Commission File No. 333-8878
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of March 2006
ULTRAPETROL (BAHAMAS) LIMITED
(Translation of registrant's name into English)
Ocean Centre, Montague Foreshore
East Bay St.
Nassau, Bahamas
P.O. Box SS-19084
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes [_] No [X]
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein are the following:
Exhibit 1: Management's Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 2005.
Exhibit 2: Consolidated Financial Statements for the years ended December 31,
2005, 2004 and 2003, with Report of Independent Registered Public Accounting
Firm.
Exhibit 1
---------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information included in our historical consolidated financial statements and
their notes included elsewhere in this Form 6-K. 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, many of which are not
in our control.
Our Company
We are a diverse marine transportation company involved in the global
carriage of dry bulk and liquid cargos, supplies, equipment and passengers. 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 approximately 490 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 accounted for approximately 47% of world soybean
production in 2005, growing from 30% 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, primarily 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
three in operation and three under construction to be delivered in
2006 and 2007.
o Our Ocean Business owns and operates six oceangoing vessels,
including three versatile Suezmax/Oil-Bulk-Ore, or Suezmax OBO,
vessels, one Aframax tanker, one semi-integrated tug/barge unit and
one chemical/product carrier. Our Ocean Business fleet has an
aggregate capacity of approximately 600,000 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 each of
our passenger vessels under seasonal charters with a tour operator.
In addition, we are currently negotiating opportunities to operate
these vessels during periods outside the European travel season.
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 the
Company 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, Cape Pampas, owned through our 60% joint venture, Ultracape, for
approximately $37.9 million, net of the related expenses. The vessel was
delivered to the new owners on May 6, 2005.
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 $3.4 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 is now
being refurbished to re-enter 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 TN 1502, 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 $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.
Recent Developments
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 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. We have the option to cause
Crosstrade Maritime Inc., and Crosstrees Maritime Inc, to purchase from us all,
but not less than all, of the Ravenscroft shares purchased for the original
consideration at any time prior to September 30, 2006, but not later than the
closing of our initial public offering. The purchase price of this acquisition
was paid in the form of a non-interest bearing promissory note secured by the
pledged shares of Ravenscroft payable upon the earlier of (i) the closing of our
initial public offering or (ii) September 30, 2006. In compliance with the
requirements of our indenture related to Notes, we obtained a fairness opinion
from an internationally recognized accounting firm in connection with this
acquisition.
Separately, we purchased 66.67% of the issued and outstanding capital
stock of UP Offshore (Bahamas) Ltd., 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 on March 21, 2006. Following
this acquisition, we hold 94.45% of the issued and outstanding shares of UP
Offshore. We have the option to cause LAIF to purchase from us all, but not less
than all, of the UP Offshore shares purchased for the original consideration at
any time prior to September 30, 2006, but not later than the closing of our
initial public offering. The purchase price of this acquisition was paid in the
form of a non-interest bearing promissory note payable upon the earlier of (i)
the closing of our initial public offering or (ii) September 30, 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.
We expect to reach an understanding with International Finance
Corporation, or IFC, to purchase from IFC the 7.14% of UP River (Holdings) Ltd.,
an entity that owns 50% of UABL, that we do not own for the price of $6.0
million. As part of this understanding, we expect IFC to waive its option to
convert its interest in UP River to shares in our company and its right to
participate in our initial public offering. This understanding is subject to the
successful completion of our initial public offering and our obligation under
this understanding will be paid from proceeds of our initial public offering.
On March 20, 2006, Los Avellanos and Avemar Holdings (Bahamas) Ltd., or
Avemar, two of our shareholders, subject to the successful completion of our
initial public offering, cancelled their agreement pursuant to which Avemar had
previously granted Los Avellanos an irrevocable proxy to vote our shares owned
by Avemar. The shareholders have further agreed to cancel the shares owned by
Avemar upon the closing of our initial public offering. As a consequence, if we
effect an initial public offering, Solimar will own 63.36% of our shares and the
remaining 36.64% will be directly and indirectly owned by Los Avellanos. This
agreement to cancel the shares owned by Avemar is subject to the successful
completion of our initial public offering.
