4
million in expenses in relation to our tender offer and repurchase of our
Prior Notes. During 2006, there was an early cancellation of our
indebtedness in our River Business and we incurred a loss of $1.4 million
related to the unamortized balance of issuance costs.
(8) Prior to April 2004, we owned 50% of UABL through a joint venture with ACBL
and, accordingly, we accounted for it using the equity method. Also, prior
to March 2006, we owned 27.78% of UP Offshore (Bahamas) Ltd. and,
accordingly, we accounted for it using the equity method.
(9) We own 60% of Ultracape, which owned the Capesize bulk carrier Cape Pampas
prior to its sale in May 2005, and accordingly we recognized minority
interest for the 40% we did not own. Figures in 2003 and 2004 principally
represent 40% of the income earned by Ultracape, from operation of the Cape
Pampas. The figure in 2005 represents 40% of the income from operations of
the Cape Pampas as well as 40% of the gain on the sale of the vessel in May
2005. Minority interest in 2006 includes a loss of $0.9 million incurred
through redemption of the preferred shares issued by our subsidiary UP
Offshore owned by IFC, which was part of the use of proceeds from our IPO.
(10) Current assets less current liabilities.
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represents net income (loss) from continuing operations before
income taxes and minority interest plus fixed charges less minority
interest in the pre-tax income of subsidiaries that have not incurred fixed
charges. Fixed charges consist of interest expense (including capitalized
interest) on all indebtedness plus amortization of debt issuance costs and
the portion of rental expense that we believe is representative of the
interest component of rental expense. Earnings were insufficient to cover
fixed charges in the years ended December 31, 2002 and 2003 by $13,526 and
$13,140, respectively.
Management's discussion and analysis of financial condition and results of
operations
The following discussion should be read in conjunction with the information
included under the caption "Selected financial and other data," our historical
consolidated financial statements and their notes included elsewhere in this
prospectus. This discussion contains forward-looking statements. For a
discussion on the accuracy of these statements please refer to the section
"Forward-looking Statements" that reflect our current views with respect to
future events and financial performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, such as those set forth in the section entitled "Risk
factors" and elsewhere in this prospectus.
OUR COMPANY
We are an industrial shipping company serving the marine transportation needs of
clients in the markets on which we focus. We serve the shipping markets for
grain, forest products, minerals, crude oil, petroleum, and refined petroleum
products, as well as the offshore oil platform supply market, and the leisure
passenger cruise market through our operations in the following four segments of
the marine transportation industry.
o Our River Business, with 502 barges, is the largest owner and operator of
river barges and pushboats that transport dry bulk and liquid cargos
through the Hidrovia Region of South America, a large area with growing
agricultural, forest and mineral related exports. This region is crossed by
navigable rivers which flow through Argentina, Bolivia, Brazil, Paraguay
and Uruguay, to ports serviced by ocean export vessels. According to DSC,
as a whole, these countries are estimated to account for approximately 47%
of world soybean production in 2006, from 29% in 1995.
o Our Offshore Supply Business owns and operates vessels that provide
critical logistical and transportation services for offshore petroleum
exploration and production companies, in the North Sea and the coastal
waters of Brazil. Our Offshore Supply Business fleet currently consists of
proprietarily designed, technologically advanced platform supply vessels,
or PSVs, including four in operation and four under construction. Two PSVs
are under construction in Brazil and are contracted to be delivered in the
second quarter of 2007 and in 2008, respectively. We recently contracted
with a shipyard in India to construct two PSVs for delivery commencing in
2009, with an option to build two more.
o Our Ocean Business owns and operates eight oceangoing vessels, including
three Handysize/small product tankers that we intend to use in the South
American coastal trade where we have preferential rights and customer
relationships, three versatile Suezmax/Oil-Bulk-Ore, or Suezmax OBO,
vessels, one Aframax tanker and one semi-integrated tug/barge unit. Our
Ocean Business fleet has an aggregate capacity of approximately 651,000
dwt, and our three Suezmax OBOs are capable of carrying either dry bulk or
liquid cargos, providing flexibility as dynamics change between these
market sectors.
o Our Passenger Business fleet consists of two vessels with a total carrying
capacity of approximately 1,600 passengers, and operates primarily in the
European cruise market. We currently employ our largest passenger vessel
under a multi-year seasonal charter with a European tour operator and the
other vessel will be employed in the Aegean Sea for the European summer
season of 2007. In addition, we have operated one of our vessels during
periods outside the European travel season for certain events.
Our business strategy is to continue to operate as a diversified marine
transportation company with an aim to maximize our growth and profitability
while limiting our exposure to the cyclical behavior of individual sectors of
the transportation industry.
DEVELOPMENTS IN 2005
On January 7, 2005, International Finance Corporation, or IFC, and KfW disbursed
the remaining $7.5 million of the $30.0 million loan granted to UABL in 2002.
These funds were used to finance the purchase and transportation from the United
States to the Hidrovia Region of 35 dry barges. Additionally, we used existing
funds to purchase two pushboats and other auxiliary equipment.
On March 4, 2005, we entered into a contract to sell our Capesize dry-bulk
carrier, the Cape Pampas, owned through our 60% joint venture, Ultracape
(Holdings) Ltd., or Ultracape, for $37.9 million, net of the related expenses.
The vessel was delivered to the new owners on May 6, 2005. This resulted in a
net gain to us in 2005, after minority interest, of $13.1 million. While we
continually evaluate opportunities for sales of our vessels when we think the
values are favorable for us and when such sales will not adversely affect our
operations, we do not expect to record similar gains in every period, if at all.
On March 4, 2005, we entered into a contract to purchase the passenger vessel,
New Flamenco, for a price of $13.5 million. This transaction was consummated on
March 24, 2005, and we continued her employment with a European tour operator
during the European travel season. In November 2005, we commenced an extensive
refurbishment of the passenger and public spaces.
On April 6, 2005, we purchased the passenger vessel World Renaissance, renamed
Grand Victoria, at auction for a price of $3.5 million. This vessel was
delivered and fully paid for on April 19, 2005, but was not certified and did
not enter service in 2005. This vessel has since been re-classified and
refurbished and entered into service in 2006.
On April 29, 2005, we agreed to purchase the product tanker, Sun Chemist,
renamed Miranda I, for a total price of $10.3 million. The vessel was delivered
and fully paid on July 7, 2005 and entered service in Argentina under a
long-term charter with a major oil company in October 2005.
On July 25, 2005, our option to repurchase 25,212 of our shares from Los
Avellanos for a total price of $0.9 million was extended until July 25, 2006.
On October 7, 2005, we financed 90% of the acquisition cost of 11 barges in our
River Business with $2.9 million in funds available from restricted cash.
On December 1, 2005, we substituted barges TN1502, TN1503, TN1505 and TN1506
with barges ACL 700 and ACL 701 in the collateral pool securing the Notes. The
substituted barges are newer and of a higher value than the original barges.
On December 28, 2005, we drew down $3.0 million under the $10.0 million facility
provided by IFC to UABL Paraguay, one of our subsidiaries. These funds will be
used primarily to increase the size and capacity of some of our existing barges.
DEVELOPMENTS IN 2006
On March 20, 2006, we purchased all of the issued and outstanding capital stock
of Ravenscroft Shipping (Bahamas) S.A., or Ravenscroft, from two of our related
parties, Crosstrade Maritime Inc., and Crosstrees Maritime Inc., for the
purchase price of $11.5 million. The purchase price included a building in Coral
Gables, Florida, U.S., independently valued at $4.5 million. Ravenscroft
Shipping (Bahamas) S.A. is a holding company that is the ultimate parent of our
vessel managers, Ravenscroft Ship Management Inc., which manages the vessels in
our Ocean Business and Offshore Supply Business, and Elysian Ship Management
Inc., which manages the vessels in our Passenger Business. The purchase price
was paid in full with the proceeds of our IPO of 12,500,000 shares which closed
on October 18, 2006. In compliance with the requirements of our indenture
related to the Notes, we obtained a fairness opinion from an internationally
recognized accounting firm in connection with this acquisition.
On March 20, 2006, Los Avellanos and Avemar Holdings (Bahamas) Ltd., or Avemar,
two of our shareholders, cancelled their agreement pursuant to which Avemar had
previously granted Los Avellanos an irrevocable proxy to vote our shares owned
by Avemar and agreed to cancel the shares owned by Avemar upon the closing of
our IPO.
On March 20, 2006, we exercised our option to repurchase from Los Avellanos
25,212 shares of our common stock for a total consideration of $0.9 million, and
the $0.9 million note originally issued in connection with the option was
cancelled.
On March 21, 2006, we separately purchased 66.67% of the issued and outstanding
capital stock of UP Offshore (Bahamas) Ltd., or UP Offshore, a company through
which we operate our Offshore Supply Business, from LAIF, an affiliate of
Solimar, one of the selling shareholders, for a purchase price of $48.0 million.
Following this acquisition, we hold 94.45% of the issued and outstanding shares
of UP Offshore. The purchase price was paid in full with the proceeds of our
IPO. In compliance with the requirements of our indenture related to the Notes,
we obtained a fairness opinion from an internationally recognized accounting
firm in connection with this acquisition.
On May 3, 2006, we signed an agreement with International Finance Corporation,
or IFC, to purchase from IFC the 7.14% of UP River (Holdings) Ltd., or UP River,
an entity that owned the 50% of UABL Limited that we did not own, for the price
of $6.2 million. As part of this agreement, IFC agreed to waive its option to
convert its interest in UP River to shares in our company and its right to
participate in our IPO. Our obligation under this agreement was paid from
proceeds of our IPO.
On August 8, 2006, we took delivery of the fourth PSV in our Offshore Supply
Business fleet, UP Topazio, from EISA - Estaleiro Ilha S.A. in Rio de Janeiro,
Brazil.
On September 8, 2006, we entered into a Memorandum of Agreement with the Argos
Group to form a joint venture to establish a river transportation company on the
Magdalena River in Colombia.
On October 18, 2006, we completed our IPO. The gross proceeds of our IPO to us
were $137.5 million.
On October 20, 2006, UP Offshore (Bahamas) Ltd. redeemed all of the outstanding
Series A Preferred Shares held by IFC for an amount of $4.3 million with
proceeds from our IPO.
On October 23, 2006, we signed a Memorandum of Agreement to purchase the Rea
(which we renamed Amadeo), a 39,530 dwt. crude oil and product tanker for a
purchase price of $19.1 million. On December 1, 2006 we took delivery of the
Amadeo and took her to a yard in Romania where she is undergoing conversion to
double hull prior to her employment in the South American cabotage trade.
On October 31, 2006, we announced in Athens, Greece, that one of our
subsidiaries in the Passenger Business would employ our vessel Grand Victoria
(to be renamed Blue Monarch) on 7-day cruises in Greece and Turkey. Monarch
Classical Cruises will be responsible for the marketing of these cruises, and
the Blue Monarch will not have a guaranteed minimum income for the European
Summer of 2007.
On November 10, 2006, the underwriters of our IPO exercised their over-allotment
option to purchase from the selling shareholders in our IPO an additional
232,712 shares of our common stock. We did not receive any of the proceeds from
the sale of shares by these shareholders in the over-allotment option.
On November 20, 2006, we signed a Memorandum of Agreement to purchase the
Cadenza (which we renamed Alejandrina), a 9,219 dwt. oil tanker, for a purchase
price of $17.0 million.
On December 28, 2006, we entered into a $61.3 million senior secured term loan
agreement with DVB Bank AG to refinance our four PSVs currently in operation (UP
Esmeralda, UP Safira, UP Agua-Marinha and UP Topazio), which was drawn down in
two installments in January and March 2007, respectively. We used the proceeds
from this loan primarily to pay off outstanding financings for these vessels and
cash to fund our acquisition program.
RECENT DEVELOPMENTS
On January 5, 2007, we took delivery of the Alejandrina and she was positioned
for employment in the South American cabotage trade where she commenced service
in March 2007.
On January 27, 2007, we entered into a $13.6 million senior secured term loan
agreement with Natixis as post delivery finance for the acquisition of the
Alejandrina.
On February 21, 2007, we entered into two shipbuilding contracts with a shipyard
in India to construct two PSVs with deliveries commencing in 2009. The price for
each new PSV to be built in India is $21.7 million.
On March 7, 2007, we executed a Stock Purchase Agreement and other complementary
agreements with the Shareholders of Compania Paraguaya de Transporte Fluvial
S.A. ("CPTF") and Candies Paraguayan Ventures LLC ("CPV") whereby we purchased
100% of the stock of CPTF and CPV. Through the purchase of these two companies,
we acquired ownership of one 4,500 HP pushboat (the Captain Otto Candies) and
twelve Jumbo 2,500 dwt barges (the Parana barges) all built in the United States
in 1995. The total purchase price paid by us for the shares under the respective
agreements was $13.8 million.
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
We organize our business and evaluate performance by the following business
segments: the Ocean Business, River Business and, beginning in 2005, the
Offshore Supply Business and Passenger Business. The accounting policies of the
reportable segments are the same as those for the consolidated financial
statements. We do not have significant intersegment transactions.
Revenues
In our River Business, we contract for the carriage for cargos, in substantially
all cases, under contracts of affreightment, or COAs. Most of these COAs
currently provide for adjustments to the freight rate based on changes in the
price of fuel.
In our Offshore Business, we contract substantially all of our capacity under
time charters to charterers in the North Sea and Brazil. During the first
quarter of 2006, prior to the acquisition of 66.67% of the stock of UP Offshore,
the revenues and expenses of UP Offshore were not consolidated with ours.
However, two PSVs owned by UP Offshore were operated by us in the North Sea
under charters. The revenues of these charters were recognized in our financial
statements.
In our Ocean Business, we contract our cargo vessels either on a time charter
basis or COA basis. Some of the differences between time charters and COAs are
summarized below.
Time Charter
------------
o We derive revenue from a daily rate paid for the use of the vessel,
and
o the charterer pays for all voyage expenses, including fuel and port
charges.
Contract of Affreightment (COA)
-------------------------------
o We derive revenue from a rate based on tonnage shipped expressed in
dollars per metric ton of cargo, and
o we pay for all voyage expenses, including fuel and port charges.
Our ships on time charters generate both lower revenues and lower expenses for
us than those under COAs. At comparable price levels both time charters and COAs
result in approximately the same operating income, although the operating margin
as a percentage of revenues may differ significantly.
The structure of our seasonal contracts for our Passenger Business provides us
with a stable revenue stream as well as the flexibility to operate the vessels
in other regions of the world at the end of the contract term. We have operated
one of our vessels during periods outside the European travel season for certain
events.
Time charter revenues accounted for 54% of the total revenues from our
businesses for 2006, and COA revenues accounted for 46%. With respect to COA
revenues in 2006, 77% were in respect of repetitive voyages for our regular
customers and 23% were in respect of single voyages for occasional customers.
In our River Business, demand for our services is driven by agricultural, mining
and forestry activities in the Hidrovia Region. Droughts and other adverse
weather conditions, such as floods, could result in a decline in production of
the agricultural products we transport, which would likely result in a reduction
in demand for our services. In 2005, our results of operations were negatively
impacted due to the decline in soybean production associated with that year's
drought. Continuing drought conditions have also affected the size of the
Paraguayan soybean crop in 2006. Further, most of the operations in our River
Business occur on the Parana and Paraguay Rivers, and any changes adversely
affecting navigability of either of these rivers, such as low water levels,
could reduce or limit our ability to effectively transport cargo on the rivers.
In our Ocean Business, we employed a significant part of our ocean fleet on time
charter to different customers during 2006. In the first half of 2006, the
international dry bulk freight market maintained average rates below those
experienced in the first half of 2005. However, in the second half of 2006,
those average freight rates generally increased above the levels experienced in
the same period of 2005.
In our Passenger Business, demand for our services is driven primarily by
movements of tourists during the European summer cruise season.
Expenses
Our operating expenses generally include the cost of all vessel management,
crewing, spares and stores, insurance, lubricants, repairs and maintenance.
Generally, the most significant of these expenses are repairs and maintenance,
wages paid to marine personnel, catering and marine insurance costs. However,
there are significant differences in the manner in which these expenses are
recognized in the different segments in which we operate.
In addition to the vessel operating expenses, our other primary operating
expenses in 2006 included general and administrative expenses related to ship
management and administrative functions. During the first quarter of 2006, we
acquired Ravenscroft and the administrative-related assets and personnel of
Oceanmarine. Accordingly, going forward we do not expect to pay significant fees
to any third party for ship management and administrative functions.
In our River Business, our voyage expenses include port expenses and bunkers as
well as charter hire paid to third parties.
In our Offshore Supply Business, voyage expenses include offshore and brokerage
commissions paid by us to third parties including Gulf Offshore North Sea (UK)
which provide brokerage services.
In our Passenger Business, operating expenses include all vessel management,
crewing, stores, insurance, lubricants, repairs and maintenance, catering,
housekeeping and entertainment staff. Voyage expenses may include port expenses
and bunkers if such services are for our account. Similarly, they may include
the cost of food and beverages if such amounts are for our account under the
charter agreement.
Through our River Business, we own a floating drydock and a repair facility for
our river fleet at Pueblo Esther, Argentina, land for the construction of two
terminals in Argentina and 50% joint venture participations in two grain loading
terminals in Paraguay. UABL also rents offices in Asuncion, Paraguay, and Buenos
Aires, Argentina, and a repair and shipbuilding facility in Argentina.
Through our acquisition of UP Offshore, we now hold a lease for office space in
Rio de Janeiro, Brazil. In addition, through our recent acquisition of
Ravenscroft, we own a building located at 3251 Ponce de Leon Boulevard, Coral
Gables, Florida, United States. Through our acquisition of the administrative
functions of Oceanmarine, a related party, we now hold a sublease to an office
in Buenos Aires, Argentina.
Foreign Currency Transactions
During 2006, 77% of our revenues were denominated in U.S. dollars. Also, for the
year ended December 31, 2006, 10% of our revenues were denominated and collected
in Euros, 12% of our revenues were denominated and collected in British Pounds
and 1% of our revenues was denominated and collected in Reais (Brazil). However,
14% of our total revenues were denominated in U.S. dollars but collected in
Argentine Pesos, Brazilian Reais and Paraguayan Guaranies. Significant amounts
of our expenses were denominated in U.S. dollars and 31% of our total out of
pocket operating expenses were paid in Argentine Pesos, Brazilian Reais and
Paraguayan Guaranies.
Our operating results, which we report in U.S. dollars, may be affected by
fluctuations in the exchange rate between the U.S. dollar and other currencies.
For accounting purposes, we use U.S. dollars as our functional currency.
Therefore, revenue and expense accounts are translated into U.S. dollars at the
average exchange rate prevailing during the month of each transaction.
Inflation and Fuel Price Increases
We do not believe that inflation has had a material impact on our operations,
although certain of our operating expenses (e.g., crewing, insurance and
drydocking costs) are subject to fluctuations as a result of market forces.
In 2005 and prior, in our River Business, we adjusted the fuel component of our
cost into the freights on a seasonal or yearly basis, and therefore we were
adversely affected during that particular period by rising bunker prices which
are only partially offset by a hedge of a minor part of our fuel consumption and
by bunker price adjustment formulas in some of our contracts. In 2006 and
thereafter, we have negotiated fuel price adjustment clauses in most of our
contracts.
In the Offshore Supply and Passenger Businesses, the risk of variation of fuel
prices under the vessels' current employment is generally borne by the
charterers, since the charterers are generally responsible for the supply of
fuel.
In our Ocean Business, inflationary pressures on bunker (fuel oil) costs are not
expected to have a material effect on our immediate future operations, because
our vessels are currently chartered to third parties and it is the charterers'
responsibility to pay for fuel. When our ocean vessels are employed under COAs,
freight rates for voyage charters are generally sensitive to the price of a
vessel's fuel. However, a sharp rise in bunker prices may have a temporary
negative effect on results since freights generally adjust only after prices
settle at a higher level.
Seasonality
Each of our businesses has seasonal aspects, which affect their revenues on a
quarterly basis. The high season for our River Business is generally between the
months of March and September, in connection with the South American harvest and
higher river levels. However, growth in the soy pellet manufacturing, minerals
and forest industries may help offset some of this seasonality. The Offshore
Supply Business operates year-round, particularly off the coast of Brazil,
although weather conditions in the North Sea may reduce activity from December
to February. In the Ocean Business, demand for oil tankers tends to be strongest
during the winter months in the Northern hemisphere. Demand for drybulk
transportation tends to be fairly stable throughout the year, with the
exceptions of the Chinese New Year in our first quarter and the European summer
holiday season in our third quarter, which generally show lower charter rates.
Under existing arrangements, our Passenger Business currently generates its
revenue during the European cruise season, which runs from May through October
of each year.
LEGAL PROCEEDINGS
Ultrapetrol S.A. was involved in a customs dispute with the Brazilian Customs
Tax Authorities over the alleged infringement of customs regulations by the
Alianza G-3 and Alianza Campana (collectively, the "Alianza Campana") in Brazil
during 2004. As a result, the Brazilian Customs Tax Authorities commenced an
administrative proceeding and applied the penalty of apprehension against the
Alianza Campana, which required the Alianza Campana to remain in port or within
a maximum of five nautical miles from the Brazilian maritime coast. The maximum
customs penalty that could be imposed would be confiscation of the Alianza
Campana, which is estimated by the Brazilian Customs Tax Authorities to be
valued at $4.56 million. The Secretary of Brazilian Federal Revenue decided to
cancel the penalty of confiscation of the Alianza Campana by means of a decision
issued on August 14, 2006. However, the Secretary conditioned his decision on
the compliance with the following requirements: (1) the classification of the
Alianza Campana under the Regime Aduaneiro Especial para a Industria do
Petroleo, or REPETRO, regime and, if such classification is confirmed; (2) the
payment by Ultrapetrol S.A. of a penalty in the amount of one percent (1%) of
the customs value of the Alianza Campana, or $45,600.
In order to comply with the above described requirements, our customer, Petroleo
Brasileiro S.A. ("Petrobras"), presented on September 15, 2006, a formal request
to obtain from Brazilian Customs Tax Authorities the recognition of the
classification of the Alianza Campana under the REPETRO regime, which has since
been received. We subsequently paid the penalty mentioned above, with the effect
that the confiscation penalty was automatically canceled and the administrative
proceeding was finalized with no further consequences to us.
On September 21, 2005, the local Customs Authority of Ciudad del Este, Paraguay
issued a finding that certain UABL entities owe taxes to that authority in the
amount of $2.2 million, together with a fine for non-payment of the taxes in the
same amount, in respect of certain operations of our River Business for the
prior three-year period. This matter was referred to the Central Customs
Authority of Paraguay (the "Paraguayan Customs Authority"). We believe that this
finding is erroneous and UABL has formally replied to the Paraguayan Customs
Authority contesting all of the allegations upon which the finding was based.
After review of the entire case the Paraguayan Central Tax authorities who have
jurisdiction over the matter have confirmed we have no liability with respect to
two of the three matters at issue, while they held a dissenting view on the
third issue. We have been advised by UABL's counsel in the case that there is
only a remote possibility that a court would find UABL liable for any of these
taxes or fines.
After review of the entire case the Paraguayan Central Tax Authorities who have
jurisdiction over the matter have confirmed we have no liability with respect to
two of the three matters at issue, while they held a dissenting view on the
third issue. Through a resolution which was provided to UABL on October 13,
2006, the Paraguayan Undersecretary for Taxation has confirmed that, in his
opinion, the Company is liable for a total of approximately $0.5 million and has
applied a fine of 100% of this amount. On November 24, 2006, the court confirmed
that UABL is not liable for the first two issues. The Company has entered a plea
with the respective court contending the interpretation on the third issue where
the Company claims to be equally non-liable. We have been advised by UABL's
counsel in the case that there is only a remote possibility that a court would
find UABL liable for any of these taxes or fines.
On November 3, 2006, the Bolivian Tax Authority (Departamento de Inteligencia
Fiscal de la Gerencia Nacional de Fiscalizacion) issued a notice in the Bolivian
press advising that UABL International S.A. (a Panamanian subsidiary of the
Company) would owe taxes to that authority in the amount of approximately $2.5
million (including interest), together with certain fines that have not been
determined yet. We have not received notice of any claim. We believe that this
finding is incorrect, and UABL International S.A. will formally reply to the
Bolivian Tax Authority contesting the allegations of the finding when we are
notified by the Bolivian Authorities. We have been advised by our local counsel
in the case that there is only a remote possibility that UABL International S.A.
would be found liable for any of these taxes or fines.
Various other legal proceedings involving us may arise from time to time in the
ordinary course of business. However, we are not presently involved in any other
legal proceedings that, if adversely determined, would have a material adverse
effect on us.
RESULTS OF OPERATIONS
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
The following table sets forth certain historical income statement data for the
periods indicated derived from our statements of income expressed in thousands
of dollars.
Year ended December 31,
-----------------------
Percent
2006 2005 Change
-------------------------------
Revenues
Attributable to River Business $79,124 $54,546 45%
Attributable to Offshore Supply Business 26,289 6,532 302%
Attributable to Ocean Business 39,202 49,874 -21%
Attributable to Passenger Business 28,851 14,409 100%
-------- --------
Total revenues 173,466 125,361 38%
Voyage expenses
Attributable to River Business (33,536) (25,710) 30%
Attributable to Offshore Supply Business (3,451) (4,980) -31%
Attributable to Ocean Business (602) (1,371) -56%
Attributable to Passenger Business (5,856) (1,766) 232%
-------- --------
Total voyage expenses (43,445) (33,827) 28%
Running cost
Attributable to River Business (20,595) (17,820) 16%
Attributable to Offshore Supply Business (6,264) (1,218) 414%
Attributable to Ocean Business (13,788) (12,636) 9%
Attributable to Passenger Business (13,518) (7,560) 79%
-------- --------
Total running costs (54,165) (39,234) 38%
Amortization of drydocking expense (7,830) (6,839) 14%
Depreciation of vessels and equipment (19,920) (14,494) 37%
Amortization of intangible assets (590) -- --
Management fees and administrative and
commercial expenses (14,416) (9,735) 48%
Other operating income (expenses) (198) 22,021 --
-------- --------
Operating profit 32,902 43,253 -24%
Financial expense (19,025) (19,141) -1%
Financial gain (loss) on extinguishment
of debt (1,411) -- --
Other income (expenses) 2,180 1,039 110%
Total other expenses (18,256) (18,102) 1%
Income before income taxes and
minority interest 14,646 25,151 -42%
Income taxes (2,201) (786) 180%
Minority interest (1,919) (9,797) -80%
Net income $10,526 $14,568 -28%
Revenues. Total revenues from our River Business increased by 45% from $54.5
million in 2005 to $79.1 million in 2006. This increase is primarily
attributable to a 19% increase in volumes transported and a 24% increase in unit
prices.
Total revenues from our Offshore Supply Business increased from $6.5 million in
2005 to $26.3 million in 2006. This increase is attributable to higher time
charter rates of our existing PSVs UP Esmeralda and UP Safira, as well as their
being in service for a full year compared to less than half a year in 2005, and
the operations of two new PSVs placed into service during 2006, UP Agua-Marinha
and UP Topazio.
Total revenues from our Ocean Business decreased from $49.9 million in 2005 to
$39.2 million in 2006, or a decrease of 21%. This decrease is mainly
attributable to the lower time charter rates of Princess Nadia, Princess Susana
and Princess Katherine, as well as the lesser number of operational days of the
vessels in 2006 due to the fact that all three of the vessels underwent special
survey and drydocking in the fourth quarter of 2006, partially offset by higher
time charter rates of Princess Marina and a full year operation of the Miranda
I, which had started operations in October 2005.
Total revenues from our Passenger Business were $28.9 million in 2006, as
compared to $14.4 million in 2005. This 100% increase is mainly attributable to
higher contractual revenue per passenger from, and a larger number of
operational days for, our New Flamenco in 2006 and to the entry in operation of
the Grand Victoria in 2006.
Voyage expenses. In 2006, voyage expenses of our River Business were $33.5
million, as compared to $25.7 million for 2005, an increase of $7.8 million. The
increase is mainly attributable to an increase in fuel expense due to a
combination of larger volumes consumed consistent with the larger volumes of
cargo carried and higher fuel prices.
In 2006, voyage expenses of our Offshore Supply Business were $3.5 million, as
compared to $5.0 million in 2005. The decrease is primarily attributable to the
effect of the bareboat charter paid for our new PSVs UP Esmeralda and UP Safira
during the last six months of 2005 whereas the effect of those bareboat charters
in 2006 occurred only in the first quarter prior to the consolidation of UP
Offshore as well as the incurrence of $1.0 million in expenses primarily related
to the transport of these vessels from China, where they were constructed, to
their deployment in the North Sea.
In 2006, voyage expenses of our Ocean Business were $0.6 million, as compared to
$1.4 million for 2005. The decrease is primarily attributable to the decrease in
brokerage commissions of our Princess Nadia, Princess Katherine and Princess
Susana.
In 2006, voyage expenses of our Passenger Business were $5.9 million, as
compared to $1.8 million in 2005. The increase of $4.1 million is mainly
attributable to increased voyage expenses of our New Flamenco, consistent with
the larger number of operational days and the entry into operation of our Grand
Victoria in 2006.
Running costs. In 2006, running costs of our River Business were $20.6 million,
as compared to $17.8 million in 2005, an increase of $2.8 million. This increase
is primarily attributable to higher boat costs due to an increased utilization
of pushboats (approximately 1.5 extra pushboats per month) consistent with the
larger volumes of cargo carried.
In 2006, running costs of our Offshore Supply Business were $6.3 million, as
compared to $1.2 million in 2005. This increase is mainly attributable to the
running cost incurred with the new PSVs UP Agua-Marinha and UP Topazio delivered
to us in March and September 2006, respectively as well as a full year operation
of our UP Esmeralda and UP Safira compared to less than half a year in 2005.
In 2006, running costs of our Ocean Business were $13.8 million, as compared to
$12.6 million in 2005, an increase of 9%. This increase is mainly attributable
to higher running costs on our Princess Susana and Princess Katherine, and
Alianza G3, and a full year operation of the Miranda I against only one quarter
in 2005.
In 2006, running costs of our Passenger Business were $13.5 million, compared to
$7.6 million in 2005. This increase is attributable to an increase in the
running costs for the New Flamenco primarily due to a larger number of operating
days in 2006, as well as the entry into operations of our Grand Victoria (which
was recertified during 2005).
Amortization of drydocking expense. Amortization of drydocking and special
survey costs increased by $1.0 million, or 14%, to $7.8 million in 2006 as
compared to $6.8 million in 2005. The increase is primarily attributable to the
higher amortization of expenses for our Princess Marina, partially offset by the
decrease in amortization due to the sale of our Cape Pampas in 2005.
Depreciation of vessels and equipment. Depreciation increased by $5.4 million,
or 37%, to $19.9 million in 2006 as compared to $14.5 million in 2005. This
increase is primarily due to a full year depreciation for our Miranda I (which
we purchased in September 2005), the increase in depreciation of some of our
River Business equipment, increase in depreciation of our New Flamenco (which
was fully refurbished between November 2005 and February 2006), the depreciation
of our Grand Victoria after being recertified in 2005, and the consolidation of
UP Offshore since March 2006.
Amortization of intangible assets. Amortization of intangible assets was $0.6
million in 2006, as compared to $0.0 million in 2005. This increase is
attributable to the purchase of our subsidiary Ravenscroft in March 2006.
Management fees and administrative and commercial expenses. Management fees and
administrative expenses were $14.4 million in 2006 as compared to $9.7 million
in 2005. This increase of $4.7 million is attributable mainly to an increase in
the overhead expenses on our River Business and to the consolidation of UP
Offshore since March 2006.
Other operating income (expenses). Other operating income (expenses) were
expenses of $0.2 million in 2006 as compared to income of $22.0 million in 2005.
This income change is attributable mainly to the effect of the sale of the
vessel Cape Pampas in 2005.
Operating profit. Operating profit for the year 2006 was $32.9 million, a
decrease of $10.4 million from 2005. The difference is mainly attributable to
the effect of the sale of the Cape Pampas in 2005, lower charter rates obtained
by our three Suezmax OBOs, partially offset by higher operating profit from the
Passenger Business and River Business, and by the consolidation of UP Offshore
since March 2006.
Financial expense. Financial expense had no significant variation from $19.0
million in 2006 as compared to $19.1 million in 2005.
Financial gain (loss) on extinguishment of debt. Financial loss on
extinguishments of debt for 2006 was $1.4 million, as compared to $0.0 million
in 2005. This increase is mainly attributable to the loss recognized during the
fourth quarter of 2006 in connection with the early repayment of our
indebtedness related to our River Business with funds from our IPO.
Minority interest. Minority interest decreased by $7.9 million to $1.9 million
in 2006 as compared to $9.8 million in 2005. This variation is mainly
attributable to 40% of the gain of the sale of the Cape Pampas in 2005 and
partially offset by the consolidation of UP Offshore since March 2006 and $0.9
million attributable to the premium paid on the early redemption of UP
Offshore's preferred shares to IFC with funds from our IPO.
Income taxes. The charge for income taxes in 2006 was $2.2 million, compared
with $0.8 million in 2005. The higher charge in 2006 compared with 2005 reflects
the significantly higher operating income in our Offshore Supply Business (which
is consolidated since March 2006) subject to the determination of taxable income
in Chile and Brazil. Some of our income was subject to Chilean income tax due to
a charter of two of our vessels to our Chilean subsidiary, which expired on
January 31, 2007. The income from these vessels will no longer be subject to
Chilean income taxes beginning February 1, 2007. In addition, our deferred
income tax charge increased from excess accelerated tax depreciation over book
depreciation and from unrealized foreign currency exchange gains on US dollar
denominated debt of our Brazilian subsidiary, which is partially offset by the
impact of the tax rate on the intangible amortization.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
The following table sets forth certain historical income statement data for the
periods indicated derived from our statements of income expressed in thousands
of dollars.
Year ended December 31,
-----------------------
Percent
2005 2004 Change
-------------------------------
Revenues
Attributable to River Business $54,546 $41,111 33%
Attributable to Offshore Supply Business 6,532 -- --
Attributable to Ocean Business 49,874 54,049 -8%
Attributable to Passenger Business 14,409 -- --
-------- --------
Total revenues 125,361 95,160 32%
Voyage expenses
Attributable to River Business (25,710) (15,340) 68%
Attributable to Offshore Supply Business (4,980) -- --
Attributable to Ocean Business (1,371) (583) 135%
Attributable to Passenger Business (1,766) -- --
-------- --------
Total voyage expenses (33,827) (15,923) 112%
Running costs
Attributable to River Business (17,820) (12,512) 42%
Attributable to Offshore Supply Business (1,218) -- --
Attributable to Ocean Business (12,636) (12,380) 2%
Attributable to Passenger Business (7,560) -- --
-------- --------
Total running costs (39,234) (24,892) 58%
Amortization of drydocking expense (6,839) (5,195) 32%
Depreciation of vessels and equipment (14,494) (13,493) 7%
Management fees and administrative
and commercial expenses (9,735) (9,007) 8%
Other operating income 22,021 784 2,709%
-------- --------
Operating profit 43,253 27,434 58%
-------- --------
Financial expense (19,141) (16,134) 19%
Financial gain (loss) on
extinguishment of debt -- (5,078) --
Other income (expenses) 1,039 699 49%
-------- --------
Total other expenses (18,102) (20,513) -12%
-------- --------
Income before income taxes and
minority interest 25,151 6,921 263%
Income taxes (786) (642) 22%
Minority interest (9,797) (1,140) 759%
-------- --------
Net Income $14,568 $5,139 183%
-------- --------
Revenues. Total revenues from our River Business increased by 33% from $41.1
million in 2004 to $54.6 million in 2005. This increase is primarily
attributable to the consolidation of UABL since the second quarter of 2004,
while in the first quarter of 2004 revenues from our river fleet only included
the net charter proceeds which we received from chartering some of our vessels
from UABL.
Total revenues from our Offshore Supply Business increased from $0.0 in 2004 to
$6.5 million in 2005. This increase is attributable to the time charter revenues
of our new PSVs UP Esmeralda and UP Safira, which we operated temporarily under
a bareboat charter by our subsidiary Corporacion de Navegacion Mundial S.A.
during the last six months of 2005.
Total revenues from our Ocean Business decreased from $54.0 million in 2004 to
$49.8 million in 2005, or a decrease of 8%. This decrease is attributable to the
sale of the Cape Pampas in May 2005 and the lower time charter rate of the
Princess Susana. These decreases were partially offset by the higher time
charter rates of the Princess Nadia and the Princess Katherine during the first
six months of 2005 and by the revenues generated by our newly acquired vessel,
Miranda I, in the fourth quarter of 2005.
Total revenues from our Passenger Business were $14.4 million in 2005. We did
not earn revenues in our Passenger Business in 2004. We did not operate any
passenger vessels in 2004. The new revenue is attributable to the effect of the
revenues of the New Flamenco, which was acquired and first placed in service
during 2005.
Voyage expenses. In 2005, voyage expenses of our River Business were $25.7
million, as compared to $15.3 million for 2004, an increase of $10.4 million.
The increase is attributable to the consolidation of UABL as our subsidiary in
the second quarter of 2004 and the increase of the price of fuel oils.
In 2005, voyage expenses of our Offshore Supply Business were $5.0 million, as
compared to $0.0 in 2004. The increase is primarily attributable to the bareboat
charter of $4.0 million paid for our new PSVs UP Esmeralda and UP Safira during
the last six months of 2005 as well as the incurrence of $1.0 million in
expenses primarily related to the transport of these vessels from China, where
they were constructed, to their deployment in the North Sea.
In 2005, voyage expenses of our Ocean Business were $1.4 million, as compared to
$0.6 million for 2004. The increase is primarily attributable to higher
brokerage commissions partially offset by a decrease primarily attributable to
the voyage expenses of the Princess Eva, which was sold during 2004.
In 2005, voyage expenses of our Passenger Business were $1.8 million. We did not
operate any passenger vessels in 2004.
Running costs. In 2005, running costs of our River Business were $17.8 million,
as compared to $12.5 million in 2004, an increase of $5.3 million. The increase
is primarily attributable to the effect of the consolidation of UABL as our
subsidiary since the second quarter of 2004.
In 2005, running costs of our Offshore Supply Business were $1.2 million, as
compared to $0.0 in 2004. This increase is attributable to the running cost
incurred with the new PSVs UP Esmeralda and UP Safira owned by UP Offshore and
operated temporarily by our subsidiary Corporacion de Navegacion Mundial S.A.
under a bareboat charter during the second half of 2005.
In 2005, running costs of our Ocean Business were $12.6 million, as compared to
$12.4 million in 2004, an increase of 2%. This increase is mainly attributable
to the operation of our newly acquired vessel Miranda I and was partially offset
by the decrease of running cost attributable to the sale of the vessels Princess
Eva in 2004 and by the sale of the Cape Pampas in 2005.
In 2005, running costs of our Passenger Business were $7.6 million, compared to
$0.0 in 2004. This increase is attributable to the effect of the running cost of
our vessel New Flamenco, which we acquired in 2005. We did not operate any
passenger vessels in 2004.
Amortization of drydocking. Amortization of drydocking and special survey costs
increased by $1.6 million, or 32%, to $6.8 million in 2005 as compared to $5.2
million in 2004. The increase is primarily attributable to the amortization
expenses of the vessels Alianza G-3, Princess Katherine, Princess Susana and
Princess Nadia and the increase in the numbers of vessels in our river fleet,
partially offset by the decrease of amortization of drydocking expense
attributable to the sale of the vessels Princess Eva in 2004 and Cape Pampas in
2005.
Depreciation of vessels and equipment. Depreciation increased by $1.0 million,
or 7%, to $14.5 million in 2005 as compared to $13.5 million in 2004. This
increase is primarily due to the purchase of new tugs and river barges, the
additional passenger vessel New Flamenco as well as the depreciation of the UABL
fleet attributable to the effect of the consolidation of UABL as our subsidiary,
which was partially offset by the sale of the vessels Princess Eva in 2004 and
Cape Pampas in 2005.
Management fees and administrative expenses. Management fees and administrative
expenses were $9.7 million in 2005 as compared to $9.0 million in 2004. This
increase of $0.7 million is attributable mainly to an increase in the overhead
expenses produced by the consolidation of UABL and the management fees
attributable to the new passenger vessel.
Other operating income (expenses). Other operating income was $22.0 million in
2005 as compared to $0.8 million in 2004. This increase is attributable to the
effect of the sale of the vessel Cape Pampas in 2005.
Operating profit. Operating profit for the year 2005 was $43.2 million, an
increase of $15.8 million from 2004. The difference is mainly attributable to
the effect of the sale of the Cape Pampas in 2005, higher charter rates obtained
for the vessel Princess Nadia, the sale of the vessels Princess Marisol and
Princess Laura in 2004, as well as the results attributable to our new passenger
vessel, partially offset by a decrease in our River Business results.
Financial expense. Financial expense increased by $3.0 million or 19%, to $19.1
million in 2005 as compared to $16.1 million in 2004. This variation is mainly
attributable to the higher level of financial debt related to the acquisition of
our new vessels, as well as an increase in the interest rate of our variable
rate debt in our River Business.
Financial gain (loss) on extinguishment of debt. In 2004, we recognized a gain
of $1.3 million from repurchases of our Prior Notes and paid $6.4 million in
expenses in connection with our tender offer and repurchase of our Prior Notes.
Minority interest. Minority interest increased by $8.7 million to $9.8 million
in 2005 as compared to $1.1 million in 2004. This variation is mainly
attributable to 40% of the gain of the sale of the Cape Pampas in 2005.
LIQUIDITY AND CAPITAL RESOURCES
We are a holding company and operate in a capital-intensive industry requiring
substantial ongoing investments in revenue producing assets. Our subsidiaries
have historically funded their vessel acquisitions through a combination of bank
indebtedness, shareholder loans, cash flow from operations and equity
contributions.
The ability of our subsidiaries to make distributions to us may be restricted
by, among other things, restrictions under our credit facilities and applicable
laws of the jurisdictions of their incorporation or organization.
At December 31, 2006, we had aggregate indebtedness of $220.7 million,
consisting of $180.0 million aggregate principal amount of our First Preferred
Ship Mortgage Notes due 2014, or the Notes, and indebtedness of our new
subsidiary UP Offshore of $39.0 million under two senior loan facilities with
DVB NV and DVB Bank AG, plus accrued interest of $1.7 million.
At December 31, 2006, we had cash and cash equivalents on hand of $20.6 million.
As a result of the early repayment of our indebtedness related to our River
Business and the early redemption of UP Offshore's preferred shares held by IFC
paid with funds from proceeds of our IPO, we incurred a loss of $2.3 million
that was recorded in the fourth quarter of 2006.
On December 28, 2006, we entered into a $61.3 million senior secured term loan
agreement with DVB Bank AG. We drew on this facility in January and March 2007
to its full amount primarily to pay off outstanding indebtedness for our PSVs in
an amount of $25.3 million and to fund our acquisition program.
On January 24, 2007, we entered into a $13.6 million senior secured term loan
agreement with Natixis as post delivery financing for the acquisition of the
Alejandrina.
Operating Activities
During the year ended December 31, 2006, we generated $28.8 million in cash flow
from operations compared to $16.7 million in the year ended December 31, 2005.
Net income for the year ended December 31, 2006 was $10.5 million as compared to
$14.6 million in the year ended December 31, 2005, a decrease of $4.1 million.
The increase in cash flow from operations is mainly attributable to higher
income from operations, excluding depreciation, amortization and the gain on
sale of assets, offset somewhat by greater working capital needs.
Investing Activities
During the year ended December 31, 2006, we disbursed $10.2 million to refurbish
the New Flamenco and to recertify and recommission the Grand Victoria, $9.7
million to enlarge and refurbish barges and pushboats as well as to purchase a
new crane and associated equipment in our River Business, and $9.0 million in
respect of PSV vessels under construction, $1.8 million on double hull works for
the Miranda I, $1.8 million as an advance for the purchase of the Alejandrina
and $20.2 million to purchase the Amadeo.
In addition, in 2006, we disbursed $65.2 million (net of $0.5 million cash
acquired) for the acquisition of 66.67% of UP Offshore, all of the shares of
Ravenscroft and the minority interest in our River Business.
In 2005, we received net proceeds of $37.9 million from the Cape Pampas sale.
Financing Activities
Net cash provided by financing activities was $88.0 million during the year
ended December 31, 2006, compared to net cash provided by financing activities
of $6.4 million during the year ended December 31, 2005. The increase in cash
provided by financing activities from 2005 to 2006 is mainly attributable to the
net proceeds of our IPO for $125.2 million when partially offset by the early
repayment of principal of our outstanding debt in our River Business of $33.1
million, the early redemption of UP Offshore's preferred shares to IFC of $4.3
million and $2.6 million in cash used for the retirement of minority interests
in our subsidiary Ultracape (Holdings) Ltd.
FUTURE CAPITAL REQUIREMENTS
Our near-term cash requirements are related primarily to funding operations,
constructing new vessels, potentially acquiring second-hand vessels, increasing
the size of many of our barges and replacing the engines in our line pushboats
with new engines that burn less expensive heavy fuel oil. We currently estimate
that the construction of new vessels that are currently on order in India will
require additional funds of approximately $34.6 million (which we intend to pay
out of the proceeds of this offering), the cost of increasing the size of many
of our barges will cost approximately $30.0 million and the cost of replacing
the engines in our line pushboats will cost approximately $46.0 million. In
addition, amounts to be paid in connection with the construction of our PSVs in
Brazil. In addition, we expect to pay approximately $6.0 million out of the
proceeds of this offering to expand our shipyard in Argentina to adequately
equip it to build new barges. We will also make capital expenditures to fund the
building of these new barges beginning in 2008. These expenses will be incurred
at various times over the next few years and, accordingly, are subject to
significant uncertainty. We expect to fund the construction of new vessels
currently on order in part through the proceeds of this offering. We may in the
future incur indebtedness to fund some of our other initiatives, which we are
currently funding through our cash flow from operations. We cannot provide
assurance that our actual cash requirements will not be greater than we
currently expect. If we cannot generate sufficient cash flow from operations, we
may obtain additional sources of funding through capital market transactions,
although it is possible these sources will not be available to us.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations and commercial
commitments as of December 31, 2006.
The amounts below include both principal and interest payments.
----------------------------------------------------------------------------------------------------------------------------
Payments due by period
----------------------------------------------------------------------------------------------------------------------------
Two to Four to After
three five five
Total Current(a) years(b) years(c) years(d)
----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------------------------------------
1. Long - term debt obligations(e)
- DVB Bank of America NV
o Tranche A (UP Offshore Panama) $23,300 $1,800 $3,600 $3,600 $14,300
o Tranche B (UP Offshore Panama) 2,000 1,333 667 - -
- DVB Bank AG
o Tranche A (UP Offshore Apoio) 12,250 900 1,800 1,800 7,750
o Tranche B (UP Offshore Apoio) 1,444 667 777 - -
-9% First Preferred Ship Mortgage Notes due 2014 180,000 - - - 180,000
--------- --------- --------- --------- ---------
Total long-term debt obligations 218,994 4,700 6,844 5,400 202,050
--------- --------- --------- --------- ---------
Estimated interest on contractual debt obligation(f)
-DVB Bank of America NV
o Tranche A (UP Offshore Panama) 9,774 1,639 2,886 2,365 2,884
o Tranche B (UP Offshore Panama) 133 114 19 - -
-DVB Bank AG
o Tranche A (UP Offshore Apoio) 4,979 787 1,397 1,155 1,640
o Tranche B (UP Offshore Apoio) 108 76 32 - -
- 9% First Preferred Ship Mortgage Notes due 2014 129,600 16,200 32,400 32,400 48,600
--------- --------- --------- --------- ---------
Total estimated interest or contractual debt obligation 144,594 18,816 36,734 35,920 53,124
2. Operating lease obligations 2,062 568 945 321 228
3. Purchase obligations
- Fuel supply contract(g) 12,000 12,000 - - -
- Vessel construction(h) 14,000 11,600 2,400 - -
--------- --------- --------- --------- ---------
26,000 23,600 2,400 - -
--------- --------- --------- --------- ---------
Total contractual obligations $391,650 $47,684 $46,923 $41,641 $255,402
--------- --------- --------- --------- ---------
----------
(a) Represents the period from January 1, 2007 through December 31, 2007.
(b) Represents the period from January 1, 2008 through December 31, 2009.
(c) Represents the period from January 1, 2010 through December 31, 2011.
(d) Represents the period after December 31, 2011.
(e) Represents principal amounts due on outstanding debt obligations, current
and long-term, as of December 31, 2006. Amount does not include interest
payments.
The interest rate and term assumptions used in these calculations are
contained in the following table:
Principal at
Obligation December 31, 2006 Interest rate Period From-To
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
---------------------------------------------------------------------------------------------------------------------------------
DVB Bank of America NV
Tranche A (UP Offshore Panama) $23,300 7.24% 1/1/2007-5/31/2015
Tranche B (UP Offshore Panama) 2,000 7.62% 1/1/2007-6/31/2008
Tranche A (UP Offshore Apoio) 12,250 6.56% 1/1/2007-2/14/2016
Tranche B (UP Offshore Apoio) 1,444 6.56% 1/1/2007-2/14/2009
9% First Preferred ship Montages Notes due 2014 180,000 9.00% 1/1/2007-11/24/2014
(f) All interest expense calculations begin January 1, 2007 and end on the
respective maturity dates. The LIBOR rates are the rate in effect as of
December 31, 2006.
(g) Our subsidiaries in the River Business, entered into a full supply contract
with Repsol YPF S.A. The calculations use the market prices in effect as of
December 31, 2006.
For additional disclosures regarding these obligations and commitments, see our
notes to our audited consolidated financial statements.
We believe, based upon current levels of operation and cash flow from
operations, together with other sources of funds, that we will have adequate
liquidity to make required payments of principal and interest on our debt,
including obligations under the Notes, complete anticipated capital expenditures
and fund working capital requirements.
Our ability to make scheduled payments of principal, or to pay interest on, or
to refinance, our indebtedness, including the Notes, or to fund planned capital
expenditures will depend on our ability to generate cash from our operations in
the future. Our ability to generate cash is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to bad debts, useful lives of vessels,
deferred tax assets, and certain accrued liabilities. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.
Critical accounting policies are those that reflect significant judgments or
uncertainties, and potentially lead to materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a high degree of judgment
and the methods of their application. For a description of all of our
significant accounting policies, see note 2 to our audited consolidated
financial statements.
Revenues and related expenses
Revenue is recorded when services are rendered, we have a signed charter
agreement or other evidence of an arrangement, pricing is fixed or determinable
and collection is reasonably assured.
Revenues are earned under time charters, bareboat charters, consecutive voyage
charters or affreightment/voyage contracts. Revenue from time charters and
bareboat charters is earned and recognized on a daily basis. Revenue for the
affreightment contracts and consecutive voyage charters is recognized based upon
the percentage of voyage completion. A voyage is deemed to commence upon the
departure of discharged vessel of previous cargo and is deemed to end upon the
completion of discharge of the current cargo. The percentage of voyage
completion is based on the miles transited at the balance sheet date divided by
the total miles expected on the voyage. The position of the barge at the balance
sheet date is determined by locating the position of the boat with the barge in
tow through use of a global positioning system. Demurrage income represents
payments by the charterer to the vessel owner when loading or discharging time
exceeded the stipulated time in the voyage charter and is recognized as it is
earned. Revenue from our passenger vessels business is recognized upon
completion of voyages, together with revenues from on board and other
activities.
From time to time we provide ships salvage services under Lloyd's Standard Form
of Salvage Agreement ("LOF"). The Company recognizes costs as incurred on these
LOF services. Revenue is recognized to the extent of costs incurred in order to
appropriately match revenues with costs, provided that the Company has earned
the revenue. The Company has historically recovered at least its cost in all of
its prior salvage operations. Additional revenues in excess of costs incurred
are recorded at the time the final LOF settlement or arbitration award occurs.
Vessels voyage costs, primarily consisting of port, canal and bunker expenses
that are unique to a particular charter, are paid for by the charterer under
time charter arrangements or by us under voyage charter arrangements. The
commissions paid in advance are deferred and amortized over the related voyage
charter period to the extent revenue has been deferred since commissions are
earned as our revenues are earned. Bunker expenses and gift shop for resale are
capitalized when acquired as operating supplies and subsequently charged to
voyage expenses as consumed/resold. All other voyage expenses and other vessel
operating expenses are expensed as incurred.
Vessels and equipment, net
Vessels and equipment are stated at cost less accumulated depreciation. This
cost includes the purchase price and all directly attributable costs (initial
repairs, improvements and delivery expenses, interest and on-site supervision
costs incurred during the construction periods). Subsequent expenditures for
conversions and major improvements are also capitalized when they appreciably
extend the life, increase the earning capacity or improve the safety of the
vessels.
Depreciation is computed net from the estimated scrap value, which is equal to
the product of each vessel's lightweight tonnage and estimated scrap value per
lightweight ton, and is recorded using the straight-line method over the
estimated useful lives of the vessels. Acquired secondhand vessels are
depreciated from the date of their acquisition over the remaining estimated
useful life.
Listed below are the estimated useful lives of vessels and equipment:
Useful lives
(in years)
----------
River barges and pushboats................................ 35
PSVs...................................................... 24
Ocean-going vessels....................................... 24
Passenger vessels......................................... 45
Furniture and equipment................................... 5 to 10
However, when regulations place limitations over the ability of a vessel to
trade, its useful life is adjusted to end at the date such regulations become
effective. Currently, these regulations only affect one of our vessels in the
Passenger Business with no significant effects on its useful life.
At the time vessels are disposed of, the assets and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recorded in other operating income (expense).
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
Drydock Costs
Our vessels must be periodically drydocked and pass inspections to maintain
their operating classification and/or as mandated by maritime regulations. Costs
incurred to drydock the vessels are deferred and amortized over the period to
the next drydocking, generally 24 to 36 months. Drydocking costs may be
comprised of painting the vessel hull and sides, recoating cargo and fuel tanks,
and performing other engine and equipment maintenance activities to bring the
vessel into compliance with classification standards. Costs include actual costs
incurred at the yard, cost of fuel consumed, and the cost of hiring riding crews
to effect repairs. The unamortized portion of dry dock costs for vessels that
are sold are written off and included in the calculation of the resulting gain
or loss in the year of the vessel's sale.
Expenditures for maintenance and minor repairs are expensed as incurred.
Insurance claims receivable
Insurance claims receivable represent costs incurred in connection with
insurable incidents for which the Company expects to be reimbursed by the
insurance carriers, subject to applicable deductibles. Deductible amounts
related to covered incidents are expensed in the period of occurrence of the
incident. Expenses incurred for insurable incidents in excess of deductibles are
recorded as receivables pending the completion of all repair work and the
administrative claims process. The credit risk associated with insurance claims
receivable is considered low due to the high credit quality and funded status of
the insurance underwriters and P&I clubs in which we are a member. The Company
has historically recovered at least its cost in substantially all of its prior
covered incidents.
Recent accounting pronouncements
In June 2006, the Financial Accounting Standards Board issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS109,
Accounting for Income Taxes ("FIN 48"), to create a single model to address
accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for
income taxes, by prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement, classification, interest
and penalties accounting in interim periods, disclosure and transition. FIN 48
is effective for fiscal years beginning after December 15, 2006. We do not
expect that the adoption of FIN 48 will have a significant impact on our
financial position and results of operations.
Off-balance sheet arrangements.
We do not have any off-balance sheet arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Inflation and Fuel Price Increases
We do not believe that inflation has a material impact on our operations,
although certain of our operating expenses (e.g., crewing, insurance and
drydocking costs) are subject to fluctuations as a result of market forces.
Inflationary pressures on bunker (fuel oil) costs are not expected to have a
material effect on our future operations in the case of our ocean vessels which
are mostly time chartered to third parties since it is the charterers who pay
for fuel. If our ocean vessels are employed under COAs, freight rates for voyage
charters are generally sensitive to the price of a ship's fuel. However, a sharp
rise in bunker prices may have a temporary negative effect on our results since
freight rates generally adjust only after prices settle at a higher level. In
our River Business, we have some of our freight agreements adjusted by bunker
prices adjustment formula, and in other cases we have periodic renegotiations
which adjust for fuel prices, and in other cases we adjust the fuel component of
our cost into the freights on a seasonal or yearly basis. In our Offshore Supply
Business and Passenger Business, the charterers are generally responsible for
the cost of fuel. However in the case of one of our passenger vessels we will be
responsible for the supply of fuel and consequently we undertake the risk of
fluctuations in the price of fuel.
Interest Rate Fluctuation
We are exposed to market risk from changes in interest rates, which may
adversely affect our results of operations and financial condition. Our policy
is not to use financial instruments for trading or other speculative purposes,
and we are not a party to any leveraged financial instruments.
Short term variable rate debt composed $4.7 million of our total debt as of
December 31, 2006. Long term variable rate debt composed $34.3 million of our
total debt as of December 31, 2006. Our variable rate debt had an average
interest rate of 7.69% as of December 31, 2006. A 1% increase in interest rates
on $39.0 million of debt would cause our interest expense to increase on average
$0.4 million per year over the term of the loans, with a corresponding decrease
in income before taxes.
Foreign Currency Fluctuation
We are an international company and, while our financial statements are reported
in U.S. dollars, some of our operations are conducted in foreign currencies. We
use U.S. dollars as our functional currency, and therefore, our future operating
results may be affected by fluctuations in the exchange rate between the U.S.
dollar and other currencies. A large portion of our revenues are denominated in
U.S. dollars as well as a significant amount of our expenses. However, changes
in currency exchange rates could affect our reported revenues, and even our
margins if costs incurred in multiple currencies are different than, or in a
proportion different to, the currencies in which we receive our revenues.
We have not historically hedged our exposure to changes in foreign currency
exchange rates and, as a result, we could incur unanticipated future losses.
The international shipping industry
The information and data in this section relating to the international maritime
transportation industry have been provided by Doll Shipping Consultancy, or DSC,
an independent United Kingdom-based company providing market analysis and
strategic planning services to the shipping industry. DSC bases its analysis on
information drawn from published and private industry sources. For purposes of
this Industry Overview, Latin America includes Central America, South America,
and the Caribbean Basin islands. Consistent with revised International Energy
Agency definitions, North America includes the United States, Canada, and
Mexico. DSC has advised us that (1) some industry data included in this
discussion is based on estimates or subjective judgments in circumstances where
data for actual market transactions either does not exist or is not publicly
available, (2) the published information of other maritime data collection
experts may differ from this data, and (3) while DSC has taken reasonable care
in the compilation of the industry statistical data and believe them to be
correct, data collection is subject to limited audit and validation procedures.
RIVER INDUSTRY
Key factors driving cargo movements in the Hidrovia Region are agricultural
production and exports, particularly soybeans, from Argentina, Brazil, Paraguay
and Bolivia, exports of Brazilian iron ore, regional demand and Paraguay and
Bolivia imports of petroleum products. Exports of Argentine forest products and
other commodities are also significant. Practically all the cargos transported
in the Hidrovia Region are export or import-related cargos.
The Parana/Paraguay, the High Parana and the Uruguay rivers consist of over
2,200 miles of a single natural interconnected navigable river system serving
five countries, namely Brazil, Bolivia, Paraguay, Uruguay and Argentina. The
size of this river system is comparable to the Mississippi river in the United
States.
Dry Bulk Cargo
Soybeans. Argentina, Brazil, Paraguay, and Bolivia produced about 39.9 million
tons, or mt, of soybeans in 1995 and 101.6 mt in 2005, a CAGR of 9.8% from 1995.
Production for these countries for 2006 is estimated at 107.9 mt. These
countries accounted for about 47% of world soybean production in 2005, growing
from only 29% in 1995.
10 yr CAGR
1995 2005 2006(e) 1995-2005
-------------------------------------------------------
Argentina 12.5 40.5 44.0 12.5%
Bolivia 0.9 2.1 2.2 9.0%
Brazil 24.2 55.0 57.0 8.6%
Paraguay 2.4 4.0 4.7 5.2%
Regional Total 39.9 101.6 107.9 9.8%
United States 59.2 83.4 86.8 3.5%
China 13.5 16.4 16.2 1.9%
Other Countries 12.2 16.6 18.6 3.1%
World 137.5 217.9 229.4 4.7%
Source: Doll Shipping Consultancy based on industry sources
The Hidrovia Region is one of the few areas left in the world where unused
farmland is available. Within the five countries of the Hidrovia Region, acreage
harvested in soybeans has increased from approximately 18.4 Mha (million
hectares, 1 hectare = 2.47 acres) in 1995 to 40.5 Mha in 2005, a CAGR of 8.2%.
Further, with advances in technology, productivity of farmland has also
improved.
The growth in soybean production has not occurred at the expense of other key
cereal grains. Production of corn (maize) in Argentina, Bolivia, Brazil and
Paraguay combined grew from 44.8 mt in 1995 to 59.3 mt in 2005, a CAGR of 2.8%.
Production of wheat in these countries grew from 10.4 mt in 1995 to 20.3 mt in
2005, a CAGR of 6.9%.
The installation of crushing plants in Bolivia and Paraguay has generated a
large volume of vegetable oils and soybean meal that are also shipped via the
river for export. Soybean meal exports from Bolivia and Paraguay totaled about
1.8 mt in 2005, while soybean oil exports were about 0.3 mt.
Iron Ore. In the Corumba area in Brazil near the High Paraguay River, two
existing large iron ore mines owned by international mining companies Rio Tinto
and Companhia Vale do Rio Doce (CVRD) have been joined by a new mine under
construction owned by MMX Mineracao & Metalicos S.A. (MMX) Their combined
production of iron ore, which is entirely transported by barge, has grown from
about 1.1 million mt (mmt) since 1999 to a 2006 estimate of about 3.6 mmt per
year, a CAGR of 19%. Estimated production in 2007 is about six million tons per
annum, based on the MMX mine reaching its announced targets of 3.3 mmt in 2007
and 4.9 mmt in 2008, and could further increase as Rio Tinto is considering
expansion of its mine.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Estimated Hidrovia region iron ore production
1.1 1.3 1.1 1.4 1.9 1.9 2.1 3.6
--------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
Source: Doll Shipping Consultancy based on industry sources and estimates
Forest Products. Areas adjacent to the Hidrovia Region in Northern Argentina
comprise most of Argentina's forest and forest product producing areas. Higher
value added sectors of the forest products industry have grown at high rates,
while lower value added sectors (e.g. logs, fuel wood) have remained stable or
declined. Wood-based panel and sawnwood export quantities grew by a CAGR of
about 21% from 1994-2004, while paper and paperboard exports grew by a CAGR of
about 16%. Wood-based panels, sawnwood, paper, paperboard, and wood pulp sectors
comprise about 97% of 2004 (the last year for which data is available) export
value (total forest product export value $565 million). The value of exports of
these products reached $546 million in 2004, a CAGR of 18.7% from 1994.
Argentine exports 1994 2004 10 yr CAGR1994-2004
----------------- ---- ---- -------------------
Wood based panels ('000 cu.m.) 103 691 20.9%
Sawnwood ('000 cu.m.) 33 234 21.7%
Paper and Paperboard ('000 tons) 42 192 16.4%
Pulp for Paper ('000 tons) 158 291 6.3%
Value of above exports ($ million) 98 546 18.7%
Source: Doll Shipping Consultancy based on industry sources and estimates
Oil transportation
The Hidrovia Region is a key link in Argentina's oil supply network. In 2004,
Argentine oil demand was estimated at about 480,000 barrels per day, or bpd,
while production for 2006 was estimated at approximately 770,000 bpd. Total
refining capacity is estimated at about 625,000 bpd.
Paraguay has no indigenous sources of petroleum. Barges using the rivers in the
Hidrovia Region are currently the preferred method of supplying Paraguay with
crude and petroleum products, totaling between 1.1 million cubic meters to 1.3
million cub meters per year in the last 6 years.
All the petroleum products travel north to destinations in Northern Argentina,
Paraguay and Bolivia, creating synergies with dry cargo volumes that mostly
travel south.
Brazil does not yet transport any significant quantity of petroleum products via
the rivers in the Hidrovia Region, mainly due to lack of discharge facilities.
However, incentives exist to switch to barge transportation for petroleum
product distribution to Brazilian cities near the river. Currently, interior
regions of Brazil near the Hidrovia are supplied over land by truck.
Fleet developments and utilization
In the last ten years the barge fleet in the Hidrovia Region has more than
doubled, maintaining a high level of utilization. This has occurred not only due
to the growth of production in the area, but also because cargo that in the past
was transported by truck started to shift to river transport as the
infrastructure developed. Today's available barge fleet in the area consists
approximately of 1,100 dry and tank barges, in contrast with approximately
26,500 barges in the Mississippi River System in the United States.
UABL owns and operates approximately 43% of total dry cargo capacity. The
closest competitor, Fluviomar, operates approximately 19% of the dry cargo
tonnage capacity. There are approximately 10 different companies operating dry
cargo barges in the Hidrovia Region.
The barge business in the Parana river has seasonal fluctuations due to the
agricultural aspect of the trade. The high season in 1993 was from March through
July, and in 2003 the high season had extended from February through September.
However, the October through January period is now much more active due to the
construction of a large soybean crushing plant along the Parana river that works
most of the year.
Freight levels are much less cyclical than in ocean transportation and are based
on local supply and demand factors that are generally not related to ocean
freights.
Mode Comparison
Along with growth in production of commodities transported by barge in the
Hidrovia Region, cost, safety and environmental incentives exist to shift
commodity transport to barges.
Inland barge transportation is generally the most cost efficient, safest and
cleanest means of transporting bulk commodities as compared with railroads and
trucks.
One barge has the carrying capacity of approximately 15 railcars or
approximately 58 tractor-trailer trucks and is able to move 514 ton-miles per
gallon of fuel compared to 202 ton-miles per gallon of fuel for rail
transportation or 59 ton-miles per gallon of fuel for tractor-trailer
transportation. On a cost per ton-mile basis in the United States, rail
transportation is 3.1 times more expensive and truck transportation is 37.0
times more expensive than barge transportation. In addition, when compared to
inland barges, trains and trucks produce 3.5 times and 19.0 times, respectively,
the amount of certain smog-causing chemicals when moving equivalent amounts of
cargo over equivalent distances. According to the U.S. Bureau of Transportation
Statistics, barge transportation is also the safest mode of cargo
transportation, based on the percentage of fatalities and the number of
hazardous materials incidents, fatalities and injuries from 1999 through 2002.
Inland barge transportation predominantly operates away from population centers,
which generally reduces both the number and impact of waterway incidents.
In terms of unit transportation cost for most dry bulk cargos, barge is
cheapest, rail is second cheapest, and truck is third cheapest. There are clear
and significant incentives to build port infrastructure and switch from truck to
barge to reduce cost.
OFFSHORE SUPPLY INDUSTRY
The market for offshore supply vessels, or OSVs, both on a worldwide basis and
within Brazil, is driven by a variety of factors. On the demand side, the driver
is the growth in offshore oil development/production activity, which in the long
term is driven by the price of oil and the cost of developing the particular
offshore reserves. Demand for OSVs is further driven by the location of the
reserves, with elds located further offshore and in deeper waters requiring more
vessels per eld and larger, more technologically sophisticated vessels. The
supply side is driven by the availability of the vessel type needed (i.e.,
appropriate size and technology), which in turn is driven by historical
newbuilding patterns and scrapping rates as well as the current employment of
vessels in the worldwide fleet (i.e., whether under long-term charter) and the
rollover schedule for those charters. Technological developments also play an
important role on the supply side, with technology such as dynamic positioning
better able to meet certain support requirements.
Both demand for and supply of OSVs are heavily influenced by cabotage laws.
Since most offshore supply activities occur within the jurisdiction of a
country, they fall within that country's cabotage laws. This distinguishes the
OSV sector from most other types of shipping. Cabotage laws may restrict the
supply of tonnage, give special preferences to locally flagged ships or require
that any vessel working in that country's waters be flagged, crewed, and in some
cases, constructed in that country.
OSVs generally support oil exploration, production, construction and maintenance
activities on the continental shelf and have a high degree of cargo capacity and
flexibility relative to other offshore vessel types. They utilize space above
and below deck to transport dry and liquid cargo, including heavy equipment,
pipe, drilling fluids, provisions, fuel, dry bulk cement and drilling mud.
The OSV sector includes conventional supply vessels, or SVs, and platform supply
vessels, or PSVs. PSVs are large and often sophisticated vessels constructed to
allow for economic operation in environments requiring some combination of
deepwater operations, long distance support, economies of scale, and demanding
operating conditions. PSVs serve drilling and production facilities and support
offshore construction and maintenance work for clusters of offshore locations
and/or relatively distant deepwater locations. They have larger deck space and
larger and more varied cargo handling capabilities relative to other offshore
support vessels to provide more economic service to distant installations or
several locations. Some vessels may have dynamic positioning which allows close
station keeping while underway. PSVs can be designed with certain
characteristics required for specific offshore trades such as the North Sea or
deepwater Brazilian service.
The industry OSV fleet (SVs and PSVs) has approximately 1,452 vessels, with
about 184 vessels on order.
The industry SV fleet has approximately 1,026 vessels with about 53 vessels on
order. The average of age of the industry SV fleet is 24 years, with
approximately three quarters of the vessels in the industry fleet being age 20
years or older.
The industry PSV fleet has approximately 426 vessels, with approximately 131
vessels on order. The average age of the industry PSV fleet is approximately 9
years.
The world PSV fleet can be divided into three vessel sizes by dwt, which is an
approximate measure of a vessel's cargo carrying capacity.
Industry PSV Fleet as of March 1, 2007
Cargo Carrying Total No.
Capacity(in DWT) Vessels Average age Orderbook
---------------- ------- ----------- ---------
Small 1,499 or less 19 20 0
Medium 1,500 to 3,999 312 8 90
Large 4,000+ 95 7 41
426 131
Source: Doll Shipping Consultancy based on industry sources and estimates
Typically, larger and newer PSVs support facilities that are located in more
demanding environments are often more distant from shore. The large PSV segment
is the youngest portion of the industry fleet. Large PSVs typically are equipped
with the advanced technological and cargo handling features noted above that
allow service in demanding offshore areas while realizing efficiencies by
supplying large cargoes to multiple offshore areas.
There are approximately 106 offshore drilling rigs of various types on order.
Typically, 1.5 to 2 PSV's are needed to service an offshore drilling rig, due to
operating requirements and safety standby vessel requirements that require a
vessel in the area of the rig at all times. (Note: This is a "rule of thumb"
based on industry experience. Actual requirements will vary.) These 106 rigs on
order would result in an indicative estimated requirement of about 180 PSV's,
using a basis of 1.7 PSVs per rig.
As noted above, the industry trend towards more technically demanding drilling
activity at distances farther offshore using existing rigs would also increase
demand for PSVs.
Brazilian Offshore Industry
Driven by Brazil's policy of becoming energy self-sufficient as well as by oil
price and cost considerations, offshore exploration, development, and production
activities within Brazil have grown. Since most Brazilian reserves are located
far offshore in deep waters, where large, technologically-sophisticated vessels
are needed, today, Brazil is a world leader in deep drilling technology.
The primary customer for PSVs in Brazil is Petrobras, the Brazilian national oil
company. The Brazilian government has also allowed foreign companies to
participate in offshore oil and gas exploration and production since 1999. Other
companies active in Brazil in offshore oil and gas exploration and production
industry include Total, Shell, BP and ChevronTexaco. The deepwater Campos Basin,
an area located about 80 miles offshore, has been the leading area for offshore
activity. Activities have been extended to the deepwater Santos and Espirito
Santo Basins as well with activities now taking place in areas of water depths
of over 9,000 ft.
Deepwater service favors modern vessels that can provide a full range of
flexible services while providing economies of scale to installations distant
from shore. Cabotage laws favor employment of Brazilian flag vessels. However,
many of the Brazilian flag PSV's and supply vessels are old, with approximately
42% of the national fleet are at least 20 years of age. Temporary authority is
granted for foreign vessels to operate only if no Brazilian flag vessels are
available.
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Brazilian-Flag PSV and Supply Vessels
-------------------------------------
Percentage of Fleet
-------------------
Age 0-4............ 36%
Age 5-9............ 11%
Age 10-14.......... 0%
Age 15-19.......... 11%
Age 20 and +....... 42%
Source: Doll Shipping Consultancy based on industry sources
There are a total of approximately 82 Brazilian flag offshore vessels excluding
pure crew boats and well stimulation vessels including four large PSVs of 4,000
dwt or more. The current orderbook for Brazilian flag PSVs and SVs is eight
vessels, including five large PSVs.
The North Sea Market
The North Sea is a similarly demanding offshore market due to difficult weather
and sea conditions, significant water depths, long distances to be traveled, and
sophisticated technical requirements.
In 2000 and 2001, increases in oil prices led to increased North Sea exploration
activity and higher OSV demand. Oil prices fell in early 2002, leading to
questions regarding the sustainability of the higher oil prices and reduced
exploration and development activity. Even with recovery in the Brent price to
an average of about $29 per barrel in 2003, North Sea exploration and
development activity remained low. Low oil prices and availability of more
attractive opportunities elsewhere resulted in a shift of activities by oil
majors towards other regions. Oil prices continued their increase, with average
Brent crude prices of about $38 per barrel in 2004, $55 per barrel in 2005, and
$65 per barrel in 2006. Exploration and development activities increased. Major
oil companies returned to the North Sea while the independents remained and
increased their activities.
High demand led to increases in large PSV rates, averaging approximately $15,900
per day in 2004, $30,400 per day in 2005, and $48,600 in 2006. Large PSVs do not
have a long rate history due to their relatively recent entry into service.
Rates continued at high levels in January and February 2007, averaging $53,300.
OIL TANKER INDUSTRY OVERVIEW
The demand for tankers is a function of the volume of crude oil and petroleum
products to be transported by sea and the distance between areas of oil
consumption and oil production. The volume of crude oil and petroleum products
transported is affected by overall demand for these products, which in turn is
influenced by, among other things, general economic conditions, oil prices,
weather, competition from alternative energy sources, and environmental
concerns.
World oil demand increased from about 71.9 million barrels per day, or MBD, in
1996 to 84.5 MBD in 2006, a compounded annual growth rate, or CAGR, of
approximately 1.6%. Oil demand increased in all regions of the world except for
the former Soviet Union and non-OECD Europe. In 2006 oil demand grew by
approximately 0.9 MBD.
During this same period, world oil supply increased from about 72.5 MBD in 1996
to 85.3 MBD in 2006, a CAGR of about 1.6%. In 2006 oil production grew by 0.8
MBD. OPEC crude oil production increased from 25.8 MBD in 1996 to 29.7 MBD in
2006, a CAGR of approximately 1.4%. Non-OPEC oil supply increased from 43.8 MBD
to 50.9 MBD, a CAGR of about 1.5%.
Benchmark West Texas Intermediate crude, or WTI, averaged $18.43 per barrel in
1995 (all crude prices are expressed in United States dollars) and averaged
between approximately $14 and $23 through the rest of the 1990's. WTI prices
increased in 2003 to an average of $31.08 per barrel, and continued to increase
to an average $41.50 per barrel in 2004, $56.64 per barrel in 2005, and $66.04
per barrel in 2006, Price volatility was high, with 2006 monthly average $ per
barrel prices ranging from about $59 to $74. WTI prices in the first two months
of 2007 averaged about $57 per barrel.
Tanker Classifications and Primary Trade Routes
As the table below demonstrates, the world oil tanker fleet is generally divided
into six vessel sizes classi ed by dwt, which is an approximate measure of a
vessel's cargo carrying capacity. In general, VLCC's/ULCC's primarily transport
crude oil on long-haul trade routes (where oil producers are located more than
approximately 5,000 miles from the end user, such as from the Arabian Gulf to
the Far East, from the Arabian Gulf to Rotterdam via the Cape of Good Hope, from
the Arabian Gulf to the Red Sea, and from the Arabian Gulf to the US
Gulf/Caribbean. Suezmax tankers trade on long-haul and short-haul routes as
discussed below, while Aframax, Panamax, and Handy tankers serve routes
typically in short-haul, regional markets (e.g., Latin America, Mediterranean,
Southeast Asia).
Industry Tanker Fleet as of March 1, 2007
% of Total
Cargo Carrying Total No. Total Tanker Fleet % of Fleet Age
Capacity(in DWT) Vessels MDWT (by DWT) 20 yrs or older
--------------------------------------------------------------------------------
Small 1,000 to 9,999 4,375 15.8 4% 42%
Handy 10,000 to 49,999 2,277 69.5 18% 26%
Panamax 50,000 to 79,999 414 27.1 7% 25%
Aframax 80,000 to 119,999 715 72.9 19% 11%
Suezmax 120,000 to 199,999 354 53.4 14% 5%
VLCC/ULCC 200,000+ 494 144.7 38% 6%
8,629 383.4 100%
Source: Doll Shipping Consultancy based on industry sources and estimates
Suezmax vessels are active in dirty trades (i.e., the transportation of crude
oil and dirty petroleum products) from West Africa to the Americas, and in some
Latin American dirty trades, including backhauls (return trips with a short
ballast leg) to Europe and North America. Other major Suezmax trades include
cross Mediterranean and intra-European trades.
Aframax tankers are active in Latin American dirty trades. Since Aframax tankers
are the largest vessels capable of entering many U.S. ports, these vessels are
often utilized on Latin America to U.S. trade routes to take advantage of
economies of scale. Other major Aframax dirty trades include intra-European and
cross-Mediterranean trades. In Aframax clean trades, major routes include
voyages from the Middle East to Japan, Southeast Asia, and South Asia.
Factors Affecting Supply of Oil Tankers
The supply of tankers is determined by the size and technical suitability of the
available fleet (i.e., size of a vessel versus port constraints, clean versus
dirty cargo capabilities, charterer acceptability, etc.). Tanker owners include
oil companies, government-owned shipping companies and independent vessel
owners. Independent owners are now the largest group, owning about 80% of the
tanker fleet. There are also operators who do not own vessels but who charter
their tonnage from independent vessel owners. The existing tanker fleet
increases by newbuilding deliveries and decreases by the number of tankers
scrapped or otherwise removed from the fleet. Fleet size also decreases when
vessel tonnage becomes unavailable due to floating storage, layup, or repair.
Newbuilding, scrapping, and vessel unavailability are affected by current and
expected future vessel prices, charter hire rates, operating costs, age profile
of the fleet, and government and industry regulation. For example, compared to
historical averages, 2004-2006 earnings were high, while scrapping was low. If
vessel earnings were to decrease, repair and retention of older vessels would
become less economically attractive, and industry scrapping could increase.
The International Maritime Organization, or IMO, adopted accelerated phase-out
regulations for single hull tankers of 5,000 dwt or more carrying petroleum or
petroleum products which entered into force in April 2005. The regulations are a
complex set of requirements that accelerate the phase-out of pre-International
Convention for the Prevention of Pollution from Ships, or MARPOL, "Category 1"
tankers without protectively located segregated ballast to 2005. Single hull
tankers with protectively located segregated ballast are to be phased out in
2010. Flag States may make exceptions for certain single hull, double bottom, or
double sided vessels meeting determined quality and/or structural requirements
that allow the vessels to continue in service until age 25 or the year 2015,
whichever is earlier. Single hull vessels are also to be banned from carriage of
certain heavy oils, with some exceptions allowed for double bottom or double
sided vessels meeting certain quality criteria. Certain crude oils have been
exempted. Port states may recognize the Flag State exemptions or may choose to
enforce the earlier phase-out dates. The effects of the regulations are complex
but will tend to accelerate the phase-out of single hull vessels. Actual
scrapping behavior will depend upon many variables including the state of the
market and future Flag State and Port State implementation.
The European Union has had regulations in effect since 2003 that require double
hull vessels be used for certain heavy oils, with no exceptions. These
regulations apply to tankers of 5,000 dwt or more registered in European Union
countries or entering waters within jurisdiction of European Union countries.
Along with mandatory regulations, other factors encourage scrapping of single
hull tankers. Many charterers require or show preference for double hull
vessels. This preference tends to reduce utilization of single hull vessels and
to encourage scrapping.
Also, port congestion and canal congestion serve to limit effective supply at
any one time.
Fleet Development
In 2005, 0.4 million dwt, or Mdwt, of Suezmaxes were scrapped, while 4.0 Mdwt
were delivered. During 2006, none were scrapped, while 4.1 Mdwt were delivered.
During the first two months of 2007, none were scrapped, while 0.9 Mdwt were
delivered. The current orderbook is 18.2 Mdwt (115 vessels) with 3.4 Mdwt due
for delivery this year, 3.1 Mdwt next year and 8.4 Mdwt in 2009. The remainder
are scheduled to be delivered in 2010 and 2011. About 43.2 Mdwt of Suezmaxes
have double hulls, 2.6 Mdwt have double bottoms or double sides, and 7.7 Mdwt
have single hulls.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Suezmax Fleet Development
-------------------------
Deliveries Deletions
---------- ---------
1995 1130232 -985196
1996 1466778 -1035477
1997 1435811 -609863
1998 3097032 -867547
1999 2366840 -3422237
2000 3493414 -2502230
2001 2498256 -3286810
2002 3746397 -2080153
2003 3927227 -2183319
2004 4085757 -1212499
2005 4036658 -434552
2006 4103502 0
2007 945282 0
Source: Doll Shipping Consultancy based on industry sources
Charter Hire Rates
One-year time charter rate assessments for a standard Suezmax vessel type are
shown below. Time charter rate assessments ignore the wide variation in time
charter rates based on different vessel specifications and performance, and are
intended to demonstrate trends. Time charter rates tend to be less volatile than
spot charter rates as they incorporate rate expectations, which change less
quickly than the day to day spot freight market.
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Suezmax One Year Time Charter Rate $ per day
--------------------------------------------
Jan-95 19,000
Jul-95 18,500
Jan-96 19,875
Jul-96 21,375
Jan-97 22,000
Jul-97 23,000
Jan-98 25,000
Jul-98 23,600
Jan-99 19,500
Jul-99 17,950
Jan-00 19,063
Jul-00 28,750
Jan-01 41,063
Jul-01 29,000
Jan-02 17,875
Jul-02 17,000
Jan-03 26,200
Jul-03 23,000
Jan-04 31,800
Jul-04 29,600
Jan-05 35,500
Jul-05 34,000
Jan-06 34,500
Jul-06 31,500
Jan-07 31,000
Source: Doll Shipping Consultancy based on industry sources
During 2004, 2005, 2006, and early 2007, the concurrence of a number of positive
factors resulted in high tanker earnings. Tanker demand increased while the
industry fleet grew moderately. Growth in long-haul trades to Asia and the
United States (including ongoing substitution of long-haul oil for short-haul
Venezuelan oil) and high U.S. oil import requirements were positive factors, all
resulting in strong tanker earnings. Suezmax one-year time charter rates
averaged about $24,800 per day in 2003, and increased to an average of about
$33,900 per day in 2004 and $34,900 per day in 2005. Rates decreased slightly to
an average of about $32,400 per day in 2006 and $31,000 per day in the first two
months of 2007, but remain at historically high levels.
Chemical Tankers
Vessels with IMO Chemical Classi cation are required for transport of chemicals.
International regulations for the transportation of chemicals specify protective
location, stability requirements, safety criteria for survivability and
containment in certain damage cases, maximum tank sizes and other criteria.
These standards are grouped into IMO Chemical Classi cations. A "Type 1" vessel
is a chemical tanker intended for the transportation of products considered to
present the greatest overall hazard and "Type 2" and "Type 3" vessels for
products of progressively lesser hazards. Vessels may have tank capacity on
board meeting different IMO classi cations. For example, a vessel may have Type
1 and Type 2 cargo tanks or Type 2 and Type 3 tanks. Type 1 and Type 2 capacity
vessels have protective location requirements that require void spaces between
bottom and side shell plating of the vessels, effectively requiring double
bottoms or double hulls. Type 3 capacity vessels do not have protective location
requirements.
Revised MARPOL Annex 2 regulations took effect on January 1, 2007, requiring
Type 2 or double hull Type 3 vessels for the transport of vegetable and other
edible oils (vegoils) and expanding IMO class chemical transport requirements.
There are 2,277 Handysize tankers (from 10,000 dwt to 49,999 dwt) totalling 69.5
million dwt, or Mdwt. 1,484 vessels, or 44.0 Mdwt, are chemical tankers
(certificated to carry Type 1, 2, or 3 cargoes.) Type 1, Type 2, and Type 3
capacity totals about 0.4 million metric tons, or mmt, 16.5 mmt, and 27.1 mmt
respectively. Included in the Handysize chemical tanker totals is about 7.5 mmt
of stainless steel capacity.
The current orderbook for Handysize tankers totals about 830 vessels of
approximately 25.2 Mdwt, approximately 36% of the existing fleet. Scheduled
deliveries for 2007, 2008 and 2009 are 7.8, 7.8 and 6.5 Mdwt, respectively.
Included are about 698 chemical tankers, or 19.2 Mdwt. Scheduled chemical tanker
deliveries for 2007, 2008 and 2009 are about 6.7, 5.9 and 4.5 Mdwt,
respectively. Type 1, Type 2, and Type 3 capacity on order totals about 0.07
mmt, 10.0 mmt, and 9.2 mmt, respectively. Included in the Handysize chemical
tanker orderbook is approximately 2.7 mmt of stainless steel capacity.
There are 4,375 small tankers (from 1,000 dwt to 9,999 dwt) totalling 15.8 Mdwt.
About 1,199 vessels or 6.4 Mdwt are chemical tankers (certificated to carry Type
1, 2, or 3 cargos.) Type 1, Type 2, and Type 3 capacity totals about 0.01 mmt,
4.0 mmt, and 2.4 mmt respectively. Included in the small chemical tanker totals
is approximately 2.6 mmt of stainless steel capacity.
The current orderbook for small tankers totals about 402 vessels, or
approximately 2.2 Mdwt, about 14% of the existing fleet. Scheduled deliveries
for 2007, 2008 and 2009 are 1.3, 0.7 and 0.2 Mdwt, respectively. Included are
about 232 chemical tankers, or 1.4 Mdwt. Scheduled chemical tanker deliveries
for 2007, 2008 and 2009 are 0.8, 0.5,and 0.2 Mdwt, respectively. Type 1, Type 2,
and Type 3 capacity on order totals about 0.0 mmt, 0.9 mmt, and 0.5 mmt
respectively. Included in the small chemical tanker orderbook is approximately
0.2 mmt of stainless steel capacity.
Chemical tankers of 5,000 to 20,000 dwt typically trade in intraregional and in
short to medium haul interregional markets for specialized cargoes. Typical
intraregional trades for these vessels would include intraregional trades in
Latin America, the Caribbean, Northern Europe and the Mediterrranean, Southeast
Asia, and Northeast Asia. Typical interregional trades would be North-South
trades in the Americas, the Mediterranean to and from Northern Europe, South
East Asia to Australia, and trades to and from adjacent Asian regions (e.g.
Southeast Asia to South Asia).
Chemical tanker capacity is in excess of chemical tanker requirements and is
projected to remain in excess of future chemical tanker requirements. Therefore
many chemical tankers will spend all or part of their lives in clean product
trades. Vessel characteristics that allow transport of more demanding chemicals,
such as stainless steel capacity, would increase the likelihood of the vessel
trading in chemicals.
While the changes in regulations by themselves are not projected to cause a
shortage of tonnage, product tanker time charter rates and chemical tanker
freight rates have been at historically high levels during 2004, 2005, and 2006,
indicating high levels of demand versus supply. High petroleum product demand in
Asia and the United States required local refineries to run at or near capacity,
leading to high product prices and attractive margins for product imports.
Growth in product imports to the U.S. was supplied by Russia and Europe, while
imports from Latin America were stable. Damage to refineries in the Gulf of
Mexico from the hurricanes in the United States in the fall of 2005 further
increased demand for product imports in the United States. High motor gasoline
demand and prices in the U.S. have supported continued high U.S. imports in
2006.
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Handysize Product Tanker one year time charter rate $/day and
Easychem Freight Indicator (Average $ per mt rate for 3,000-5,000
mt easy chemicals for selected routes)
--------------------------------------
Chem
$ Per Day Average $ Per MT Rate
--------- ---------------------
Jan-95 13,500
Jan-96 13,750
Jan-97 14,000 47.78
Jan-98 14,200 42.34
Jan-99 12,500 31.55
Jan-00 11,875 36.50
Jan-01 20,188 42.05
Jan-02 13,750 41.25
Jan-03 14,760 43.18
Jan-04 14,900 56.68
Jan-05 26,500 76.35
Jan-06 29,000 65.80
Jan-07 25,250 70.90
Source: Doll Shipping Consultancy based on industry sources and estimates
Dry Bulk Industry
The international dry bulk cargo market is a global industry and is affected by
many factors throughout the world. Important industry conditions for dry bulk
shipping include world dry bulk commodity production and demand, the size of the
international dry bulk vessels and combination carrier fleet, the new production
and scrapping of oceangoing dry bulk vessels and freight rates. Both Capesize
dry bulk vessels and combination carriers transport dry bulk cargos, such as
iron ore and coal.
Dry Bulk Demand and Production
Seaborne iron ore trade grew from an estimated 392 mmt in 1996 to about 721 mmt
in 2006, a CAGR of 6.3%. High demand for steel in China has led to growth in
Chinese iron ore imports from about 44 mmt in 1996 to 326 mmt in 2006, a CAGR of
22.2%. This increase includes growth of about 51 mmt in 2006, a year on year
increase of about 18%.
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
China iron ore imports mt per month
-----------------------------------
Jan-99 4.35
May-99 3.47
Sep-99 5.80
Jan-00 5.81
May-00 5.36
Sep-00 6.09
Jan-01 6.42
May-01 7.39
Sep-01 8.66
Jan-02 7.85
May-02 7.25
Sep-02 10.93
Jan-03 11.49
May-03 13.82
Sep-03 13.91
Jan-04 12.90
May-04 13.22
Sep-04 18.72
Jan-05 20.86
May-05 21.75
Sep-05 23.02
Jan-06 26.58
May-06 23.84
Sep-06 21.97
Jan-07 35.85
Source: Doll Shipping Consultancy from Industry sources
Other Asian countries, such as Japan and Korea, have required increasing iron
ore imports. The top iron ore exporters are Australia and Brazil, accounting for
about 74% of estimated 2006 seaborne iron ore trade. Australian exports grew
from 132 mmt in 1996 to 270 mmt in 2006, including 29 mmt of growth in 2005.
Brazil's iron ore exports increased from 129 mmt in 1996 to 249 mmt in 2006,
which includes 25 mmt of growth in 2006.
Coal trade is made up of thermal coal (steam coal), burned for its heat value
primarily in power generation, and metallurgical coal (coking coal, met coal),
used in steelmaking. Estimated seaborne steam coal trade grew from about 260 mmt
in 1996 to about 522 mmt in 2006, a CAGR of 7.2%, which includes 24 mmt of
growth in 2006. Leading coal exporters are Indonesia, Australia, South Africa,
Colombia and China.