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
$900,000, and the $900,000 note originally issued in connection with the option
was cancelled.
Factors Affecting Our Results of Operations
We have organized our business and evaluate performance by the operating
segments of 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. Other than for allocation of overhead, we do not have significant
intersegment transactions.
Revenues
In our River Business, we currently contract substantially all of our
capacity under COAs, most of which have terms from one to four years. Most of
these COAs currently provide for adjustments to the freight rate based on
changes in the price of fuel.
In our Offshore Business, during the second half of 2005, two PSV vessels
owned by UP Offshore were, by virtue of chartering arrangements, operated by us
in the North Sea. The revenues of these charters are recognized in our year-end
financial statements.
In our Ocean Business, we contract our cargo vessels either on a time
charter basis or on a contract of affreightment, 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
are currently negotiating opportunities to employ these vessels during periods
other than the European travel season.
Time charter revenues accounted for 56% of the total revenues from our
businesses for 2005, and COA revenues accounted for 44%. With respect to COA
revenues in 2005, 87% were in respect of repetitive voyages for our regular
customers and 13% 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. In addition, 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. 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, as was the
case in 2005.
In our Ocean Business, we employed a significant part of our ocean fleet
on time charter to different customers during 2005. During the first half of
2005, the international dry-bulk freight market maintained average rates above
those experienced in 2004. In the second half, those average freight rates
generally decreased below the average levels experienced in 2004.
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 2005 included general and administrative expenses as well as vessel
management and administration fees paid to Oceanmarine and Ravenscroft, both
related parties, that provided certain administrative services and vessel
management services respectively. We paid Oceanmarine a monthly fee of $10,000
per oceangoing cargo vessel for administrative services including general
administration and accounting (financial reporting and preparation of tax
returns), use of office premises, a computer network, secretarial assistance and
other general duties. We also paid Ravenscroft a monthly technical vessel
management fee of $12,500 per PSV and oceangoing vessel and (euro)20,000
(equivalent to US $23,590 as of December 31, 2005) per passenger vessel for
services, including technical management, crewing, provisioning, superintendence
and related accounting functions. We also paid Ravenscroft a (euro)25,000
(equivalent to US $29,488 as of December 31, 2005) administrative and
operational fee per month per passenger vessel for all operational functions as
well as administering the subcontractors, concessions and credit card/collection
system onboard. In the first quarter of 2006, we acquired Ravenscroft and the
administrative-related assets and personnel of Oceanmarine. Accordingly, these
tasks are now performed in-house.
In our River Business, prior to our acquisition of the remaining 50%
equity interest in UABL in 2004, our subsidiaries that owned pushboats and
barges contracted with Lonehort, Inc., a subsidiary of UABL, for vessel
management services and we generally paid operating expenses through Lonehort.
Our operating expenses include the cost of all vessel management, crewing,
spares and stores, insurance, lubricants, repairs and maintenance. Following our
acquisition of the remaining 50% equity interest in UABL, all vessel management
services have been performed, and all operating expenses paid, in-house. UABL
employs the services of Tecnical Services S.A., a related party, to provide crew
recruitment services in Argentina and Paraguay. We pay Tecnical Services S.A.
$144,000 per year, plus an additional $50 for each active crew member hired.
Since Tecnical Services S.A. is now a wholly-owned subsidiary of Ravenscroft,
beginning in the first quarter of 2006 these services will be performed
in-house. We do not expect to pay fees to any related entity other than those
described here for management and administration 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 the charterhire
paid by us to UP 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 and
may include catering, housekeeping and entertainment staff if charter party so
specifies. 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 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 drydock facility in Ramallo, Argentina. Also, through
Ultracape Delaware LLC, we own land for expansion of a liquids terminal in
Mexico.
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 of America. Through our acquisition of the
administrative functions of Oceanmarine, a related party, we now hold a sublease
from it to an office in Buenos Aires, Argentina.