Capesize dry bulk vessels and combination carriers
Capesize dry bulk vessels and combination carriers have a cargo carrying
capacity of 80,000 dwt or greater based on representative sizes of vessels too
large to pass through the Panama Canal. However, most Capesize tonnage (about
91%) is comprised of vessels of 100,000 dwt or greater. Capesizes primarily
transport iron ore and coal on trade routes where lack of port constraints
(especially depth of water) and cargo parcel size limits allow realization of
economies of scale.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Capesize Fleet Development
--------------------------
Deliveries Deletions
---------- ---------
1995 5835026 -1395675
1996 7818098 -2731302
1997 7577782 -2247938
1998 1893703 -4016217
1999 4642057 -3058928
2000 6051849 -920121
2001 5592456 -1707607
2002 3907440 -1412539
2003 5584519 -1049522
2004 7966389 0
2005 10050263 -247292
2006 14515665 -839830
2007 1859271
Source: Doll Shipping Consultancy based on industry sources
As of March 1, 2007, there were 843 Capesize dry bulk vessels comprising
approximately 132.6 Mdwt. In 2005, 0.2 Mdwt of Capesizes were scrapped, while
10.1 Mdwt were delivered. During 2006, 0.3 Mdwt were scrapped and 0.5 Mdwt were
lost in casualties, while 14.5 Mdwt were delivered. During the first two months
of 2007, none were scrapped, while 1.9 Mdwt were delivered. The current
orderbook is 50.6 Mdwt (334 vessels) with 11.1 Mdwt due for delivery this year,
12.4 Mdwt next year and 11.9 Mdwt in 2009. The remainder are scheduled to be
delivered in 2010 and 2011. Total Capesize combination carrier dwt is 6.3
million, with an estimated 4.4 Mdwt (70%) currently employed in dry bulk trades.
None were delivered since 2003 or are currently on order. None were scrapped in
2005. About 0.3 Mdwt were scrapped during 2006. None were scrapped in the first
two months of 2007.
Improved trade in the year 2000 resulted in average one-year time charter rates
of about $17,100 per day. Slower trade growth and high fleet growth in 2001 and
2002 resulted in lower time charter rates, with average one-year time charter
rates of $12,800 per day in 2001 and $12,300 per day in 2002. Throughout 2003,
there were large increases in dry bulk trade and tonnage demand that offset
fleet growth, with one-year time charter rates averaging $26,400 per day. In
2004, led by high Chinese iron ore import growth and strong coal markets,
Capesize one-year time charter rates increased to an average $49,100 per day.
High Chinese imports of iron ore and other dry bulk commodities continued in
2005 and 2006, supported by commodity trade growth elsewhere. Port delays have
further increased vessel demand. Even so, high vessel demand was outpaced by dry
bulk fleet growth in 2005, and dry bulk vessel time charter rates decreased,
with one year Capesize time charter rates decreasing to an average $42,500 per
day in 2005 and $37,300 in 2006. Capesize one year time charter rates have
averaged about $54,000 per day during the rst two months of 2007- due to high
winter seasonal demand and ongoing high commodity trade and port congestion.
Industry Scrapping
In 2004, 2005 and 2006, industry scrapping has been low compared to historical
standards. For example, during the years 1993 through 2003, tanker scrapping
averaged about 11.9 Mdwt per year, while in 2004, 2005, and 2006 tanker
scrappings were approximately 7.8 Mdwt, 4.1 Mdwt, and 3.1 Mdwt, respectively.
During the years 1993 through 2003, dry bulk vessel scrapping averaged
approximately 5.8 Mdwt per year, while in 2004, 2005 and 2006 dry bulk vessel
scrappings were about 0.4 Mdwt , 0.7 Mdwt, and 1.9 Mdwt, respectively. Scrapping
during the first two months of 2007 totaled approximately 1.2 Mdwt for tankers
and 0.1 Mdwt for dry bulk vessels.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Industry Scrapping for Tanker and Dry Bulk Vessels
--------------------------------------------------
Total Tanker Total Dry
------------ ---------
1993 11.1 3.4
1994 12.5 4.2
1995 11.1 2.0
1996 5.8 6.5
1997 3.6 6.5
1998 5.0 10.9
1999 16.8 9.7
2000 14.8 4.0
2001 13.5 7.4
2002 18.1 5.6
2003 19.1 3.8
2004 7.8 0.4
2005 4.1 0.7
2006 3.1 1.9
2m2007 1.2 0.1
Source: Doll Shipping Consultancy based on industry sources and estimates
PASSENGER VESSEL INDUSTRY
Passenger vessel demand is a function of overall demand for the global cruise
industry. Principal sources of cruise passengers are North America, Europe, Asia
and the South Pacific (including Australia and New Zealand), and South America.
The estimated number of cruise passengers in North America has grown from 4.9
million in 1997 to 9.7 million in 2005, a CAGR of 9.0%. This increase includes
growth of 0.8 million in 2005, an annual increase of 9.0%. The total population
of North America (excluding Mexico) is estimated at about 329 million. The
number of cruise passengers in 2004 comprises an estimated 2.9% of total
population in North America.
The estimated number of cruise passengers in major European markets is also
growing. The number of cruise passengers from Europe grew from 2.8 million in
2004 to 3.2 million in 2005, representing annual growth of 13.5%. In the United
Kingdom, the number of cruise passengers grew from about 1.03 million in 2004 to
1.07 million in 2005, an annual increase of 4%. In Germany, the number of cruise
passengers grew from 583,000 in 2004 to 639,000 in 2004, an annual increase of
10%. In Greece, number of passengers grew from 14,000 to 104,000 in the same
period. In Italy, the number of passengers grew from 400,000 in 2004to 514,000
in 2005, an annual increase of 29%, while in Spain the number grew from 300,000
to 379,000, an increase of 26%.
The total population of Western Europe is estimated at about 396 million, and
the number of cruise passengers in 2005 comprises an estimated 0.8% of total
population in Western Europe.
Industry Fleet: Passenger vessels engaged in international ocean cruise service
--------------------------------------------------------------------------------
Standard Capacity Vessels Total Standard Capacity % of Standard Capacity
--------------------------------------------------------------------------------
under 250 52 6,298 2%
250-499 28 10,658 3%
500-999 53 37,520 12%
1000-1999 68 103,932 33%
2000-2999 56 128,984 41%
3000+ 8 25,284 8%
Total 265 312,676 100%
--------------------------------------------------------------------------------
Source: Doll Shipping Consultancy based on industry sources and estimates
As of March 1, 2007, there were approximately 265vessels engaged in
international ocean cruise service with a standard lower berth capacity of
approximately 313,000. This figure represents the total number of lower berths,
estimated at two passengers per cabin; the actual passenger count may be higher
due to the availability of upper berths, cots, or other arrangements. In 2005,
approximately four vessels with a standard lower berth capacity of 9,456 were
delivered, and five vessels with a standard lower berth capacity of 4,282 were
scrapped. In 2006, seven vessels with a standard passenger capacity of
approximately 18,360 were delivered, and none were scrapped. No deliveries or
scrapping have occurred in the first two months of 2007.
The current orderbook is approximately 32 vessels with a standard lower berth
capacity of approximately 95,906. In 2007, about nine vessels with a standard
lower berth capacity of approximately 26,538 are under contract to be delivered.
In 2008, approximately nine vessels with a standard lower berth capacity of
approximately 24,584 are scheduled to be delivered, and in 2009 approximately
eight vessels, with a standard lower berth capacity of approximately 26,716, are
scheduled to be delivered. In 2010, five vessels with a standard lower berth
capacity of 14,416 are scheduled to be delivered. In 2011, one vessel with a
standard lower berth capacity of 3,652 is scheduled to be delivered. All of
these vessels have a standard lower berth capacity of 2,000 or more.
--------------------------------------------------------------------------------
Business
OUR COMPANY
We are an industrial transportation company serving the marine transportation
needs of our clients in the geographic areas on which we focus. We serve the
shipping markets for grain, minerals, crude oil, petroleum, refined petroleum
products and forest products, as well as the offshore oil platform supply
market, and the leisure passenger cruise market through our operations in the
following four segments of the marine transportation industry.
o Our River Business, with 502 barges, is the largest owner and operator of
river barges and pushboats that transport dry bulk and liquid cargos
through the Hidrovia Region of South America, a large region with growing
agricultural, forest and mineral related exports. This region is crossed by
navigable rivers that flow through Argentina, Brazil, Bolivia, Paraguay and
Uruguay to ports serviced by ocean export vessels. According to DSC, as a
whole, these countries are estimated to account for approximately 47% of
world soybean production in 2005, from 29% in 1995.
o Our Offshore Supply Business owns and operates vessels that provide
critical logistical and transportation services for offshore petroleum
exploration and production companies, in the North Sea and the coastal
waters of Brazil. Our Offshore Supply Business fleet currently consists of
proprietarily designed, technologically advanced platform supply vessels,
or PSVs. We have four PSVs in operation and four under construction. Two
PSVs are currently under construction in Brazil and are contracted to be
delivered in the second quarter of 2007 and in 2008. We recently contracted
with a shipyard in India to construct two PSVs for deliveries commencing in
2009, with an option to build two more.
o Our Ocean Business owns and operates eight oceangoing vessels, including
three Handysize/small product tankers which we intend to use in the South
American coastal trade where we have preferential rights and customer
relationships, three versatile Suezmax OBO vessels, capable of carrying
either dry bulk or liquid cargos, one Aframax tanker and one
semi-integrated 43,000 deadweight ton, or dwt, tug/barge unit. Our Ocean
Business fleet has an aggregate capacity of approximately 651,000 dwt and
our three Suezmax OBOs are capable of carrying either dry bulk or liquid
cargos, providing flexibility as dynamics change between these market
sectors.
o Our Passenger Business fleet consists of two vessels with a total carrying
capacity of approximately 1,600 passengers, and operates primarily in the
European cruise market. We currently employ our largest passenger vessel
under a multi-year seasonal charter with a European tour operator and the
other passenger vessel will be employed in the Aegean Sea for the European
season of 2007. In addition, we have operated one of our vessels during
periods outside the European travel season for certain events.
We are focused on growing our businesses with an efficient and versatile fleet
that will allow us to provide an array of transportation services to customers
in several different industries. Our business strategy is to leverage our
expertise and strong customer relationships to grow the volume, efficiency, and
market share in a targeted manner. For example, we are currently increasing the
cargo capacity of our existing river barges to help increase our efficiency and
market share. In addition, we have commenced a program to replace the current
engines in our pushboats with new engines that will allow us to operate using
less expensive heavy fuel. We expect that the delivery of the two additional
PSVs we have under construction in Brazil as well as the new orders placed in
India will allow us to further capitalize on the attractive offshore petroleum
services market. We are also pursuing the expansion of our ocean fleet through
acquisitions of specific types of vessels to participate in identified market
segments. We believe that the versatility of our fleet and the diversity of
industries that we serve reduce our dependency on any particular sector of the
shipping industry and offer numerous growth opportunities.
We have a diverse customer base including large and well-known petroleum,
agricultural, mining and tour operating companies. Some of our significant
customers in the last three years include affiliates of Archer Daniels Midland,
British Gas, Cargill, Chevron, Continental Grain, ENAP, Industrias Oleaginosas,
Panocean, Petrobras, the national oil company of Brazil, Petropar, the national
oil company of Paraguay, Rio Tinto, Swissmarine, Total, Trafigura, Travelplan
and Vicentin.
OUR COMPETITIVE STRENGTHS
We believe that the following strengths have contributed to our success.
o We Are an Industrial Transportation Company. We operate in four different
sectors of the marine transportation industry. While we believe that there
are synergies between our businesses, particularly in terms of the
operational expertise, vessel management and customer base, the many
factors that affect supply and demand, particular cost structure, and
particular business risks are different. Accordingly, we believe that our
diversification effectively provides a significant hedge against cyclical
results in one or more of the segments in which we operate.
o Our Large Scale Generates Efficiencies That Provides Us With Better Control
Over Pricing in our River Business. We are the largest provider of river
transportation services in the Hidrovia Region of South America, and our
river fleet has a cargo-carrying capacity of approximately 828,000 dwt and
502 barges. Our size offers economies of scale and increased negotiating
power. For example, our size has allowed us to implement a different
operational system than that of our competitors, called trunk mode, which
enables us to service our clients with a continuous stream of available
barges while reducing our operating costs on a per ton basis. The trunk
mode is based upon the principle that the pushboat, which is the most
expensive operational asset for a river transportation company, should
operate continuously, and the barges operate through a fleeting point or
hub and, once loaded or discharged, are picked up and taken to their next
destination by the next available pushboat. We have also been able to enter
long-term contracts for a substantial portion of our fleet for the next one
to four years and have successfully negotiated fuel price adjustment
clauses into many of our new contracts to insulate us from fluctuations in
the price of fuel.
o We Possess Competitively Advanced Technology in Two of Our Businesses. We
have made significant investments in our technology systems. In our River
Business, we use a navigational system that allows our convoys to navigate
24 hours a day on a river system that lacks the signals otherwise necessary
for night navigation. This system enables us to use our River Business
assets more efficiently than many of our competitors. In our Offshore
Supply Business, we have also developed a proprietary design for our new
PSVs in conjunction with the renowned Norwegian vessel design firm, the
Vik-Sandvik Group. This design can only be reproduced with our consent,
which, to date, we have not granted. We have equipped our PSVs with
advanced technology such as dynamic positioning capabilities, dedicated oil
recovery tanks in most of our PSVs for the performance of oil recovery
duties, azimuth thrusters and greater cargo capacity and deck space,
enabling these vessels to serve our customers in any of the major offshore
markets including the challenging North Sea.
o We Have a Versatile Ocean Fleet. Over the past decade, we have focused on
building a versatile ocean fleet to meet the demands of a changing
marketplace. We believe that our three Suezmax OBO vessels are ideally
suited to take advantage of the changing conditions of the dry bulk and
liquid cargo markets. We can readily switch our Suezmax OBO vessels from
one type of cargo to another. Further, because of her narrow beam, our
Aframax tanker is able, despite her large Aframax dwt, to transit the
Panama Canal. This design is particularly appealing to customers who wish
to employ an Aframax size vessel but who occasionally need to bring cargos
through the Panama Canal. Our Handysize/small product tankers can transport
a variety of different cargos, from heated crudes to multiple light
products such as gasoline and jet fuel. Our chemical/product carrier
Miranda I has the capability to segregate up to seventeen different classes
of cargo in center stainless steel tanks, and can be adapted to the
requirements of many different trades.
o We Have Long-Term, High Quality Customer Relationships. We have operated
our vessels around the globe since we began our business in 1992. We have
long-standing relationships with large, established customers, including
affiliates of major international oil and agriculture companies, such as
Petrobras, Archer Daniels Midland, Cargill, Continental Grain and ENAP.
These long-term customer relationships arise from our proven reliability
and high-quality service. For example, two of our customers, Petrobras and
Cargill Incorporated, have been customers of the Company for 13 and nine
years, respectively.
o We Maintain High Standards of Performance and Safety. We pride ourselves on
our operational excellence, our ability to provide high caliber service and
our commitments to safety, quality and the environment. The quality of our
vessels as well as the expertise of our vessel manager, crews and
engineering resources help us maintain safe, reliable and consistent
performance. We maintain well documented and internationally certified
safety and quality management systems, perform periodic audits and conduct
training, each of which affects all areas of our activities, including
operations, maintenance and crewing. In our Offshore, Ocean and Passenger
Businesses, our subsidiary Ravenscroft has all necessary certificates and
licenses, is certified under the International Safety Management, or ISM
Code, and is certified by the International Organization for
Standardization, or ISO, as ISO 9001:2000 certified.
o We Have an Established History and Experienced Management Team. Our
management team is led by members of the Menendez family. The family has
been involved in the shipping industry since 1876. Our senior executive
officers have on average 34 years of experience in the shipping industry.
Our management team has significant expertise in various lines of business
and has been instrumental in developing and maintaining our certified
safety and quality management systems and our operational plans. Further,
our management team has helped us design and develop innovative and
versatile PSVs in our Offshore Supply Business.
o Preferential Treatment in Certain Markets. Brazilian law provides a
preference for the utilization of Brazilian-flagged vessels in its cabotage
trade. Through one of our Brazilian subsidiaries we have the competitive
advantage of being able to trade our PSVs in the Brazilian cabotage market,
enabling them to obtain employment in preference to vessels without those
cabotage privileges. In addition, since four of our initial six PSVs have
been constructed in Brazil, we have the advantage of being able to charter
our foreign flagged PSVs to our Brazilian subsidiary entitling those PSVs
we charter in to the same preferential treatment received by our
Brazilian-flagged vessels. We also receive preferential treatment in Chile
and Argentina, where our tankers operate in a charter or ownership
arrangement with our local subsidiary companies that obtain cabotage
preferential treatment to operate in the territorial waters of these
countries.
OUR BUSINESS STRATEGY
Our business strategy is to continue to operate as a diversified marine
transportation company with an aim to maximize our growth and profitability
while limiting our exposure to the cyclical behavior of individual sectors of
the transportation industry. We plan to implement our business strategy by
pursuing the following objectives.
o Capitalizing on Attractive Fundamentals in Our River Business. We are the
leading river transportation company in the Hidrovia Region, utilizing an
efficient trunk system, self-operated loading and discharging terminals,
our own transshipment station and owned repair facilities to maximize asset
efficiency. The Hidrovia Region's agricultural footprint already represents
a significant portion of the world's soybean production, and, according to
DSC, its share is expected to grow. The Hidrovia Region offers a number of
attractive fundamentals for the growth of our River Business. We plan to
increase the size and capacity of our existing barges and invest in river
infrastructure in order to take advantage of this opportunity. We may also
seek to add capacity by acquiring assets or companies currently operating
in the Hidrovia Region.
o Growing Agricultural Exports. It is estimated that during 2006,
Brazil, Argentina, Paraguay and Bolivia produced approximately 107.9
million tons of soy beans, which represented approximately 47% of
world production, as compared to the 86.8 million tons or
approximately 38% of world production by the United States. Moreover,
the region continues to have large amounts of unused arable land
available for soy and other crops.
o New Production in the Hidrovia Region. As increasing agricultural
production is expected to couple over the next few years with new
mining and pig iron facility production, the resulting significant
additional cargo volumes in the Hidrovia require an efficient solution
to create the capacity necessary for river transport.
o Efficient Means of Transportation. River barges provide an efficient
and cost-effective transportation alternative relative to railroads
and trucks. One barge can transport as much cargo as 58 trucks, making
the capacity of our 30 barge tow equivalent to approximately 1,740
trucks. Notably, our 30 barge tow requires a crew of only ten. Given
the efficiencies of river transportation, we believe that by building
the necessary infrastructure, forest products, which are currently
transported by truck and rail, offer significant growth opportunities
for our River Business.
o Captive Infrastructure. The products and goods for export in the
Hidrovia Region are geographically very distant (over 1,000 miles)
from ocean ports. The navigable portion of the Hidrovia Region is over
2,200 miles long and, passing through the heart of this region, is
ideally situated to suit the needs of the agricultural community.
Historically, lack of infrastructure to load and discharge cargo has
been a limiting factor both physically and economically. Over the past
several years, directly or through a joint venture, we have added a
significant amount of infrastructure to the river system, such as
docks, ports and terminals, over which we have a right of first use.
Our proprietary infrastructure allows us to better serve our customers
by loading the cargos as near as possible or discharging them directly
into ocean vessels to production, thus increasing the number of barges
we can efficiently load on the river and optimizing overall logistics
from point of origin to destination through the use of our facilities.
We plan to capitalize on these attractive fundamentals by leveraging our leading
market position and pursuing the following initiatives.
o Increasing the Cargo Carrying Capacity of Our Barges. In an effort to
maximize the utilization of our fleet of barges, we are in the process
of increasing the carrying capacity of 130 of the barges in our fleet.
This process involves cutting the barge length-wise, inserting a new
midsection and welding the three pieces (the two original sides and
the new midsection) together. Through this process the overall
capacity of each of these barges will increase by approximately 67%.
Because the fixed costs of pushing a wider barge are the same as
pushing the narrower barges we currently operate, we will be able to
transport higher quantities of cargo at limited incremental cost.
o Replacing Diesel Oil Consuming Engines with Others that Consume Less
Expensive, Heavier Fuel. Given the differential pricing between heavy
fuel and diesel fuel, significant savings can be achieved by replacing
the diesel engines in our 16 line pushboats with new engines designed
to consume less expensive heavier fuel oil.
o Expansion of Our Barge Construction Capability. We intend to use a
portion of the proceeds of this offering to expand our shipyard in
Argentina to facilitate the building of new barges, enabling us to
design and construct barges that are best suited for the
characteristics of our River Business. Certain new mining concerns
have announced plans to produce and ship through the river system,
significant additional volumes of iron ore. This presents the
challenge of creating significant new capacity in a cost-effective
manner.We believe that having our own barge producing capability will
enable us to meet this challenge at lower cost than purchasing the
barges overseas and transporting them to South America.
o Expanding our Barge Business Elsewhere in Latin America. As the largest
barge operator in South America, we believe we are uniquely well-positioned
to take advantage of growth opportunities elsewhere in Latin America, and
are currently exploring specific opportunities in Brazil, Colombia, and
Mexico. Specifically on September 8, 2006 we entered into a Memorandum of
Agreement with the Argos Group (one of the leading cement producers in
Colombia) to form a joint venture to establish a river transportation
company on the Magdalena River in Colombia. The preliminary studies for
analyzing this investment are currently underway.
o Expanding Our Offshore Supply Business. We have taken delivery of four
modern, large, technologically advanced PSVs for our Offshore Supply
Business and have four more PSVs under construction. Two of these PSVs are
under construction in Brazil and are contracted to be delivered in the
second quarter of 2007 and in 2008. We have recently contracted with a
shipyard in India to construct two PSVs, to be delivered commencing in
2009, with an option to build two more which, if exercised would give us a
fleet of ten PSVs. Currently, two of our four PSVs are operating in the
North Sea, one of which has recently been chartered for two years to a
major North Sea operator. Our experience in this challenging market
positions us well to expand our market share as our new PSVs are delivered.
Our other two PSVs are on charter to Petrobras, in Brazil that end in
September 2007, and March 2008, respectively. Additionally, our next PSV to
be delivered, UP Diamante, in the second quarter of 2007 is also chartered
to Petrobras for a 12 month period starting May 2007. We believe there are
numerous opportunities to charter modern PSVs to Petrobras and other oil,
exploration and drilling companies primarily for use in Brazil.
Additionally, high oil prices are causing expanded exploration activity on
a worldwide basis. Currently, there are approximately 180 vessels in the
Brazilian offshore market, of which, according to DSC estimates, only 82
are Brazilian flag. Forty-two percent of these vessels are in excess of 20
years of age, and we estimate that only 15 PSVs are modern and adequately
equipped to service deepwater rigs. Of these 15, according to DSC
estimates, only four are large PSVs of 4,000 dwt or more. Brazil's oil
reserves are the second largest in South America and over 90% of these
reserves are located offshore. Petrobras has a majority of the market share
in the offshore drilling market in Brazil, but recently the oil exploration
and production market was opened to private and foreign participation,
which we believe will allow for further growth and customer
diversification.
o Growing Our Ocean Fleet with Targeted Acquisitions. We intend to expand our
ocean fleet by selectively acquiring secondhand and newly built vessels to
capitalize on attractive market opportunities in which we recognize demand
for the vessels, employment. For example, taking advantage of the
preferential treatment that our subsidiaries have in South America, we plan
on adding chemical/product carriers to our fleet to fill a demand from our
existing customers for vessels to service routes where both the point of
origin and destination is in South America. In addition, we are studying
efficient, alternative ways of expanding our ocean fleet in the current
market, in which vessels generally sell at a premium.
o Expanding our Passenger Fleet. We intend to further expand our passenger
fleet through timely and selective acquisitions of secondhand passenger
vessels in accordance with identified customer needs. We are also exploring
opportunities to acquire a small passenger vessel to conduct river and
coastal cruises in South America. In our Passenger Business, we will focus
on generating counter-seasonal trades for our vessels to operate year-round
and on providing ancillary services to enhance our revenues and
profitability.
o Redeploying Vessels to the Most Attractive Markets. Due to the versatility
of our vessels, we intend, under appropriate market conditions, to alter
the geographic and industry focus of our operations by redeploying vessels
to the most profitable markets. For example, as a result of rising demand
out of China during 2003, we switched our three Suezmax OBO vessels from
liquid to dry cargo carriers, and at the beginning of February 2006, when
dry cargo rates in the Pacific Ocean began to fall, we switched the
Princess Susana back to operating as a tanker and then back to dry cargo
when the dry cargo market recovered to higher levels. We have also deployed
two of our PSVs to the North Sea to take advantage of the high charter
rates currently prevailing in that region. In addition, we actively manage
the deployment of our fleet between longer-term time charters and
shorter-term time charters. Our vessel deployment strategy is designed to
provide greater cash flow stability through the use of longer-term time
charters, while maintaining the flexibility to benefit from improvements in
market rates by deploying the balance of our vessels on shorter term time
charters.
OUR LINES OF BUSINESS
River Business
We have developed our River Business from a single river convoy comprising one
pushboat and four barges in 1993 to the leading river transportation company in
the Hidrovia Region today. Our River Business, which we operate through our
subsidiary UABL, has 502 barges and 24 pushboats, with 828,000 dwt capacity. We
currently own 458 dry barges that transport agricultural and forestry products,
iron ore and other cargos, and 44 tanker barges that carry petroleum products,
vegetable oils and other liquids. We believe that we have more than twice the
number of barges and dwt capacity as our nearest competitor. In addition, we use
one 35,000 dwt barge designed for ocean trading, the Alianza G2, as a transfer
station to provide storage and transshipment services of cargo from river barges
to ocean export vessels.
We are in the process of expanding the size of some of our barges to increase
their cargo carrying capacity and maximize our fleet utilization. We have begun
a three year program to expand the size of approximately 130 of our barges. We
believe that enlarging our existing barges is the most cost-effective way of
growing our fleet's cargo carrying capacity. To date, we have expanded 12 barges
and expect to have expanded a total of 62 by the end of 2007. We also have begun
a program to replace the engines in all 16 of our line pushboats and in
connection with that program have contracted to purchase six new engines from
MAN Diesel with expected delivery dates in July and November of 2007. The new
engines will consume heavier grades of fuel which have, from 2001 to 2006, been
between 33.5% and 51.7% less expensive than the diesel fuel we currently
consume.
We operate our pushboats and barges on the navigable waters of the Parana,
Paraguay and Uruguay Rivers and part of the River Plate in South America, also
known as the Hidrovia Region. We believe that this river system offers the most
efficient means of transportation for bulk cargos through the Hidrovia Region.
At over 2,200 miles in length, the Hidrovia Region is comparable to the
Mississippi River in the United States and produces and exports a significant
and growing amount of agricultural products. For example, Argentina, Brazil,
Paraguay, and Bolivia produced, in the aggregate, 39.9 million tons of soybeans
in 1995 compared to an estimated 107.9 million tons in 2006, a compound annual
growth rate of 9.8%. These countries accounted for approximately 47% of world
soybean production in 2006, growing from only 29% in 1995. In addition to
agricultural products, companies in the Hidrovia Region are expanding and
initiating the production of other goods, including forest products, iron ore,
and pig iron. In order to maintain our existing fleet and expand our capacity
rapidly and cost effectively we have doubled the capacity of our Argentina
facility effective the end of March 2007 and plan to enhance this shipyard to
allow for new construction of barges and other vessels. Today's available barge
fleet in the Hidrovia Region consists of approximately 1,100 dry and tank barges
compared to 26,500 barges in the Mississippi River system.
Through joint ventures, we own and operate terminals at certain key locations to
provide integral transportation services to our customers from origin to
destination. We also own a drydock and repair facility to carry out fleet
maintenance and have a long-term lease on another facility where we intend to
conduct part of the barge enlargement program. We utilize night-running
technology, which allows for night navigation and improves asset efficiency.
Over the next few years, as increasing agricultural production is expected to
couple with production from new mining and pig iron facilities, the resulting
significant additional cargo volumes in the Hidrovia require an efficient
solution to create the capacity necessary for river transport.
We believe that bringing barges from the United States, which has been a major
source of barges in the Hidrovia region, is no longer a sustainable economical
option, given the current tightness of supply in the United States market and
the high costs of transportation. Because we believe the Hidrovia region does
not have facilities capable of building barges efficiently on a larger scale, we
plan to expand our shipyard and, with the assistance of experienced U.S.
consultants, construct a modern shipbuilding unit capable of producing barges
and other vessels in a timely and cost efficient manner.
Offshore Supply Business
Our Offshore Supply Business, which we operate through UP Offshore, is focused
on serving companies that are involved in the complex and logistically demanding
activities of deepwater oil exploration and production. We have ordered the
construction of eight proprietarily designed and technologically advanced PSVs
and have an option for two more. We received delivery of and placed into service
two of these vessels in 2005 and two in 2006. We expect the two PSVs currently
being constructed in Brazil to be delivered and placed into service in the
second quarter of 2007 and 2008, respectively, and the two PSVs being
constructed in India to be delivered commencing in 2009. If the option is
exercised and the additional two vessels are built, our Offshore Supply fleet
will have a total of ten PSVs. Upon delivery of the two PSVs we currently have
under construction in Brazil, we intend to employ them in Brazil and other
international markets. Our PSVs are designed to transport supplies, equipment,
drill casings and pipes on deck, along with fuel, water, drilling fluids and
bulk cement in under-deck tanks, and a variety of other supplies to drilling
rigs and platforms. We employ two of these vessels in the spot market in the
North Sea and employ the other two on time charter in Brazil with Petrobras.
Through one of our Brazilian subsidiaries, we have the competitive advantage of
being able to trade most of our PSVs in the Brazilian market with cabotage
trading privileges, enabling the PSVs to obtain employment in preference to
non-Brazilian flagged vessels.
The trend for offshore petroleum exploration has been to move toward deeper,
larger and more complex projects, which has resulted in increased demand for
more sophisticated and technologically advanced PSVs to handle the more
challenging environments and greater distances. Our PSVs are equipped with
dynamic positioning capabilities, most have dedicated oil recovery tanks for the
performance of oil recovery duties, azimuth thrusters and greater cargo capacity
and deck space than most standard PSVs, all of which provide us a competitive
advantage in efficiently servicing our customers' needs.
Ocean Business
In our Ocean Business, we own and operate eight oceangoing vessels, including
one semi-integrated oceangoing tanker barge unit, under the trade name,
Ultrapetrol. Our three Suezmax OBO vessels transport liquid cargo, such as
petroleum and petroleum products, as well as dry cargo, such as iron ore and
coal, on major routes around the globe. Our Aframax tanker carries both crude
oil and a variety of refined petroleum products internationally. Our product
tankers are employed primarily in South American cabotage. Our semi-integrated
tug barge Alianza G-3/Alianza Campana operates under long-term charter as a
support vessel in North Brazil up to February 2007 and, after a period of dry
dock and refurbishment, will continue to provide service in South America. Our
current ocean fleet has an aggregate cargo carrying capacity in excess of
651,000 dwt and an average age of approximately 15.5 years.
We presently employ our Suezmax OBO vessels in the carriage of dry bulk cargos
on trade routes around the world, mostly transporting coal and iron ore from
South America, Australia and South Africa to Europe, China and other Far East
countries. During 2006, we derived over 69% of our Ocean Business revenues from
charterers in Europe and Asia, some of which were SwissMarine and Pan Ocean
Shipping. Over the same period, we derived 75% of our Ocean Business revenues
from time charters with at least three months duration and 25% from spot
voyages.
Our Aframax tanker, Princess Marina, has been employed for the last four years
under successive charters in Chile with ENAP, which now have been extended until
August 2007.
We currently employ Miranda I, our chemical/product carrier, on a three-year
charter with an option for an additional two years to Petrobras, a major oil
company serving the regional trade of Argentina and Brazil, through September
2008. In November 2006, we entered into a Memorandum of Agreement to purchase
the Alejandrina, a 9,219 dwt product tanker which we will employ in the cabotage
trade in South America. Similarly, in October 2006, we entered into a contract
to purchase the Amadeo, a 39,530 dwt Handysize crude and product tanker which
will also be employed in the cabotage trade in Argentina, Brazil and Chile.
Our Miranda I and Amadeo, originally built as single hull, are in the process of
being converted to double hull in Argentina and Romania, respectively, and we
expect both conversions to be completed in the second quarter of 2007. Our
vessels Princess Nadia and Princess Susana have been, as of the end of 2006,
certified by Class as double hull vessels. All of our remaining ocean ships are
double hull with the exception of Princess Katherine which, although generally
of double hull design, needs reconfiguration of some service tanks to comply
with double hull requirements. This vessel is currently employed in dry cargo,
and we are planning to reconfigure her if/when she returns to tanker trade.
Passenger Business
In our Passenger Business, we own and operate two vessels that we purchased in
2005, the New Flamenco, with a 1,010 person capacity and 401 cabins, and the
Grand Victoria (which we have renamed the Blue Monarch for her 2007 employment),
with a 575 person capacity and 242 cabins. In February 2006, we completed an
extensive refurbishment of the New Flamenco, including all passenger areas, and
we conducted work to recertify the Grand Victoria and upgraded some of her
passenger areas. We employ the New Flamenco under a seasonal charter with a
European tour operator cruising the Mediterranean Sea.
The remainder of the charter for the New Flamenco is a one-year, "full-service
charter," extendable for an additional year at the charterer's option, pursuant
to which we are responsible for operating and maintaining the vessel, paying the
full vessel's staff and providing passenger services such as entertainment and
food and beverages, while our charterer is responsible for marketing and ticket
sales as well as fuel and port charges. Pursuant to the charter, our charterer
pays us an agreed amount per passenger, per day, which escalates each year, and
is subject to a guaranteed minimum occupancy equivalent to an average of
approximately 80% of the lower berth capacity. We also receive the revenues, as
applicable, from on board sales of goods and services, a portion of which are
shared with the charterer or concessionaire.
In the current employment for the Blue Monarch, on 7-day cruises in the Aegean,
we market the ship through Monarch Classic Cruises. Under this arrangement, we
own one third of Monarch Classic Cruises, but we have no guaranteed minimum
income.
The structure of our seasonal contracts for our Passenger Business provides us
with a stable revenue stream as well as the flexibility to operate the vessels
in other regions of the world at the end of the seasonal contract term. We have
operated one of our vessels during periods outside the European travel season
for certain events.
ULTRAPETROL FLEET SUMMARY
Number of
River Fleet Vessels Capacity Description
---------- ---------- -------- -----------
Alianza G2/Alianza Rosario............ 1 35,000 tons Transfer Station
Pushboat Fleet........................ 24 77,752 hp Various Sizes and Horse
Power
Tank Barges........................... 44 95,578 m(3) Carry Liquid Cargo (Petroleum
Products, Veg. Oil)
Dry Barges............................ 458 732,700 tons Carry Dry Cargo
(Soy, Iron Ore)
-------
Total................................. 539 N/A
=======
Capacity Delivery
Offshore Supply Fleet Year Built (DWT) Date
--------------------- ---------- ----- ----
In Operation
------------
UP Esmeralda.......................... 2005 4,200 2005
UP Safira............................. 2005 4,200 2005
UP Agua-Marinha....................... 2006 4,200 2006
UP Topazio............................ 2006 4,200 2006
On Order
--------
UP Diamante........................... 2007 4,200 2007(e)
UP Rubi............................... 2008 4,200 2008(e)
TBN................................... 2009 4,200 TBD
TBN................................... 2009 4,200 TBD
------
Total................................. 33,600
======
Ocean Fleet Year Built DWT Description
----------- ---------- --- -----------
Princess Nadia........................ 1987 152,328 Suezmax OBO
Princess Susana....................... 1986 152,301 Suezmax OBO
Princess Katherine.................... 1986 164,100 Suezmax OBO
Princess Marina(1).................... 1986 83,930 Aframax Tanker
Alianza G-3/Alianza Campana........... 1993(2) 43,164 Semi Integrated Tug/
Barge Unit
Miranda I............................. 1995 6,575 Product Carrier/ Chemical Tanker
Amadeo................................ 1996 39,530 Handysize Product Tanker
Alejandrina........................... 2006 9,219 Product Tanker
-------
Total................................. 651,147
=======
(1) We currently hold the Princess Marina through our 49% ownership of Maritima
SIPSA S.A., a company controlled by Chilean citizens, to whom we sold the
Princess Marina upon the beginning of her charter in Chile in May 2003. As
part of this arrangement, we have contracted to repurchase the Princess
Marina on September 25, 2007. We recognize as charter revenue on this
transaction the difference between our sale price to Maritima SIPSA and
their sale price back to us of this vessel. See "Related party transactions
-- Maritima SIPSA S.A."
(2) Originally built in 1982, converted in 1993 to double hull product tank
barge.
Total Total
Capacity Number
Passenger Fleet (Passengers) of Cabins
--------------- ------------ ---------
New Flamenco.................................. 1,010 401
Blue Monarch (formerly, the Grand Victoria)... 575 242
----- ---
Total......................................... 1,585 643
===== ===
CHARTERING STRATEGY
We continually monitor developments in the shipping industry and make
charter-related decisions based on an individual vessel and segment basis, as
well as on our view of overall market conditions. In our River Business, we have
contracted a substantial portion of our fleet's capacity on a one- to four-year
basis to major clients. These contracts provide fixed pricing, minimum volume
requirements and fuel price adjustment formulas, and we intend to develop new
customers and cargos as we grow our fleet capacity.
In our Offshore Supply Business, we plan to charter our PSV fleet in Brazil for
medium-term (one to six months) charters or long-term employment (up to seven
years). Currently there is no spot market in Brazil for PSVs. In the North Sea,
we intend to continue to operate our PSVs in the spot market (short duration,
one day or more) combined with longer-term charters.
We historically have operated our Ocean Business vessels in both the spot
market, which allows us to take advantage of potentially higher market rates,
and under period charters, which allows us to achieve high utilization rates. We
intend to continue to operate some of our ocean vessels in the spot market and
others under period charters. We believe that this balanced approach to
chartering will provide us with relatively stable revenue streams while enabling
us to participate in favorable market developments.
We intend to employ our passenger vessels primarily in conjunction with tour
operators that will at least partially guarantee the vessels' revenue.
OUR FLEET MANAGEMENT
We conduct the day-to-day management and administration of our operations
in-house and through our wholly-owned subsidiaries.
Following our acquisition of Ravenscroft, and after acquiring the
administrative-related assets and the hiring of personnel of Oceanmarine
associated with administrative and accounting services, all technical,
commercial and administrative management functions will be conducted in-house.
Ravenscroft, operating from its office in Coral Gables, Florida, employs 32
people and will continue to undertake all technical and marine related
management for our offshore, ocean and passenger vessels including the
purchasing of supplies, spare parts and husbandry items, crewing,
superintendency and preparation and payment of all related accounts on our
behalf. Ravenscroft also continues to be responsible for the administration and
execution of the onboard services and management accounting system on our
Passenger vessels New Flamenco and Blue Monarch (formerly the Grand Victoria).
For the New Flamenco, Ravenscroft monitors the shore excursion sales, the
performance of the Food and Beverage and Entertainment concessionaires and also
controls certain aspects of onboard revenue such as the duty free shop which
generate additional income for us. Ravenscroft is a self-contained, full service
ship management company which includes a commercial department and is certified
for ISM and is also ISO 9001:2000 certified. It holds Documents of Compliance
for the management and operation of OBOs, tankers, bulk carriers, PSVs, general
cargo vessels, passenger vessels and also for the ship management of vessels
sold for demolition.
Ravenscroft will continue to manage vessels for and on behalf of vessel owners
who are not related to us and will actively pursue new business opportunities.
In the case of our River Business, our commercial and technical management
continues to be performed in-house by UABL personnel.
COMPETITION
River Business
We maintain a leading market share in our River Business. We own the largest
fleet of pushboats and barges in the Hidrovia Region. We believe that we have
more than twice the number of barges and dwt capacity than our nearest
competitor. We compete based on service, reliability, efficiency and price. Key
competitors include Horamar and Fluviomar. In addition, some of our customers,
including Archer Daniels Midland and Rio Tinto, have some of their own dedicated
barge capacity, which they can use to transport cargos in lieu of hiring a third
party. Our River Business also indirectly competes with forms of land-based
transportation such as truck and rail.
Offshore Supply Business
In our Offshore Supply Business, our main competitors are the Brazilian offshore
companies that own and operate modern PSVs. The largest of these companies is
CBO, which currently owns four modern PSVs and is building an additional four
PSVs in Brazil. Also, some of the international offshore owners, such as
Tidewater and Maersk, have built Brazilian-flagged PSVs.
Ocean Business
We face competition in the transportation of crude oil and petroleum products as
well as other bulk commodities from other independent ship owners and from
vessel operators who primarily charter-in vessels to meet their cargo carrying
needs. The charter markets in which our vessels compete are highly competitive.
Competition is primarily based on prevailing market charter rates, vessel
location and vessel manager reputation. Our primary competitor in crude oil and
petroleum products transportation within Argentina, and between Argentina and
other South American countries, as well as in Chile, is Antares Naviera S.A. and
its affiliated companies, including Ultragas, Lauderdale Tankers Corp., and
Sonap S.A., an independent tanker owner and operator. The other major
participant in the Argentina/Brazil trade is Transpetro. Transpetro is a
subsidiary of Petrobras, our primary customer in Brazil. In other South American
trades our main competitors are Heidmar Inc., Naviera Sur Petrolera S.A.,
Naviera El Cano (through their various subsidiaries) and Sonacol S.A. These
companies and other smaller entities are regular competitors of ours in our
primary tanker trading areas. In our dry bulk trades, we operate our vessels
internationally where we compete against the main fleets of Capesize ships, with
companies such as the Offer Group, Frontline, Bocimar and others.
Passenger Business
The tour operators that are our clients in the Passenger Business compete for
consumers' leisure-time expenditures with both other cruise lines and a wide
array of other vacation options located throughout the world, including numerous
land-based destinations and package holiday, tour and timeshare vacation
operators. Many of these operators attempt to obtain a competitive advantage by
lowering prices and/or by improving their products, such as by offering
different vacation experiences and locations. In the event that we or the tour
operators that are our clients do not compete effectively with other cruise
companies and other vacation operators, our results of operations from our
Passenger Business would be adversely affected.
EMPLOYEES
As of December 31, 2006, we employed approximately 855 employees, consisting of
188 land-based employees and approximately 677 seafarers as crew on our vessels,
of which 183 were in our River Business, 57 were in our Offshore Supply
Business, 126 were in our Ocean Business, and 301 were in our Passenger
Business. Some of these employees were employed through various manning agents
depending on the nationality as listed below.
o Indian crew: Orient Ship Management & Manning Pvt.,
Ltd., Mumbai, India
o Argentine crew: Tecnical Services S.A., one of our
subsidiaries, Montevideo, Uruguay
o Filipino crew: C.F. Sharp Crew Management, Manila,
Philippines
o Ukrainian crew: South Star Ltd., Odessa, Ukraine
o Romanian crew: Corona Shipping SRL, Constantza, Romania
o Indonesian crew: Indomarimo Maju PT, Jakarta, Indonesia
o Chilean crew: Maritima SIPSA, a related company,
Santiago, Chile
o Greek and Eastern European crew: Nova Manning Services, Piraeus, Greece
o Paraguayan crew: Tecnical Services S.A., one of our
subsidiaries, Montevideo, Uruguay
Our crew is employed under the standard collective bargaining agreements with
the seafarers' union in their respective countries. The crew is employed on
contractual terms valid for a fixed duration of service on board the vessels. We
ensure that all the crew employed on board our vessels have the requisite
experience, qualifications and certification to comply with all international
regulations and shipping conventions. Our training requirements for the crew
exceed the applicable statutory requirements. We always man our vessels above
the safe manning requirements of the vessels' flag state in order to ensure
proper maintenance and safe operation of the vessels. We have in force special
programs such as a performance-related incentive bonus, which is paid to some of
our senior officers upon rejoining our ships. This ensures retention of
qualified and competent staff.
ENVIRONMENTAL AND OTHER REGULATION
Government regulation significantly affects our operations, including the
ownership and operation of our vessels. Our operations are subject to
international conventions, national, state and local laws, and regulations in
force in international waters and the jurisdictional waters of the countries in
which our vessels may operate or are registered, including OPA, the
Comprehensive Environmental Response, Compensation, and Liability Act, or
CERCLA, the U.S. Port and Tanker Safety Act, the Act to Prevent Pollution from
Ships, regulations adopted by the IMO and the European Union, various volatile
organic compound emission requirements, the IMO/U.S. Coast Guard pollution
regulations and various SOLAS amendments, as well as other regulations.
Compliance with these requirements entails significant expense, including vessel
modifications and implementation of certain operating procedures.
A variety of governmental and private entities, each of which may have unique
requirements, subject our vessels to both scheduled and unscheduled inspections.
These entities include the local port authorities (U.S. Coast Guard, harbor
master or equivalent), classification societies, flag state administration
(country of registry) and charterers, particularly terminal operators. Certain
of these entities require us to obtain permits, licenses and certificates for
the operation of our vessels. Failure to maintain necessary permits or approvals
could require us to incur substantial costs or temporarily suspend operation of
one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among
insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the industry. Increasing environmental
concerns have created a demand for vessels that conform to the stricter
environmental standards. We are required to maintain operating standards for all
of our vessels for operational safety, quality maintenance, continuous training
of our officers and crews, and compliance with U.S. and international
regulations. We believe that the operation of our vessels is in substantial
compliance with applicable environmental laws and regulations; however, because
such laws and regulations are frequently changed and may impose increasingly
stricter requirements, such future requirements may limit our ability to do
business, increase our operating costs, force the early retirement of our
vessels, and/or affect their resale value, all of which could have a material
adverse effect on our financial condition and results of operations.
Environmental Regulation -- International Maritime Organization, or IMO
The IMO has negotiated international conventions that impose liability for oil
pollution in international waters and a signatory's territorial waters. For
example, the International Convention for the Prevention of Pollution from Ships
or MARPOL, imposes environmental standards on the shipping industry relating to
oil spills, management of garbage, the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. In particular,
MARPOL requirements impose phase-out dates for vessels that are not certified as
double hull. Two of our Suezmax OBO vessels currently do not meet the
configuration criteria and will require modifications to comply with these
criteria before the end of 2010. These modifications will not involve major
steel work. Our vessel, the Miranda I, does not currently comply with the double
hull requirement unless she limits her loading to center tanks only. However, we
expect to retrofit her to full double hull compliance by the second quarter of
2007. Annex III of MARPOL regulates the transportation of marine pollutants,
including standards on packing, marking, labeling, documentation, stowage,
quality limitations and pollution prevention. These requirements have been
expanded by the International Maritime Dangerous Goods Code, which imposes
additional standards for all aspects of the transportation of dangerous goods
and marine pollutants by sea. In September 1997, the IMO adopted Annex VI to the
International Convention for the Prevention of Pollution from Ships to address
air pollution from ships. Annex VI was ratified in May 2004, and became
effective in May 2005. Annex VI sets limits on sulphur oxide and nitrogen oxide
emissions from vessel exhausts and prohibits deliberate emissions of ozone
depleting substances, such as chlorofluorocarbons. Annex VI also includes a
global cap on the sulphur content of fuel oil and allows for special areas to be
established with more stringent controls on sulphur emissions. Additional or new
conventions, laws and regulations may be adopted that could adversely affect our
ability to manage our ships.
The operation of our vessels is also affected by the requirements set forth in
the ISM Code. The ISM Code requires vessel owners and bareboat charterers to
develop and maintain an extensive "Safety Management System" that includes,
among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for safe operation and describing
procedures for dealing with emergencies. The ISM Code requires that vessel
operators obtain a safety management certificate for each vessel they operate.
No vessel can obtain a certificate unless its manager has been awarded a
document of compliance, issued by each flag state, under the ISM Code. The
failure of a vessel owner or bareboat charterer to comply with the ISM Code may
subject such party to increased liability, may decrease available insurance
coverage for the affected vessels, and may result in a denial of access to, or
detention in, certain ports. Currently, each of the oceangoing vessels in our
fleet is ISM code-certified. However, there can be no assurance that such
certification will be maintained indefinitely.
Environmental Regulation -- The United States Oil Pollution Act of 1990, or OPA
The United States Oil Pollution Act of 1990, or OPA, established an extensive
regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the United States territorial
sea and its 200 nautical mile exclusive economic zone.
Under OPA, vessel owners, operators and bareboat charterers are "responsible
parties" and are liable without regard to fault (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels, including bunkers (vessel
fuel).
OPA previously limited liability of a responsible party to the greater of $1,200
per gross ton or $10.0 million per tanker that is over 3,000 gross tons (subject
to possible adjustment for inflation). OPA also limited the liability of
responsible parties to the greater of $600 per gross ton or $0.5 million per dry
bulk vessel that is over 300 gross tons (subject to possible adjustment for
inflation). Amendments to OPA signed into law on July 11, 2006 increased the
limits on the liability of responsible parties to the greater of $1,900 per
gross ton or $16.0 million per tanker that is over 3,000 gross tons (effective
October 9, 2006), and $950 per gross ton or $800,000 per dry bulk vessel that is
over 300 gross tons (effective immediately). These OPA liability limits do not
apply if an incident was caused by a violation of certain construction or
operating regulations or a responsible party's gross negligence or willful
misconduct, or if the responsible party fails or refuses to report the incident
or to cooperate and assist in connection with oil removal activities. In
addition, CERCLA, which applies to the discharge of hazardous substances (other
than oil) whether on land or at sea, contains a similar liability regime and
provides for cleanup, removal and natural resource damages. Liability under
CERCLA is limited to the greater of $300 per gross ton or $5.0 million, unless
the incident is caused by gross negligence, willful misconduct, or a violation
of certain regulations, in which case liability is unlimited.
We currently maintain, for the vessels in our fleet, pollution liability
coverage insurance in the amount of $1.0 billion per incident. If the damages
from a catastrophic spill exceeded our insurance coverage, it could have a
material adverse effect on our business and the results of operations.
The financial responsibility regulations issued under OPA require owners and
operators of vessels to establish and maintain with the United States Coast
Guard evidence of financial responsibility in the amount of $1,500 per gross
ton, which combines the OPA limitation on liability of $1,200 per gross ton and
the CERCLA limit of $300 per gross ton. The U.S. Coast Guard has indicated that
it intends to propose a rule that will increase the amount of required evidence
of financial responsibility to $2,200 per gross ton, to reflect the increase in
liability limits under OPA as described above. Under the regulations, vessel
owners and operators may evidence their financial responsibility by showing
proof of insurance, surety bond, self-insurance, or guaranty and are required
only to demonstrate evidence of financial responsibility in an amount sufficient
to cover the vessels in the fleet having the greatest maximum liability under
OPA.
The Coast Guard's regulations concerning certificates of financial
responsibility provide, in accordance with OPA, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility. In the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may
have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA laws, including the major protection and indemnity
organizations, have declined to furnish evidence of insurance for vessel owners
and operators if they are subject to direct actions or required to waive
insurance policy defenses. Under the self-insurance provisions, the vessel owner
or operator must have a net worth and working capital, measured in assets
located in the United States against liabilities located anywhere in the world,
that exceeds the applicable amount of financial responsibility. We have complied
with the Coast Guard regulations by providing a financial guaranty evidencing
sufficient insurance.
OPA expressly permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states which have enacted such legislation, have not yet
issued implementing regulations defining vessels owners' responsibilities under
these laws. OPA also amended the Federal Water Pollution Control Act to require
owners and operators of vessels to adopt contingency plans for reporting and
responding to oil spill scenarios up to a "worst case" scenario and to identify
and ensure, through contracts or other approved means, the availability of
necessary private response resources to respond to a "worst case discharge." In
addition, periodic training programs for shore and response personnel and for
vessels and their crews are required. The U.S. Coast Guard has approved our
vessel response plans.
OPA also requires that tankers over 5,000 gross tons calling at U.S. ports have
double hulls if contracted after June 30, 1990 or delivered after January 1,
1994. Furthermore, under OPA, oil tankers without double hulls will not be
permitted to come to U.S. ports or trade in U.S. waters by 2015. Although all of
our oceangoing vessels are double hull, four of these vessels are subject to
phase-out under OPA due to configuration requirements. Based on current OPA
requirements, these four vessels will not be eligible to carry oil as cargo
within the 200 nautical mile United States exclusive economic zone starting in
2014, except that these tankers may trade in U.S. waters until 2015 if their
operations are limited to discharging their cargos at the Louisiana Offshore Oil
Port of off-loading by lightering within authorized lightering zones more than
60 miles offshore.
We believe we are in substantial compliance with OPA, CERCLA and all applicable
state regulations in the ports where our vessels call.
Environmental Regulation -- Other Environmental Initiatives
In July 2003, in response to the Prestige oil spill in November 2002, the
European Union adopted regulation that accelerates the IMO single hull tanker
phase-out timetable. The European Union is also considering legislation that
will affect the liability of owners for oil pollution. It is difficult to
predict what legislation, if any may be promulgated by the European Union or any
other country or authority.
Although the United States is not a party thereto, many countries have ratified
and follow the liability scheme adopted by the IMO and set out in the
International Convention of Civil Liability for Oil Pollution Damage, or the
CLC, and the Convention for the Establishment of an International Fund for Oil
Pollution of 1971, as amended. Under these conventions, a vessel's registered
owner is strictly liable for pollution damage caused on the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defenses. Many of the countries that have ratified the CLC have
increased the liability limits through a 1992 Protocol to the CLC. The liability
limits in the countries that have ratified this Protocol are, currently,
approximately $6.75 million plus approximately $9451 per gross registered ton
above 5,000 gross tons with an approximate maximum of $135 million per vessel.
As the CLC calculates liability in terms of a basket of currencies, these
figures are based on currency exchange rates as of January 23, 2007. The right
to limit liability is forfeited under the CLC where the spill is caused by the
owner's actual fault or privity and, under the 1992 Protocol, where the spill is
caused by the owner's intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not been adopted,
various legislative schemes or common law govern, and liability is imposed
either on the basis of fault or in a manner similar to the CLC.
In addition, the U.S. Clean Water Act, or CWA, prohibits the discharge of oil or
hazardous substances to navigable waters without a permit, and imposes strict
liability in the form of penalties for any unauthorized discharges. The CWA also
imposes substantial liability for the costs of removal, remediation and damages
and compliments the remedies available under the more recent OPA and CERCLA,
discussed above. Currently, under U.S. Environmental Protection Agency, or EPA,
regulations, vessels are exempt from the requirement to obtain CWA permits for
the discharge in U.S. ports of ballast water and other substances incidental to
the normal operation of vessels. However, on March 30, 2005, a U.S. District
Court ruled that the EPA exceeded its authority in creating an exemption for
ballast water. On September 18, 2006, the court issued an order invalidating the
blanket exemption in the EPA's regulations for all discharges incidental to the
normal operation of a vessel as of September 30, 2008, and directing the EPA to
develop a system for regulating all discharges from vessels by that date. Under
the court's ruling, owners and operators of vessels visiting U.S. ports would be
required to comply with the CWA permitting program to be developed by the EPA or
face penalties. Although the EPA has appealed this decision, if the court's
order is ultimately upheld, we will incur certain costs to obtain CWA permits
for our vessels. This could require the installation of equipment on our vessels
to treat ballast water before it is discharged at substantial cost and/or
otherwise restrict some or all of our vessels from entering waters of the United
States that are subject to this ruling.
At the international level, the IMO adopted an International Convention for the
Control and Management of Ships' Ballast Water and Sediments in February 2004
(the "BWM Convention"). The BWM Convention's implementing regulations call for a
phased introduction of mandatory ballast water exchange requirements (beginning
in 2009), to be replaced in time with mandatory concentration limits. The BWM
Convention will not enter into force until 12 months after it has been adopted
by 30 member states, the combined merchant fleets of which represent not less
than 35% of the gross tonnage of the world's merchant shipping.
If the mid-ocean exchange of ballast water is made mandatory throughout the
United States or at the international level, or if water treatment requirements
are implemented, the cost of compliance could increase for ocean carriers.
Although we do not believe that the costs of compliance with a mandatory
mid-ocean ballast exchange would be material, it is difficult to predict the
overall impact of such a requirement on the business.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002 (MTSA) came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
went into effect in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the newly
created International Ship and Port Facilities Security, or the ISPS Code. We
are in compliance with the ISPS Code. Among the various requirements are:
o on-board installation of automatic information systems, or AIS, to enhance
vessel-to-vessel and vessel-to-shore communications;
o on-board installation of vessel security alert systems;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
Inspection by Classification Societies
Every oceangoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks
that are required by regulations and requirements of the flag state. These
surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull,
machinery, including the electrical plant, and any special equipment classed are
required to be performed as follows:
Annual Surveys. For oceangoing vessels, annual surveys are conducted for the
hull and the machinery, including the electrical plant, and, where applicable,
for special equipment classed, at intervals of 12 months from the date of
commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate
surveys and typically are conducted two and one-half years after commissioning
and each class renewal. Intermediate surveys may be carried out on the occasion
of the second or third annual survey.
Special Surveys. Special surveys, also known as class renewal surveys, are
carried out every five years for the vessel's hull, machinery, including the
electrical plant, and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At the special
survey, the vessel is thoroughly examined, including audio-gauging to determine
the thickness of the steel structures. Should the thickness be found to be less
than class requirements, the classification society would prescribe steel
renewals. The classification society may grant a one-year grace period for
completion of the special survey. Substantial amounts of funds may have to be
spent for steel renewals to pass a special survey if the vessel experiences
excessive wear and tear. In lieu of the special survey, a vessel owner has the
option of arranging with the classification society for the vessel's hull or
machinery to be on a continuous survey cycle, in which every part of the vessel
would be surveyed within a five-year cycle. This process is also referred to as
continuous class renewal. We have made arrangements with the classification
societies for our vessels to be on a continuous survey cycle.
Currently our oceangoing vessels are scheduled for intermediate surveys and
special surveys as follows:
Intermediate survey Special survey
------------------- --------------
No. of No. of
Year vessels Year vessels
---- ------- ---- -------
2007 3 2007 4
2008 3 2008 0
2009 8 2009 1
2010 0 2010 4
2011 0 2011 4
All areas subject to survey as defined by the classification society are
required to be surveyed at least once per class period, unless shorter intervals
between surveys are prescribed elsewhere. The period between two subsequent
surveys of each area must not exceed five years.
Most oceangoing vessels are also drydocked every 30 to 36 months for inspection
of the underwater parts and for repairs related to inspections. If any defects
are found, the classification surveyor will issue a "recommendation" which must
be rectified by the vessel owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a
vessel be certified as "in class" by a classification society which is a member
of the International Association of Classification Societies. All our oceangoing
vessels are certified as being "in class."
RISK OF LOSS AND LIABILITY INSURANCE
General
The operation of any cargo vessel includes risks such as mechanical failure,
collision, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, hostilities and labor strikes. In
addition, there is always an inherent possibility of marine disaster, including
oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade.
We believe that we maintain insurance coverage against various casualty and
liability risks associated with our business that we consider to be adequate
based on industry standards and the value of our fleet, including hull and
machinery and war risk insurance, loss of hire insurance at certain times for
certain vessels, protection and indemnity insurance against liabilities to
employees and third parties for injury, damage or pollution, strike covers for
certain vessels and other customary insurance. While we believe that our present
insurance coverage is adequate, we cannot guarantee that all risks will be
insured, that any specific claim will be paid, or that we will always be able to
obtain adequate insurance coverage at reasonable rates or at all.
Hull and Machinery and War Risk Insurance
We maintain marine hull and machinery and war risk insurance, which includes the
risk of actual or constructive total loss, for our wholly-owned vessels. At
times, we also obtain for part of our fleet increased value coverage and
additional freight insurance during periods of improved market rates, where
applicable. This increased value coverage and additional freight coverage
entitles us, in the event of total loss of a vessel, to some recovery for
amounts not otherwise recoverable under the hull and machinery policy. When we
obtain these additional insurances, our vessels will each be covered for at
least their fair market value, subject to applicable deductibles (and some may
include limitations on partial loss). We cannot assure you, however, that we
will obtain these additional coverages on the same or commercially reasonable
terms, or at all, in the future.
Loss of Hire
We maintain loss of hire insurance at certain times for certain vessels. Loss of
hire insurance covers lost earnings resulting from unforeseen incidents or
breakdowns that are covered by the vessel's hull and machinery insurance and
result in loss of time to the vessel. Although loss of hire insurance will cover
up to ninety days of lost earnings, we must bear the applicable deductibles
which generally range between the first 14 to 30 days of lost earnings. We
intend to renew these insurance policies or replace them with other similar
coverage if rates comparable to those on our present policies remain available.
There can be no assurance that we will be able to renew these policies at
comparable rates or at all. Future rates will depend upon, among other things,
our claims history and prevailing market rates.
Protection and Indemnity Insurance
Protection and indemnity insurance covers our legal liability for our shipping
activities. This includes the legal liability and other related expenses of
injury or death of crew, passengers and other third parties, loss or damage to
cargo, fines and other penalties imposed by customs or other authorities, claims
arising from collisions with other vessels, damage to other third-party
property, pollution arising from oil or other substances and claims arising from
salvage and towing and other related costs, wreck removal and other risks.
Coverage is limited for all of our vessels to approximately $4.25 billion with
the exception of oil pollution liability, which is limited to $1.0 billion per
vessel per incident.
This protection and indemnity insurance coverage is provided by protection and
indemnity associations, or P&I Clubs, which are non-profit mutual assurance
associations made up of members who must be either ship owners or ship managers.
The members are both the insured parties and the providers of capital. The P&I
Clubs in which our vessels are entered are currently members of the
International Group of P&I Associations, or the International Group and are
reinsured themselves and through the International Group in Lloyds of London and
other first class reinsurance markets. We may be subject to calls based on each
Club's yearly results. Similarly, the same P&I Clubs provide freight demurrage
and defense insurance which, subject to applicable deductibles, covers all legal
expenses in case of disputes, arbitrations and other proceedings related to our
oceangoing vessels.
LEGAL PROCEEDINGS
Ultrapetrol S.A. is involved in a customs dispute with the Brazilian Customs Tax
Authorities over the alleged infringement of customs regulations by the Alianza
G-3 and Alianza Campana (collectively, the "Alianza Campana") in Brazil during
2004. As a result, the Brazilian Customs Tax Authorities commenced an
administrative proceeding and applied the penalty of apprehension against the
Alianza Campana which required the Alianza Campana to remain in port or within a
maximum of five nautical miles from the Brazilian maritime coast. The maximum
customs penalty that could be imposed would be confiscation of the Alianza
Campana, which is estimated by the Brazilian Customs Tax Authorities to be
valued at $4.56 million. The Secretary of the Brazilian Federal Revenue decided
to cancel the penalty of confiscation of the Alianza Campana by means of a
decision issued on August 14, 2006. However, the Secretary conditioned his
decision on the compliance with the following requirements: (1) the
classification of the Alianza Campana under the REPETRO regime and, if such
classification is confirmed; (2) the payment, by Ultrapetrol S.A. of a penalty
in the amount of one percent (1%) of the customs value of the Alianza Campana,
or $45,600.
In order to comply with the above described requirements, our customer Petroleo
Brasileiro S.A. ("Petrobras"), presented, on September 15, 2006, a formal
request to obtain from Brazilian Customs Tax Authorities the recognition of the
classification of the Alianza Campana under the REPETRO regime. The customs
authorities recognized the classification of the Alianza Campana under the
REPETRO regime. Upon formal recognition, we subsequently paid the penalty
mentioned above and, therefore, the confiscation penalty was automatically
canceled and the administrative proceeding finalized with no further
consequences to us.
On September 21, 2005, the local Customs Authority of Ciudad del Este, Paraguay
issued a finding that certain UABL entities owe taxes to that authority in the
amount of $2.2 million, together with a fine for non-payment of the taxes in the
same amount, in respect of certain operations of our River Business for the
prior three-year period. This matter was referred to the Central Customs
Authority of Paraguay (the "Paraguayan Customs Authority"). We believe that this
finding is erroneous and UABL has formally replied to the Paraguayan Customs
authority contesting all of the allegations upon which the finding was based.
After review of the entire case the Paraguayan Central Tax Authorities who have
jurisdiction over the matter have confirmed we have no liability with respect to
two of the three matters at issue, while they held a dissenting view on the
third issue. Through a Resolution which was provided to UABL on October 13,
2006, the Paraguayan Undersecretary for Taxation has confirmed that, in his
opinion, the Company is liable for a total of approximately $0.5 million and has
applied a fine of 100% of this amount. On November 24, 2006, the court confirmed
that UABL is not liable for the first two issues. The Company has entered a plea
with the respective court contending the interpretation on the third issue where
the Company claims to be equally non-liable. We have been advised by UABL's
counsel in the case that there is only a remote possibility that a court would
find UABL liable for any of these taxes or fines.
On November 3, 2006 the Bolivian Tax Authority (Departamento de Inteligencia
Fiscal de la Gerencia Nacional de Fiscalizacion) issued a notice in the Bolivian
press advising that UABL International S.A. (a Panamanian subsidiary of ours)
would owe taxes to that authority in the amount of approximately $ 2.5 million
(including interest) together with certain fines that have not been determined
yet. We have not received notice of any claim. We believe that this finding is
incorrect and UABL International S.A. will formally reply to the Bolivian Tax
Authority contesting the allegations of the finding when we are notified by the
Bolivian Authority. We have been advised by our local counsel in the case that
there is only a remote possibility that UABL International S.A. would be found
liable for any of these taxes or fines.
Various other legal proceedings involving us may arise from time to time in the
ordinary course of business. However, we are not presently involved in any other
legal proceedings that, if adversely determined, would have a material adverse
effect on us.
PROPERTIES
Ravenscroft is headquartered in our own 16,007 square foot building located at
3251 Ponce de Leon Boulevard, Coral Gables, Florida, United States of America.
In addition we own a repair facility and drydock at Pueblo Esther, Argentina,
and through 50% joint venture participations, two grain loading ports in
Paraguay. We also own land large enough for the construction of two terminals in
Argentina. We also rent offices in Argentina, Brazil, and Paraguay and a
shipyard in Argentina.
EXCHANGE CONTROLS
Under Bahamian law, there are currently no restrictions on the export or import
of capital, including foreign exchange controls or restrictions that affect the
remittance of dividends, interest or other payments to non-resident holders of
our common stock.
Management
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of our directors and executive
officers. Our board of directors is elected annually, and each director elected
holds office until his successor has been duly elected and qualified, except in
the event of his death, resignation, removal or the earlier termination of his
term of office. George Wood has agreed to serve on our audit committee. Officers
are elected from time to time by vote of our board of directors and hold office
until a successor is elected. The business address of each of our executive
officers and directors is H&J Corporate Services Ltd., Ocean Centre, Montagu
Foreshore, East Bay St., P.O. Box SS-19084, Nassau, Bahamas.
Name Age Position
---- --- --------
Felipe Menendez R................. 52 Chief Executive Officer, President
and Director
Ricardo Menendez R................ 59 Executive Vice President and
Director; Chief Executive Officer
of UP Offshore
Leonard J. Hoskinson.............. 53 Chief Financial Officer, Secretary
and Director
James F. Martin................... 52 Director
Katherine A. Downs................ 52 Director
Michael C. Hagan.................. 60 Director
George Wood....................... 61 Director
Alberto G. Deyros................. 51 Chief Accountant
Biographical information with respect to each of our directors, executives and
key personnel is set forth below.
Felipe Menendez R. Mr. Menendez has been President, Chief Executive Officer and
a Director of the Company since incorporation in December 1997, and is the
brother of Ricardo Menendez. Mr. Menendez commenced his career in shipping in
1974. He is President, and has been a Director, of Ultrapetrol S.A. since its
incorporation in 1992 as well as the President and CEO of UABL. Mr. Menendez is
also a Director of SIPSA S.A., or SIPSA, a Chilean publicly traded company
controlled by the Menendez family. Mr. Menendez has been, and continues to be,
actively involved in other businesses associated with the Menendez family, as
well as other companies affiliated with SIPSA.
Ricardo Menendez R. Mr. Menendez is the Executive Vice President of the Company
and CEO of UP Offshore and has been a Director of the Company since
incorporation in December 1997, and is the brother of Felipe Menendez. Mr.
Menendez began his career in the shipping industry in 1970 with Compania Chilena
de Navegacion Interoceania S.A., and has continuously been involved in the
management of the Menendez family's shipping interests. He is the President of
Oceanmarine, and has been the Executive Vice President and a Director of
Ultrapetrol S.A. since it was formed in 1992. Mr. Menendez is also a Director of
SIPSA, and remains involved in the management of other Menendez family
businesses. Mr. Menendez has been a member of the board of The Standard
Steamship Owners' Protection & Indemnity Association (Bermuda) Limited (a member
of the International Group of Protection & Indemnity Associations) since 1993
and is currently its Chairman. Mr. Menendez is also a Director of UABL.
Leonard J. Hoskinson. Mr. Hoskinson is the Chief Financial Officer of the
Company, was appointed Director of the Company in March 2000 and assumed the
position of Secretary six months later. Mr. Hoskinson has been employed by the
Company and its subsidiaries for over 16 years. Prior to that he had an
international banking career specializing in ship finance spanning over 18 years
and culminating as the Head of Shipping for Marine Midland Bank NA in New York
(part of the HSBC banking group). He is also a Director of UABL.
James F. Martin. Mr. Martin has been a Director since 2000. He is Managing
Partner at EMP Latin America and a Managing Director at EMP Global, responsible
for the management of the $1.1 billion, Bermuda-based AIG-GE Capital Latin
America Infrastructure Fund L.P. and for development of new funds and financial
advisory activities in the Latin America region. Prior to joining EMP Global in
1997, Mr. Martin was head of a team responsible for investments in water and
environmental infrastructure at International Finance Corporation. Mr. Martin
has a BSFS in International Economics from Georgetown University and a MBA from
Columbia University. He is also a Director of UABL and UP Offshore.
Katherine A. Downs. Ms. Downs has been a Director since 2000. Ms. Downs is a
Partner at EMP Latin America and a Managing Director at EMP Global. She joined
EMP Global in 1997 where she has worked on investments in transportation, power,
water and sanitation, and natural resources. Prior to joining EMP in 1997, Ms.
Downs was a Managing Vice President in the private placement group of the
Prudential Insurance Company of America. Ms. Downs holds a BA from Wesleyan
University, a JD from Boston University Law School, a MBA from Yale University
School of Management, and a MIPP in Latin American Studies from Johns Hopkins
SAIS, as well as the CFA designation. She is also a Director of UABL and UP
Offshore.
Michael C. Hagan. Mr. Hagan has been a Director since October 2006. He has
served as Chief Executive Officer of American Commercial Lines (ACL) from 1991
to 2003, and has served as Executive Vice President from 1989 to 1991. ACL was
at the time one of the largest inland river-oriented businesses engaged in barge
transportation, marine terminal and marine equipment manufacturing businesses
with peak sales of $850.0 million. Mr. Hagan started his career within ACL in
American Commercial Barge Lines (ACBL), a subsidiary of ACL, where he was
responsible for the sales and marketing of their inland barge operation. He then
became Sales VP for CSX Transportation Railroad, with a sales volume of $2.5
billion per annum in bulk and manufactured products as well as liquid chemicals.
Mr. Hagan holds a B.S. in Business Administration from Brescia University. Mr.
Hagan is a member of the National Waterways Foundation Board of Directors and is
a past Chairman of the American Waterways Operators.
George Wood. Mr. Wood has been a Director since October 2006. He is managing
director of Chancery Export Finance LLC (Chancery), a firm licensed by the
Export Import Bank of the United States of America (ExIm Bank). Chancery
provides ExIm Bank guaranteed financing for purchase of U.S. manufactured
capital goods by overseas buyers. Prior to his designation as managing director
of Chancery, Mr. Wood worked as managing director of Baltimore based Bengur
Bryan & Co. (Bengur Bryan) providing investment-banking services to
transportation related companies in the global maritime, U.S. trucking, motor
coach and rail industries. Before his employment with Bengur Bryan in 2000, Mr.
Wood was employed for 27 years in various managerial positions at the First
National Bank of Maryland which included managing the International Banking
Group as well as the bank's specialized lending divisions in leasing, rail,
maritime and motor coach industries, encompassing a risk asset portfolio of $1.2
billion. Mr. Wood holds a B.S. in Economics and Finance from University of
Pennsylvania and an MBA from the University of North Carolina and became a CPA
in 1980. Mr. Wood presently serves as member of the Boards of Atlanta-based
Infinity Rails Wawa Inc., and John S. Connor Inc. Mr. Wood recently served for
two years on the Board of LASCO Shipping Co.
Alberto G. Deyros. Mr. Deyros is the Chief Accountant of the Company and was
appointed in April 2006. Mr. Deyros has been employed by the Company and its
subsidiaries for more than eight years. Prior to that he specialized in ship
administration management over a period of 20 years. Mr. Deyros is a Certified
Public Accountant and a graduate of Universidad de Buenos Aires.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The aggregate annual net cost to us for the compensation paid to members of the
board of directors and our executive officers was $1.9 million for the fiscal
year ended December 31, 2006.
BOARD PRACTICES
Our audit committee is composed of Mr. Wood, one of our independent directors.
Our audit committee is responsible for reviewing our accounting controls and
recommending to the board of directors the engagement of our outside auditors.
Our corporate governance practices are in compliance with Bahamian law, and we
are exempt from many of the corporate governance provisions of the Nasdaq
Marketplace Rules other than those related to the establishment of an audit
committee.
CORPORATE GOVERNANCE PRACTICES
We have certified to Nasdaq that our corporate governance practices are in
compliance with, and are not prohibited by, the laws of The Bahamas. Therefore,
we are exempt from many of Nasdaq's corporate governance practices other than
the requirements regarding the disclosure of a going concern audit opinion,
submission of a listing agreement, notification of material non-compliance with
Nasdaq corporate governance practices and the establishment of an audit
committee in accordance with Nasdaq Marketplace Rules 4350(d)(3) and
4350(d)(2)(A)(ii). The practices that we follow in lieu of Nasdaq's corporate
governance rules are as follows:
o We do not have a board of directors with a majority of independent
directors, nor are we required to under Bahamian law. However, we have two
independent directors.
o In lieu of holding regular meetings at which only independent directors are
present, our entire board of directors, may hold regular meetings, as is
consistent with Bahamian law.
o In lieu of an audit committee comprising three independent directors, our
audit committee will have at least one member, which is consistent with
Bahamian law. The member of the audit committee currently meets the Nasdaq
requirement of a financial expert. We cannot guarantee that at least one
member of our audit committee will continue to meet this requirement.
o In lieu of a nomination committee comprising independent directors, our
board of directors will be responsible for identifying and recommending
potential candidates to become board members and recommending directors for
appointment to board committees. Shareholders may also identify and
recommend potential candidates to become board members in writing. No
formal written charter has been prepared or adopted because this process is
outlined in our memorandum of association.
o In lieu of a compensation committee comprising independent directors, our
board of directors will be responsible for establishing the executive
officers' compensation and benefits. Under Bahamian law, compensation of
the executive officers is not required to be determined by an independent
committee.
o In lieu of obtaining an independent review of related party transactions
for conflicts of interests, consistent with Bahamian law requirements, our
memorandum of association provides that related party transactions must be
approved by disinterested directors, and in certain circumstances,
supported by a fairness opinion.
o Pursuant to our articles of association, we are required to obtain
shareholder approval in order to issue additional securities.
o As a foreign private issuer, we are not required to solicit proxies or
provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance
rules or Bahamian law. Consistent with Bahamian law and as provided in our
articles of association, we will notify our shareholders of meetings
between 15 and 60 days before the meeting. This notification will contain,
among other things, information regarding business to be transacted at the
meeting. In addition, our memorandum of association provides that
shareholders must give us 90 days advance notice to properly introduce any
business at a meeting of the shareholders. Our memorandum of association
also provides that shareholders may designate a proxy to act on their
behalf (in writing or by telephonic or electronic means as approved by our
board from time to time).
Other than as noted above, we are in full compliance with all other applicable
Nasdaq corporate governance standards.
EQUITY INCENTIVE PLAN
We have adopted an equity incentive plan, or the Plan, dated July 20, 2006,
which will entitle our officers, key employees and directors to receive
restricted stock units, stock appreciation rights and options to acquire common
stock. Under the Plan, a total of 1,400,000 shares of common stock are reserved
for issuance. The Plan is administered by our board of directors. Under the
terms of the Plan, our board of directors would be able to grant new options
exercisable at a price per share to be determined by our board of directors.
Under the terms of the Plan, no options would be able to be exercised until at
least one year after the date of grant. Any shares received on exercise of the
options would not be able to be sold until one year after the date of the stock
option grant. All options expire ten years from the date of grant. The Plan
expires ten years from the closing of our IPO, or October 18, 2016. In 2006, we
granted under the Plan 36,952 restricted shares of our common stock to our
non-executive directors together with 310,000 shares of restricted stock and
348,750 shares issuable upon the exercise of options to companies controlled by
certain of our executive officers (see "Employment Agreements").
EMPLOYMENT AGREEMENTS
We have entered into employment contracts with our President and Chief Executive
Officer, Felipe Menendez R., our Executive Vice President, Ricardo Menendez R.,
our Chief Financial Officer, Leonard J. Hoskinson, and our Chief Accountant, Mr.
Alberto G. Deyros. Each of these employment agreements has an initial term of
three years from October 18, 2006 and is subject to one year renewals at our
written election. In addition, on July 20, 2006, we entered into separate
consulting agreements that became effective October 18, 2006 with companies
controlled by our chief executive officer, executive vice president, chief
financial officer and chief accountant for work they perform for us in various
different jurisdictions. These consulting agreements obligate us to grant the
companies an aggregate of 310,000 shares of restricted stock (for which we
expect to incur charges over the three year period of the agreement equal in the
aggregate to the number of shares granted multiplied by $11.00(the IPO price)
and 348,750 shares issuable upon the exercise of options with an exercise price
of $11.00 (the IPO price) pursuant to the Plan.
Principal and selling shareholders
The following table sets forth information regarding the selling shareholders,
shareholders known to us to own more than five percent of our common stock and
directors and executive officers as a group, as of the date of this prospectus,
and after giving effect to this offering. The address of each of the
shareholders set forth below is Ocean Centre, Montagu Foreshore, East Bay St.,
P.O. Box SS-19084, Nassau, Bahamas.
Prior to this Offering After this Offering After this Offering
------------------------------------------ -------------------
Number Percent of Shares Number Percent
of Shares Shares Sold of Shares of Class
Beneficially Beneficially Voting in this Beneficially Beneficial Voting
Name Owned Owned Percentage(1) Offering(2) Owned Owned Percentage(1)
------------------------------------------------------------------------------------------------------------------------------------
Solimar Holdings
Ltd.(3)(4)(5) 9,819,048 34.5% 56.4% %
Inversiones Los
Avellanos S.A.(4)(6)(7) 5,594,624 19.7% 28.6% %
Hazels (Bahamas)
Investments Inc.(4)(6) 702,159 2.5% 4.1% %
All directors and
executive officers as
a group(6)(8) 5,941,576 20.6% 32.9% %
----------
(1) Solimar, Los Avellanos and Hazels are each entitled to seven votes for each
share of our common stock that they hold, and all other holders of our
common stock are entitled to one vote for each share of common stock held.
(2) If the underwriters exercise in full their over-allotment option, Solimar
will sell additional shares of common stock.
(3) Solimar is a wholly-owned subsidiary of the AIG-GE Capital Latin American
Infrastructure Fund L.P., a Bermuda limited partnership.
(4) Solimar, Los Avellanos and Hazels have entered into an agreement pursuant
to which they have agreed to vote their respective shares together in all
matters where a vote of our shareholders is required. See "Related party
transactions."
(5) Includes warrants held by Solimar which entitle it to purchase up to
146,384 shares at an exercise price of $6.83 per share.
(6) Los Avellanos and Hazels are controlled by members of the Menendez family,
including Felipe Menendez R., our President, Chief Executive Officer and a
director, and Ricardo Menendez R., our Executive Vice President and a
director. The sole shareholder of Los Avellanos is SIPSA S.A., and Hazels
is a wholly-owned subsidiary of Los Avellanos.
(7) Includes shares owned by Hazels, a wholly-owned subsidiary of Los
Avellanos.
(8) Includes 310,000 shares of restricted stock issued to companies controlled
by our chief executive officer, executive vice president and chief
financial officer. Does not include 348,750 shares of common stock issuable
upon exercise of options granted to these companies, as those options have
not yet vested.
Related party transactions
Our revenues derived from transactions with related parties for each of the
years ended December 31, 2004, 2005 and 2006 amounted to $5.2 million, $2.0
million and $4.1 million, respectively. As of December 31, 2005 and 2006, the
balances of the accounts receivable from and payables to all related parties
were approximately $17.9 million and $5.2 million, respectively.
MARITIMA SIPSA S.A.
A significant part of our revenue from related parties is derived from the
chartering activity of Maritima SIPSA S.A. In May 2003, the Princess Marina was
chartered by a Chilean national petroleum company under a time charter that
required her to be flagged in Chile. Pursuant to Chilean Law, in order for her
to be flagged in Chile, she needed to be owned by a legal entity controlled by
Chilean citizens. Maritima SIPSA S.A. is controlled by Chilean citizens. We own
49% of Maritima SIPSA S.A., and the other shareholder of Maritima SIPSA S.A.,
SIPSA S.A., is a Chilean public company that is controlled by members of the
Menendez family, which includes Felipe Menendez R., our President, Chief
Executive Officer and Director, and Ricardo Menendez R., our Executive Vice
President and Director. In order to effect the re-flagging of the vessel, we
sold the Princess Marina to Maritima SIPSA S.A. for a purchase price of $15.1
million, and partially financed the sale by lending Maritima SIPSA S.A. $7.4
million. Under the terms of our agreement, Maritima SIPSA S.A. pays us
installments of the purchase price on a monthly basis that we record as charter
revenue. For the year ended December 31, 2006, this charter revenue amounted to
$3.9 million and management fees paid to Ravenscroft amounted to $0.2 million.
For the year ended December 31, 2005, this charter revenue amounted to $2.0
million, and for the year ended December 31, 2004, this charter revenue amounted
to $2.5 million. We are obligated to repurchase (and Maritima SIPSA S.A. is
obligated to sell to us) the Princess Marina upon the expiry of the charter
originally contracted for. In July 2006, the Company and Maritima SIPSA S.A.
entered into an amended agreement to modify the repurchase date of the vessel to
February 2007 or at a later date if the charter was further extended, at a
purchase price not exceeding $7.7 million. In March 2007, the Company and
Maritima SIPSA S.A. entered into an agreement to postpone the date of sale of
the Princess Marina (from Maritima SIPSA S.A. to the Company) to September 25,
2007. This new agreement also contemplates a modification to the purchase price
agreed, lowering it to the sum of $3.7 million. Concurrently with the payment of
the agreed purchase price, Maritima SIPSA S.A. will repay to the Company the
remaining $2.3 million outstanding.
SHIPPING SERVICES ARGENTINA S.A. (FORMERLY I. SHIPPING SERVICES S.A.)
We and our subsidiaries also contract with related parties for various services.
Pursuant to an agency agreement with us, Shipping Services Argentina S.A.
(formerly I. Shipping Services S.A.) has agreed to perform the duties of port
agent for us in Argentina. Shipping Services Argentina S.A. is indirectly
controlled by the Menendez family, which includes Felipe Menendez R. and Ricardo
Menendez R. For these services, we pay Shipping Services Argentina S.A. fees
ranging from $800 to $1,875 per port call. For each of the years ended December
31, 2004, 2005 and 2006 the amounts paid and/or accrued for such services
amounted to $0.02 million, $0.0 million and $0.08 million, respectively. We
believe that payments made under the above agreements reflect market rates for
the services provided and are similar to what third parties pay for similar
services.
Certain of our directors and senior management hold similar positions with our
related parties. Felipe Menendez R., who is our President, Chief Executive
Officer and a director, is also a director of Maritima SIPSA S.A., and Shipping
Services Argentina S.A. Ricardo Menendez R., who is our Executive Vice President
and one of our directors, is also the President of Shipping Services Argentina
S.A., and is a director of Maritima SIPSA S.A. In light of their positions with
such entities, these officers and directors may experience conflicts of interest
in selecting between our interests and those of Maritima SIPSA S.A. and Shipping
Services Argentina S.A.
RAVENSCROFT ACQUISITION
On March 20, 2006, we purchased all of the issued and outstanding capital stock
of Ravenscroft Shipping (Bahamas) S.A. from two of our related companies,
Crosstrade Maritime Inc., and Crosstrees Maritime Inc., for the purchase price
of $11.5 million. The purchase price included a building in Coral Gables,
Florida, U.S., independently valued at $4.5 million. Ravenscroft Shipping
(Bahamas) Inc. is a holding company that is the ultimate parent of our vessel
managers, Ravenscroft Ship Management Inc., which manages the vessels in our
Ocean Business and Offshore Supply Business, and Elysian Ship Management Inc.,
which manages the vessels in our Passenger Business. In compliance with the
requirements of our indenture related to the 9% First Preferred Ship Mortgage
Notes due 2014, we obtained a fairness opinion from an internationally
recognized accounting firm in connection with this acquisition.
UP OFFSHORE ACQUISITION
Separately, we purchased 66.67% of the issued and outstanding capital stock of
UP Offshore, the company through which we operate our Offshore Supply Business,
from an affiliate of Solimar, one of the selling shareholders, for a purchase
price of $48.0 million on March 21, 2006. Following this acquisition, we hold
94.45% of the issued and outstanding shares of UP Offshore. In compliance with
the requirements of our indenture related to the 9% First Preferred Ship
Mortgage Notes due 2014, we obtained a fairness opinion from an internationally
recognized accounting firm in connection with this acquisition.
OPERATIONS IN OTS S.A.'S TERMINAL
UABL Paraguay, our subsidiary in the River Business, operates the terminal that
pertains to Obras Terminales y Servicios S.A. (OTS S.A.), a related party. In
2006 and 2005, UABL Paraguay paid to OTS S.A. $0.64 million and $0.61 million,
respectively, for this operation.
UP RIVER (HOLDINGS) LTD.
On May 3, 2006, we entered into an agreement with International Finance
Corporation, or IFC, to purchase from IFC 7.14% of UP River (Holdings) Ltd., an
entity that owned the 50% of UABL that we did not own, for the price of $6.2
million. As part of this agreement, IFC waived its option to convert its
interest in UP River to shares in our company and its right to participate in
our IPO. Our obligation under this agreement was paid from the proceeds of our
IPO.
SHAREHOLDERS ARRANGEMENTS
On March 20, 2006, Los Avellanos and Avemar, two of our shareholders, cancelled
their agreement pursuant to which Avemar had previously granted Los Avellanos an
irrevocable proxy to vote our shares owned by Avemar. The shares owned by Avemar
were distributed immediately prior to closing of our IPO. Immediately prior to
this offering Solimar will own 34.5% of our shares and Los Avellanos will
directly or indirectly own 22.2% of our shares.
SHARE REPURCHASE
On March 20, 2006, we exercised our option to repurchase from Los Avellanos
25,212 shares of our common stock for a total consideration of $894,999, and the
$894,999 note originally issued by Los Avellanos in connection with the option
was cancelled.
SOLIMAR HOLDINGS LTD. WARRANTS
Under the terms of the warrant agreement dated March 16, 2000, and as amended as
of September 21, 2006, our shareholder Solimar owns warrants to purchase up to
146,384 shares of our common stock at an exercise price of $6.83 per share.
These warrants may be exercised at any time up to and including March 1, 2010
for restricted and unregistered shares.
REGISTRATION RIGHTS AGREEMENT
We are parties to a registration rights agreement with Los Avellanos, Hazels and
Solimar, our shareholders prior to our IPO, pursuant to which we granted them
and certain of their transferees, the right, under certain circumstances and
subject to certain restrictions, including restrictions included in the lock-up
agreements to which Los Avellanos, Hazels and Solimar are party, to require us
to register under the Securities Act shares of our common stock held by Los
Avellanos, Hazels or Solimar. Under the registration rights agreement, Los
Avellanos, Hazels and Solimar have the right to request that we register the
sale of shares held by them on their behalf and may require that we make
available shelf registration statements permitting sales of shares into the
market from time to time over an extended period. We are required to pay all
registration expenses in connection with the demand registrations under the
registration rights agreement except that the underwriters' expenses
reimbursement will be limited to one counsel. In addition, Los Avellanos, Hazels
and Solimar have the ability to exercise certain piggyback registration rights
in connection with registered offerings initiated by us, for which we must pay
all expenses. The selling shareholders participation in this offering is the
result of the exercise of those piggyback registration rights.
SHAREHOLDERS AGREEMENT
Solimar, Los Avellanos and Hazels are party to a second amended and restated
shareholders agreement, dated September 21, 2006, that became effective upon the
completion of our IPO that contains, among other things, provisions relating to
director designation rights, restrictions of transfers of stock held by them and
an agreement to vote their shares together on certain matters.
EMPLOYMENT AGREEMENTS
We have entered into employment contracts with our President and Chief Executive
Officer, Felipe Menendez R., our Executive Vice President, Ricardo Menendez R.,
our Chief Financial Officer, Leonard J. Hoskinson, and our Chief Accountant, Mr.
Alberto G. Deyros. Each of these employment agreements has an initial term of
three years from the date of the closing of our IPO and is subject to one year
renewals at our written election. In addition, on July 20, 2006, we entered into
separate consulting agreements that became effective October 18, 2006 with
companies controlled by our chief executive officer, executive vice president,
chief financial officer and chief accountant for work they performed for us in
various different jurisdictions. Some of these consulting agreements obligate us
to grant these companies an aggregate of 310,000 shares of restricted stock (for
which we expect to incur charges over the three year period of the agreement
equal in the aggregate to the number of shares granted multiplied by $11.00 (the
IPO price) and 348,750 shares issuable upon the exercise of options with an
exercise price of $11.00 pursuant to the Plan.
Shares eligible for future sale
We have 28,346,952 shares of common stock outstanding (not including options to
purchase an additional 348,750 shares, both granted pursuant to our equity
incentive plan). Of these shares, only shares, including the of
shares sold in this offering, or shares if the underwriters'
over-allotment option is exercised in full, will be freely transferable in the
United States without restriction under the Securities Act, except for any
shares purchased by one of our "affiliates," which would then be subject to the
resale limitations of Rule 144 under the Securities Act. Immediately after
consummation of this offering, and assuming that the underwriters do not
exercise their over-allotment option, our existing shareholders will own
shares, or shares if the underwriters' over allotment
option is exercised in full, of common stock (not including 146,384 shares
issuable upon exercise of warrants held by Solimar) which were acquired in
private transactions not involving a public offering and are therefore treated
as "restricted securities" for purposes of Rule 144. The restricted securities
held by the selling shareholders will be subject to the underwriters' 90-day
lock-up agreement as described below. Restricted securities may not be resold
except in compliance with the registration requirements of the Securities Act or
under an exemption from those registration requirements, such as the exemptions
provided by Rule 144, Regulation S and other exemptions under the Securities
Act.
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person or persons whose shares are aggregated, who
owns shares that were acquired from the issuer or an affiliate at least one year
ago, would be entitled to sell within any three-month period, a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, which would be approximately shares immediately after
this offering, and (ii) an amount equal to the average weekly reported volume of
trading in shares of our common stock on all national securities exchanges
and/or reported through the automated quotation system of registered securities
associations during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales in reliance on Rule 144 are also
subject to other requirements regarding the manner of sale, notice, volume
limitations and availability of current public information about us. A person or
persons whose shares are aggregated, who is not deemed to have been one of our
affiliates at any time during the 90 days immediately preceding the sale may
sell restricted securities in reliance on Rule 144(k) without regard to the
limitations described above, provided that two years have expired since the
later of the date on which the same restricted securities were acquired from us
or one of our affiliates. As defined in Rule 144, an "affiliate" of an issuer is
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, that same
issuer.