Foreign Currency Transactions
During 2005, 84% of our revenues were denominated in U.S. dollars. Also,
for the year ended December 31, 2005, 11% of our revenues were denominated and
collected in Euros and 5% of our revenues were denominated and collected in
British Pounds. However, 13% of our total revenues were denominated in U.S.
dollars but collected in Argentine Pesos and Paraguayan Guaranies. Significant
amounts of our expenses were denominated in dollars and 22% of our total out of
pocket operating expenses were paid in Argentine Pesos 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 on 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
only partially offset by a hedge of a minor part of our consumption and by
bunker price adjustment formulas on some of our contracts. In 2006, we have
negotiated and intend to continue to negotiate fuel price adjustment clauses in
most of our 2006 contracts.
In 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
which are currently chartered to third parties, since it is the charterers who
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 soya 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, from
May through October of each year.
Legal Proceedings
Our subsidiary, Ultrapetrol S.A., was involved in a customs dispute with
the Customs Authority of Bahia Blanca in Argentina over the alleged unauthorized
operation of the Princess Pia in Argentina during 2001. As a result, the Customs
Authority of Bahia Blanca issued a resolution claiming the sum of 4.69 million
Argentine pesos (approximately $1.61 million) as import taxes and the sum of
4.69 million Argentine pesos (approximately $1.61 million) as fines. In response
to said resolution, on March 16, 2004, Ultrapetrol S.A. submitted an appeal with
the Argentine Tax Court arguing that it did not breach any applicable customs
laws since the Princess Pia operated within Argentine territory only during the
periods in which it was expressly authorized by the competent authorities. The
Argentine Tax Court entered judgment in favor of the Company. This decision is
final and binding upon the parties. Costs shall be borne by the Customs
Authority.
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 of 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. On February 22, 2005, we were notified of the decision
that the grounds on which the tax assessment was based were ratified. In
response to this decision, on February 28, 2005, we presented a specific request
for clarification of the decision. We simultaneously presented a petition to the
Secretary of the Brazilian Internal Revenue Service requesting the replacement
of the confiscation penalty applied to the Alianza Campana by a penalty
corresponding to one percent (1%) of the value of the Alianza Campana.
Tax authorities determined that the petition requesting clarification of
the decision could not be considered because the Decree that regulates the
administrative proceeding does not provide the possibility of filing this
petition.
The Secretary of the Brazilian Internal Revenue Service sent the
administrative proceeding to tax authorities in Fortaleza, Brazil, for them to
consider if the vessel could be imported under the REPETRO regime. In accordance
with informal information that we received, tax authorities stated that they
would not be qualified to analyze such issue. Currently, the administrative
proceeding is in Rio de Janeiro, Brazil, waiting for a report of tax authorities
in which the REPETRO issue will be analyzed.
On the same day that Ultrapetrol S.A. presented its defense to the
above-mentioned administrative proceeding, a writ of injunction was filed on
behalf of Ultrapetrol S.A. seeking a judicial authorization allowing the return
of the Alianza Campana to Boias de Xareu, which is located approximately 20
nautical miles from the Brazilian coast, so that the Alianza Campana could
resume its prior services. The preliminary injunction was granted by the court
in favor of Ultrapetrol S.A. on September 17, 2004, conditioned on the weekly
presentation of shipping letters describing the location of the Alianza Campana
and the Alianza Campana is now back in service at Boias de Xareu. The tax
authorities filed an unsuccessful interlocutory appeal against the preliminary
injunction. In view of this decision, the tax authorities filed an appeal to the
Superior Court of Justice and Ultrapetrol filed its counterargument. Currently,
our lawsuit and the appeal of the tax authorities are pending judgment.
Based upon the facts and circumstances of the case, including the fact
that the Alianza Campana was operating under a specific written authorization
officially granted by the Brazilian government and the existing regulations, we
do not believe that the outcome of this matter should have an adverse impact on
our financial position or results of operations. In case we are not successful
on the merits, under applicable insurance coverage, we could request from our
P&I insurer, an indemnity corresponding to the value of Alianza Campana.
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 "Paraguay Customs Authority"). We
believe that this finding is erroneous and UABL has formally replied to the
Paraguay customs authority contesting all of the allegations upon which the
finding was based. We are awaiting the determination of the Paraguay Customs
Authority in this matter. That determination, if adverse to UABL, is subject to
court review upon application. We intend to vigorously contest in court any
adverse determination. 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.