Our selling shareholders, officers and directors have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of each of UBS
Securities LLC and Bear, Stearns & Co. Inc. for a period of 90 days after the
date of this prospectus. However, in the event that either (1) during the last
17 days of the "lock-up" period, we release earnings results or material news or
a material event relating to us occurs or (2) prior to the expiration of the
"lock-up" period, we announce that we will release earnings results during the
16-day period beginning on the last day of the "lock-up" period, then in either
case the expiration of the "lock-up" will be extended until the expiration of
the 18-day period beginning on the date of the release of the earnings results
or the occurrence of the material news or event, as applicable, unless UBS
Securities LLC and Bear, Stearns & Co. Inc. waive, in writing, such an
extension.
We have entered into a registration rights agreement with our existing
shareholders of record pursuant to which we granted them and certain of their
transferees, the right, under certain circumstances and subject to certain
restrictions, including restrictions included in the lock-up agreements to which
Los Avellanos, Hazels and Solimar are party, to require us to register under the
Securities Act shares of our common stock held by them. Also, under the
registration rights agreement, Solimar will have certain rights to sell its
shares exclusively during the three-year period following the first registration
that meets certain specified criteria thereunder, subject to the right of Los
Avellanos and Hazels to sell a stated amount of shares. Solimar's three-year
exclusivity period under the registration rights agreement commences following
the closing of the first public offering of shares of our common stock following
our IPO that (a) meets certain criteria under the registration rights agreement
and (b) with certain qualifications, either alone or when aggregated with one or
more prior public offerings of our common stock (other than our IPO) that meet
these criteria, results in aggregate gross proceeds to Solimar, Los Avellanos
and Hazels (or any of them) of at least $50 million. If Solimar and Los
Avellanos and Hazels participate in an offering, Solimar's participation and Los
Avellanos' and Hazels' participation must be pro rata until Los Avellanos and
Hazels have received aggregate gross proceeds from that offering and all prior
offerings that meet these criteria of $18.32 million. After Los Avellanos and
Hazels have received aggregate gross proceeds of $18.32 million, or if Los
Avellanos and Hazels do not participate in an offering, Solimar may sell as many
additional shares of common stock in such offering, Solimar may sell as many
additional shares of common stock in such offering as it and the underwriters
agree upon. Shares of common stock, when registered under any registration
statement, will be available for sale in the open market unless restrictions
apply. See "Related party transactions -- Registration Rights Agreement." In
addition, all of these shares would be available for sale into the public market
after one year pursuant to Rule 144, Regulation S and other exemptions under the
Securities Act, as described above.
As a result of these lock-up agreements and rules of the Securities Act, the
restricted shares will be available for sale in the public market, subject to
certain volume and other restrictions, as mentioned above, as follows:
Days After the Number of Shares
Date of this Prospectus Eligible for Sale Comment
----------------------- ----------------- -------
Date of prospectus None Shares not locked up and
eligible for sale freely
or under Rule 144
90 days(1) Shareholder lock-ups
released; shares eligible
for sale (as described
above)
----------
(1) Assuming the lock-up period is not extended in accordance with its terms or
waived by the underwriters.
Description of capital stock
AUTHORIZED CAPITALIZATION
Under our Memorandum of Association, our authorized capital stock consists of
100,000,000 shares of common stock, par value $0.01 per share, of which
28,346,952 shares were issued and outstanding as of the date of this prospectus.
Upon completion of this offering, we will have outstanding shares of
common stock. All shares of our common stock are in registered form.
COMMON STOCK
As of the date of this prospectus, we have 28,346,952 shares of common stock
issued and outstanding. Upon consummation of this offering, we will have
shares of common stock outstanding (not including 310,000
restricted shares and options to purchase an additional 348,750 shares, both
granted pursuant to our equity incentive plan). Our selling shareholders are
each entitled to seven votes for each share of our common stock that they hold
and all others holders of our common stock are entitled to one vote for each
share of common stock that they hold. Holders of shares of common stock are
entitled to receive ratably all dividends, if any, declared by our board of
directors out of funds legally available for dividends. Holders of common stock
do not have conversion, redemption or preemptive rights to subscribe to any of
our securities. In addition, Solimar, Los Avellanos and Hazels are party to a
shareholders agreement that became effective upon completion of our IPO and that
contains provisions affecting certain of the matters described below. See
"Related party transactions -- Shareholders' Agreement."
OTHER MATTERS
Purpose
Our purpose is to engage in any act or activity that is not prohibited under any
law for the time being in force in The Bahamas. Other than certain matters that
are required by the International Business Companies Act, 2000, or the IBCA, to
be approved or authorized by shareholders, our corporate powers will be
exercised by our board of directors and our business and corporate affairs will
be managed by our executive officers. Our memorandum and articles of association
do not impose any limitations on the ownership rights of our shareholders.
Shareholder Meetings
Under our articles of association, annual shareholder meetings will be held at a
time and place selected by our board of directors. The meetings may be held in
or outside of The Bahamas. Special meetings may be called by the board of
directors, or by the Chairman of the Board, by the President or by the holders
of majority of the votes of the shares entitled to vote at such meeting. Our
board of directors may set a record date between 15 and 60 days before the date
of any meeting to determine the shareholders that will be eligible to receive
notice and vote at the meeting.
Directors
Our directors are elected annually by holders of a majority of the votes of the
shares entitled to vote in the election. Cumulative voting may not be used to
elect directors or for any other purpose.
Our board of directors consists of seven members. The shareholders may change
the number of directors by a vote of not less than 50% of the votes of the
shares issued and outstanding and entitled to vote. Each director shall be
elected to serve until his successor shall have been duly elected and qualified,
except in the event of his death, resignation, removal, or the earlier
termination of his term of office. Vacancies are filled by action of the board
of directors. The board of directors determines the compensation of our
directors. We may also reimburse our directors for all travel, hotel and other
expenses properly incurred by them in connection with our business or their
duties as directors.
There is no limitation on the powers of our board of directors to incur
indebtedness on our behalf. There is no requirement in our articles of
association or the IBCA that directors hold any shares of our common stock or
that our directors must retire at a certain age.
Approval of Mergers, Asset Sales and Certain Other Transactions
The IBCA contains certain provisions that address the subject of mergers and
asset sales. Our articles of association, however, address the subject in
greater detail and also address the subject of transactions between us and our
controlling shareholders. Our articles provide that in:
o any merger or consolidation involving us on the one hand and Los Avellanos,
Hazels or Solimar (to the extent that the parties to the merger or
consolidation are shareholders at the time of the merger or consolidation),
any of their affiliates or any member of our management or board of
directors or their respective affiliates (each an "Interested Party") on
the other hand;
o any sale, lease or other direct or indirect disposition of all or
substantially all of our and our subsidiaries' assets in a transaction or
series of related transactions to one or more Interested Parties;
o any merger or consolidation or sale, lease or other direct or indirect
disposition of all or substantially all of our and our subsidiaries' assets
in a transaction or series of related transactions that would result in the
receipt of different types or amounts of consideration per share by one or
more Interested Parties on the one hand, and any other of our shareholders,
on the other hand; and
o any business transaction between us or our subsidiaries on the one hand and
one or more Interested Parties on the other hand, involving a value in
excess of $2.0 million;
it shall be a condition to the consummation of such transaction that (1) we
shall have obtained, at our own expense, a fairness opinion confirming that the
proposed transaction is fair from a financial standpoint for us and for those
shareholders which are not Interested Parties and (2) that such transaction be
approved by a majority of our disinterested directors. This fairness opinion is
to be rendered by an internationally recognized investment banking, auditing or
consulting firm (or, if the proposed transaction involves the sale or purchase
of vessels or other floating assets, by an internationally recognized
shipbroker) selected by our disinterested directors and engaged to the holders
of our common stock. To qualify as a disinterested director for purposes of
these provisions, the director must not have a personal interest in the
transaction at hand and must not otherwise have a relationship that, in the
opinion of our board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director.
Further, to the extent any such transaction is required to be approved by our
shareholders, it must be approved by a majority vote of those of our
shareholders that are not Interested Parties with an interest in the
transaction.
Our articles further provide that the foregoing requirements do not apply to:
o any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options, stock ownership and other employee benefit
plans approved by our board of directors;
o the grant of stock options or similar rights to our employees and directors
pursuant to plans approved by our board of directors;
o loans or advances to our employees in the ordinary course of business in
accordance with our past practices that are not otherwise prohibited by the
Sarbanes-Oxley Act of 2002, Section 13(k) of the Securities Exchange Act of
1934 or other applicable law, but in any event not to exceed $500,000 in
the aggregate outstanding at any one time; and
o the payment of reasonable fees to our directors who are not our employees.
Dividends
Declaration and payment of any dividend is subject to the discretion of our
board of directors. Bahamian law generally prohibits the payment of dividends
other than from surplus or while a company is insolvent or would be rendered
insolvent upon the payment thereof.
Dissenters' Rights of Appraisal and Payment
Under Sections 80 to 83 of the IBCA, our shareholders have the right to dissent
from various corporate actions, including any merger or sale of all or
substantially all of our assets not made in the usual course of our business,
and receive payment of the fair value of their shares. The dissenting
shareholder must follow the procedures set forth in Section 83 of the IBCA to
receive payment. In the event that we and any dissenting shareholder fail to
agree on a price for the shares, the procedures under Section 83 of the IBCA
involve, among other things, the designation of appraisers who will fix the fair
value of the shares owned by such dissenting shareholder.
Shareholders' Derivative Actions
Under English common law (which is applicable in The Bahamas for these
purposes), any of our shareholders may bring an action in our name to procure a
judgment in our favor, also known as a derivative action, provided, inter alia,
that the shareholder bringing the action is a holder of our common stock both at
the time the derivative action is commenced and at the time of the transaction
to which the action relates and that the action falls within the scope of the
certain limited circumstances in which a shareholder may bring such an action,
for example, where a majority of shareholders has confirmed: (i) an act which is
ultra vires to the company or otherwise illegal; (ii) an act which constitutes a
fraud against the minority and the wrongdoers are themselves in control of the
company; (iii) an irregularity in the passing of a resolution which requires a
qualified majority; or (iv) an act which infringes the personal rights of an
individual shareholder.
Limitations on Liability and Indemnification of Officers and Directors
The IBCA authorizes corporations to limit or eliminate the personal liability of
directors and officers to corporations and their shareholders for monetary
damages for breaches of directors' fiduciary duties.
Our articles of association provide that we must indemnify our directors and
officers to the fullest extent authorized by law. We are also expressly
authorized to advance certain expenses (including attorneys' fees and
disbursements and court costs) to our directors and officers and carry
directors' and officers' insurance policies providing indemnification for our
directors, officers and certain employees for some liabilities. We believe that
these indemnification provisions and insurance are useful to attract and retain
qualified directors and executive officers.
The limitation of liability and indemnification provisions in our articles of
association may discourage shareholders from bringing a lawsuit against
directors for breach of their fiduciary duty. These provisions may also have the
effect of reducing the likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might otherwise benefit us
and our shareholders. In addition, your investment may be adversely affected to
the extent we pay the costs of settlement and damage awards against directors
and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought.
Anti-takeover Provisions of our Charter Documents
Several provisions of our memorandum of association and articles of association
may have anti-takeover effects. These provisions are intended to avoid costly
takeover battles, lessen our vulnerability to a hostile change of control and
enhance the ability of our board of directors to maximize shareholder value in
connection with any unsolicited offer to acquire us. However, these
anti-takeover provisions, which are summarized below, could also discourage,
delay or prevent (1) the merger or acquisition of our Company by means of a
tender offer, a proxy contest or otherwise, that a shareholder may consider in
its best interest and (2) the removal of incumbent officers and directors.
Special Voting Rights
Super Voting Rights. Three of our existing shareholders, Solimar, Los Avellanos
and Hazels, are expressly entitled to seven votes per share on all shares held
directly by them, and all other holders of shares of our common stock are
entitled to one vote per share. These special voting rights of the selling
shareholders are transferable to each other but are not transferable to our
other shareholders and apply only to shares held by them on the date of our IPO
and not to any shares they subsequently purchase or repurchase.
Election and Removal of Directors. Our articles of association prohibit
cumulative voting in the election of directors and require parties other than
the board of directors to give advance written notice of nominations for the
election of directors. Generally, to be timely, a shareholder's notice must be
received at our principal executive offices not less than 30 days nor more than
60 days prior to the anniversary date of the immediately preceding annual
meeting. Our articles of association also specify requirements as to the form
and content of a shareholder's notice. These provisions may discourage, delay or
prevent the removal of incumbent directors.
Limited Actions by Shareholders. Our articles of association provide that any
action required or permitted to be taken by our shareholders must be effected at
an annual or special meeting of shareholders. Our articles of association
provide that only our board of directors, or our Chairman of the Board, or our
President or holders of majority of the votes of the shares entitled to vote may
call special meetings of our shareholders and the business transacted at the
special meeting is limited to the purposes stated in the notice.
Tag-Along Right
Under our articles of association, if a third party makes a bona fide written
offer to one or more of our existing shareholders to purchase shares of our
common stock in a private transaction and, after giving effect to the sale, the
purchaser would become the beneficial owner of shares of our common stock with
voting power equal to 50% or more of the total voting power of all shares of
common stock entitled to vote in the election of directors, then the purchaser
will be required to make a public offer to all of our shareholders to purchase
100% of our issued and outstanding shares at the same purchase price, and would
be prohibited from purchasing shares from the existing shareholder who received
that written offer until the tender offer period has closed. The tender offer
must remain open for at least 20 business days.
Registrar and Transfer Agent
The registrar and transfer agent for our common stock is Computershare Trust
Company, Inc.
LISTING
Our common stock is listed on the Nasdaq Global Market under the symbol "ULTR".
Description of credit facilities and other indebtedness
9% FIRST PREFERRED SHIP MORTGAGE NOTES DUE 2014
On November 24, 2004, we completed an offering of $180.0 million of 9% First
Preferred Ship Mortgage Notes due 2014, or the Notes, through a private
placement to institutional investors eligible for resale under Rule 144A and
Regulation S, or the Note Offering. The net proceeds of the Note Offering were
used to repay our 10.5% First Preferred Ship Mortgage Notes due 2008, or the
Prior Notes, certain other existing credit facilities and to fund an escrow
account.
Interest on the Notes is payable semi-annually on May 24 and November 24 of each
year. The Notes are senior obligations guaranteed by some of our subsidiaries
directly involved in our Ocean, River and Passenger Businesses. The Notes are
secured by first preferred ship mortgages on 19 vessels, two oceangoing barges
and 202 river barges.
The Notes are subject to certain covenants, including, among other things,
limiting our and our subsidiaries' ability to incur additional indebtedness or
issue preferred stock, pay dividends to shareholders, incur liens or execute
sale leasebacks of certain principal assets and certain restrictions on our
consolidating with or merging into any other person.
Upon the occurrence of a change of control event, each holder of the Notes shall
have the right to require us to repurchase such notes at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest. A change of control means:
o if any person beneficially owns more than 35% of our voting stock and
Solimar, Los Avellanos, SIPSA S.A. and their affiliates, the Permitted
Holders, together beneficially own a lesser percentage and do not control
the election of the majority of the board of directors of the Company, or
o during any period of two consecutive years, individuals who at the
beginning of such period constituted our board of directors (together with
any new directors whose election by such board of directors or whose
nomination for election by our shareholders was approved by a vote of 66
2/3% of our directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the board of directors then in office; or
o our merger or consolidation with or into another Person or the merger of
another Person with or into us, or the sale of all or substantially all of
our assets (determined on a consolidated basis) to another Person other
than (A) a transaction in which the survivor or transferee is a Person that
is controlled by the Permitted Holders or (B) a transaction following which
(1) in the case of a merger or consolidation transaction, holders of
securities that represented 100% of our common stock eligible to vote on
matters requiring a shareholder vote immediately prior to such transaction
(or other securities into which such securities are converted as part of
such merger or consolidation transaction) own directly or indirectly at
least a majority of the voting power of the common stock eligible to vote
on matters requiring a shareholder vote of the surviving Person in such
merger or consolidation transaction immediately after such transaction and
(2) in the case of a sale of assets transaction, each transferee becomes an
obligor in respect of the Notes and a subsidiary of the transferor of such
assets.
In the first quarter of 2005, pursuant to a registration rights agreement, we
completed a registered exchange offer in which we exchanged registered Notes for
the Notes that were originally issued in order to allow the Notes to be eligible
for trading in the public markets.
LOAN WITH DVB BANK AMERICA NV (DVB NV) OF UP TO $30.0 MILLION:
On April 27, 2005 UP Offshore (Panama) S.A. (our subsidiary in the Offshore
Supply Business) entered into a $30.0 million loan agreement with DVB NV for the
purpose of providing post delivery financing of two PSVs named UP Esmeralda and
UP Safira, which were delivered in May and June 2005, and repaying existing
financing and shareholder loans.
This loan is divided into two tranches:
o Tranche A, amounting to $26.0 million, accrues interest at LIBOR rate plus
1.875% per annum, and shall be repaid by (i) 40 consecutive quarterly
installments of $0.45 million each beginning in September 2005 and (ii) a
balloon repayment of $8.0 million together with the 40th installment, and
o Tranche B, amounting to $4.0 million, accrues interest at LIBOR rate plus
2.25% per annum, and shall be repaid by 12 consecutive quarterly
installments of $0.33 million each beginning in September 2005.
The loan is secured by a mortgage on the UP Safira and UP Esmeralda and is
jointly and severally irrevocable and unconditionally guaranteed by Packet
Maritime Inc. and Padow Shipping Inc. The loan also contains customary covenants
that limit, among other things, the Borrower's and the Guarantors' ability to
incur additional indebtedness, grant liens over their assets, sell assets, pay
dividends, repay indebtedness, merge or consolidate, change lines of business
and amend the terms of subordinated debt. The agreement governing the facility
also contains customary events of default. If an event of default occurs and is
continuing, DVB NV may require the entire amount of the loan be immediately
repaid in full. Further, the loan agreement requires until June 2008 that the
PSVs pledged as security have an aggregate market value of at least 85% of the
value of the loan amount and at all times thereafter an aggregate market value
of at least 75% of the value of the loan.
The aggregate outstanding principal balance of the loan was $25.3 million at
December 31, 2006.
LOAN WITH DVB BANK AG (DVB AG) OF UP TO $15.0 MILLION
On January 17, 2006, UP Offshore Apoio Maritimo Ltda. (our subsidiary in the
Offshore Supply Business) as Borrower, Packet Maritime Inc. and Padow Shipping
Inc. as Guarantors and UP Offshore as Holding Company entered into a $15.0
million loan agreement with DVB AG for the purposes of providing post delivery
financing of one PSV named UP Agua-Marinha delivered in February 2006.
This loan is divided into two tranches:
o Tranche A, amounting to $13.0 million, shall be repaid by (i) 120
consecutive monthly installments of $75,000 each beginning in March 2006
and (ii) a balloon repayment of $4.0 million together with the 120
installments which accrue interest at LIBOR rate plus a margin of 2.25% per
annum, and
o Tranche B, amounting to $2.0 million, shall be repaid by 35 consecutive
monthly installments of $56,000 each beginning in March 2006 which accrues
interest at LIBOR rate plus a margin of 2.875% per annum.
On January 24, 2007 UP Offshore Apoio Maritimo Ltda. and DVB AG amended and
restated the margin of both tranches to 1.20% per annum effective since February
1, 2007.
The loan is secured by a mortgage on the UP Agua-Marinha and is jointly and
severally irrevocable and unconditionally guaranteed by Packet Maritime Inc. and
Padow Shipping Inc. The loan also contains customary covenants that limit, among
other things, the Borrower's and the Guarantors' ability to incur additional
indebtedness, grant liens over their assets, sell assets, pay dividends, repay
indebtedness, merge or consolidate, change lines of business and amend the terms
of subordinated debt. The agreement governing the facility also contains
customary events of default. If an event of default occurs and is continuing,
DVB AG may require the entire amount of the loan be immediately repaid in full.
Further, the loan agreement requires until February 2009 that the UP Agua
Marinha pledged as security has an aggregate market value of at least 117.6% of
the value of the loan amount and at all times thereafter an aggregate market
value of at least 133.3% of the value of the loan.
The aggregate outstanding principal balance of the loan was $13.7 million at
December 31, 2006.
LOAN WITH DVB BANK AG (DVB AG) OF UP TO $61.3 MILLION
On December 28, 2006, UP Offshore (Bahamas) Ltd., as Borrower, entered into a
$61.3 million loan agreement with DVB AG for the purpose of re-financing three
PSVs named UP Esmeralda, UP Safira and UP Topazio.
This loan is divided into two advances, and shall be repaid by 40 consecutive
quarterly installments as set forth in the repayment schedule therein.
The loan is secured by a first priority mortgage on the UP Esmeralda, UP Safira,
UP Topazio and by a second priorty mortgage on the UP Agua-Marinha and is
jointly and severally irrevocable and unconditionally guaranteed by Packet
Maritime Inc., Padow Shipping Inc., UP Offshore Apoio Maritimo Ltda. and
Ultrapetrol (Bahamas) Limited. The loan also contains customary covenants that
limit, among other things, the Borrower's ability to incur additional
indebtedness, grant liens over their assets, sell assets, pay dividends, repay
indebtedness, merge or consolidate, change lines of business and amend the terms
of subordinated debt. The agreement governing the facility also contains
customary events of default. If an event of default occurs and is continuing,
DVB AG may require the entire amount of the loan be immediately repaid in full.
Further, the loan agreement requires until December 2009 that the PSVs pledged
as security have an aggregate market value of at least 117.6% of the value of
the loan amount and at all times thereafter an aggregate market value of at
least 133.3% of the value of the loan.
At December 31, 2006, there are no drawdowns under the loan agreement.
SENIOR SECURED TERM LOAN WITH NATIXIS OF $13.6 MILLION
On January 29, 2007, Stanyan Shipping Inc. (a wholly owned subsidiary in the
Ocean Business and the owner of the Alejandrina) as Borrower, and Ultrapetrol
(Bahamas) Limited as Guarantor and Holding Company entered into a $13.6 million
loan agreement with Natixis for the purpose of providing post delivery financing
of one Panamanian flag small product tanker named Alejandrina.
The loan must be repaid by (i) 40 consecutive quarterly installments of $0.2
million each beginning in June 2007 and (ii) a balloon repayment of $4.5 million
payable simultaneously with the 40th quarterly installment. The loan accrues
interest at LIBOR plus 1.00% per annum for so long as the Alejandrina remains
chartered under standard conditions.
The loan is secured by a mortgage on the Alejandrina and is guaranteed by
Ultrapetrol (Bahamas) Limited. The loan also contains customary covenants that
limit, among other things, the Borrower's and the Guarantors' ability to incur
additional indebtedness, grant liens over their assets, sell assets, pay
dividends, repay indebtedness, merge or consolidate, change lines of business
and amend the terms of subordinated debt. The agreement governing the facility
also contains customary events of default.
Bahamian company considerations
Our corporate affairs are governed by our Memorandum and Articles of Association
and by the International Business Companies Act, 2000, or the IBCA. There have
been few, if any, court cases interpreting the IBCA in the Commonwealth of The
Bahamas and we cannot predict whether Bahamian courts would reach the same
conclusions as U.S. courts. Accordingly, you may have more difficulty protecting
your interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated
in a United States jurisdiction which has developed a substantial body of case
law. The following table provides a comparison between the statutory provisions
of the IBCA and the Delaware General Corporation Law relating to shareholders'
rights.
The Bahamas Delaware
----------- --------
Shareholder Meetings
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o Subject to any limitations in the o May be held at such time or
Memorandum or Articles of place as designated in the
Association or in any unanimous certificate of incorporation
shareholder agreement, may be held or the bylaws, or if not so
at such time, manner or place as designated, as determined by
determined by the board of the board of directors.
directors or upon the written
request of shareholders holding
more than 50 percent of the votes
of the outstanding voting shares
(or any lesser percentage contained
in the Memorandum or Articles of
Association or any unanimous
shareholder agreement).
o May be held within or outside of o May be held within or without
The Bahamas. Delaware.
o Notice: o Notice:
o Whenever shareholders are o Whenever stockholders are
required to take action at a required to take any
meeting, the directors shall action at a meeting, a
give written notice stating written notice of the
the place, date and hour of meeting shall be given
the meeting. which shall state the
place, if any, date and
o Subject to any requirement in hour of the meeting, and
the Memorandum or Articles of the means of remote
Association or in any communication, if any.
unanimous shareholder
agreement to give longer o Written notice shall be
notice, written notice of any given not less than 10 nor
meeting shall be given not more than 60 days before
less than seven days before the meeting.
the meeting.
Shareholder's Voting Rights
--------------------------------------------------------------------------------
o Subject to any limitations in the o Stockholders may act by
Memorandum or Articles of written consent to elect
Association, any action required to directors.
be taken by a meeting of
shareholders may be taken without a
meeting if there is written consent
signed by shareholders holding a
majority of votes.
o Any person authorized to vote may o Any person authorized to vote
authorize another person to act for may authorize another person
him by proxy. or persons to act for him by
proxy.
o The quorum is that fixed by the o For stock companies, the
Memorandum or Articles of certificate of incorporation
Association; but where no quorum is or bylaws may specify the
so fixed, a meeting is properly number to constitute a
constituted if at the commencement quorum. In the absence of
of the meeting there are present in this, one-third of the
person or by proxy shareholders members shall constitute a
representing more than one-half of quorum.
the shares of each class or series
thereof.
o The IBCA does not provide for o The certificate of
cumulative voting, however the incorporation may provide for
Articles of Association may provide cumulative voting.
for cumulative voting.
Directors
--------------------------------------------------------------------------------
o Board must consist of at least one o Board must consist of at
member. least one member.
o Number of members can be changed by o Number of board members shall
an amendment to the Articles of be fixed by the bylaws,
Association, subject to any unless the certificate of
limitations in the Memorandum or incorporation fixes the
Articles of Association. number of directors, in which
case a change in the number
shall be made only by
amendment of the certificate
of incorporation.
Dissenter's Rights of Appraisal
--------------------------------------------------------------------------------
o Shareholders have a right to o Appraisal rights shall be
dissent from (i) a merger, (ii) a available for the shares of
consolidation, (iii) any sale any class or series of stock
transfer, lease, exchange or other of a corporation in a merger
disposition of more than fifty or consolidation.
percent (50%), by value, of the
assets of the company, if not made
in the usual manner or regular
course of business, (iv) a
redemption of a shareholder's
minority shares by the company, and
(v) an arrangement, if permitted by
the court, and to receive payment
of the fair value of their shares.
Shareholder's Derivative Actions
--------------------------------------------------------------------------------
o An action may be brought by an o In any derivative suit
individual shareholder, registered instituted by a stockholder
in the share register of the or a corporation, it shall be
company as a holder of its shares, averred in the complaint that
on behalf of himself and other the plaintiff was a
shareholders to exercise a right of stockholder of the
action vested in or derived from corporation at the time of
the company for the protection of the transaction of which he
the company of which he is a complains or that such
member. stockholder's stock
thereafter devolved upon such
stockholder by operation of
law.
o A shareholder may bring a
derivative action in the following
limited circumstances: where the
majority of shareholders has
confirmed: (i) an act which is
ultra vires the company or illegal;
(ii) an act which constitutes a
fraud against the minority and the
wrongdoers are themselves in
control of the company; (iii) an
irregularity in the passing of a
resolution which requires a
qualified majority; and (iv) an act
which infringes the personal rights
of an individual shareholder.
o A shareholder/plaintiff in a
derivative action shall establish a
prima facie case that the company
is entitled to the relief claimed
and that the action falls within
the scope of the aforementioned
limited circumstances in which a
shareholder may bring such an
action.
Tax considerations
The following is a discussion of the material Bahamian and United States federal
income tax considerations relevant to an investment decision by a U.S. Holder
and a Non-U.S. Holder, each as defined below, with respect to the common stock.
This discussion does not purport to deal with the tax consequences of owning
common stock to all categories of investors, some of which, such as dealers in
securities, investors whose functional currency is not the United States dollar
and investors that own, actually or under applicable constructive ownership
rules, 10% or more of our common stock, may be subject to special rules. This
discussion deals only with holders who purchase common stock in connection with
this offering and hold the common stock as a capital asset. You are encouraged
to consult your own tax advisors concerning the overall tax consequences arising
in your own particular situation under United States federal, state, local or
foreign law of the ownership of common stock.
BAHAMIAN TAX CONSIDERATIONS
In the opinion of Higgs & Johnson, the following are the material Bahamian tax
consequences of our activities to us and shareholders of our common stock. We
are incorporated in the Commonwealth of The Bahamas. Under current Bahamian law,
we are not subject to tax on income or capital gains, and no Bahamian
withholding tax will be imposed upon payments of dividends by us to our
shareholders for a period of twenty years from our date of incorporation.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Seward & Kissel LLP, our United States counsel, the following
are the material United States federal income tax consequences to us of our
activities and to U.S. Holders and Non-U.S. Holders, each as defined below, of
our common stock. The following discussion of United States federal income tax
matters is based on the United States Internal Revenue Code of 1986, as amended,
or the Code, judicial decisions, administrative pronouncements, and existing and
proposed regulations issued by the United States Department of the Treasury, all
of which are subject to change, possibly with retroactive effect. This
discussion is based in part upon Treasury Regulations promulgated under Section
883 of the Code in August of 2003, which became effective on January 1, 2005,
for calendar year taxpayers such as ourselves and our subsidiaries. The
discussion below is based, in part, on the description of our business as
described in "Business" above and assumes that we conduct our business as
described in that section. References in the following discussion to "we" and
"us" are to Ultrapetrol (Bahamas) Limited and its subsidiaries on a combined
basis.
UNITED STATES FEDERAL INCOME TAXATION OF OUR COMPANY
Taxation of Operating Income: in General
We anticipate that the Company will earn substantially all its income from the
hiring or leasing of vessels for use on a time, voyage or bareboat charter basis
or from the performance of services directly related to those uses, which we
refer to as "shipping income."
Unless exempt from United States federal income taxation under the rules of
Section 883 of the Code, or Section 883, as discussed below, we will be subject
to United States federal income tax on our shipping income that is treated as
derived from sources within the United States, to which we refer as "United
States source shipping income." For these purposes, United States source
shipping income includes 50% of our shipping income that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States.
Shipping income attributable to transportation that both begins and ends in the
United States is considered to be 100% from sources within the United States. We
are not permitted by law and therefore do not expect to engage in transportation
that produces income which is considered to be 100% from sources within the
United States.
Shipping income attributable to transportation exclusively between non-U.S.
ports will be considered to be 100% derived from sources outside the United
States. Shipping income derived from sources outside the United States will not
be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883, our gross U.S.-source
shipping income would be subject to a 4% tax imposed without allowance for
deductions as described below. Our subsidiaries did not derive any U.S.-source
shipping income for the calendar year 2006, but may derive U.S.-source shipping
income in future years.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the final Treasury Regulations promulgated
thereunder, or the final regulations, which became effective on January 1, 2005,
for calendar taxpayer such as ourselves, a foreign corporation will be exempt
from United States federal income taxation on its U.S.-source shipping income
if:
(1) it is organized in a qualified foreign country which, as defined, is one
that grants an "equivalent exemption" to corporations organized in the
United States in respect of each category of shipping income for which
exemption is being claimed under Section 883 and to which we refer to as
the "Country of Organization Test"; and
(2) either
(A) more than 50% of the value of its stock is beneficially owned,
directly or indirectly, by qualified shareholders which as defined
includes individuals who are "residents" of a qualified foreign
country which we refer to as the "50% Ownership Test," or
(B) its stock, or that of its 100% parent, is "primarily and regularly
traded on an established securities market" in a qualified foreign
country or in the United States, which we refer to as the
"Publicly-Traded Test."
The Commonwealth of The Bahamas and Panama, the jurisdictions where we and our
vessel-owning subsidiaries are incorporated, each have been officially
recognized by the United States Internal Revenue Service, or IRS, as a qualified
foreign country that grants the requisite equivalent exemption from tax in
respect of each category of shipping income we and our subsidiaries earn and
currently expect to earn in the future. Therefore, we and each of our
subsidiaries will be exempt from United States federal income taxation with
respect to our U.S.-source shipping income if we satisfy either the 50%
Ownership Test or the Publicly-Traded Test. After this offering, we do not
expect to be able to satisfy the 50% Ownership Test due to the widely-held
ownership of our stock. Our ability and that of our subsidiaries to qualify for
exemption under Section 883 is solely dependent upon satisfaction of the
Publicly-Traded Test as discussed below.
The final regulations provide, in pertinent part, that stock of a foreign
corporation will be considered to be "primarily traded" on an established
securities market if the number of shares of each class of stock that are traded
during any taxable year on all established securities markets in that country
exceeds the number of shares in each such class that are traded during that year
on established securities markets in any other single country. Upon completion
of this offering, our common stock, which is the sole class of our issued and
outstanding stock, will be "primarily traded" on The Nasdaq Global Market.
Under the final regulations, our common stock will be considered to be
"regularly traded" on an established securities market if one or more classes of
our stock representing more than 50% of our outstanding shares, by total
combined voting power of all classes of stock entitled to vote and total value,
will be listed on the market, which we refer to as the listing threshold. Since
our common stock is listed on The Nasdaq Global Market, we will satisfy the
listing requirement.
It is further required that with respect to each class of stock relied upon to
meet the listing threshold (i) such class of stock is traded on the market,
other than in minimal quantities, on at least 60 days during the taxable year or
1/6 of the days in a short taxable year; and (ii) the aggregate number of shares
of such class of stock traded on such market during the taxable year is at least
10% of the average number of shares of such class of stock outstanding during
such year or as appropriately adjusted in the case of a short taxable year. We
believe we will satisfy the trading frequency and trading volume tests. Even if
this were not the case, the final regulations provide that the trading frequency
and trading volume lists will be deemed satisfied if, as we expect to be the
case with our common stock, such class of stock is traded on an established
market in the United States and such stock is regularly quoted by dealers making
a market in such stock.
Notwithstanding the foregoing, the final regulations provide, in pertinent part,
that a class of stock will not be considered to be "regularly traded" on an
established securities market for any taxable year in which 50% or more of the
issued and outstanding shares of such class of stock are owned, actually or
constructively under specified stock attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and
value of such class of stock, which we refer to as the "5 Percent Override
Rule."
For purposes of being able to determine the persons who own 5% or more of our
stock, or the 5% Shareholders, the final regulations permit us to rely on those
persons that are identified on Schedule 13G and Schedule 13D filings with the
United States Securities and Exchange Commission, or the "SEC," as having a 5%
or more beneficial interest in our common stock. The final regulations further
provide that an investment company identified on a SEC Schedule 13G or Schedule
13D filing which is registered under the Investment Company Act of 1940, as
amended, will not be treated as a 5% Shareholder for such purposes.
After the offering, we anticipate that our 5% Shareholders may own a majority of
our common stock. If our 5% Shareholders own a majority of our common stock
after the offering, then we will be subject to the 5% Override Rule unless we
can establish that among the closely-held group of 5% Shareholders, there are
sufficient 5% Shareholders that are qualified 5% shareholders for purposes of
Section 883 to preclude non-qualified 5% Shareholders in the closely-held group
from owning 50% or more of our common stock for more than half the number of
days during the taxable year. In order to establish this, sufficient 5%
Shareholders that are qualified 5% shareholders would have to comply with
certain documentation and certification requirements designed to substantiate
their identity as qualified shareholders.
Taxation In the Absence of Exemption
We believe that immediately following the offering, we will be able to establish
that there are sufficient qualified 5% shareholders among our 5% Shareholders in
order to qualify for the benefits of Section 883. However, there can be no
assurance that we will be able to continue to satisfy the substantiation
requirements in the future.
To the extent the benefits of Section 883 are unavailable, our U.S. source
shipping income, to the extent not considered to be "effectively connected" with
the conduct of a U.S. trade or business, as described below, would be subject to
a 4% tax imposed by Section 887 of the Code on a gross basis, without the
benefit of deductions. Since under the sourcing rules described above, no more
than 50% of our shipping income would be treated as being derived from U.S.
sources, the maximum effective rate of U.S. federal income tax on our shipping
income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable and our
U.S. source shipping income is considered to be "effectively connected" with the
conduct of a U.S. trade or business, as described below, any such "effectively
connected" U.S. source shipping income, net of applicable deductions, would be
subject to the U.S. federal corporate income tax currently imposed at rates of
up to 35%. In addition, we may be subject to the 30% "branch profits" taxes on
earnings effectively connected with the conduct of such trade or business, as
determined after allowance for certain adjustments, and on certain interest paid
or deemed paid attributable to the conduct of its U.S. trade or business.
Our U.S. source shipping income would be considered "effectively connected" with
the conduct of a U.S. trade or business only if:
o we have, or are considered to have, a fixed place of business in the United
States involved in the earning of shipping income; and
o substantially all of our U.S. source shipping income is attributable to
regularly scheduled transportation, such as the operation of a vessel that
follows a published schedule with repeated sailings at regular intervals
between the same points for voyages that begin or end in the United States.
We do not intend to have, or permit circumstances that would result in having
any vessel operating to the United States on a regularly scheduled basis. Based
on the foregoing and on the expected mode of our shipping operations and other
activities, we believe that none of our U.S. source shipping income will be
"effectively connected" with the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
If we and our subsidiaries qualify for exemption under Section 883 in respect of
the shipping income derived from the international operation of our vessels,
then gain from the sale of any such vessel should likewise be exempt from tax
under Section 883. In the absence of the benefits of exemption under Section
883, we and our subsidiaries will not be subject to United States federal income
taxation with respect to gain realized on a sale of a vessel, provided the sale
is considered to occur outside of the United States under United States federal
income tax principles. In general, a sale of a vessel will be considered to
occur outside of the United States for this purpose if title to the vessel, and
risk of loss with respect to the vessel, pass to the buyer outside of the United
States. It is anticipated that any sale of a vessel by us will be considered to
occur outside of the United States.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. Holder" means a beneficial owner of common stock
that is a United States citizen or resident, United States corporation or other
United States entity taxable as a corporation, an estate the income of which is
subject to United States federal income taxation regardless of its source, or a
trust if a court within the United States is able to exercise primary
jurisdiction over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
If a partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
should consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common stock to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary income or
"qualified dividend income" as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of our earnings
and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common stock will generally be treated as
"passive category income" or, in the case of certain types of U.S. Holders, as
"general category income" for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust
or estate (a "U.S. Individual Holder") should be treated as "qualified dividend
income" that is taxable to such U.S. Individual Holders at preferential tax
rates (through 2010) provided that: (1) our common stock is readily tradable on
an established securities market in the United States (such as The Nasdaq Global
Market on which our common stock will be traded); (2) we are not a passive
foreign investment company for the taxable year during which the dividend is
paid or the immediately preceding taxable year (which we do not believe we are,
have been or will be); and (3) the U.S. Individual Holder has owned the common
stock for more than 60 days in the 121-day period beginning 60 days before the
date on which the common stock becomes ex-dividend. Any dividends paid by the
Company which are not eligible for these preferential rates will be taxed as
ordinary income to a U.S. Individual Holder.
Special rules may apply to any "extraordinary dividend" -- generally, a dividend
equal to or in excess of ten percent of a shareholder's adjusted basis (or fair
market value in certain circumstances) in a share of common stock -- paid by us.
If we pay an "extraordinary dividend" on our common stock that is treated as
"qualified dividend income," then any loss derived by a U.S. Individual Holder
from the sale or exchange of such common stock will be treated as long-term
capital loss to the extent of such dividend. Depending upon the amount of a
dividend paid by us, such dividend may be treated as an "extraordinary
dividend."
Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any
taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a
sale, exchange or other disposition of our common stock in an amount equal to
the difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Subject to the discussion of extraordinary dividends above, such gain or loss
will be treated as long-term capital gain or loss if the U.S. Holder's holding
period is greater than one year at the time of the sale, exchange or other
disposition. Such capital gain or loss will generally be treated as U.S.-source
income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S.
Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a U.S. Holder that holds
stock in a foreign corporation classified as a passive foreign investment
company for United States federal income tax purposes. In general, we will be
treated as a passive foreign investment company with respect to a U.S. Holder
if, for any taxable year in which such holder held our common stock, either:
o at least 75% of our gross income for such taxable year consists of passive
income (e.g., dividends, interest, capital gains and rents derived other
than in the active conduct of a rental business); or
o at least 50% of the average value of the assets held by the corporation
during such taxable year produce, or are held for the production of,
passive income.
For purposes of determining whether we are a passive foreign investment company,
we will be treated as earning and owning our proportionate share of the income
and assets, respectively, of any of our subsidiary corporations in which we own
at least 25 percent of the value of the subsidiary's stock. Income earned, or
deemed earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
"passive income" unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that
we are, nor do we expect to become, a passive foreign investment company with
respect to any taxable year. Although there is no legal authority directly on
point, our belief is based principally on the position that, for purposes of
determining whether we are a passive foreign investment company, the gross
income we derive or are deemed to derive from the period chartering and voyage
chartering activities of our wholly-owned subsidiaries should constitute
services income, rather than rental income. Correspondingly, such income should
not constitute passive income, and the assets that we and our wholly-owned
subsidiaries own and operate in connection with the production of such income,
in particular, the vessels, should not constitute passive assets for purposes of
determining whether we are a passive foreign investment company. We believe
there is substantial legal authority supporting our position consisting of case
law and IRS pronouncements concerning the characterization of income derived
from period charters and voyage charters as services income for other tax
purposes. However, in the absence of any legal authority specifically relating
to the statutory provisions governing passive foreign investment companies, the
IRS or a court could disagree with our position. In addition, although we intend
to conduct our affairs in a manner to avoid being classified as a passive
foreign investment company with respect to any taxable year, we cannot assure
you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder would be subject to
different taxation rules depending on whether the U.S. Holder makes an election
to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF
election." As an alternative to making a QEF election, a U.S. Holder should be
able to make a "mark-to-market" election with respect to our common stock, as
discussed below.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as
an "Electing Holder," the Electing Holder must report each year for United
States federal income tax purposes his pro rata share of our ordinary earnings
and our net capital gain, if any, for our taxable year that ends with or within
the taxable year of the Electing Holder, regardless of whether or not
distributions were received from us by the Electing Holder. The Electing
Holder's adjusted tax basis in the common stock will be increased to reflect
taxed but undistributed earnings and profits. Distributions of earnings and
profits that had been previously taxed will result in a corresponding reduction
in the adjusted tax basis in the common stock and will not be taxed again once
distributed. An Electing Holder would generally recognize capital gain or loss
on the sale, exchange or other disposition of our common stock. A U.S. Holder
would make a QEF election with respect to any year that our company is a passive
foreign investment company by filing one copy of IRS Form 8621 with his United
States federal income tax return and a second copy in accordance with the
instructions to such form. If we were aware that we were to be treated as a
passive foreign investment company for any taxable year, we would provide each
U.S. Holder with all necessary information in order to make the QEF election
described above.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a passive foreign investment company
for any taxable year and, as we anticipate, our stock is treated as "marketable
stock," a U.S. Holder would be allowed to make a "mark-to-market" election with
respect to our common stock, provided the U.S. Holder completes and files IRS
Form 8621 in accordance with the relevant instructions and related Treasury
Regulations. If that election is made, the U.S. Holder generally would include
as ordinary income in each taxable year the excess, if any, of the fair market
value of the common stock at the end of the taxable year over such holder's
adjusted tax basis in the common stock. The U.S. Holder would also be permitted
an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted
tax basis in the common stock over its fair market value at the end of the
taxable year, but only to the extent of the net amount previously included in
income as a result of the mark-to-market election. A U.S. Holder's tax basis in
his common stock would be adjusted to reflect any such income or loss amount.
Gain realized on the sale, exchange or other disposition of our common stock
would be treated as ordinary income, and any loss realized on the sale, exchange
or other disposition of the common stock would be treated as ordinary loss to
the extent that such loss does not exceed the net mark-to-market gains
previously included in income by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a passive foreign investment company for
any taxable year, a U.S. Holder who does not make either a QEF election or a
"mark-to-market" election for that year, whom we refer to as a "Non-Electing
Holder," would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our common stock in a taxable year in excess of 125
percent of the average annual distributions received by the Non-Electing Holder
in the three preceding taxable years, or, if shorter, the Non-Electing Holder's
holding period for the common stock), and (2) any gain realized on the sale,
exchange or other disposition of our common stock. Under these special rules:
o the excess distribution or gain would be allocated ratably over the
Non-Electing Holders' aggregate holding period for the common stock;
o the amount allocated to the current taxable year would be taxed as ordinary
income; and
o the amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed with respect to the resulting tax attributable to
each such other taxable year.
These penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our common stock. If a Non-Electing Holder
who is an individual dies while owning our common stock, such holder's successor
generally would not receive a step-up in tax basis with respect to such stock.
UNITED STATES FEDERAL INCOME TAXATION OF "NON-U.S. HOLDERS"
A beneficial owner of common stock that is not a U.S. Holder is referred to
herein as a "Non-U.S. Holder."
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to United States federal income
tax or withholding tax on dividends received from us with respect to our common
stock, unless that income is effectively connected with the Non-U.S. Holder's
conduct of a trade or business in the United States. If the Non-U.S. Holder is
entitled to the benefits of a United States income tax treaty with respect to
those dividends, that income is generally taxable only if it is attributable to
a permanent establishment maintained by the Non-U.S. Holder in the United
States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to United States federal income
tax or withholding tax on any gain realized upon the sale, exchange or other
disposition of our common stock, unless:
o the gain is effectively connected with the Non-U.S. Holder's conduct of a
trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of an income tax treaty with respect to that gain, that
gain is generally taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or
o the Non-U.S. Holder is an individual who is present in the United States
for 183 days or more during the taxable year of disposition and other
conditions are met.