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, 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 operations expressed in
thousands of dollars.
Year Ended December 31,
-----------------------
Percent
2005 2004 Change
---- ---- ------
Revenues
Attributable to River Business $54,546 $41,111 32.68%
Attributable to Offshore Supply Business 6,532 -- --
Attributable to Ocean Business 49,874 54,049 -7.72%
Attributable to Passenger Business 14,409 -- --
-------- -------- -------
Total 125,361 95,160 31.74%
======== ======== =======
Voyage expenses
Attributable to River Business (25,710) (15,340) 67.60%
Attributable to Offshore Supply Business (4,980) -- --
Attributable to Ocean Business (1,371) (583) 135.16%
Attributable to Passenger Business (1,766) -- --
-------- -------- -------
Total (33,827) (15,923) 112.44%
======== ======== =======
Running cost
Attributable to River Business (17,820) (12,512) 42.42%
Attributable to Offshore Supply Business (1,218) -- --
Attributable to Ocean Business (12,636) (12,380) 2.07%
Attributable to Passenger Business (7,560) -- --
-------- -------- -------
Total (39,234) (24,892) 57.62%
======== ======== =======
Amortization of drydocking expense (6,839) (5,195) 31.65%
Depreciation of vessels and equipment (14,494) (13,493) 7.42%
Management fees and administrative and
commercial expenses (9,735) (9,007) 8.08%
-------- -------- -------
Other operating income 22,021 784 2708.8%
-------- -------- -------
Operating profit 43,253 27,434 57.66%
-------- -------- -------
Financial expense $(19,141) $(16,134) 18.64%
Financial gain (loss) on extinguishment
of debt -- (5,078) --
Other income (expenses) 1,039 699 48.64%
-------- -------- -------
Total other expenses (18,102) (20,513) -11.75%
======== ======== =======
Income before income taxes and
minority interest 25,151 6,921 263.4%
Income taxes (786) (642) 22.43%
-------- -------- -------
Minority interest (9,797) (1,140) 758.51%
-------- -------- -------
Net Income 14,568 5,139 183.48%
======== ======== =======
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 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 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 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 was $14.4 million in 2005. We
did not earn revenues in our Passenger Business 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 this period.
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 increase of the price of fuel oils and the
consolidation of UABL as our subsidiary in the second quarter of 2004.
In 2005, voyage expenses of our Offshore Supply Business were $5.0
million, as compared to $0 in 2004. The increase is primarily attributable to
the bareboat charter paid for our new PSVs UP Esmeralda and UP Safira during the
last six months of 2005.
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
brokerage commission 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 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 Cape Pampas in 2005.
In 2005, running costs of our Passenger Business were $7.6 million,
compared to $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 31%, to $6.8 million in 2005 as compared to
$5.2 million in 2004. The increase is primarily attributable to the amortization
expenses of 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 approximately $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.
Year Ended December 31, 2004 Compared to year Ended December 31, 2003
The following table sets forth certain historical income statement data
for the periods indicated derived from the Company's statements of operations
expressed in thousands of dollars.
Year Ended December 31,
-----------------------
Percent
2004 2003 Change
---- ---- ------
Revenues
Attributable to River Business $41,111 $10,246 -16.83%
Attributable to Ocean Business 54,049 64,987 301.24%
--------- --------- -------
Totals 95,160 75,233 26.49%
========= ========= =======
Voyage expenses
Attributable to River Business (15,340) (39) -95.37%
Attributable to Ocean Business (583) (12,605) 392.33%
--------- --------- -------
Total (15,923) (12,644) 25.93%
========= ========= =======
Running cost
Attributable to River Business (12,512) (6,696) -43.63%
Attributable to Ocean Business (12,380) (21,963) 86.86%
--------- --------- -------
Total (24,892) (28,659) -13.14%
========= ========= =======
Amortization of drydocking expense (5,195) (7,232) -28.17%
Depreciation of vessels and equipment (13,493) (15,335) -12.01%
Management fees and administrative
and commercial expenses (9,007) (7,818) 15.21%
Other operating income (expenses) 784 (2,124) -136.91%
--------- --------- --------
Operating profit 27,434 1,421 1830.61%
========= ========= ========
Financial expense (16,134) (16,207) -0.45%
Financial gain (loss) on extinguishment
of debts $(5,078) $1,782 -384.96%
Other income (expense) 699 3,004 -76.73%
--------- --------- -------
Total Other expenses (20,513) (11,421) 76.91%
Income (loss) before income taxes
and minority interest 6,921 (10,000) -169.21%
========= ========= ========
Income taxes (642) (185) 247.03%
Minority interest (1,140) (1,333) -0.06%
--------- --------- --------
Net income (loss) 5,139 (11,518) -144.62%
========= ========= ========
Revenues. Total revenues from our River Business increased by 303% from
$10.2 million to $41.1 million. This increase is primarily attributable to the
consolidation of UABL since the second quarter of 2004, while in 2003 river
revenues only included the net proceeds for those of our vessels that we owned
and chartered to UABL.