If the Non-U.S. Holder is engaged in a United States trade or business for
United States federal income tax purposes, the income from the common stock,
including dividends and the gain from the sale, exchange or other disposition of
the stock that is effectively connected with the conduct of that trade or
business will generally be subject to regular United States federal income tax
in the same manner as discussed in the previous section relating to the taxation
of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its
earnings and profits that are attributable to the effectively connected income,
which are subject to certain adjustments, may be subject to an additional branch
profits tax at a rate of 30%, or at a lower rate as may be specified by an
applicable income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the
United States to a non-corporate U.S. Holder will be subject to information
reporting requirements. Such payments will also be subject to backup withholding
tax if a non-corporate U.S. Holder:
o fails to provide an accurate taxpayer identification number;
o is notified by the IRS that it has failed to report all interest or
dividends required to be shown on its federal income tax returns; or
o in certain circumstances, fails to comply with applicable certification
requirements.
Non-U.S. Holders may be required to establish their exemption from information
reporting and backup withholding by certifying their status on IRS Form W-8BEN,
W-8ECI or W-8IMY, as applicable.
If a Non-U.S. Holder sells its common stock to or through a United States office
or broker, the payment of the proceeds is subject to both United States backup
withholding and information reporting unless such holder certifies that it is a
non-U.S. person, under penalties of perjury, or otherwise establishes an
exemption. If a Non-U.S. Holder sells its common stock through a non-United
States office of a non-United States broker and the sales proceeds are paid to
such holder outside the United States then information reporting and backup
withholding generally will not apply to that payment. However, United States
information reporting requirements, but not backup withholding, will apply to a
payment of sales proceeds, even if that payment is made to a Non-U.S. Holder
outside the United States, if such holder sells its common stock through a
non-United States office of a broker that is a United States person or has some
other contacts with the United States.
Backup withholding tax is not an additional tax. Rather, a holder generally may
obtain a refund of any amounts withheld under backup withholding rules that
exceed its income tax liability by filing a refund claim with the IRS.
Underwriting
We and the selling shareholders are offering the shares of common stock
described in this prospectus through the underwriters named below. UBS
Securities LLC and Bear, Stearns & Co. Inc. are the representatives of the
underwriters. We and the selling shareholders have entered into an underwriting
agreement with the underwriters. Subject to the terms and conditions of the
underwriting agreement, each of the underwriters has severally agreed to
purchase the number of shares of common stock listed next to its name in the
following table:
Number of
Underwriter Shares
----------- ------
UBS Securities LLC(1).........................................
Bear, Stearns & Co. Inc.(2)...................................
Jeffreys & Company, Inc.(3)...................................
Raymond James & Associates, Inc.(4)...........................
DVB Capital Markets LLC(5)....................................
-------------
Total....................................................
=============
----------
(1) 299 Park Avenue, New York, NY 10171
(2) 383 Madison Avenue, New York, NY 10179
(3) 520 Madison Avenue, New York, NY 10022
(4) 880 Carillon Parkway, Fifth Floor, St. Petersburg, FL 33716
(5) 609 Fifth Avenue, New York 10017
The underwriting agreement provides that the underwriters must buy all of the
shares if they buy any of them. However, the underwriters are not required to
take or pay for the shares covered by the underwriters' over-allotment option
described below.
Our common stock and the common stock of the selling shareholders are offered
subject to a number of conditions, including:
o receipt and acceptance of our common stock by the underwriters; and
o the underwriters' right to reject orders in whole or in part.
We have been advised by the representatives that the underwriters intend to make
a market in our common stock but that they are not obligated to do so and may
discontinue making a market at any time without notice.
In connection with this offering, certain of the underwriters or securities
dealers may distribute prospectuses electronically.
OVER-ALLOTMENT OPTION
Solimar has granted the underwriters an option to purchase from it up to
additional shares of our common stock. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if any,
made in connection with this offering. The underwriters have 30 days from the
date of this prospectus to exercise this option. If the underwriters exercise
this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above. We will not receive any
proceeds from the sale of such additional shares of stock.
COMMISSIONS AND DISCOUNTS
Shares sold by the underwriters to the public will initially be offered at the
offering price set forth on the cover of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $ per
share from the offering price. Any of these securities dealers may resell any
shares purchased from the underwriters to other brokers or dealers at a discount
of up to $ per share from the offering price. If all the shares are
not sold at the public offering price, the representatives may change the
offering price and the other selling terms. Sales of shares made outside of the
United States may be made by affiliates of the underwriters. Upon execution of
the underwriting agreement, the underwriters will be obligated to purchase the
shares at the prices and upon the terms stated therein and, as a result, will
thereafter bear any risk associated with changing the offering price to the
public or other selling terms.
The selling shareholders will pay the underwriting discounts and commissions
applicable to any shares that they sell. The following table shows the per share
and total underwriting discounts and commissions we and the selling shareholders
will pay to the underwriters, assuming both no exercise and full exercise of the
underwriters' option to purchase up to an additional shares.
Paid by the
selling Paid by us
shareholders No Exercise Full Exercise
------------ ----------- -------------
Per Share................. $ $
Total..................... $ $
We estimate that the total expenses of this offering payable by us, not
including the underwriting discounts and commissions, will be approximately
$ . This figure is net of the amount of $ , which the underwriters
have agreed to pay to us as reimbursement for our expenses in the offering.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and selling shareholders have entered
into lock-up agreements with the underwriters. Under these agreements, we and
each of these persons may not, without the prior written approval of UBS
Securities LLC and Bear, Stearns & Co. Inc., subject to limited exceptions,
offer, sell, contract to sell or otherwise dispose of or hedge our common stock
or securities convertible into or exercisable or exchangeable for our common
stock. These restrictions will be in effect for a period of 90 days, after the
date of this prospectus. However, in the event that either (1) during the last
17 days of the "lock-up" period, we release earnings results or material news or
a material event relating to us occurs or (2) prior to the expiration of the
"lock-up" period, we announce that we will release earnings results during the
16-day period beginning in the last day of the "lock-up" period, then in either
case the expiration of the "lock-up" period will be extended until the
expiration of the 18-day period beginning on the date of the release of the
earnings results or the occurrence of the material news or event, as applicable,
unless UBS Securities LLC and Bear, Stearns & Co. Inc. waive, in writing, such
an extension. At any time and without public notice, UBS Securities LLC and
Bear, Stearns & Co. Inc. may in their discretion release all or some of the
securities from these lock-up agreements.
We and the selling shareholders have agreed to indemnify the underwriters and
their controlling persons against certain liabilities, including liabilities
under the Securities Act. If we are unable to provide this indemnification, we
will contribute to payments the underwriters and their controlling persons may
be required to make in respect of those liabilities.
NASDAQ GLOBAL MARKET QUOTATION
Our common stock is listed on The Nasdaq Global Market under the symbol "ULTR".
PRICE STABILIZATION, SHORT POSITIONS AND PASSIVE MARKET MAKING
In connection with this offering, the underwriters may engage in activities that
stabilize, maintain or otherwise affect the price of our common stock,
including:
o stabilizing transactions;
o short sales;
o purchases to cover positions created by short sales;
o imposition of penalty bids;
o syndicate covering transactions; and
o passive market making.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of our common stock while
this offering is in progress. These transactions may also include making short
sales of our common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required to purchase in
this offering. Short sales may be "covered short sales", which are short
positions in an amount not greater than the underwriters' over-allotment option
referred to above, or may be "naked short sales", which are short positions in
excess of that amount.
The underwriters may close out any covered short position either by exercising
their over-allotment option, in whole or in part, or by purchasing shares in the
open market. In making this determination, the underwriters will consider, among
other things, the price of shares available for purchase in the open market
compared to the price at which they may purchase shares through the
over-allotment option.
Naked short sales are in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares in the open market.
A naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the common stock
in the open market that could adversely affect investors who purchased in this
offering.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. The underwriters may carry out these transactions on The Nasdaq Global
Market, in the over-the-counter market or otherwise.
AFFILIATIONS
The underwriters and their affiliates have provided and may provide certain
commercial banking, financial advisory and investment banking services for us
for which they receive fees.
The underwriters in this offering were underwriters for our IPO. The
underwriters and their affiliates may from time to time in the future engage in
transactions with us and perform services for us in the ordinary course of their
business.
Notice to investors
The shares of common stock are offered for sale in those jurisdictions in the
United States, Europe and elsewhere where it is lawful to make such offers.
Other than with respect to the public offering of the shares of common stock
listed on The Nasdaq Global Market, no action has been or will be taken in any
country or jurisdiction by us or the underwriters that would permit a public
offering of the shares of common stock, or possession or distribution of any
offering material in relation thereto, in any country or jurisdiction where
action for that purpose is required. Accordingly, the shares of common stock may
not be offered or sold, directly or indirectly, and neither this prospectus nor
any other offering material or advertisements in connection with the shares of
common stock may be distributed, published, in or from any country or
jurisdiction, except in compliance with any applicable rules and regulations of
any such country or jurisdiction. This prospectus does not constitute an offer
to sell or a solicitation of an offer to purchase in any jurisdiction where such
offer or solicitation would be unlawful.
European Economic Area
In relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (each, a "Relevant Member State"), each
Underwriter represents and agrees that with effect from and including the date
on which the Prospectus Directive is implemented in that Relevant Member State
(the "Relevant Implementation Date") it has not made and will not make an offer
of Securities to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the Securities which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the
Relevant Implementation Date, make an offer of Securities to the public in that
Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250
employees during the last financial year; (2) a total balance sheet of more
than (euro)43,000,000 and (3) an annual net turnover of more than
(euro)50,000,000, as shown in its last annual or consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than qualified investors
as defined in the Prospectus Directive) subject to obtaining the prior
consent of the manager for any such offer; or
(d) in any other circumstances which do not require the publication by the
Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer of Shares to the
public" in relation to any Shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the
terms of the offer and the Shares to be offered so as to enable an investor to
decide to purchase or subscribe the Shares, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member
State and the expression Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant Member State.
United Kingdom
Each of the underwriters severally represents, warrants and agrees to the
following:
(a) It has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to
engage in investment activity (within the meaning of section 21 of FSMA) to
persons who have professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 or in circumstances in which section 21 of
FSMA does not apply to the company; and
(b) it has complied with, and will comply with all applicable provisions of
FSMA with respect to anything done by it in relation to the shares of
common stock in, from or otherwise involving the United Kingdom.
France
The shares of common stock are being issued and sold outside the Republic of
France and that, in connection with their initial distribution, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of common stock to the public in the Republic of France, and that it has not
distributed and will not distribute or cause to be distributed to the public in
the Republic of France this prospectus or any other offering material relating
to the shares of common stock, and that such offers, sales and distributions
have been and will be made in the Republic of France only to qualified investors
(investisseurs qualifies) in accordance with Article L.411-2 of the Monetary and
Financial Code and decree no. 98-880 dated 1st October, 1998.
Netherlands
Our shares of common stock may not be offered, sold, transferred or delivered in
or from the Netherlands as part of their initial distribution or at any time
thereafter, directly or indirectly, other than to, individuals or legal entities
situated in The Netherlands who or which trade or invest in securities in the
conduct of a business or profession (which includes banks, securities
intermediaries (including dealers and brokers), insurance companies, pension
funds, collective investment institution, central governments, large
international and supranational organizations, other institutional investors and
other parties, including treasury departments of commercial enterprises, which
as an ancillary activity regularly invest in securities; hereinafter,
"Professional Investors"), provided that in the offer, prospectus and in any
other documents or advertisements in which a forthcoming offering of our shares
of common stock is publicly announced (whether electronically or otherwise) in
The Netherlands it is stated that such offer is and will be exclusively made to
such Professional Investors. Individual or legal entities who are not
Professional Investors may not participate in the offering of our shares of
common stock, and this prospectus or any other offering material relating to our
shares of common stock may not be considered an offer or the prospect of an
offer to sell or exchange our shares of common stock.
Italy
Neither the shares of common stock, this prospectus nor any other material
relating to the shares of common stock will be offered, sold, delivered,
distributed or made available in the Republic of Italy other than to
professional investors ("investiton professionali") as defined in Article 30,
Paragraph 2, of Legislative Decree No. 58, of 24 February 1998 (the "Financial
Laws Consolidation Act"), as subsequently amended and supplemented, which refers
to the definition or "operatori qualificati" as defined in Article 31, Paragraph
2, of CONSOB Regulation No. 11,522, of 1 July 1998, as subsequently amended and
supplemented, or pursuant to Article 100 of the Financial Laws Consolidation and
Article 33, Paragraph 1, of CONSOB Regulation n. 11,971, of 14 May 1999, as
subsequently amended and supplemented and in accordance with applicable Italian
laws and regulations.
Any offer of the shares of common stock to professional investors in the
Republic of Italy shall be made only by banks, investment firms or financial
companies enrolled in the special register provided for in Article 107 of the
Consolidated Banking Act, to the extent that they are duly authorized to engage
in the placement and/or underwriting of financial instruments in the Republic of
Italy in accordance with the relevant provisions of the Financial Laws
Consolidations Act and/or any other applicable laws and regulations and in
compliance with Article 129 of the Consolidated Banking Act.
Insofar as the requirements above are based on laws that are superseded at any
time pursuant to the implementation of the Directive 20O3/71/CE ("Prospectus
Directive"), such requirements shall be replaced by the applicable requirements
under the Prospectus Directive.
Spain
Neither the shares of common stock nor this prospectus have been approved or
registered in the administrative registries of the Spanish Securities Markets
Commission ("Comision Nacional del Mercado de Valores"). Accordingly, the shares
of common stock may not be offered in Spain except in circumstances which do not
constitute a public offer of securities in Spain within the meaning of Article
3Obis of the Spanish Securities Market Law, of 28 July 1988 ("Ley 24/1988, de 28
de julio, del Mercado de Valores), as amended and restated, and supplemental
rules enacted thereunder.
Switzerland
The common stock may not and will not be publicly offered, distributed or
re-distributed on a professional basis in or from Switzerland and neither this
prospectus nor any other solicitation for investments in our common stock may be
communicated or distributed in Switzerland in any way that could constitute a
public offering within the meaning of Articles 1156 or 652a of the Swiss Code of
Obligations or of Article 2 of the Federal Act on Investment Funds of March 18,
1994. This prospectus may not be copied, reproduced, distributed or passed on to
others without the underwriters' prior written consent. This prospectus is not a
prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of
Obligations or a listing prospectus according to article 32 of the Listing Rules
of the Swiss Exchange and may not comply with the information standards required
thereunder. We will not apply for a listing of our common stock on any Swiss
stock exchange or other Swiss regulated market and this prospectus may not
comply with the information required under the relevant listing rules. The
common stock offered hereby has not and will not be registered with the Swiss
Federal Banking Commission and has not and will not be authorized under the
Federal Act on Investment Funds of March 18, 1994. The investor protection
afforded to acquirers of investment fund certificates by the Federal Act on
Investment Funds of March 18, 1994 does not extend to acquirers of our common
stock.
Other expenses of issuance and distribution
We estimate the expenses in connection with the issuance and distribution of our
common stock in this offering, other than underwriting discounts and
commissions, as follows:
SEC Registration Fee.............................................$
Printing and Engraving Expenses..................................
Legal Fees and Expenses..........................................
Accountants' Fees and Expenses...................................
Nasdaq Global Market Listing Fee.................................
NASD Fee.........................................................
Blue Sky Fees and Expenses.......................................
Transfer Agent's Fees and Expenses...............................
Miscellaneous Costs..............................................
Expense reimbursement from the underwriters......................
Total............................................................$
=============
Legal matters
The validity of the common stock will be passed upon for us by Higgs & Johnson,
Nassau, Bahamas. Certain legal matters are passed upon for us by Seward & Kissel
LLP, New York, New York with respect to matters of U.S. and New York law. The
underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New
York.
Experts
The consolidated financial statements of Ultrapetrol (Bahamas) Limited at
December 31, 2005 and 2006 and for each of the three years in the period ended
December 31, 2006 appearing in this prospectus and registration statement have
been audited by Pistrelli, Henry Martin y Asociados S.R.L., independent
registered public accounting firm and a member of Ernst & Young Global, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in auditing and
accounting.
The section of this prospectus entitled "The international shipping industry"
has been reviewed by DSC, an independent U.K.-based company providing market
analysis and strategic planning services to the shipping industry. DSC has
confirmed to us that "The international shipping industry" section accurately
describes the industries that it purports to describe, subject to the
availability and reliability of the data supporting the statistical and
graphical information presented in such section, and DSC's consent to use such
information herein is filed as an exhibit to the registration statement on Form
F-1 under the Securities Act of which this prospectus is a part.
Where you can find additional information
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the common stock
offered by this prospectus. For the purposes of this section, the term
registration statement means the original registration statement and any and all
amendments including the schedules and exhibits to the original registration
statement or any amendment. This prospectus does not contain all of the
information set forth in the registration statement we filed. Each statement
made in this prospectus concerning a document filed as an exhibit to the
registration statement is qualified by reference to that exhibit for a complete
statement of its provisions. The registration statement, including its exhibits
and schedules, may be inspected and copied at the public reference facilities
maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the public reference room by calling
1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
20549. The SEC maintains a website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
We will furnish holders of shares of our common stock with annual reports
containing audited financial statements and a report by our independent public
accountants, and intend to make available quarterly reports containing selected
unaudited financial data for the first three quarters of each fiscal year. The
audited financial statements will be prepared in accordance with United States
generally accepted accounting principles and those reports will include a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section for the relevant periods. As a "foreign private issuer," we
will be exempt from the rules under the Exchange Act prescribing the furnishing
and content of proxy statements to shareholders, but we will distribute proxy
statements to shareholders. We do not expect to conform to those proxy
statements to Schedule 14A of the proxy rules promulgated under the Exchange
Act. In addition, as a "foreign private issuer," we will be exempt from the
rules under the Exchange Act relating to short swing profit reporting and
liability.
Glossary of shipping terms
The following are definitions of certain terms that are commonly used in the
shipping industry and in this prospectus.
Aframax. A tanker ranging in size from 80,000 dwt to 119,999 dwt.
Annual survey. The inspection of a vessel pursuant to international conventions,
by a classification society surveyor or on behalf of the flag state, that takes
place every year.
Bareboat charter. Charter of a vessel under which the vessel owner is usually
paid a fixed amount of charterhire for a certain period of time during which the
charterer is responsible for the vessel's operating expenses, and voyage
expenses, as well as the management of the vessel, including crewing. A bareboat
charter is also known as a "demise charter" or a "time charter by demise."
Bulk carrier. A vessel designed for the carriage of dry bulk cargos.
Bunker. The fuel used to operate a vessel's engines and generators.
Cabotage. Trade or transport in the coastal waters of, or between two ports
within, a country or other sovereign jurisdiction; the right to engage in such
activity.
Capesize. A dry bulk carrier that is greater than 80,000 dwt in size.
Charter. The hire of a vessel for a specified period of time or to carry a cargo
from a loading port to a discharging port.
Charterer. The company that hires a vessel.
Charterhire. A sum of money paid to the vessel owner by a charterer under a
charter.
Classification society. An independent society that certifies that a vessel has
been built and maintained according to that society's rules for that type of
vessel and complies with the applicable rules and regulations of the country of
the vessel and the international conventions to which that country is a member.
A vessel that receives its certification is referred to as being "in-class."
Clean petroleum products. Liquid products refined from crude oil whose color is
less than or equal to 2.5 on the National Petroleum Association scale. Clean
petroleum products include naphtha, jet fuel, gasoline and diesel/gas oil.
Contract of affreightment or COA. A contract for the carriage of a specific type
and quantity of cargo, with payment based on metric tons of cargo carried, which
will be carried in one or more shipments. For a COA, the vessel owner or
operator generally pays all voyage expenses and vessel operating expenses and
has the right to substitute one vessel for another. The rate is generally
expressed in dollars per metric ton of cargo. Revenues earned under COAs are
referred to as "freight." When used in this prospectus, COA also refers to a
voyage charter.
Dirty petroleum products. Liquid products refined from crude oil whose color is
greater than 2.5 on the National Petroleum Association scale. Dirty products
will usually require heating during the voyage as their viscosity or waxiness
makes discharge difficult at ambient temperatures. Dirty petroleum products
include fuel oil, Low Sulphur Waxy Residue, or LSWR, and Carbon Black Feedstock,
or CBFS.
Double hull. Hull construction design in which a vessel has an inner and outer
side and bottom separated by void space.
Drydocking. The removal of a vessel from the water for inspection and/or repair
of those parts of a vessel which are below the water line. During drydockings,
which are required to be carried out periodically, certain mandatory
classification society inspections are carried out and relevant certifications
issued.
Dwt or Deadweight ton. A unit of a vessel's capacity for cargo, fuel oil, stores
and crew measured in metric ton units which is equal to 1,000 kilograms.
Gross ton. A unit of measurement for the total enclosed space within a vessel
equal to 100 cubic feet or 2.831 cubic meters.
Hidrovia Region. A region of navigable waters in South America on the Parana,
Paraguay and Uruguay Rivers and part of the River Plate, which flow through
Argentina, Bolivia, Brazil, Paraguay and Uruguay. The region covers the entire
length of the Parana River south of the Itaipu Dam, the entire length of the
Paraguay River south of Corumba, the Uruguay River and the River Plate west of
Buenos Aires. Our definition of the Hidrovia Region is wider than the common
usage of such term.
Hull. Shell or body of a vessel.
IMO. International Maritime Organization, a United Nations agency that issues
international standards for shipping.
Intermediate survey. The inspection of a vessel by a classification society
surveyor that takes place 24 to 36 months after each Special Survey.
ISM Code. The IMO's International Management Code for the Safe Operation of
Ships and Pollution Prevention.
Newbuilding. A new vessel under construction or just completed.
OBO or Oil/Bulk/Ore. A combination carrier capable of transporting oil products,
ore or dry bulk commodities.
Off hire. The period a vessel is unable to perform the services for which it is
immediately required under a time charter. Off hire periods include days spent
on repairs, drydocking and surveys, whether or not scheduled.
OPA. The United States Oil Pollution Act of 1990, as amended.
OPEC. Organization of Petroleum Exporting Countries.
Panamax. A vessel of approximately 50,000 to 79,999 dwt. The term is derived
from the maximum length, breadth and draft of a vessel capable of passing
through the Panama Canal.
Petroleum Products. Refined crude oil products, such as fuel oils, gasoline and
jet fuel.
Product Tanker. A tanker designed to carry a variety of liquid products varying
from crude oil to clean and dirty petroleum products, acids and other chemicals.
The tanks are coated to prevent product contamination and hull corrosion. The
vessel may have equipment designed for the loading and unloading of cargos with
a high viscosity.
Protection and Indemnity or P&I insurance. Insurance obtained through a mutual
association formed by vessel owners to provide liability insurance protection
against large financial loss to one member by contribution to offset that loss
by all members.
PSV or platform supply vessel. A vessel ranging in size from approximately 150
feet to 300 feet in length that serves oil drilling and production facilities by
transporting supplies and equipment to offshore locations, utilizing a large
clear deck and under deck tanks.
Scrapping. The disposal of old vessel tonnage by way of sale as scrap metal.
Special Survey. The inspection of a vessel while in drydock by a classification
society surveyor that takes place every four to five years.
Spot Market. The market for immediate chartering of a vessel, usually for single
voyages.
Suezmax. A tanker ranging in size from 120,000 dwt to 199,999 dwt. The term is
derived from the maximum length, breadth and draft of a vessel capable of
passing through the Suez Canal.
Tanker. A vessel designed for the carriage of liquid cargos in bulk with cargo
space consisting of segregated tanks. Tankers carry a variety of products
including crude oil, refined products, liquid chemicals and liquefied gas.
Time Charter. Charter under which the vessel owner is paid charterhire on a per
day basis for a certain period of time. The vessel owner is responsible for
providing the crew and paying vessel operating expenses while the charterer is
responsible for paying the voyage expenses. Any delays at port or during the
voyages are the responsibility of the charterer, save for certain specific
exceptions such as off hire.
ULCC or Ultra large crude carrier. A tanker that is 320,000 dwt or greater in
size.
Vessel operating expenses or running costs. The costs of operating a vessel that
are incurred during a charter, primarily consisting of crew wages and associated
costs, insurance premiums, lubricants and spare parts, and repair and
maintenance costs. Vessel operating expenses or running costs exclude fuel costs
and port fees, which are known as "voyage expenses." For a time charter, the
vessel owner pays vessel operating expenses. For a bareboat charter, the
charterer pays vessel operating expenses.
VLCC or Very large crude carrier. A tanker ranging in size from 200,000 to
319,999 dwt.
Voyage charter. Contract for hire of a vessel under which a vessel owner is paid
freight on the basis of moving cargo from a loading port to a discharge port.
The vessel owner is responsible for paying both vessel operating expenses and
voyage expenses. The charterer is typically responsible for any delay at the
loading or discharging ports. A voyage charter is also known as a contract of
affreightment or COA.
Voyage expenses. Expenses incurred due to a vessel traveling to a destination,
such as fuel cost and port fees.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS PAGE
---------------------------------------------------------------------- -------
o Financial statements
- Consolidated balance sheets as of December 31, 2006 and 2005 -1-
- Consolidated statements of income for the years ended
December 31, 2006, 2005 and 2004 -2-
- Consolidated statements of changes in shareholders' equity
for the years ended December 31, 2006, 2005 and 2004 -3-
- Consolidated statements of cash flows for the years ended
December 31, 2006, 2005 and 2004 -4-
- Notes to consolidated financial statements -5-
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2006 AND 2005
(Stated in thousands of U.S. dollars, except par value and share amounts)
At December 31,
---------------------------
2006 2005
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,648 $ 7,914
Restricted cash -- 3,638
Accounts receivable, net of allowance for
doubtful accounts of $709 and $324
in 2006 and 2005, respectively 17,333 9,017
Receivables from related parties 3,322 17,944
Marine and river operating supplies 3,020 3,547
Prepaid expenses 2,530 3,239
Other receivables 7,917 4,807
------------ ------------
Total current assets 54,770 50,106
------------ ------------
NONCURRENT ASSETS
Other receivables 6,368 6,431
Receivables from related parties 2,280 1,995
Restricted cash 1,088 68
Vessels and equipment, net 333,191 182,069
Dry dock 9,673 12,743
Investment in affiliates 2,285 15,698
Intangible assets 3,748 --
Goodwill 5,015 --
Other assets 6,014 7,548
Deferred tax assets 1,947 1,624
------------ ------------
Total noncurrent assets 371,609 228,176
------------ ------------
Total assets $ 426,379 $ 278,282
============ ============
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,491 $ 12,138
Payable to related parties 420 2,008
Accrued interest 1,691 1,723
Current portion of long-term financial debt 4,700 6,599
Other payables 2,469 915
------------ ------------
Total current liabilities 22,771 23,383
------------ ------------
NONCURRENT LIABILITIES
Long-term debt 180,000 180,000
Financial debt, net of current portion 34,294 22,953
Deferred tax liability 6,544 1,095
Other payables 250 --
------------ ------------
Total noncurrent liabilities 221,088 204,048
------------ ------------
Total liabilities 243,859 227,431
------------ ------------
MINORITY INTEREST 3,091 2,479
------------ ------------
MINORITY INTEREST SUBJECT TO PUT RIGHTS -- 4,898
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: 100,000,000
authorized shares; 28,346,952 and
15,500,000 shares issued and outstanding
in 2006 and 2005, respectively 283 155
Additional paid-in capital 173,826 48,418
Accumulated earnings (deficit) 5,231 (5,295)
Accumulated other comprehensive income 89 196
------------ ------------
Total shareholders' equity 179,429 43,474
------------ ------------
Total liabilities, minority interests and
shareholders' equity $ 426,379 $ 278,282
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Stated in thousands of U.S. dollars, except share and per share data)
For the year ended December 31,
--------------------------------------------
2006 2005 2004
------------ ------------ ------------
REVENUES
Revenues from third parties $ 169,387 $ 123,385 $ 89,956
Revenues from related parties 4,079 1,976 5,204
------------ ------------ ------------
Total revenues 173,466 125,361 95,160
------------ ------------ ------------
OPERATING EXPENSES (1)
Voyage expenses (43,445) (33,827) (15,923)
Running costs (54,165) (39,234) (24,892)
Amortization of dry docking (7,830) (6,839) (5,195)
Depreciation of vessels and equipment (19,920) (14,494) (13,493)
Management fees to related parties (511) (2,118) (1,513)
Amortization of intangible assets (590) -- --
Administrative and commercial expenses (13,905) (7,617) (7,494)
Other operating (expense) income (198) 22,021 784
------------ ------------ ------------
(140,564) (82,108) (67,726)
------------ ------------ ------------
Operating profit 32,902 43,253 27,434
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Financial expense (19,025) (19,141) (16,134)
Financial gain on extinguishment of debt -- -- 1,344
Financial loss on extinguishment of debt (1,411) -- (6,422)
Financial income 733 1,152 119
Investment in affiliates 588 (497) 406
Other, net 859 384 174
------------ ------------ ------------
Total other expenses (18,256) (18,102) (20,513)
------------ ------------ ------------
Income before income taxes and minority interest 14,646 25,151 6,921
Income taxes (2,201) (786) (642)
Minority interest (1,919) (9,797) (1,140)
------------ ------------ ------------
Net income $ 10,526 $ 14,568 $ 5,139
============ ============ ============
Basic net income per share $ 0.59 $ 0.94 $ 0.33
Diluted net income per share $ 0.58 $ 0.94 $ 0.33
Basic weighted average number of shares 17,965,753 15,500,000 15,500,000
Diluted weighted average number of shares 18,079,091 15,500,000 15,500,000
(1) In addition to management fees to related parties, operating expenses
included $3,163, $5,089 and $2,451 in 2006, 2005 and 2004, respectively,
from related parties.
The accompanying notes are an integral part of
these consolidated financial statements
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Stated in thousands of U.S. dollars, except share data)
Additional Accumulated
Common paid-in Accumulated other
Shares stock capital earnings comprehensive
Balance amount (Note 12) (Note 12) (deficit) income Total
---------- ---------- ---------- ---------- ------------- ----------
December 31, 2003 15,500,000 $ 155 $ 48,418 $ (25,002) $ 222 $ 23,793
Comprehensive income:
- Net income -- -- -- 5,139 -- 5,139
- Net loss on EURO hedge
agreement designated
as cash flow hedge -- -- -- -- (22) (22)
----------
Total comprehensive income 5,117
---------- ---------- ---------- ---------- ------------- ----------
December 31, 2004 15,500,000 155 48,418 (19,863) 200 28,910
Comprehensive income:
- Net income -- -- -- 14,568 -- 14,568
- Net loss on EURO hedge
agreement designated
as cash flow hedge -- -- -- -- (4) (4)
----------
Total comprehensive income 14,564
---------- ---------- ---------- ---------- ------------- ----------
December 31, 2005 15,500,000 155 48,418 (5,295) 196 43,474
Issuance of common stock 12,500,000 125 137,375 -- -- 137,500
Underwriting fees and
issuance expenses -- -- (12,314) -- -- (12,314)
Issuance of restricted stock
and recognition of stock
options 346,952 3 347 -- -- 350
Comprehensive income:
- Net income -- -- -- 10,526 -- 10,526
- Net loss on forward fuel
purchase agreement
designated as cash
flow hedge -- -- -- -- (98) (98)
- Net loss on EURO hedge
agreement designated as
cash flow hedge -- -- -- -- (9) (9)
----------
Total comprehensive income 10,419
---------- ---------- ---------- ---------- ------------- ----------
December 31, 2006 28,346,952 $ 283 $ 173,826 $ 5,231 $ 89 $ 179,429
========== ========== ========== ========== ============= ==========
The accompanying notes are an integral part of
these consolidated financial statements
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Stated in thousands of U.S. dollars)
For the year ended December 31,
-----------------------------------
2006 2005 2004
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,526 $ 14,568 $ 5,139
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of vessels and equipment 19,920 14,494 13,493
Amortization of dry docking 7,830 6,839 5,195
Expenditure for dry docking (4,836) (8,427) (11,139)
Note issuance expenses amortization 750 1,037 568
Minority interest in equity of subsidiaries 1,919 9,797 1,140
Amortization of intangible assets 590 -- --
Financial gain on extinguishment of debt -- -- (1,344)
Financial loss on extinguishment of debt 1,411 -- 6,422
(Gain) on disposal of assets (630) (21,867) (41)
Net (gain) loss from investment in affiliates (588) 497 (406)
Allowance for doubtful accounts 1,065 (246) 355
Share - based compensation 350 -- --
Changes in assets and liabilities net of effects from purchase of Ravenscroft
and UP Offshore (Bahamas) companies in 2006 and UABL Limited and UABL
Terminals companies in 2004:
(Increase) Decrease in assets:
Accounts receivable (8,636) (2,217) 5,365
Receivable from related parties 3,276 (905) 3,783
Marine and river operating supplies 17 (1,353) 405
Prepaid expenses 1,350 862 (994)
Other receivables (1,405) 2,114 (318)
Other (135) -- --
Increase (Decrease) in liabilities:
Accounts payable (436) 1,209 1,801
Payable to related parties (4,510) 1,240 (3,498)
Other payables 1,620 (583) (251)
Other (647) (388) (2,546)
--------- --------- ---------
Net cash provided by operating activities 28,801 16,671 23,129
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment (52,699) (51,461) (59,934)
Purchase of Ravenscroft and UP Offshore (Bahamas) companies, net of cash acquired (59,014) -- --
(Decrease) Increase in loan to affiliate 11,391 (13,141) --
Purchase of minority interest in UABL Limited (6,225) -- --
Proceeds from disposals of assets 2,630 37,888 6,430
Investment in affiliates -- -- (1,713)
Purchase of UABL and UABL Terminals companies, net of cash acquired -- -- (1,542)
Other (112) (11) (797)
--------- --------- ---------
Net cash (used in) investing activities (104,029) (26,725) (57,556)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (33,077) (19,354) (39,149)
Decrease (Increase) in restricted cash 3,273 29,279 (13,333)
Proceeds from initial public offering, net of issuance costs 125,186 -- --
(Payment) Issuance of redeemable preference shares of subsidiary (4,303) -- 3,000
Proceeds from long-term financial debt -- 10,500 27,700
Redemption of minority interest (2,600) (13,400) --
Proceeds from 2014 Senior notes, net of issuance costs -- -- 173,345
Minority interest in equity of subsidiaries -- -- 17,959
Payments of 2008 Senior Notes -- -- (131,502)
Other (517) (659) (239)
--------- --------- ---------
Net cash provided by financing activities 87,962 6,366 37,781
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 12,734 (3,688) 3,354
Cash and cash equivalents at the beginning of year $ 7,914 $ 11,602 $ 8,248
--------- --------- ---------
Cash and cash equivalents at the end of year $ 20,648 $ 7,914 $ 11,602
--------- --------- ---------
The accompanying notes are an integral part
of these consolidated financial statements
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except per share data
and otherwise indicated)
1. NATURE OF OPERATIONS AND CORPORATE ORGANIZATION
Nature of operations
Ultrapetrol (Bahamas) Limited ("Ultrapetrol Bahamas", "Ultrapetrol", "the
Company", "us" or "we") is a company organized and registered as a Bahamas
Corporation since December 1997.
We are a shipping transportation company serving the marine transportation
needs of our clients in the markets on which we focus. We serve the
shipping markets for grain, forest products, minerals, crude oil,
petroleum, and refined petroleum products, as well as the offshore oil
platform supply market, and the leisure passenger cruise market through our
operations in the following four segments of the marine transportation
industry. In our Ocean Business, we are an owner and operator of oceangoing
vessels that transport petroleum products and dry cargo. In our Passenger
Business, we are an owner of cruise vessels that transport passengers
primarily cruising the Mediterranean and Black Sea. In our River Business
we are an owner and operator of river barges and push boats in the Hidrovia
region of South America, a region of navigable waters on the Parana,
Paraguay and Uruguay Rivers and part of the River Plate, which flow through
Brazil, Bolivia, Uruguay, Paraguay and Argentina. In our Offshore Supply
Business we own and operate vessels that provide logistical and
transportation services for offshore petroleum exploration and production
companies, primarily in the North Sea and the coastal waters of Brazil.
Initial Public Offering (IPO)
On October 18, 2006 the Company closed on the sale of 12,500,000 shares of
its common stock at $11.00 per share through an IPO. The proceeds of
$137,500 were used:
- to repay the note we issued to LAIF XI Ltd., a related company, in
connection with our purchase of its 66.67% interest in UP Offshore
(Bahamas) Ltd. for $48,000,
- to repay the notes we issued to Crosstrade Maritime Inc. and
Crosstrees Maritime Inc., related companies, in connection with our
purchase of 100% of Ravenscroft Shipping (Bahamas) for $11,500,
- to redeem UP Offshore (Bahamas) Ltd. 's redeemable preferred shares
issued to IFC for $4,303,
- to discharge the obligations to the International Finance Corporation
resulting from our purchase of its interest in our River Business for
$6,225,
- to repay some of our variable interest rate indebtedness owed to the
International Finance Corporation and other lenders for $26,763
(included accrued interest at the cancellation date) and,
- to cancel underwriters fees and additional fees and incremental
issuance expenses amounted to $12,314, with the remaining $28,395 set
aside $20,000 for funding a portion of the balance of the construction
costs of the two PSVs being built in Brazil and the balance for
general corporate purpose.
Ultrapetrol common share is now traded on the NASDAQ Global Market under
the symbol "ULTR".
Subsequent to the IPO, an aggregate of 232,712 shares were sold by our
Original Shareholders in connection with the underwriters' exercise of
their over-allotment option. The Company did not receive any proceeds from
the sale of the over-allotment shares.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation and principles of consolidation
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America ("US GAAP").
The consolidated financial statements include the accounts of the
Company and its subsidiaries, both majority and wholly owned.
Significant intercompany accounts and transactions have been
eliminated in this consolidation. Investments in 50% or less owned
affiliates, in which the Company exercises significant influence, are
accounted for by the equity method.
b) Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during
the years. Significant estimates have been made by management,
including the allowance for doubtful accounts, insurance claims
receivables, useful lives and valuation of vessels, realizability of
deferred tax assets and certain accrued liabilities. Actual results
may differ from those estimates.
c) Revenues and related expenses
Revenue is recorded when services are rendered, the Company has a
signed charter agreement or other evidence of an arrangement, pricing
is fixed or determinable and collection is reasonably assured.
Revenues are earned under time charters, bareboat charters,
consecutive voyage charters or affreightment/voyage contracts. Revenue
from time charters and bareboat charters is earned and recognized on a
daily basis. Revenue from affreightment/voyage contracts and
consecutive voyage charters is recognized based upon the percentage of
voyage completion. A voyage is deemed to commence upon the departure
of discharged vessel of previous cargo and is deemed to end upon the
completion of discharge of the current cargo. The percentage of voyage
completion is based on the miles transited at the balance sheet date
divided by the total miles expected on the voyage. The position of the
barge at the balance sheet date is determined by locating the position
of the boat with the barge in tow through use of a global positioning
system.
Demurrage income represents payments by the charterer to the vessel
owner when loading or discharging time exceeded the stipulated time in
the voyage charter and is recognized as it is earned.
Revenue from our Passenger Business is recognized upon completion of
voyages, together with revenues from on board and other activities.
From time to time we provide ships salvage services under Lloyd's
Standard Form of Salvage Agreement ("LOF"). The Company recognizes
costs as incurred on these LOF services. Revenue is recognized to the
extent of costs incurred in order to appropriately match revenues with
costs, provided that the Company has earned the revenue. The Company
has historically recovered at least its cost in all of its prior
salvage operations. Additional revenues in excess of costs incurred
are recorded at the time the final LOF settlement or arbitration award
occurs.
Vessel voyage costs, primarily consisting of port, canal and bunker
expenses that are unique to a particular charter, are paid for by the
charterer under time charter arrangements or by the Company under
voyage charter arrangements. The commissions paid in advance are
deferred and amortized over the related voyage charter period to the
extent revenue has been deferred since commissions are earned as the
Company's revenues are earned. Bunker expenses and gift shop for
resale are capitalized when acquired as operating supplies and
subsequently charged to voyage expenses as consumed/resold. All other
voyage expenses and other vessel operating expenses are expensed as
incurred.
d) Foreign currency translation
The Company uses the US dollar as its functional currency. Operations
denominated in other currencies are remeasured into US dollars in
accordance with Statement of Financial Accounting Standard No. 52,
Foreign Currency Translation ("SFAS 52"). Receivables and payables
denominated in foreign currencies are translated into US dollars at
the rate of exchange at the balance sheet date, while revenues and
expenses are translated using the average exchange rate for each
month. Certain subsidiaries enter into transactions denominated in
currencies other than their functional currency. Changes in currency
exchange rates between the functional currency and the currency in
which a transaction is denominated is included in the consolidated
statements of income in the period in which the currency exchange rate
changes.
e) Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash
equivalents consist of money market instruments and overnight
investments. The credit risk associated with cash and cash equivalents
is considered low due to the high credit quality of the financial
institutions.
f) Restricted cash
Certain of the Company's loan agreements require the Company to fund:
(a) a loan retention account equivalent to either one sixth or one
third of the loan installment (depending on the frequency of the
repayment elected by the Company, i.e. quarterly or semi annually)
plus interest which is used to fund the loan installments coming due,
(b) a minimum cash deposit, and (c) a drydocking account which is
restricted for use and can only be used for the purpose of paying for
drydocking or special survey expenses.
g) Accounts receivable
Substantially all of the Company's accounts receivable are due from
international oil companies and traders. The Company performs ongoing
credit evaluations of its trade customers and generally does not
require collateral. Expected credit losses are provided for in the
consolidated financial statements for all expected uncollectible
accounts.
Changes in the allowance for doubtful accounts for the three years
ended December 31, 2006, were as follow:
For the year ended December 31,
-------------------------------
2006 2005 2004
------- ------- -------
Balance at January 1 $ 324 $ 739 $ 1,142
Provision 1,065 290 679
Recovery -- (44) (324)
Amounts written off (1) (680) (661) (758)
------- ------- -------
Balance at December 31 $ 709 $ 324 $ 739
======= ======= =======
(1) Accounts charged to the allowance when collection efforts cease.
h) Insurance claims receivable
Insurance claims receivable represent costs incurred in connection
with insurable incidents for which the Company expects to be
reimbursed by the insurance carriers, subject to applicable
deductibles. Deductible amounts related to covered incidents are
expensed in the period of occurrence of the incident. Expenses
incurred for insurable incidents in excess of deductibles are recorded
as receivables pending the completion of all repair work and the
administrative claims process. The credit risk associated with
insurance claims receivable is considered low due to the high credit
quality and funded status of the insurance underwriters and Protection
& Indemnity ("P&I") clubs in which the Company is a member. The
Company has historically recovered at least its cost in substantially
all of its prior covered incidents. Insurance claims receivable,
included in other receivables in the accompanying balance sheets,
amounts $2,435 and $6,152 at December 31, 2006 and 2005, respectively.
i) Marine and river operating supplies
Such amounts consist principally of fuel and supplies that are
recorded for at the lower of cost or market and are charged to
operating expenses as consumed determined on a first-in, first-out
basis.
j) Vessels and equipment, net
Vessels and equipment are stated at cost less accumulated
depreciation. This cost includes the purchase price and all directly
attributable costs (initial repairs, improvements and delivery
expenses, interest and on-site supervision costs incurred during the
construction periods). Subsequent expenditures for conversions and
major improvements are also capitalized when they appreciably extend
the life, increase the earning capacity or improve the safety of the
vessels.
Depreciation is computed net from the estimated scrap value which is
equal to the product of each vessel's lightweight tonnage and
estimated scrap value per lightweight ton and is recorded using the
straight-line method over the estimated useful lives of the vessels.
Acquired secondhand vessels are depreciated from the date of their
acquisition over the remaining estimated useful life.
Listed below are the estimated useful lives of vessels and equipment:
Useful lives
(in years)
------------
Ocean-going vessels 24
PSVs 24
Passenger vessels 45
River barges and push boats 35
Furniture and equipment 5 to 10
However, when regulations place limitations over the ability of a
vessel to trade, its useful life is adjusted to end at the date such
regulations become effective. Currently, these regulations only affect
one of our vessels in the Passenger Business with no significant
effects on its useful life.
At the time vessels are disposed of, the assets and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recorded in other operating income
(expense).
Long-lived assets are reviewed for impairment in accordance with
Statement of Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets ("SFAS 144"), whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and carrying
value of the asset.
k) Dry dock costs
The Company's vessels must be periodically drydocked and pass
inspections to maintain their operating classification, as mandated by
maritime regulations. Costs incurred to drydock the vessel are
deferred and amortized using the straight - line method over the
period to the next drydocking, generally 24 to 36 months. Drydocking
costs are comprised of painting the vessel hull and sides, recoating
cargo and fuel tanks, and performing other engine and equipment
maintenance activities to bring the vessel into compliance with
classification standards. Costs include actual costs incurred at the
yard, cost of fuel consumed, and the cost of hiring riding crews to
effect repairs. The unamortized portion of dry dock costs for vessels
that are sold are written off and included in the calculation of the
resulting gain or loss in the year of the vessels' sale.
Expenditures for maintenance and minor repairs are expensed as
incurred.
l) Investments in affiliates
These investments are accounted for by the equity method. At December
31, 2006 and 2005 this includes our interest in 50% of Puertos del Sur
S.A. and OTS S.A. and 49% of Maritima Sipsa S.A. At December 31, 2005
it also included a 27.78% interest in UP Offshore (Bahamas) Ltd.
m) Business combinations
The Company accounts for business combinations under the provisions of
Statement of Financial Accounting Standard No. 141, Business
Combination ("SFAS 141"), which requires the use of the purchase
method of accounting for all business combinations. The purchase
method of accounting requires the Company to adjust the carrying value
of the assets acquired and liabilities assumed to their fair value at
the date of the purchase with any excess of purchase price over the
fair value of assets acquired and liabilities assumed to be recorded
as goodwill. Under the provisions of SFAS 141, the Company has one
year from the purchase date to finalize the fair value of the assets
acquired and liabilities assumed. The operating results of entities
acquired are included in the accompanying consolidated statements of
operations from the date of acquisition.
n) Identifiable intangible assets
The Company accounts for its intangible assets in accordance with
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). The Company's intangible assets arose
as a result of the Ravenscroft acquisition (see Note 3), and consist
of principally a safety management system, software and customer
existing contracts, which are being amortized over useful lives
ranging from three to eight years using the straight - line method.
Accumulated amortization at December 31, 2006 and amortization for
2006 amounted to $590. Amortization of intangible assets for the five
years subsequent to December 31, 2006 is expected to approximate $786
in each 2007 and 2008, $720 in 2009, $306 in 2010 and $175 in 2011.
o) Goodwill
Goodwill is accounted for under the provisions of SFAS 142. Goodwill
is recorded when the purchase price paid for an acquisition exceeds
the estimated fair value of net identified tangible and intangible
assets acquired. In accordance with SFAS 142, the Company performs an
annual impairment test of goodwill and further periodic tests to the
extent indicators of impairment develop between annual impairment
tests. The Company's impairment review process compares the fair value
of the reporting unit to its carrying value, including the goodwill
related to the reporting unit. To determine the fair value of the
reporting unit, the Company uses a discounted future cash flow
approach that uses estimates for revenue, estimated costs and
appropriate discount rates, among others. These various estimates are
reviewed each time the Company tests goodwill for impairment and many
are developed as part of the Company's routine business planning and
forecasting process. The Company believes its estimates and
assumptions are reasonable; however, variations from those estimates
could produce materially different results.
p) Other assets
This account includes costs incurred to issue debt net of amortization
costs, which are being amortized over the debts' term using the
effective interest rate method.
q) Accounts payable
Accounts payable at December 31, 2006 and 2005 consists of insurance
payables, operating expenses, customers advances collected, among
others.
r) Comprehensive Income (Loss)
Statement of Financial Accounting Standard No. 130 Reporting
Comprehensive Income ("SFAS 130"), establishes standards for the
reporting and display of comprehensive income (loss), which is defined
as the change in equity arising from non-owner sources. Comprehensive
income (loss) is reflected in the consolidated statement of
shareholders' equity.
s) Derivative financial instruments
The Company from time to time uses forward fuel purchases to provide
partial short-term protection against a sharp increase in diesel fuel
prices. These instruments generally cover some portion of the
Company's forecasted diesel fuel needs for push boat operations. The
Company accounts for these instruments as cash flow hedges. In
accordance with Statement of Financial Accounting Standard Accounting
for Derivative Instruments and Hedging Activities No.133 ("SFAS 133"),
such financial instruments are market-to-market and, as they qualify
for hedge accounting, the offset is recorded to other comprehensive
income and then subsequently recognized as a component of fuel expense
when the underlying fuel being hedged is used.
t) Earnings per share
In accordance with Statement of Financial Accounting Standards No.
128, Earnings per share ("SFAS 128") basic net income per share is
computed by dividing the net income by the weighted average number of
common shares outstanding during the relevant periods. Diluted net
income per share reflects the potential dilution that could occur if
securities or other contracts to issue common shares result in the
issuance of such shares. In determining dilutive shares for this
purpose the Company assumes, through the application of the treasury
stock method, all restricted stock grants have vested, all common
shares have been issued pursuant to the exercise of all outstanding
stock options and all common shares have been issued pursuant to the
issuance of all outstanding warrants.
For the year ended December 31,
---------------------------------------
2006 2005 2004
----------- ----------- -----------
Net income $ 10,526 $ 14,568 $ 5,139
Basic weighted average number of shares 17,965,753 15,500,000 15,500,000
Effect on dilutive shares:
Options and restricted stock 56,837 -- --
Warrants issued 56,501 -- --
----------- ----------- -----------
Diluted weighted average number of shares 18,079,091 15,500,000 15,500,000
=========== =========== ===========
Basic net income per share $ 0.59 $ 0.94 $ 0.33
Diluted net income per share $ 0.58 $ 0.94 $ 0.33
u) Stock compensation
Statement of Financial Accounting Standard No. 123 (revised 2004)
Share-Based Payments ("SFAS 123 (R)") requires all share based
payments to employees, including grants of employee stock options, to
be recognized in the statements of income based on their fair values.
The Company uses the Black-Scholes valuation model and straight-line
amortization of compensation expense over the requisite service
periods of the grants. The Company will reconsider its use of this
model if additional information becomes available in the future that
indicates another model would be more appropriate, or if grants issued
in future periods have characteristics that cannot be reasonably
estimated using this model.
v) Other operating (expense) income
For the three years ended December 31, 2006, this account includes:
For the year ended December 31,
-------------------------------
2006 2005 2004
-------- -------- --------
Gain on vessels disposal $ -- $ 21,867 $ 41
Claims against insurance companies -- -- 743
Other (198) 154 --
-------- -------- --------
$ (198) $ 22,021 $ 784
======== ======== ========
w) Income taxes
The Company accounts for Income Taxes under the liability method in
accordance with Statement of Financial Accounting Standard No. 109
Accounting for Income Taxes ("SFAS 109").
Under this method, deferred taxes assets and liabilities are
established for temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities at
each period end corresponding to those jurisdictions subject to income
taxes. Deferred tax assets are recognized for all temporary items and
an offsetting valuation allowance is recorded to extent that it is not
more likely than not that the asset will be realized. Deferred tax is
measured based on tax rates and laws enacted or substantively enacted
at the balance sheet date in any jurisdiction.
x) New accounting pronouncements:
In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS109, Accounting for Income Taxes ("FIN 48"), to
create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is required
to meet before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect that the adoption of
FIN 48 will have a significant impact on the Company's financial
position and results of operations.
3. BUSINESS ACQUISITIONS
a) Acquisition of 100% of Ravenscroft
On March 20, 2006, we purchased, for $11,500 all of the issued and
outstanding capital stock of Ravenscroft Shipping (Bahamas) S.A.
(Ravenscroft) from two of our related companies Crosstrade Maritime
Inc. and Crosstrees Maritime Inc. Ravenscroft and its affiliated
entities manage the vessels in our Ocean Business, Offshore Supply
Business and Passenger Business.
The results of the Ravenscroft acquisition are included in the
consolidated financial statements since the date of acquisition.
The Company expects with this acquisition to open new business
opportunities on ship management services and to eliminate the
management fees paid to related parties, while bringing the costs of
ship management in-house.
The purchase price of this acquisition was paid with the proceeds of
our initial public offering described in note 1.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed and the allocation of purchase price
at the date of acquisition.
Current assets $ 106
Buildings and equipment 4,614
Other noncurrent assets 52
Identifiable intangible assets 4,338
Goodwill 5,015
-------
Total assets acquired 14,125
-------
Noncurrent liabilities 2,634
-------
Total liabilities assumed 2,634
-------
Total purchase price $11,491(1)
=======
(1) Net of $9 of cash acquired.
Due to immateriality, the Company has not prepared pro forma
information related to this business combination.
b) Acquisition of an additional 66.67% of UP Offshore (Bahamas) Ltd.
On March 21, 2006, we purchased for $48,000, an additional 66.67% of
the issued and outstanding capital stock of UP Offshore (Bahamas)
Ltd., from LAIF XI Ltd. (LAIF), an affiliate of Solimar Holdings Ltd,
one of our shareholders. Following the acquisition of the shares of UP
Offshore (Bahamas) Ltd. from LAIF, we hold 94.45% of the issued and
outstanding shares of UP Offshore (Bahamas) Ltd.
The results of UP Offshore (Bahamas) Ltd. acquisition are included in
the consolidated financial statements since the date of acquisition.
The purchase price was paid with the proceeds of our initial public
offering described in note 1.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed and the allocation of purchase price
at the date of acquisition.
Current assets $ 1,073
Vessels and equipment 79,580
Other noncurrent assets 1,516
-------
Total assets acquired 82,169
-------
Current liabilities 6,070
Noncurrent liabilities 26,310
-------
Total liabilities assumed 32,380
-------
Redeemable preferred shares issued 2,266
-------
Total purchase price $47,523(1)
=======
(1) Net of $477 of cash acquired.
If the transaction had been consummated on January 1, 2005, the
unaudited Company's pro forma revenues and net income for the years
ended December 31, 2006 and 2005, would have been as shown below.
However, such pro forma information is not necessarily indicative of
what actually would have occurred had the transaction occurred on such
date.
For the year ended
December 31,
(unaudited)
-------------------------
2006 2005
----------- -----------
Revenues $ 173,793 $ 125,361
Net income $ 11,328 $ 13,934
Basic net income per share $ 0.63 $ 0.90
Diluted net income per share $ 0.63 $ 0.90
c) UP River (Holdings) Ltd.
In June 2003, the Company sold to International Finance Corporation
(IFC) a 7.14% interest in UP River (Holdings) Ltd., which holds the
50% in UABL, our subsidiary in the River Business.
Also the Company agreed to pay to IFC 7.14% of the amount of the
respective Charter Party Payments pursuant to the Charter Party
Agreements between Ultrapetrol and UABL.
In full consideration for (a) the sale of the shares, and (b) the
right to receive a portion of the Charter Party Payments IFC paid to
the Company $5,000.
Upon the occurrence of an Ultrapetrol IPO the IFC had the right to
receive in exchange for all but not less than all of the shares owned
by it in UP River (Holdings) Ltd., at the option of Ultrapetrol (a) a
number of registered Ultrapetrol shares that, when multiplied by the
Ultrapetrol IPO price, gave the IFC a realized internal return rate of
12% per annum on its investment in the UP River (Holdings) Ltd's
shares or (b) a number of Ultrapetrol shares (valued at the
Ultrapetrol IPO price) and an amount of cash that, in the aggregate,
gave the IFC a realized internal return rate of 12% per annum on its
investment in the UP River (Holdings) Ltd's shares.
On May 3, 2006, we signed an agreement with the IFC, to purchase from
the IFC the 7.14% of our subsidiary UP River (Holdings) Ltd., which we
did not own. As part of this agreement the IFC waived its option to
convert its interest in UP River (Holdings) Ltd. to our shares and its
right to participate in our IPO.
The Company paid the purchase price of $6,225 with the proceeds of its
initial public offering described in note 1.
At December 31, 2005, the Company presents $4,898, as a "Minority
interest subject to put rights", which represents the initial proceeds
received by the IFC plus accrued interest less Charter Party Payments
made to the IFC.
d) Ultracape Delaware LLC
In October 2004 the Company through a subsidiary, Ultracape Delaware
LLC, purchased 99.99% of Parque Ecologico Industrial Altamira S.A.
(PEISA) for $2,000 from a related party of its shareholder, Solimar
Holdings Ltd.
On September 22, 2006, Ultracape (a 60% subsidiary) exercised its
option to sell 100% of its interest in Ultracape Delaware LLC to
MexPlus Puertos S.A. de C.V., a related party of our shareholder
Solimar Holdings Ltd., for a total price of $2,630. Ultrapetrol
recorded a gain of $630 from this disposition in "Other income
(expense) -- Other, net".
e) Acquisition of UABL and river fleet
On April 23, 2004, the Company acquired in a series of related
transactions, through two wholly owned subsidiaries from ACBL
Hidrovias Ltd. ("ACBL"), the remaining 50% equity interest in UABL
Limited and UABL Terminals that it did not own (together "UABL"), as
well as a fleet of 50 river barges and 7 push boats, which UABL
Limited and its subsidiaries previously leased from ACBL, certain
receivables and liabilities all for an aggregate purchase price of
$26,100.
f) Other
In March 2006 we hired the administrative personnel and purchased the
administrative related assets of Oceanmarine for $321 (See Note 10 -
Management fee).
On September 8, 2006 we entered into a Memorandum of Agreement with
the Argos Group to form a joint venture to establish a river
transportation company on the Magdalena River in Colombia.
4. DRY DOCK
The capitalized amounts in dry dock at December 31, 2006 and 2005 were as
follows:
At December 31 ,
------------------------
2006 2005
-------- --------
Original book value $ 26,769 $ 23,549
Accumulated amortization (17,096) (10,806)
-------- --------
Net book value $ 9,673 $ 12,743
======== ========
5. VESSELS AND EQUIPMENT, NET
The capitalized cost of the vessels and equipment, and the related
accumulated depreciation at December 31, 2006 and 2005 were as follows:
At December 31,
------------------------
2006 2005
--------- ---------
Ocean-going vessels $ 152,122 $ 126,776
River barges and pushboats 125,172 116,054
PSVs 87,599 --
Construction of PSVs in progress 34,943 --
Passenger vessels 38,321 28,105
Furniture and equipment 7,571 6,173
Building, land and operating base 8,782 6,525
--------- ---------
Total original book value 454,510 283,633
Accumulated depreciation (121,319) (101,564)
--------- ---------
Net book value $ 333,191 $ 182,069
========= =========
In 2006 we capitalized interest totaled $2,299 in our PSVs under
construction. In 2005 and 2004 we capitalized interest totaled $557 and
$685, respectively in our equity investment in UP Offshore (Bahamas) Ltd.
Acquisition and disposition of vessels
In October 2006, the Company purchased the product tanker, named M/T Rea,
renamed Amadeo with a carrying capacity of 39,530 dwt, for a total purchase
price of $19,100.
Also, in November 2006, the Company purchased the product tanker, named
Cadenza, renamed Alejandrina with a carrying capacity of 9,219 dwt for a
purchase price of $17,000 of which 10% was paid as advance payment in 2006.
The vessel was delivered in January 2007.
In June 2003, UP Offshore Apoio Maritimo Ltda. (our wholly owned subsidiary
in the Offshore Supply Business) signed shipbuilding contracts for
construction of four PSVs with EISA Estaleiro Ilha S/A (EISA), a Brazilian
corporation. During November 2005 UP Offshore Apoio Maritimo Ltda. and EISA
amended some conditions of the shipbuilding contracts, including the
purchase price and the delivery dates.
The four PSVs are to be built by EISA at a combined cost of $69,750. In
March 2006, the first of the four PSVs, named UP Agua Marinha was delivered
and in August 2006, the second of the four PSVs, named UP Topazio was
delivered. The total remaining commitment at December 31, 2006 for the two
PSVs cost is approximately $14,000, which includes the minimum contractual
obligation with the shipyard and the remaining necessary expenditure to
commission the two PSVs in service.
In January 2005 the Company purchased, for $7,614, 35 dry barges for our
River Business. $7,500 was funded by a draw down of the loan granted to our
river subsidiaries by the IFC and KFW in 2002 and the balance with
available cash.
In March 2005, the Company entered into an agreement to sell its vessel,
Cape Pampas for a total price of $37,880, net of the related expenses. The
vessel was delivered to the new owners on May 6, 2005, at which time a gain
on sale of $21,875 was recognized. The Company used part of the proceeds
from the sale mentioned above to settle financial obligations related to
the purchase of this vessel.
In March 2005, the Company entered into a contract with Cruise Elysia Inc.
to purchase a passenger vessel, named New Flamenco for a total purchase
price of $13,500. 90% of the purchase price, $12,150, was funded by funds
deposited in the Escrow Account and the balance with available cash.
In April 2005 the Company agreed to purchase the product tanker Mt Sun
Chemist, renamed Miranda I, for a total price of $10,275. The vessel was
delivered and fully paid for on July 7, 2005. 90% of the purchase price,
$9,247, was funded by funds deposited in the Escrow Account and the balance
with available cash.
In April 2005, the Company purchased at auction for a price of $3,493 the
cruise vessel World Renaissance, renamed Grand Victoria, which was
delivered and fully paid for on April 19, 2005. 90% of the purchase price,
$3,143 was funded by funds deposited in the Escrow Account and the balance
with available cash.
In October 2005 the Company purchased 11 dry barges from our river
subsidiary UABL International S.A. $2,900 was funded by funds deposited in
the Escrow Account. Since the transaction was between the parent and a
subsidiary, the transaction was accounted for at historical cost and no
gain or loss was recognized.
During 2004 the Company sold certain older single hull tankers serving the
regional trade of Argentina and Brazil. A gain of $41 in 2004 relating to
disposal of such vessels are presented in other operating income (expense).
6. LONG-TERM DEBT AND OTHER FINANCIAL DEBT
9% First Preferred Ship Mortgage Notes due 2014
On November 24, 2004 the Company completed a debt offering of $180 million
of 9% First Preferred Ship Mortgage Notes due 2014 (the "2014 Senior
Notes"), through a private placement to institutional investors eligible
for resale under Rule 144A and Regulation S (the "Offering"). The net
proceeds of the Offering were used to repay the 2008 Senior Notes, certain
other existing credit facilities and to fund the Escrow Account.
Interest on the 2014 Senior Notes is payable semi-annually on May 24 and
November 24 of each year. The 2014 Senior Notes are senior obligations
guaranteed by the majority of the Company's subsidiaries directly involved
in our Ocean and Passenger Business. The Notes are secured by first
preferred ship mortgages on 18 vessels, 2 oceangoing barges and 193 river
barges.
The 2014 Senior Notes are subject to certain covenants, including, among
other things, limiting the parent's and guarantor subsidiaries' ability to
incur additional indebtedness or issue preferred stock, pay dividends to
stockholders, incur liens or execute sale leasebacks of certain principal
assets and certain restrictions on the Company consolidating with or
merging into any other person.
Upon the occurrence of a change of control event, each holder of the 2014
Senior Notes shall have the right to require the Company to repurchase such
notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest. Our indenture governing our 2014
Senior Notes describes the circumstances that are considered a change of
control event.
In the first quarter of 2005 the SEC declared effective an exchange offer
filed by the Company to register substantially identical senior notes to be
exchanged for the 2014 Senior Notes pursuant to a registration rights
agreement, to allow the 2014 Senior Notes be eligible for trading in the
public markets.
Although Ultrapetrol (Bahamas) Limited, the parent company, subscribed the
issued Notes, principal and related expenses will be paid through funds
obtained from the operations of the Company's subsidiaries.
At December 31, 2006 the net book value of the assets pledged as a
guarantee of the 2014 Senior Notes was $132,067.
Loan with the DVB Bank America NV (DVB NV) of up to $30,000:
On April 27, 2005 UP Offshore (Panama) S.A. (our subsidiary in the Offshore
Supply Business), which was first consolidated in 2006) as Holding Company
entered into a $30,000 loan agreement with DVB NV for the purpose of
providing post delivery financing of two PSVs named UP Esmeralda and UP
Safira, which were delivered in May and June 2005, and repaying existing
financing and shareholder loans.
This loan is divided into two tranches:
Tranche A, amounting to $26,000, accrues interest at LIBOR rate plus 1.875%
per annum, and shall be repaid by (i) 40 consecutive quarterly installments
of $450 each beginning in September 2005 and (ii) a balloon repayment of
$8,000 together with the 40th installment.
Tranche B, amounting to $4,000, accrues interest at LIBOR rate plus 2.25%
per annum, and shall be repaid by 12 consecutive quarterly installments of
$333 each beginning in September 2005.
The loan is secured by a mortgage on the UP Safira and UP Esmeralda and is
jointly and severally irrevocable and unconditionally guaranteed by Packet
Maritime Inc. and Padow Shipping Inc. The loan also contains customary
covenants that limit, among other things, the Borrower's and the
Guarantors' ability to incur additional indebtedness, grant liens over
their assets, sell assets, pay dividends, repay indebtedness, merge or
consolidate, change lines of business and amend the terms of subordinated
debt. The agreement governing the facility also contains customary events
of default. If an event of default occurs and is continuing, DVB NV may
require the entire amount of the loan be immediately repaid in full.
Further, the loan agreement requires until June 2008 that the PSVs pledged
as security have an aggregate market value of at least 85% of the value of
the loan amount and at all times thereafter an aggregate market value of at
least 75% of the value of the loan.
At December 31, 2006, the outstanding principal balance under the loan
agreement was $25,300 and the aggregate net book value of the assets
pledged was $41,800. In January 2007, the Company fully prepaid the
outstanding principal balance of the loan with the proceeds of the loan
with DVB Bank AG of up to $61,306.
Loan with DVB Bank AG (DVB AG) of up to $15,000
On January 17, 2006 UP Offshore Apoio Maritimo Ltda. (our subsidiary in the
Offshore Supply Business) as Borrower, Packet Maritime Inc. and Padow
Shipping Inc. as Guarantors and UP Offshore (Bahamas) Ltd. as Holding
Company entered into a $15,000 loan agreement with DVB AG for the purposes
of providing post delivery financing of one PSV named UP Agua Marinha
delivered in February 2006.
This loan is divided into two tranches:
- Tranche A, amounting to $13,000, accrues interest at LIBOR rate plus a
margin of 2.25% per annum and shall be repaid by (i) 120 consecutive
monthly installments of $75 each beginning in March 2006 and (ii) a
balloon repayment of $4,000 together with the 120 installments.
- Tranche B, amounting to $2,000, shall be repaid by 35 consecutive
monthly installments of $56 each beginning in March 2006 and accrues
interest at LIBOR rate plus a margin of 2.875% per annum.
On January 24, 2007 UP Offshore Apoio Maritimo Ltda. and DVB AG amended and
restated the margin of both tranches to 1.20% per annum effective since
February 1, 2007.
The loan is secured by a mortgage on the UP Agua Marinha and is jointly and
severally irrevocable and unconditionally guaranteed by Packet Maritime
Inc. and Padow Shipping Inc. The loan also contains customary covenants
that limit, among other things, the Borrower's and the Guarantors' ability
to incur additional indebtedness, grant liens over their assets, sell
assets, pay dividends, repay indebtedness, merge or consolidate, change
lines of business and amend the terms of subordinated debt. The agreement
governing the facility also contains customary events of default. If an
event of default occurs and is continuing, DVB AG may require the entire
amount of the loan be immediately repaid in full. Further, the loan
agreement requires until February 2009 that the PSV pledged as security has
an aggregate market value of at least 117.6% of the value of the loan
amount and at all times thereafter an aggregate market value of at least
133.3% of the value of the loan.
At December 31, 2006 the outstanding principal balance under the loan
agreement was $13,694 and the aggregate net book value of the asset pledged
was $21,892.
Loan with DVB Bank AG (DVB AG) of up to $61,306
On December 28, 2006 UP Offshore (Bahamas) Ltd. (our subsidiary in the
Offshore Supply Business) as Borrower, Packet Maritime Inc, Padow Shipping
Inc. and UP Offshore Apoio Maritimo Ltda. (collectively the owners of our
PSVs UP Safira, UP Esmeralda, UP Agua Marinha and UP Topazio) and
Ultrapetrol (Bahamas) Limited as Guarantors entered into a $61,306 loan
agreement with DVB AG for the purposes of providing post delivery
re-financing of our Panamanian registered PSVs named UP Safira and UP
Esmeralda and the Brazilian registered PSV UP Topazio.
The loan bears interest at LIBOR rate plus 1.20% per annum with quarterly
principal and interest payments and maturing through December 2016.
Beginning in March 2007, the principal payments equal to the regularly
scheduled quarterly principal payments ranging from $1,075 to $1,325 with a
balloon installment of $16,000 in December 2016. If a PSV is sold or
becomes a total loss, the Borrower shall prepay the loan in an amount equal
to the stipulated value of such PSV, which is initially stipulated in
$18,750 and shall be reduced in the amount of $387.5 on each repayment
date.
The loan is secured by a first priority mortgage on the UP Safira, UP
Esmeralda and UP Topazio and by a second priority mortgage on the UP Agua -
Marinha and is jointly and severally irrevocable and unconditionally
guaranteed by Packet Maritime Inc., Padow Shipping Inc., UP Offshore Apoio
Maritimo Ltd. and Utrapetrol (Bahamas) Limited. The loan also contains
customary covenants that limit, among other things, the Borrower's ability
to incur additional indebtedness, grant liens over their assets, sell
assets, pay dividends, repay indebtedness, merge or consolidate, change
lines of business and amend the terms of subordinated debt. The agreement
governing the facility also contains customary events of default. If an
event of default occurs and is continuing, DVB AG may require the entire
amount of the loan be immediately repaid in full. Further, the loan
agreement requires until December 2009 that the PSVs pledged as security
have an aggregate market value of at least 117.6% of the value of the loan
amount and at all times thereafter an aggregate market value of at least
133.3% of the value of the loan.
At December 31, 2006 there are no drawdowns under the loan agreement.
Loans with IFC and KfW entered into by UABL Barges and UABL Paraguay
On December 17, 2002, UABL Barges, a subsidiary in our River Business,
entered into a loan agreement with the International Finance Corporation
(IFC) in an aggregate principal amount of $20,000.
In addition, on February 27, 2003, UABL Barges entered into a loan
agreement with Kreditanstalt fur Wiederaufbau (KfW) in an aggregate
principal amount of $10,000.
The Company fully prepaid the outstanding principal balance of the loans of
$22,286 with the proceeds of its initial public offering described in note
1.
On March 27, 2003, UABL Paraguay, a subsidiary in our River Business,
entered into a loan agreement with the IFC in an aggregate principal amount
of $10,000. In 2005, UABL Paraguay received a disbursement for an amount
totaled $3,000. The outstanding principal amount of $2,625 was fully repaid
with the proceeds of our initial public offering described in note 1.
As a result of the early prepayment of these debts in 2006 the Company
recorded a loss on extinguishment of debt of $1,411.
10.5% First Preferred Ship Mortgage Notes due 2008
At December 31, 2003 the aggregate outstanding amount related with its
10.5% First Preferred Ship Mortgage Notes due 2008 (the "2008 Senior
Notes") was $128,341, due in full in 2008.
In connection with the issue of its 9% First Preferred Ship Mortgage Notes
due 2014, on November 24, 2004 the Company repaid all its 2008 Senior
Notes.
Early Extinguishment of Debt
In connection with the 2014 Senior Notes offering, the Company paid
$122,641 to redeem principal of its 2008 Senior Notes. In addition, an
early extinguishment premium of $4,600 was paid. Such premium and a $1,822
balance of unamortized deferred financial cost were charged to expenses for
a total of $6,422 in 2004.
Previously the Company recognized a gain of extinguishment of debt of
$1,344 in 2004 related to the repurchases of nominal value $5,700 of its
2008 Senior Notes.
Loan with Deutsche Schiffbank Aktiengesellschaft ("DSA")
On October 27, 2004, Braddock Shipping Inc, a 60% owned subsidiary in our
Ocean Business ("Braddock"), entered into a $10,000 loan agreement with DSA
for the purpose of refinancing debt previously incurred in connection with
the purchase of the vessel Cape Pampas. The loan accrued interest at LIBOR
rate plus 1.625% per annum. The loan was secured by a mortgage on the Cape
Pampas and a pledge of 100% of the stock of Braddock and was guaranteed by
both the direct and indirect parents of Braddock.
In March 2005, the Company entered into an agreement to sell its vessel
Cape Pampas (see Note 5). After that the Company used part of the proceeds
from the sale mentioned to cancel its financial obligation with a principal
amount of $9,250.
Balances of long-term debt and other financial debt at December 31, 2006
and 2005:
Financial institution / Nominal value
--------------------
--------------------
Other Due-year Current Noncurrent Total Average rate
------------------------------------------------------------------------ ---------------
Ultrapetrol (Bahamas) Ltd Private Investors (Notes) 2014 $ -- $ 180,000 $ 180,000 9.000%
UP Offshore Panama DVB Tranche A Through 2015 1,800 21,500 23,300 Libor + 1.875%
UP Offshore Panama DVB Tranche B Through 2008 1,333 667 2,000 Libor + 2.250%
UP Offshore Apoio DVB Tranche A Through 2016 900 11,350 12,250 Libor + 2.250%
UP Offshore Apoio DVB Tranche B Through 2009 667 777 1,444 Libor + 2.875%
-------- --------- ----------
December 31, 2006 $ 4,700 $ 214,294 $ 218,994
======== ========= ==========
December 31, 2005 $ 6,599 $ 202,953 $ 209,552
======== ========= ==========
Aggregate annual future payments due to the long-term debt:
Year ending December 31
------------------------
2007 $ 4,700
2008 4,034
2009 2,810
2010 2,700
2011 2,700
Thereafter 202,050
--------
Total $218,994
========
7. FINANCIAL INSTRUMENTS
Fair values
The carrying amounts of the following financial instruments approximate
their fair values; cash and cash equivalents and restricted cash accounts,
accounts and other accounts receivable, receivables from related parties,
accounts and other payables and payable to related parties. The fair values
of long-term loans approximate the recorded values, generally, due to their
variable interest rates. In the case of fixed rate borrowings, fair value
approximates the estimated quoted market prices.
The fair value of forward fuel purchases agreement is the amount at which
they could be settled, based on quoted market prices.
The following table presents the carrying value and fair value of the
financial instruments:
At December 31
-----------------------------------------
2006 2005
------------------- -------------------
Carrying Fair Carrying Fair
value value value value
-------- -------- -------- --------
Assets
Cash and cash equivalents $ 20,648 $ 20,648 $ 7,914 $ 7,914
Restricted cash 1,088 1,088 3,706 3,706
Liabilities
Forward fuel purchases 98 98 -- --
Financial debt (Note 6) 38,994 38,994 29,552 29,552
Long-term notes (Note 6) 180,000 176,400 180,000 175,500
Credit Risk
The Company believes that no significant credit risk exists with respect to
the Company's cash due to the spread of this risk among various different
banks and the high credit status of these counterparties. The Company is
also exposed to credit risk in the event of non-performance by
counterparties to derivative instruments. However, the Company limits this
exposure by entering into transactions with counterparties that have high
credit ratings. Credit risk with respect to accounts receivable is reduced
by the Company by chartering its vessels to established international
charterers.
Forward fuel purchases
UABL Limited, our subsidiary in the River Business, has entered into
forward fuel purchase agreements, which are guaranteed by Ultrapetrol
(Bahamas) Limited.
Outstanding forward fuel purchase agreements involve both the risk of a
counterparty not performing under the terms of the contract and the risk
associated with changes in market value. The Company monitors its
positions, the credit ratings of counterparties and the level of contracts
it enters into with any one party. The counterparties to these contracts
are major financial institutions. Given the high level of credit quality of
its derivative counterparties, the Company does not believe it is necessary
to obtain collateral arrangement.
At December 31, 2006, UABL Limited had forward fuel purchases agreements
outstanding for 1.18 million gallons with an aggregate notional value of
$2,112 and a fair value of $(98), which has been recorded in other current
liabilities on the consolidated balance sheet. Under these agreements,
starting February and ending August 2007, UABL Limited pays a fixed price
of $1.79 per gallon.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings, claims and contingencies
arising in the ordinary course of business. When such amounts can be
estimated and the contingency is probable, management accrues the
corresponding liability. While the ultimate outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty,
management does not believe the costs of such actions will have a material
effect on the Company's consolidated financial position or results of
operations.
a) Paraguayan Customs Dispute
On September 21, 2005 the local Customs Authority of Ciudad del Este,
Paraguay issued a finding that certain UABL entities owe taxes to that
authority in the amount of $2,200, together with a fine for
non-payment of the taxes in the same amount, in respect of certain
operations of our River Business for the prior three-year period. This
matter was referred to the Central Customs Authority of Paraguay. We
believe that this finding is erroneous and UABL has formally replied
to the Paraguayan Customs Authority contesting all of the allegations
upon which the finding was based.
After review of the entire case the Paraguayan Central Tax Authorities
who have jurisdiction over the matter have confirmed the Company has
no liability in respect of two of the three matters at issue, while
they held a dissenting view on the third issue. Through a Resolution
which was notified to UABL on October 13, 2006 the Paraguayan
Undersecretary for Taxation has confirmed that, in his opinion, the
Company is liable for a total of approximately $539 and has applied a
fine of 100% of this amount. On November 24, 2006, the court confirmed
that UABL is not liable for the first two issues. The Company has
entered a plea with the respective court contending the interpretation
on the third issue where the Company claims to be equally non-liable.
We have been advised by UABL's counsel in the case that they believe
that there is only a remote possibility that a court would find UABL
liable for any of these taxes or fines.
b) Brazilian Customs Dispute
Ultrapetrol S.A. was involved in a customs dispute with the Brazilian
Customs Tax Authorities over the alleged infringement of customs
regulations by the Alianza G-3 and Alianza Campana (collectively, the
"Alianza Campana") in Brazil during 2004. As a result, the Brazilian
Customs Tax Authorities commenced an administrative proceeding and
applied the penalty of apprehension against the Alianza Campana which
required the Alianza Campana to remain in port or within a maximum of
five nautical miles from the Brazilian maritime coast. The maximum
customs penalty that could be imposed would be confiscation of the
Alianza Campana, which is estimated by the Brazilian Customs Tax
Authorities to be valued at $4,560. The Secretary of Brazilian Federal
Revenue decided to cancel the penalty of confiscation of the Alianza
Campana by means of a decision issued on August 14, 2006. However, the
conditioned his decision on the compliance with the following
requirements: (1) the classification of the Alianza Campana under the
Regime Advaneiro Especial Para a Industria do Petroleo, or REPETRO
regime and, if such classification is confirmed; (2) the payment by
Ultrapetrol S.A. of $46 as a penalty in the amount of one percent of
the customs value of the Alianza Campana.
On February 2, 2007, our customer Petroleo Brasileiro S.A.
("Petrobras") obtained from Brazilian Customs Tax Authorities the
recognition of the classification of the Alianza Campana under the
REPETRO regime and we paid the penalty mentioned above. Finally, on
March 5, 2007 the Federal Internal Revenue Service confirmed such
decision and, therefore, the confiscation penalty was automatically
canceled and the administrative proceeding was finalized with no
further consequences to us.
c) Tax claim in Bolivia
On November 3, 2006 the Bolivian Tax Authority (Departamento de
Inteligencia Fiscal de la Gerencia Nacional de Fiscalizacion) issued a
notice in the Bolivian press advising that UABL International S.A. (a
Panamanian subsidiary of the Company in the River Business) would owe
taxes to that authority in the amount of approximately $2,500
(including interest) together with certain fines that have not been
determined yet. No claims have been noticed to this company.
We believe that this finding is incorrect and UABL International S.A.
will formally reply to the Bolivian Tax Authority contesting the
allegations of the finding, when we would be notified by the Bolivian
Tax Authority. We have been advised by our local counsel in the case
that there is only a remote possibility that UABL International S.A.
would be found liable for any of these taxes or fines.
d) Fuel supply contract of UABL Paraguay
In January 2007, UABL Paraguay, a river subsidiary of the Company,
entered into a fuel supply contract. Under this contract UABL Paraguay
has contracted to purchase a minimum amount of fuel per month through
the year 2007 and to make a minimum annual payment of $12,000. The
price of the cubic meter is equivalent to the price in the
international market plus a margin.
e) Lease obligations
The Company and its subsidiaries lease buildings and operating
equipment under various leases, which expire from 2007 to 2,016 and
which generally have renewal options at similar terms. Rental expense
under continuing obligations for the three years ended December 31,
2006 was $475, $322 and $235, respectively. At December 31, 2006,
obligations under the companies' operating leases with initial or
remaining noncancellable lease terms longer than one year were as
follows:
Year ending December 31
-----------------------
2007 $ 568
2008 537
2009 408
2010 275
2011 46
Thereafter 228
------
Total $2,062
======
f) Other
At December 31, 2006, we employed many employees and seafarers as crew
of our vessels. These seafarers are covered by industry-wide
collective bargaining agreements that set basic standards applicable
to all companies who hire such individuals as crew. Because most of
our employees are covered by these industry-wide collective bargaining
agreements, failure of industry groups to renew these agreements may
disrupt our operations and adversely affect our earnings. In addition,
we cannot assure that these agreements will prevent labor
interruptions. While we have had no labor interruption in the past we
do not believe any labor interruptions will disrupt our operations and
harm our financial performance.
9. INCOME TAXES
The Company operates through its subsidiaries, which are subject to several
tax jurisdictions, as follows:
a) Bahamas
The earnings from shipping operations were derived form sources
outside the Bahamas and such earnings were not subject to Bahamanian
taxes.
b) Panama
The earnings from shipping operations were derived from sources
outside Panama and such earnings were not subject to Panamanian taxes.
c) Paraguay
Two of our Ocean Business subsidiaries, Parfina S.A. and Oceanpar S.A.
and four or our River Business subsidiaries, UABL Paraguay, Parabal
S.A., Yataity and Riverpar are subject to Paraguayan corporate income
taxes.
d) Argentina
Ultrapetrol S.A., one of our Ocean Business subsidiaries and three of
our River Business subsidiaries, UABL S.A., Argenpar S.A. and Sernova
S.A., are subject to Argentine corporate income taxes.
In Argentina, the tax on minimum presumed income ("TOMPI"),
supplements income tax since it applies a minimum tax on the potential
income from certain income generating-assets at a 1% tax rate. The
Company's tax obligation in any given year will be the higher of these
two tax amounts. However, if in any given tax year TOMPI exceeds
income tax, such excess may be computed as payment on account of any
excess of income tax over TOMPI that may arise in any of the ten
following years.
e) Brazil
Our subsidiaries in the Offshore Supply Business, UP Offshore Apoio
Maritimo Ltda. and Agriex Importadora e Exportadora de Generos
Alimenticios Ltda. are subject to Brazilian corporate income taxes.
UP Offshore Apoio Maritimo Ltda., has foreign currency exchange gains
recognized for tax purposes only in the period the debt (including
intercompany transactions) is extinguished. A deferred tax liability
is recognized in the period the foreign currency exchange rate changes
equal to the future taxable income at the applicable tax rate.
f) Chile
Our subsidiary in the Ocean Business, Corporacion de Navegacion
Mundial S.A. (Cor.Na.Mu.S.A.) is subject to Chilean corporate income
taxes.
g) US federal income tax
Under the United Stated Internal Revenue Code of 1986, as amended, or
the Code, 50% of the gross shipping income of our vessel owning or
chartering subsidiaries attributable to transportation that begins or
ends, but that does not both begin and end, in the U.S. are
characterized as U.S. source shipping income. Such income is subject
to 4% U.S. federal income tax without allowance for deduction, unless
our subsidiaries qualify for exemption from tax under Section 883 of
the Code and the Treasury Regulations promulgated thereunder, which
became effective for our calendar year subsidiaries on January 1,
2005.
For the years 2006, 2005 and 2004, our subsidiaries did not derive any
U.S. source shipping income. Therefore our subsidiaries are not
subject to any U.S. federal income taxes, except our ship management
services provided by Ravenscroft.
The provision for income taxes (which includes TOMPI) is comprised of:
For the year ended December 31,
--------------------------------
2006 2005 2004
------ ------ ------
Current $1,305 $ 178 $ 570
Deferred 896 608 72
------ ------ ------
$2,201 $ 786 $ 642
====== ====== ======
Ultrapetrol's pre-tax income for the three years ended December 31,
2006 was taxed in foreign jurisdictions (principally Chile, Brazil,
Argentina and Paraguay).
Reconciliation of tax provision to taxes calculated based on the
statutory tax rate is as follows:
For the year ended December 31,
----------------------------------
2006 2005 2004
-------- -------- --------
Pre-tax income $ 14,646 $ 25,151 $ 6,921
Sources not subject to income tax
(tax exempt income) (8,784) (23,480) (7,468)
-------- -------- --------
5,862 1,671 (547)
Statutory tax rate 35% 35% 35%
-------- -------- --------
Tax expense (benefit) at statutory tax rate 2,052 585 (192)
Decrease in valuation allowance -- --
Rate differential (1,027) (360)
Effects of foreign exchange changes
related to Argentinian and Brazilian subsidiaries 716 -- 527
Others 460 561 307
-------- -------- --------
Income tax provision $ 2,201 $ 786 $ 642
======== ======== ========
At December 31, 2006, Argentine subsidiaries had a consolidated credit
related to TOMPI of $1,319 which expires $155 in 2010, $186 in 2011, $318
in 2012, $171 in 2013, $241 in 2014 and $248 in 2015.
At December 31, 2006, Argentine subsidiaries had accumulated tax loss
carryforwards ("NOLs") for a consolidated total of $223 that expire $187 in
2010 and $36 in 2011. The use of the NOLs and TOMPI will depend upon future
taxable income in Argentina.
The components of deferred taxes included on the balance sheets were as
follows:
At December 31,
-------------------
2006 2005
------- -------
Deferred tax assets
Other, deferred current assets $ 143 $ 100
------- -------
NOLs 78 110
TOMPI credit 1,319 1,514
Other 550 --
------- -------
Total deferred noncurrent assets 1,947 1,624
------- -------
Total deferred tax assets 2,090 1,724
------- -------
Deferred tax liabilities
Vessels and equipment, net 2,493 826
Intangible assets 1,274 --
Unrealized exchange diferences 2,650 --
Other 127 269
------- -------
Total deferred noncurrent liabilities 6,544 1,095
------- -------
Net deferred tax (liabilities) assets $(4,454) $ 629
======= =======
10. RELATED PARTY TRANSACTIONS
At December 31, 2006 and 2005, the balances of receivables from related
parties, were as follows:
At December 31,
------- -------
2006 2005
------- -------
Current:
Receivable from related parties
- Ravenscroft Shipping Inc. $ 421 $ 2,574
- UP Offshore Bahamas Ltd. and its subsidiaries (1) -- 13,726
- Maritima Sipsa S.A 278 16
- Puertos del Sur S.A. and O.T.S 2,584 1,612
- Other 39 16
------- -------
$ 3,322 $17,944
======= =======
At December 31,
------------------
2006 2005
------ ------
Noncurrent Receivable from related
parties - Puertos del
Sur S.A. (2)a $2,280 $1,995
====== ======
(1) This loan accrued interest at a nominal interest rate of 9.50% per
year. The principal and the interest accrued have been repaid in full
in February 2006.
(2) This loan accrues interest at a nominal interest rate of 7% per year,
payable semi-annually. The principal will be repaid in 8 equal annual
installments, beginning on June 30, 2008.
At December 31, 2006 and 2005 the balance of payable to related parties,
were as follows:
At December 31,
--------------------
2006 2005
------ ------
Payable to related parties:
- Ravenscroft Shipping Inc. $ -- $2,008
- Maritima Sipsa S.A 420 --
------ ------
$ 420 $2,008
====== ======
For the three years ended December 31, 2006, the revenues derived from
related parties, were as follows:
For the year ended December 31,
-------------------------------
2006 2005 2004
------ ------ ------
Maritima Sipsa S.A. (1) $3,885 $1,976 $2,467
Maritima Sipsa S.A. (2) 194 -- --
UABL and its subsidiaries (3) -- -- 2,737
------ ------ ------
$4,079 $1,976 $5,204
====== ====== ======
(1) Sale and repurchase of vessel Princess Marina
In 2003, the Company entered into certain transactions to sell, and
repurchase in 2006, to and from Maritima Sipsa S.A., a 49% owned
company, the vessel Princess Marina. The combined effect of the sale
at $15,100, repurchase at $7,700 and a loan granted to Maritima Sipsa
S.A. for $7,400 resulted in no cash flow on a consolidated basis at
the time of execution. The loan is repaid to the Company on a
quarterly basis over a three-year period ended June 2006. In June
2006, the Company and Maritima Sipsa S.A. entered into an amended
agreement to modify the delivery date of the vessel to February 2007
or at a later date if the charter is further extended, at a purchase
price not exceeding $7,700. In March 2007, the delivered date was
postponed to September 2007 and the purchase price was reduced to
$3,645. The transaction was recognized in the Company's statements of
income as a lease, reflecting quarterly payments as charter revenues
for $ 3,885, $1,976 and $2,467 in 2006, 2005 and 2004, respectively,
while the vessel remains presented in the accompanying balance sheets
as an asset.
(2) Management fee billed by Ravenscroft
Since the date of acquisition of Ravenscroft we included the
management fee billed by Ravenscroft to Maritima Sipsa S.A., a 49%
owned company, for the ship management services for the vessel
Princess Marina. The stipulated fee is $21 per month.
(3) River barges and push boat leases
Through its subsidiaries, the Company entered into a lease agreement
with UABL Limited and its subsidiaries for the rental by UABL Limited
of certain river barges and push boats for a daily lease amount for
each river barge or push boat. Since April 23, 2004 the date of UABL
Limited acquisition our financial statements included the operations
of UABL Limited on consolidated bases. Therefore, these transactions
have been eliminated in the consolidated financial statements. Prior
to acquisition, the equity method was used.
Management fee paid
For the three years ended December 31, 2006 management fees were expensed
with the following related parties:
For the year ended December 31,
-------------------------------
2006 2005 2004
------ ------ ------
Oceanmarine (1) $ 150 $ 620 $ 680
Ravenscroft Shipping Inc. (2) 361 1,498 833
------ ------ ------
Total $ 511 $2,118 $1,513
====== ====== ======
(1) The Company through certain of its subsidiaries has contracted with
Oceanmarine, a company under the same control group as Inversiones Los
Avellanos S.A., a shareholder, for certain administrative services.
This agreement stipulated a fee of $10 per month and per ocean going
cargo vessel.
(2) Pursuant to the individual ship management agreement between
Ravenscroft Ship Management Ltd., a Bahamas Corporation ("Ravenscroft
Bahamas") a company of the same control group as Inversiones Los
Avellanos S.A., a shareholder, and the Company's relevant
vessel-owning subsidiaries, Ravenscroft Bahamas had agreed to provide
certain ship management services for all of the Company's vessels.
Ravenscroft Bahamas had subcontracted the provision of these services
to Ravenscroft Shipping Inc., a Miami-based related party of the
Company. This agreement stipulated a fee of $12.5 per month per ocean
going cargo vessel.
Under these contracts, these related parties were to provide all
services necessary for such companies to operate, including but not
limited to crewing, insurance, accounting and other required services.
Additionally, commissions and agency fees were paid to those related
parties.
In addition, the Company paid Ravenscroft a monthly technical ship
management fee of (euro)20,000 per passenger vessel for services
including technical management, crewing, provisioning, superintendence
and related accounting functions. The Company paid Ravenscroft for
each passenger vessel (euro)25,000 administrative and operational fee
per month for all operational functions as well as administering the
subcontractors, concessions and credit card/collection system onboard.
We purchased Ravenscroft (see Note 3) and hired the administrative
personnel and purchased the administration related assets of Oceanmarine in
March 2006 (see Note 3); accordingly, after those acquisitions, we did not
pay fees to these related parties, but directly incurred in-house all costs
of ship management and administration.
Voyage expenses paid to related parties
For the three years ended December 31, 2006, the voyage expenses paid to
related parties were as follows:
For the year ended December 31,
-------------------------------
2006 2005 2004
------ ------ ------
Bareboat charter paid (1) $2,640 $3,977 $ --
Brokerage commissions (2) 319 707 694
Commercial commissions (3) 125 -- --
Agency fees (4) 79 6 21
Ship management fees (5) -- -- 1,736
------ ------ ------
Total $3,163 $4,690 $2,451
====== ====== ======
(1) Bareboat charter paid to related parties
Since the second quarter of 2005, through our subsidiary, Corporacion
de Navegacion Mundial S.A., the Company entered into a bareboat
charter with UP Offshore (Panama) S.A., a wholly owned subsidiary of
UP Offshore, for the rental of the two PSVs named UP Safira and UP
Esmeralda for a daily lease amount for each one. Since March 21, 2006,
the date of our acquisition of control of UP Offshore, our
consolidated financial statements included the operations of UP
Offshore (Panama) S.A., a wholly owned subsidiary of UP Offshore, on a
consolidated basis. Therefore, these transactions have been eliminated
in the consolidated financial statements since that date. Prior to the
acquisition of control, the equity method was used.
(2) Brokerage commissions
Ravenscroft from time to time acted as a broker in arranging charters
for the Company's oceangoing vessels for which Ravenscroft charged
brokerage commissions of 1.25% on the freight, hire and demurrage of
each such charter.
In addition, in 2005, the Company paid to Ravenscroft $399 for its
participation in the sale of one of our vessels.
Since March 20, 2006, the date of Ravenscroft acquisition, our
consolidated financial statements included the operations of
Ravenscroft, on a consolidated basis. Therefore, these transactions
have been eliminated in the consolidated financial statements since
that date.
(3) Commercial commissions
In 2003, UP Offshore (Bahamas) Ltd. signed a commercial agreement with
Comintra, one of its shareholders.
Under this agreement Comintra agreed to assist UP Offshore (Bahamas)
Ltd. regarding the commercial activities of UP Offshore (Bahamas)
Ltd.'s fleet of six PSVs with the Brazilian offshore oil industry.
Comintra's responsibilities, among others, include marketing the PSVs
in the Brazilian market and negotiating the time charters or other
revenues contracts with prospective charterers of the PSVs.
The parties agreed that Comintra's professional fees under this
agreement shall be 2% of the gross time charters revenues from
Brazilian charters collected by UP Offshore (Bahamas) Ltd. on a
monthly basis.
Comintra's services in connection with this agreement began on June
25, 2003, and, unless earlier terminated end on June 25, 2013.
UP Offshore (Bahamas) Ltd. may terminate this agreement (a) at any
time upon 30 days notice if (i) PSVs representing more than 50% of the
gross time charter revenues of UP Offshore (Bahamas) Ltd. arising from
contracts in Brazil are sold or (ii) Ultrapetrol and LAIF cease
owning, jointly or separately, more than 50% of UP Offshore (Bahamas)
Ltd.'s outstanding voting stock; (b) Comintra breaches any material
term of this agreement; (c) in the event of gross negligence or
material failure to perform the services by Comintra, or (d) upon
mutual agreement.
In the event of termination under subsections (a) or (d) above, such
termination shall not be effective unless and until UP Offshore
(Bahamas) Ltd. shall have also paid to Comintra $2,500 (less any fees
already paid to Comintra through the termination date). Other than the
figures mentioned above no further indemnification will be due by UP
Offshore (Bahamas) Ltd. to Comintra.
During 2005 UP Offshore (Bahamas) Ltd. paid in advance to Comintra
fees under this agreement in the amount of $1,500.
Since March 21, 2006 the date of UP Offshore (Bahamas) Ltd.
acquisition, our financial statements included the operations of UP
Offshore (Bahamas) Ltd. on a consolidated basis. Therefore, these
transactions have been included in the consolidated financial
statements since that date.
(4) Agency fees
Pursuant to an agency agreement with Ultrapetrol S.A., UABL S.A. and
Ravenscroft, Shipping Services Argentina S.A. (formerly I. Shipping
Service S.A.) a company of the same control group as Inversiones Los
Avellanos S.A., has agreed to perform the duties of port agent for the
Company in Argentina.
(5) Ship management fees
Certain of our subsidiaries have had a ship management agreement with
Lonehort S.A., a wholly owned subsidiary of UABL Limited, to provide
operating and technical ship management services for the river barges
and push boat rented by us to UABL Limited and its subsidiaries. Since
April 23, 2004, the date of UABL Limited acquisition, our financial
statements included the operations of Lonehort S.A., a wholly owned
subsidiary of UABL Limited, on a consolidated basis. Therefore, these
transactions have been eliminated in the consolidated financial
statements. Prior to acquisition, the equity method was used.
Operations in OTS S.A.'s terminal
UABL Paraguay, our subsidiary in the River Business, operates the
terminal that pertains to Obras Terminales y Servicios S.A. (OTS
S.A.), a related party.
In 2006 and 2005, UABL Paraguay paid to OTS S.A. $646 and $610,
respectively, for this operation.
Financial advisory services
Prior to the commencement of the offering of its 2014 Senior Notes, an
affiliate of one of Ultrapetrol's shareholders provided advice to the
initial purchaser on the terms and structure of the proposed offering
for which it was paid a fee of $500 in 2004.
11. SHARE CAPITAL
Common shares and shareholders
On July 20, 2006, the Company adopted a resolution authorizing the
amendment and restatement of its Memorandum and Articles of Association
which provides among other things for the authorized capital stock of the
Company to increase to 100,000,000 shares of common stock, par value $.01
per share.
The shares held directly by Inversiones Los Avellanos S.A., Hazels
(Bahamas) Investment Inc. and Solimar Holdings Ltd (collectively the
"Original Shareholders") are entitled to seven votes per share and all
other holders of our common stock are entitled to one vote per share. The
special voting rights of the Original Shareholders are transferable to each
other but are not transferable to our other shareholders and apply only to
shares held by the Original Shareholders on the date of the IPO and not to
any shares they subsequently purchase or repurchase.
At December 31, 2006 UPB had 100,000,000 authorized shares and 28,346,952
shares issued and outstanding.
At December 31, 2006 our shareholders Solimar Holdings Ltd., Inversiones
Los Avellanos S.A. and Hazels (Bahamas) Investments Inc. (a wholly owned
subsidiary of Inversiones Los Avellanos S.A.) hold 9,672,664, 4,892,465 and
702,159 shares which represent 34.12%, 17.26% and 2.48%, respectively of
our common stock. The voting power for these shares which represent 89.10%
of the total voting power is combined pursuant to an agreement between the
Original Shareholders who have agreed to vote their respective shares
together in all matters where a vote of UPB's shareholders is required.
Solimar Holdings Ltd. warrants
Under the terms of the warrant agreement dated March 16, 2000, our
shareholder Solimar owns warrants to purchase, up to 146,384 shares of our
common stock at an exercise price of $6.83 per share. These warrants may be
exercised at any time up to and including March 1, 2010 for restricted and
unregistered shares.
Registration rights agreement
On September 21, 2006, prior to its IPO the Company entered into a
registration rights agreement with Inversiones Los Avellanos S.A., Hazels
(Bahamas) Investments Inc. and Solimar Holdings Ltd., its shareholders of
record immediately prior to the IPO, pursuant to which the Company has
granted them and certain of their transferees, the right, under certain
circumstances and subject to certain restrictions, including any applicable
lock-up agreements then in place, to require the Company to register under
the Securities Act shares of its common stock held by them. Under the
registration rights agreement, these persons will have the right to request
the Company to register the sale of shares held by them on their behalf and
may also require to make available shelf registration statements permitting
sales of shares into the market from time to time over an extended period.
In addition, these persons will have the ability to exercise certain
piggyback registration rights in connection with registered offerings
requested by shareholders or initiated by the Company.
12. STOCK SPLIT AND TREASURY STOCK
Stock split
For purpose of effecting a reduction in the unit price of the common shares
in order to improve their marketability, the shareholders of the Company
declared a stock split to shareholders of record as of September 25, 2006
whereby 7.34862 common shares were issued for each common share held at
that date.
A capitalization of $134 from "Additional paid-in capital" to the "Common
stock" account has been reflected retroactively for all of the periods
presented.
Therefore, the Company distributed 13,390,760 additional common shares on a
proportionate basis. After this stock split, the issued and outstanding
shares have been increased from 2,109,240 to 15,500,000.
Treasury stock
On October 12, 2000 the Company through a wholly owned subsidiary, Avemar
Holdings (Bahamas) Limited ("Avemar"), purchased 537,144 shares (3,947,266
shares after the stock split of 7.34862 per share) of the Company.
Therefore, the Company recorded $20,332 in the "Treasury stock" account in
the shareholders' equity, $20,000 of which relates to the amount paid to
Societe Internationale D'Invertissement S.A. (Bahamas) ("SII") and $332
relates to direct cost of acquisition.
On March 20, 2006 and September 21, 2006 two of our shareholders,
Inversiones Los Avellanos S.A. and Avemar (our wholly owned subsidiary),
cancelled their agreement pursuant to which Avemar had previously granted
Inversiones Los Avellanos S.A. an irrevocable proxy to vote our shares
owned by Avemar and agreed to transfer the shares owned by Avemar to the
remaining shareholders of the Company, in proportion to their existing
ownership in the Company before our IPO of shares.
On October 16, 2006 the 3,947,266 shares held in treasury were transferred
in proportion to their existing ownership, to Solimar Holdings Ltd.,
Inversiones Los Avellanos S.A. and Hazels Investment Inc., our shareholders
of record immediately prior to the IPO in the amount of 2,500,809 shares,
1,245,927 shares and 200,530 shares, respectively.
This transaction partakes of the nature of a stock split, therefore a
reclassification of $20,332 from "Treasury stock" to "Additional paid-in
capital" account has been reflected retroactively for all of the periods
presented.
13. PREFERRED SHARES OF UP OFFSHORE (BAHAMAS) LTD.
In January 2004, UP Offshore (Bahamas) Ltd. issued 3,000,000 of its Series
A 6% non-voting redeemable preferred shares for a subscription price of
$3,000.
The preferred shares accrued cumulative preferred dividends (whether or not
declared, whether or not UP Offshore (Bahamas) Ltd. had earnings or
profits, and whether or not there were funds legally available for the
payment of such dividends) at the annual rate of 6% of the purchase price
of such shares.
UP Offshore (Bahamas) Ltd. could, at any time prior to December 15, 2010,
redeem all, but not less than all, of the Series A preferred shares. The
redemption price was an amount equal to the amount necessary to cause the
holder to realize an internal rate of return of 14% per annum on the
subscription amount of such shares.
On October 20, 2006 UP Offshore (Bahamas) Ltd. redeemed at its option all
of the outstanding Series A preferred shares for an amount of $ 4,303 with
the proceeds of our initial public offering described in note 1.
The Company incurred a loss of $914, that was recorded in 2006 in "Minority
interest".
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest and income taxes paid for three years ended December 31, 2006,
were as follows:
For the year ended December 31,
---------------------------------
2006 2005 2004
------- ------- -------
Interest paid $18,574 $17,932 $18,346
Income taxes paid $ 604 $ 209 $ 784
15. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
The Company organizes its business and evaluates performance by its
operating segments, Ocean, River, and beginning in 2005 the Offshore Supply
and Passenger Business. The accounting policies of the reportable segments
are the same as those for the consolidated financial statements (Note 2).
The Company does not have significant intersegment transactions. These
segments and their respective operations are as follows:
Ocean Business: In our Ocean Business, we own and operate five oceangoing
vessels and semi-integrated oceangoing tug barge units under the trade name
Ultrapetrol. Our Suezmax and Aframax vessels transport dry and liquid bulk
goods on major trade routes around the globe. Major products carried
include liquid cargo such as petroleum and petroleum derivatives, as well
as dry cargo such as iron ore, coal and other bulk cargoes.
River Business: In our River Business, we own and operate several dry and
tanker barges, and push boats. In addition, we use one barge from our ocean
fleet, the Alianza G2, as a transfer station. The dry barges transport
basically agricultural and forestry products, iron ore and other cargoes,
while the tanker barges carry petroleum products, vegetable oils and other
liquids.
We operate our push boats and barges on the navigable waters of Parana,
Paraguay and Uruguay Rivers and part of the River Plate in South America,
also known as the Hidrovia region.
Offshore Supply Business: We operate our Offshore Supply Business, using
PSVs owned by UP Offshore (Bahamas), two are employed in the spot market in
the North Sea and two in the Brazilian market. PSVs are designed to
transport supplies such as containerized equipment, drill casing, pipes and
heavy loads on deck, along with fuel, water, drilling fluids and bulk
cement in under deck tanks and a variety of other supplies to drilling rigs
and platforms.
Passenger Business: We own and operate two vessels purchased in 2005. The
business is concentrated in the Mediterranean and Black Sea.
Ultrapetrol's vessels operate on a worldwide basis and are not restricted
to specific locations. Accordingly, it is not possible to allocate the
assets of these operations to specific countries. In addition, the Company
does not manage its operating profit on a geographic basis.
For the year ended December 31,
------------------------------------
2006 2005 2004
-------- -------- --------
Revenues (1)
- South America $ 87,573 $ 55,455 $ 39,871
- Europe 70,548 59,245 30,356
- Asia 13,568 9,989 21,647
- Other 1,777 672 3,286
-------- -------- --------
$173,466 $125,361 $ 95,160
======== ======== ========
(1) Classified by country of domicile of charterers.
Revenue by segment consists only of services provided to external
customers, as reported in the consolidated statement of operations.
Resources are allocated based on segment profit or loss from operation,
before interest and taxes.
Identifiable assets represent those assets used in the operations of each
segment.
The following schedule presents segment information about the Company's
operations for the year ended December 31, 2006:
Offshore
Ocean River Passenger Supply
Business Business Business Business Total
--------- --------- --------- --------- ---------
Revenues $ 39,202 $ 79,124 $ 28,851 $ 26,289 $ 173,466
Running and voyage expenses 14,390 54,131 19,374 9,715 97,610
Depreciation and amortization 14,238 8,136 3,626 2,340 28,340
Segment operating profit 5,566 10,755 5,101 11,480 32,902
Segment assets 130,960 125,490 38,839 131,090 426,379
Investments in affiliates 349 1,936 -- -- 2,285
Income (Loss) from investment in affiliates 384 (124) -- 328 588
Additions to long-lived assets $ 24,953 $ 9,090 $ 10,217 $ 8,439 $ 52,699
The following schedule presents segment information about the Company's
operations for the year ended December 31, 2005:
Offshore
Ocean River Passenger Supply
Business Business Business Business Total
-------- -------- -------- -------- --------
Revenues $ 49,874 $ 54,546 $ 14,409 $ 6,532 $125,361
Running and voyage expenses 14,007 43,530 9,326 6,198 73,061
Depreciation and amortization 13,063 7,166 1,104 -- 21,333
Gain on disposal of vessels 21,867 -- -- -- 21,867
Segment operating profit 39,289 366 3,415 183 43,253
Segment assets 98,252 122,594 27,625 29,811 278,282
Investments in affiliates -- 2,060 -- 13,638 15,698
Loss from investment in affiliates 179 306 -- 12 497
Additions to long-lived assets $ 10,678 $ 12,678 $ 28,105 $ -- $ 51,461
In 2006 revenues from one customer of Ultrapetrol River Business represent
approximately $23,700, or 14% of the Company's consolidated revenues,
revenues from one customer of Ultrapetrol Ocean Business represent
approximately $19,200, or 11% of the Company's consolidated revenues and
the revenues from one customer of the Passenger Business represent
approximately $17,600, or 10% of the Company's consolidated revenues.
In 2005 revenues from one customer of Ultrapetrol Ocean and River Business
represent approximately $31,000, or 25% of the Company's consolidated
revenues, revenues from one customer of Ultrapetrol Ocean Business
represent approximately $21,000, or 17% of the Company's consolidated
revenues and revenues for the only customer of the Passenger Business
represent approximately $14,400, or 11% of the Company's consolidated
revenues.
In 2004 revenues from one customer of Ultrapetrol Ocean and River Business
represent approximately $31,000, or 33% of the Company's consolidated
revenues and revenues from one customer of Ultrapetrol Ocean Business
represent approximately $17,000, or 18% of the Company's consolidated
revenues.
16. STOCK COMPENSATION
We have adopted the 2006 Stock Incentive Plan, or the 2006 Plan, dated July
20, 2006, which entitles our officers, key employees and directors to
receive restricted stock, stock appreciation rights, stock options dividend
equivalent rights, unrestricted stock, restricted stock units or
performance shares. Under the 2006 Plan, a total of 1,400,000 shares of
common stock have been reserved for issuance. The 2006 Plan is administered
by our Board of Directors. Under the terms of the 2006 Plan, our Board of
Directors is able to grant new options exercisable at a price per share to
be determined by our Board of Directors. Under the terms of the 2006 Plan,
no options would be able to be exercised until at least one year after the
closing of our initial public offering (October 18, 2006). Any shares
received on exercise of the options would not be able to be sold until one
year after the date of the stock option grant. All options will expire ten
years from the date of grant. The 2006 Plan expires ten years from the
closing of our IPO.
In addition, on July 20, 2006 we entered into separate consulting
agreements that became effective upon completion of our initial public
offering (October 18, 2006) with companies controlled by our chief
executive officer, executive vice president, chief financial officer and
chief accountant for work they perform for us in various different
jurisdictions.
In connection with these agreements, the Company awarded a total of 310,000
shares of restricted common stock at no cost to two companies, one of which
is controlled by our chief executive officer and the other by our executive
vice president. These shares are non-transferable until they vest, which
occurs ratably over a three year period. During the vesting period, the
shares have voting rights and cash dividends will be paid if declared. The
fair market value of the Company's share on the grant date was $11.00.
Accordingly, $3.450 is being amortized as compensation expenses over the
vesting period of three years, using the straight-line method.
On December 5, 2006, the Company granted a total of 36,952 shares of
restricted common stock at no cost to its non-employee directors. These
shares are non-transferable until they vest, which occurs ratably over a
three year period. During the vesting period, the shares have voting rights
and cash dividends will be paid if declared. The fair market value of the
Company's share on the grant date was $12.99. Accordingly, $480 is being
amortized as compensation expenses over the vesting period of three years,
using the straight-line method.
Activity with respect to restricted common stock is summarized as follows:
Nonvested shares outstanding at December 31, 2005 --
Granted 346,952
Vested --
Forfeited --
-------
Nonvested shares outstanding at December 31, 2006 346,952
=======
Total stock based compensation expense was $242 for the period from October
18, 2006 to December 31, 2006 and is recorded in the same line items used
for cash compensation. The unrecognized compensation cost at December 31,
2006 was $3,688 and the weighted average remaining life for unrecognized
compensation was 2.75 years.
In addition, the Company awarded to three companies, one of which is
controlled by our chief executive officer, one by our executive vice
president and the other by our chief financial officer, stock options to
purchase a total of 348,750 shares of common stock at an exercise price of
$ 11.00 per share. These stock options vest ratably over a three-year
period and expire ten years from the date of grant. The fair value of the
options granted were estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk free interest
rate of 4.77% which is based on the U.S. Treasury yield curve in effect at
the time of the grant, expected dividend yield of 0%, expected stock price
volatility of 10.32% and expected life of 6 years, which has been computed
based on the short-cut method per the Securities and Exchange Commission
Staff Accounting Bulletin N(degree) 107. The aggregate fair market value of
the stock options on the grant date, $1,444, is being amortized as
compensation expenses over the vesting period of three years, using the
straight-line method.
Activity and related information with respect to the Company's stock
options is summarized as follows:
Exercise
Shares price
------- --------
Under option at December 31, 2005a -- --
Options granted 348,750 $11.00
Options exercised -- --
Options forfeited or expired -- --
------- ------
Under option at December 31, 2006a 348,750 $11.00
Options exercisable at December 31, 2006a -- --
Options outstanding at December 31, 2006 had a remaining contractual life
of 9.75 years and had an exercise price of $11.00.
Total stock based compensation expenses was $108 for the period from
October 18, 2006 to December 31, 2006 and is recorded in the same line
items used for cash compensation. The unrecognized compensation cost at
December 31, 2006 was $1,336 and the weighted average remaining life for
unrecognized compensation was 2.75 years.
17. SUPPLEMENTAL GUARANTOR INFORMATION
On November 24, 2004, the Company issued $180 million 9% First Preferred
Ship Mortgage Notes due 2014.
The 2014 Senior Notes are fully and unconditionally guaranteed on a joint
and several basis by the majority of the Company's subsidiaries directly
involved in our Ocean and Passenger Business.
The Indenture provides that the 2014 Senior Notes and each of the
guarantees granted by Subsidiaries, other than the Mortgage, are governed
by, and construed in accordance with, the laws of the state of New York.
Each of the mortgaged vessels is registered under either the Panamanian
flag, or another jurisdiction with similar procedures. All of the
Subsidiary Guarantors are outside of the United States.
Supplemental condensed combining financial information for the Guarantor
Subsidiaries for the 2014 Senior Notes is presented below. This information
is prepared in accordance with the Company's accounting policies. This
supplemental financial disclosure should be read in conjunction with the
consolidated financial statements.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 2006
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Current assets
Receivables from related parties 198,033 26,615 13,158 (234,484) 3,322
Other current assets 16,191 13,351 21,906 -- 51,448
-------- ----------- ----------- -------------- --------------
Total current assets 214,224 39,966 35,064 (234,484) 54,770
-------- ----------- ----------- -------------- --------------
Noncurrent assets
Vessels and equipment, net -- 130,666 205,990 (3,465) 333,191
Investment in affiliates 142,759 -- 2,285 (142,759) 2,285
Other noncurrent assets 6,233 10,732 19,168 -- 36,133
-------- ----------- ----------- -------------- --------------
Total noncurrent assets 148,992 141,398 227,443 (146,224) 371,609
-------- ----------- ----------- -------------- --------------
Total assets 363,216 181,364 262,507 (380,708) 426,379
======== =========== =========== ============== ==============
Current liabilities
Payables to related parties 1,097 144,779 89,028 (234,484) 420
Other financial debt -- -- 4,700 -- 4,700
Other current liabilities 2,690 4,289 10,672 -- 17,651
-------- ----------- ----------- -------------- --------------
Total current liabilities 3,787 149,068 104,400 (234,484) 22,771
-------- ----------- ----------- -------------- --------------
Noncurrent liabilities
Long-term debt 180,000 -- -- -- 180,000
Other financial debt, net of current portion -- -- 34,294 -- 34,294
Other noncurrent liabilities -- 346 6,448 -- 6,794
-------- ----------- ----------- -------------- --------------
Total noncurrent liabilities 180,000 346 40,742 -- 221,088
-------- ----------- ----------- -------------- --------------
Total liabilities 183,787 149,414 145,142 (234,484) 243,859
Minority interests -- -- -- 3,091 3,091
Shareholders' equity 179,429 31,950 117,365 (149,315) 179,429
-------- ----------- ----------- -------------- --------------
Total liabilities, minority interests
and shareholders' equity 363,216 181,364 262,507 (380,708) 426,379
======== =========== =========== ============== ==============
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Current assets
Receivables from related parties $ 150,558 $ 4,147 $ 5,580 $ (142,341) $ 17,944
Other current assets 3,207 11,222 17,733 -- 32,162
--------- ----------- ----------- -------------- --------------
Total current assets 153,765 15,369 23,313 (142,341) 50,106
--------- ----------- ----------- -------------- --------------
Noncurrent assets
Vessels and equipment, net -- 128,589 54,696 (1,216) 182,069
Investment in affiliates 68,150 -- 15,698 (68,150) 15,698
Other noncurrent assets 6,260 14,641 9,508 -- 30,409
--------- ----------- ----------- -------------- --------------
Total noncurrent assets 74,410 143,230 79,902 (69,366) 228,176
--------- ----------- ----------- -------------- --------------
Total assets $ 228,175 $ 158,599 $ 103,215 $ (211,707) $ 278,282
========= =========== =========== ============== ==============
Current liabilities
Payables to related parties $ 3,056 $ 119,972 $ 21,321 $ (142,341) $ 2,008
Other financial debt -- -- 6,599 -- 6,599
Other current liabilities 1,645 6,431 6,700 -- 14,776
--------- ----------- ----------- -------------- --------------
Total current liabilities 4,701 126,403 34,620 (142,341) 23,383
--------- ----------- ----------- -------------- --------------
Noncurrent liabilities
Long-term debt 180,000 -- -- -- 180,000
Other financial debt, net of current portion -- -- 22,953 -- 22,953
Other noncurrent liabilities -- 537 558 -- 1,095
--------- ----------- ----------- -------------- --------------
Total noncurrent liabilities 180,000 537 23,511 -- 204,048
--------- ----------- ----------- -------------- --------------
Total liabilities 184,701 126,940 58,131 (142,341) 227,431
Minority interests -- -- -- 2,479 2,479
Minority interests subject to put right -- -- -- 4,898 4,898
Shareholders' equity 43,474 31,659 45,084 (76,743) 43,474
--------- ----------- ----------- -------------- --------------
Total liabilities, minority interests
and shareholders' equity $ 228,175 $ 158,599 $ 103,215 $ (211,707) $ 278,282
========= =========== =========== ============== ==============
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Revenues $ -- $ 94,823 $ 97,599 $ (18,956) $ 173,466
Operating expenses (2,974) (78,174) (78,314) 18,898 (140,564)
--------- ----------- ----------- -------------- --------------
Operating profit (loss) (2,974) 16,649 19,285 (58) 32,902
Investment in affiliates 11,857 -- 588 (11,857) 588
Other income (expenses) 1,643 (15,545) (4,942) -- (18,844)
--------- ----------- ----------- -------------- --------------
Income before income tax and
minority interest 10,526 1,104 14,931 (11,915) 14,646
Income taxes -- (813) (1,388) -- (2,201)
Minority interest -- -- -- (1,919) (1,919)
--------- ----------- ----------- -------------- --------------
Net income $ 10,526 $ 291 $ 13,543 $ (13,834) $ 10,526
========= =========== =========== ============== ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Revenues $ -- $ 73,243 $ 58,869 $ (6,751) $ 125,361
Operating expenses (1,606) (49,725) (37,509) 6,732 (82,108)
--------- ----------- ----------- -------------- --------------
Operating profit (loss) (1,606) 23,518 21,360 (19) 43,253
Investment in affiliates 15,768 -- (497) (15,768) (497)
Other income (expenses) 406 (14,842) (3,169) -- (17,605)
--------- ----------- ----------- -------------- --------------
Income before income tax
and minority interest 14,568 8,676 17,694 (15,787) 25,151
Income taxes -- (409) (377) -- (786)
Minority interest -- -- -- (9,797) (9,797)
--------- ----------- ----------- -------------- --------------
Net income $ 14,568 $ 8,267 $ 17,317 $ (25,584) $ 14,568
========= =========== =========== ============== ==============
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Revenues $ -- $ 61,856 $ 54,121 $ (20,817) $ 95,160
Operating expenses (1,222) (39,667) (47,654) 20,817 (67,726)
-------- ----------- ----------- -------------- --------------
Operating profit (loss) (1,222) 22,189 6,467 -- 27,434
Investment in affiliates 14,317 -- 356 (14,267) 406
Other income (expenses) (7,956) (9,236) (1,752) (1,975) (20,919)
-------- ----------- ----------- -------------- --------------
Income before income tax
and minority interest 5,139 12,953 5,071 (16,242) 6,921
Income taxes -- 265 (907) -- (642)
Minority interest -- -- -- (1,140) (1,140)
-------- ----------- ----------- -------------- --------------
Net income $ 5,139 $ 13,218 $ 4,164 $ (17,382) $ 5,139
======== =========== =========== ============== ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 2006
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Net income $ 10,526 $ 291 $ 13,543 $ (13,834) $ 10,526
Adjustments to reconcile net
income to net cash (used
in) provided by operating
activities (8,733) 19,521 (6,347) 13,834 18,275
--------- ----------- ----------- -------------- --------------
Net cash (used in) provided
by operating activities 1,793 19,812 7,196 -- 28,801
--------- ----------- ----------- -------------- --------------
Intercompany sources (58,516) (22,035) 2,000 78,551 --
Non-subsidiary sources (53,848) (17,511) (32,670) -- (104,029)
--------- ----------- ----------- -------------- --------------
Net cash (used in) provided
by investing activities (112,364) (39,546) (30,670) 78,551 (104,029)
--------- ----------- ----------- -------------- --------------
Intercompany sources (2,000) 17,900 62,651 (78,551) --
Non-subsidiary sources 125,129 -- (37,167) -- 87,962
--------- ----------- ----------- -------------- --------------
Net cash (used in) provided
by financing activities 123,129 17,900 25,484 (78,551) 87,962
--------- ----------- ----------- -------------- --------------
Net increase (decrease) in
cash and cash equivalents $ 12,558 $ (1,834) $ 2,010 $ -- $ 12,734
========= =========== =========== ============== ==============
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Net income $ 14,568 $ 8,267 $ 17,317 $ (25,584) $ 14,568
Adjustments to reconcile net
income to net cash (used
in) provided by operating
activities (15,057) 7,919 (16,343) 25,584 2,103
-------- ----------- ----------- -------------- --------------
Net cash (used in) provided
by operating activities (489) 16,186 974 -- 16,671
-------- ----------- ----------- -------------- --------------
Intercompany sources (15,745) (3,835) (457) 20,037 --
Non-subsidiary sources (13,401) (41,214) 27,890 -- (26,725)
-------- ----------- ----------- -------------- --------------
Net cash provided by (used
in) investing activities (29,146) (45,049) 27,433 20,037 (26,725)
-------- ----------- ----------- -------------- --------------
Intercompany sources 3,056 25,994 (9,013) (20,037) --
Non-subsidiary sources 29,386 -- (23,020) -- 6,366
-------- ----------- ----------- -------------- --------------
Net cash provided by (used
in) financing activities 32,442 25,994 (32,033) (20,037) 6,366
-------- ----------- ----------- -------------- --------------
Net increase (decrease) in
cash and cash equivalents $ 2,807 $ (2,869) $ (3,626) $ -- $ (3,688)
======== =========== =========== ============== ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 2004
(stated in thousands of U.S. dollars)
Combined
Combined subsidiary Total
subsidiary non Consolidating consolidated
Parent guarantors guarantors adjustments amounts
-------- ----------- ----------- -------------- --------------
Net income $ 5,139 $ 13,218 $ 4,164 $ (17,382) $ 5,139
Adjustments to reconcile net
income to net cash (used
in) provided by operating
activities (7,155) 10,333 (2,570) 17,382 17,990
-------- ----------- ----------- -------------- --------------
Net cash provided by
operating activities (2,016) 23,551 1,594 -- 23,129
-------- ----------- ----------- -------------- --------------
Intercompany sources (18,115) 6,402 2,154 9,559 --
Non-subsidiary sources -- (14,982) (42,574) -- (57,556)
-------- ----------- ----------- -------------- --------------
Net cash provided by (used
in) investing activities (18,115) (8,580) (40,420) 9,559 (57,556)
-------- ----------- ----------- -------------- --------------
Intercompany sources (8,556) 2,224 15,891 (9,559) --
Non-subsidiary sources 28,063 (14,750) 24,468 -- 37,781
-------- ----------- ----------- -------------- --------------
Net cash provided by (used
in) financing activities 19,507 (12,526) 40,359 (9,559) 37,781
-------- ----------- ----------- -------------- --------------
Net increase (decrease) in
cash and cash equivalents $ (624) $ 2,445 $ 1,533 $ -- $ 3,354
======== =========== =========== ============== ==============
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SUBSEQUENT EVENTS
Delivery of Alejandrina and loan draw down:
On January 5, 2007 the Company took delivery of the Alejandrina (note 5)
and paid the balance of the purchase price of $15,300. On January 29, 2007,
Stanyan Shipping Inc. (our wholly owned subsidiary in the Ocean Business
and the owner of the Alejandrina) entered into a loan agreement with
Natixis for an amount of $13,616 to provide post-delivery secured financing
on the Alejandrina.
The loan is secured by a mortgage on the Alejandrina is guaranteed by
Ultrapetrol (Bahamas) Limited, and contains customary covenants.
Loan draw down and re-finance an existing loans
On January 2, 2007, UP Offshore (Bahamas) Ltd. drew down $37,500 of its
loan agreement with DVB AG of up to $61,306, which was used to refinance
the current $30 million loan facility with DVB NV.
On March 7, 2007, UP Offshore (Bahamas) Ltd. drew down $23,806 of its loan
agreement with DVB AG of up to $61,306, which was partially used to funded
the Otto Candies acquisition.
Otto Candies acquisition
On March 7, 2007, the Company through its subsidiaries in the River
Business acquired all of the issued and outstanding shares of Candies
Paraguayan Ventures LLC and Compania Paraguaya de Transporte Fluvial S.A.
(the "Otto Candies acquisition") for $13,800 in cash. At time of
acquisition, Otto Candies owned 12 river barges and 1 push boat.
The purchase price allocation for this acquisition has not yet been
completed, but the purchase price is expected to be in excess of the
carrying value of the net assets acquired.
PSVs construction
On February 21, 2007, UP Offshore (Bahamas) Ltd. signed a shipbuilding
contract with a shipyard in India for construction of two PSVs with a
combined cost of $43,300, will be delivered schedule begins in 2009.
UP Offshore (Bahamas) Ltd. has at its own, the option to acquire two
additional PSVs.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of ULTRAPETROL (BAHAMAS) LIMITED:
We have audited the accompanying consolidated balance sheets of Ultrapetrol
(Bahamas) Limited and subsidiaries, as of December 31, 2006 and 2005, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultrapetrol
(Bahamas) Limited and subsidiaries as of December 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.
Buenos Aires, Argentina
March 21, 2007 PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.
Member of Ernst & Young Global
EZEQUIEL A. CALCIATI
Partner
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers.
The articles of association of the Registrant and the International Business
Companies Act, 2000 of the Commonwealth of The Bahamas, or the IBCA, provide for
indemnification of every director and officer of the Registrant out of the funds
of the Registrant. The indemnification provisions of the articles of
associations provide as follows:
(1) Actions by Others. The Registrant (a) will indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant) by
reason of the fact that he is or was a director or an officer of the Registrant
and (b) except as otherwise required by paragraph (3) below, may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant) by reason of the fact that he is or was an employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee, agent of or participant in another person,
against expenses (including attorneys' fees), judgments, fines and amounts
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if he acted honestly and in good faith with a view to the
best interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, will not, of
itself, create a presumption that the person did not act honestly and in good
faith with a view to the best interests of the Registrant, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(2) Actions by or in the Right of the Registrant. The Registrant will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Registrant to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee, agent
of or participant in another person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if he acted honestly and in good faith with
a view to the best interests of the Registrant and except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the Registrant unless and only to the extent
that the court in which such action or suit was brought will determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court will deem proper.
(3) Successful Defense. To the extent that a person who is or was a director,
officer, employee or agent of the Registrant has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
paragraph (1) or paragraph (2) above, or in defense of any claim, issue or
matter therein, such person will be indemnified through the use of Registrant
funds against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(4) Specific Authorization. Any indemnification under paragraph (1) or paragraph
(2) above (unless ordered by a court) will be made by the Registrant only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth in said paragraph
(1) and (2) above. Such determination will be made (a) by the board of directors
by a majority vote of a quorum consisting of the directors who were not parties
to such action, suit or proceeding, or (b) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the shareholders of
the Registrant.
(5) Advance of Expenses. Expenses incurred by any person who may have a right of
indemnification under the articles of association of the Registrant in defending
a civil or criminal action, suit or proceeding may be paid by the Registrant in
advance of the final disposition of such action, suit or proceeding as
authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it will ultimately be determined that he is entitled to be
indemnified by the Registrant pursuant to the indemnification provisions of the
articles of association.
(6) Right of Indemnity not Exclusive. The indemnification provided by the
indemnification provisions of the articles of association is not deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any provision of the articles of association, agreement, vote of
shareholders or disinterested directors of the Registrant or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and will continue as to a person who has ceased to be a
director, officer, employee or agent and will inure to the benefit of the heirs,
executors and administrators of such a person.
(7) Insurance. The Registrant may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of or participant in another person against any
liability asserted against him and incurred by him in any such capacity, or
arising out of such person's status as such, whether or not the Registrant would
have the power to indemnify him against such liability under the indemnification
provisions of the articles of association.
Section 57 of the IBCA provides as follows:
Indemnification
(1) Subject to subsection (2) and any limitations in its memorandum or articles
of association in any unanimous shareholder agreement, a company incorporated
under the IBCA may indemnify against all expenses, including legal fees, and
against all judgments, fines and amounts paid in settlement and reasonably
incurred in connection with legal or administrative proceedings any person who:
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil or
administrative by reason of the fact that the person is or was a
director, an officer or a liquidator of the company; or
(b) is or was, at the request of the company, serving as a director,
officer or liquidator, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or other
enterprise.
(2) Subsection (1) only applies to a person if the person acted honestly and in
good faith with a view to the best interests of the company.
Section 58 of the IBCA allows for directors' and officers' insurance to be
purchased by the Registrant and provides as follows:
Insurance
A company incorporated under IBCA may purchase and maintain insurance in
relation to any person who is or was a director, a registered agent, an officer
or a liquidator of the company, or who at the request of the company is or was
serving as a director, a registered agent, an officer or a liquidator of, or in
any other capacity is or was acting for, another company or a partnership, joint
venture, trust or other enterprise, against any liability asserted against the
person and incurred by the person in that capacity, whether or not the company
has or would have had the power to indemnify the person against the liability
under subsection (1) of Section 57 of the IBCA, described above.
Item 7. Recent Sales of Unregistered Securities.
In November 2004, we issued $180,000 of 9% First Preferred Ship Mortgage Notes
due 2014, or the Notes. The Notes were issued pursuant to the exemption under
Section 4(2) of the Securities Act. The proceeds of the Notes offering were used
principally to prepay the $135,000 of 10 1/2% First Preferred Ship Mortgage
Notes due 2008 we issued in 1998, or the Prior Notes, and to buy an additional
Ocean Business asset, further invest in our River Business and to diversify into
the Passenger Business with the acquisition of two passenger vessels.
In the first quarter of 2005, pursuant to a registration rights agreement, we
completed a registered exchange offer in which we exchanged registered Notes for
the Prior Notes in order to allow the Notes to be eligible for trading in the
public markets. Credit Suisse First Boston acted as underwriter for the issuance
and exchange of the Notes.
Item 8. Exhibits and Financial Statement Schedules.
(3) Exhibits
Exhibit
Number Description
------ -----------
1 Form of Underwriting Agreement (4)
3.1 Form of Amended and Restated Articles of Association of the
Company (2)
3.2 Form of Amended and Restated Memorandum of Association of the
Company (2)
4 Form of Share Certificate (1)
5 Form of Opinion of Higgs & Johnson, Bahamas Counsel to the
Company, as to the validity of the Shares (3)
8 Form of Opinion of Seward & Kissel LLP, United States counsel to
the Company, with respect to certain tax matters (3)
10.1 Registration Rights Agreement (2)
10.2 Equity Incentive Plan (2)
10.3 Second Amended and Restated Shareholders Agreement by and between
Inversiones Los Avellanos S.A., Hazels (Bahamas) Investments
Inc., and Solimar Holdings Ltd. (2)
21 Subsidiaries of the Company (3)
23.1 Consent of Seward & Kissel LLP (contained in Exhibit 8)
23.2 Consent of Pistrelli, Henry Martin y Asociados S.R.L., an
independent registered public accounting firm and a member of
Ernst & Young Global, independent registered public accounting
firm (3)
23.3 Consent of Doll Shipping Consultancy (3)
23.4 Consent of Higgs & Johnson (3)
24 Powers of Attorneys (5)
----------
(1) Incorporated by reference to our Registration Statement on Form F-1 (File
No. 333-132856) filed on March 30, 2006.
(2) Incorporated by reference to our Amendment No. 1 to Registration Statement
on Form F-1 (File No. 333-132856) filed on September 26, 2006.
(3) Filed herewith.
(4) To be filed by amendment.
(5) Contained on the signature page hereto.
Item 9. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(ss.230,424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, That:
(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply
if the registration statement is on Form S-8 (ss.239.16b of this
chapter), and the information required to be included in a
post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the Commission by the registrant pursuant
to section 13 or section 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d)) that are incorporated by reference in the
registration statement; and
(B) Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section
do not apply if the registration statement is on Form S-3 (ss.239.13
of this chapter) or Form F-3 (ss.239.33 of this chapter) and the
information required to be included in a post-effective amendment by
those paragraphs is contained in reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) (ss.230.424(b) of this
chapter) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Item 8.A of Form 20-F (17 CFR 249.220f) at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3 (ss.239.33 of this chapter), a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or ss.210.3-I9 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser:
(i) If the registrant is relying on Rule 430B (ss.230.430B of this
chapter):
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
(ss.230.424(b)(3) of this chapter) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed
part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) (ss.230.424(b)(2), (b)(5), or (b)(7) of this
chapter) as part of a registration statement in reliance on Rule 430E
relating to an offering made pursuant to Rule 4l5(a)(1)(i), (vii), or
(x) (ss.230.415(a)(1)(i), (vii), or (x) of this chapter) for the
purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in
the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of 314 securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration statement to
which that prospectus relates, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or
made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract
of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such effective date; or
(ii) If the registrant is subject to Rule 430C (ss.230.430C of this
chapter), each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A (ss.230.430A of this
chapter), shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424
(ss.230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-l and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on March 21, 2007.
ULTRAPETROL (BAHAMAS) LIMITED
By: /s/ Felipe Menendez R.
--------------------------------
Name: Felipe Menendez R.
Title: President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Lawrence Rutkowski and Robert E. Lustrin
his or her true and lawful attorney-in-fact and agent, with full powers of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, any subsequent
registration statement for the same offering that may be filed under Rule 462(b)
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully for all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on March 21, 2007 in the
capacities indicated.
Signature Title
--------- -----
/s/ Felipe Menendez R. Chief Executive Officer,
----------------------------------- President and Director
Felipe Menendez R. (Principal Executive Officer)
/s/ Felipe Menendez R. Executive Vice President and
----------------------------------- Director
Ricardo Menendez R.
/s/ Leonard J. Hoskinson Chief Financial Officer, Secretary and
----------------------------------- Director (Principal Financial Officer
Leonard J. Hoskinson and Principal Accounting Officer)
/s/ Katherine Downs Director
-----------------------------------
Katherine Downs
/s/ James Martin Director
-----------------------------------
James Martin
/s/ George Wood Director
-----------------------------------
George Wood
/s/ Michael C. Hagan Director
-----------------------------------
Michael C. Hagan
Authorized Representative
Pursuant to the requirement of the Securities Act of 1933, the undersigned, the
duly undersigned representative in the United States of America, has signed this
registration statement in the City of New York, New York, on March 21, 2007.
RAVENSCROFT SHIP MANAGEMENT INC.
By: /s/ Leonard J. Hoskinson
-----------------------------------
Name: Leonard J. Hoskinson
Authorized Representative in the United States
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
1 Form of Underwriting Agreement (4)
3.1 Form of Amended and Restated Articles of Association of the
Company (2)
3.2 Form of Amended and Restated Memorandum of Association of the
Company (2)
4 Form of Share Certificate (1)
5 Form of Opinion of Higgs & Johnson, Bahamian Counsel to the
Company, as to the validity of the Shares (3)
8 Form of Opinion of Seward & Kissel LLP, United States counsel to
the Company, with respect to certain tax matters (3)
10.1 Registration Rights Agreement (2)
10.2 Equity Incentive Plan (2)
10.3 Second Amended and Restated Shareholders Agreement by and between
Inversiones Los Avellanos S.A., Hazels (Bahamas) Investments
Inc., and Solimar Holdings Ltd. (2)
21 Subsidiaries of the Company (3)
23.1 Consent of Seward & Kissel LLP (contained in Exhibit 8)
23.2 Consent of Pistrelli, Henry Martin y Asociados S.R.L., an
independent registered public accounting firm and a member of
Ernst & Young Global, independent registered public accounting
firm (3)
23.3 Consent of Doll Shipping Consultancy (3)
23.4 Consent of Higgs & Johnson (3)
24 Powers of Attorney(5)
--------------
(1) Incorporated by reference to our Registration Statement on Form F-1 (File
No. 333-132856) filed on March 30, 2006.
(2) Incorporated by reference to our Amendment No. 1 to Registration Statement
on Form F-1 (File No. 333-132856) filed on September 26, 2006.
(3) Filed herewith.
(4) To be filed by amendment.
(5) Contained on the signature page hereto.