Total revenues from our Ocean Business decreased from $65.0 million in
2003 to $54.0 million in 2004, or a decrease of 17%. This decrease is primarily
attributable to the sale of the vessels Princess Veronica, Princess Pia,
Princess Eva, Princess Laura and Princess Marisol as well as Alianza G1 during
2003 and 2004. These reductions were partially offset by the higher time charter
rates of our Princess Nadia, Princess Susana, Princess Katherine and Cape Pampas
during 2004.
Our revenues in 2004 were also negatively affected by the Cape Pampas and
the Alianza G-3 being out of service for a total of 167 days due to major
repairs. Part of this off hire time was compensated by our loss of hire
insurance.
Voyage expenses. In 2004, voyage expenses of our River Business were $15.3
million, as compared to $0 for 2003, an increase of $15.3 million. The increase
is attributable to the effect of the consolidation of UABL as our subsidiary in
the second quarter of 2004.
In 2004, voyage expenses of our Ocean Business were $0.6 million, as
compared to $12.6 million for 2003, a decrease of $12.0 million, or 95%. The
decrease is primarily attributable to the combined effect of a large portion of
the Panamax fleet that were under COA employment during 2003 being sold during
2003 and 2004 and the Princess Susana operating under time charter employment
instead of COA employment.
Running costs. In the year ended 2004, running expenses of our River
Business were $12.5 million, as compared to $6.7 million for 2003, an increase
of $5.8 million. The increase is attributable to the effect of the consolidation
of UABL as our subsidiary in the second quarter of 2004.
Running costs of our Ocean Business decreased by about 44%, to $12.4
million in 2004 as compared to $22.0 million in 2003. This decrease is mainly
attributable to the sale of Princess Pia, Princess Veronica, Princess Eva,
Princess Marisol, Princess Laura and Alianza G1 during 2003 and 2004.
Amortization of drydocking. Amortization of drydocking and special survey
costs decreased by $2.0 million, or 28%, to $5.2 million in 2004 as compared to
$7.2 million in 2003. The decrease is primarily attributable to the vessels sold
during 2003 and 2004. The unamortized balance is included in the gain or loss
resulting from the sale of the vessels.
Depreciation of vessels and equipment. Depreciation decreased by $1.8
million, or 12%, to $13.5 million in 2004 as compared to $15.3 million in 2003.
This decrease is primarily due to the sale of the Princess Veronica, Princess
Laura, Princess Pia, Princess Eva, Princess Marisol and Alianza G1 during 2003
and 2004, which was partially offset by the purchase of a new tug and river
barges and the depreciation of our river fleet.
Management fees and administrative expenses. Management fees and
administrative expenses were $9.0 million in 2004 as compared to $7.8 million in
the same period in 2003. This increase of $1.2 million is attributable mainly to
an increase in the overhead expenses of $2.7 million produced by the
consolidation of UABL, which was partially offset by a decrease in management
fees of our ocean fleet in the amount of $1.6 million resulting from a reduced
number of vessels in operation.
Other operating income (expenses). Our other operating income was $0.8
million in 2004 and an expense of $2.1 million in 2003. The difference is
attributable to the combined effect of the following: a reduction in the loss
from the sale of vessels and equipment of $3.7 million (a loss of $3.7 million
in 2003, as compared to a loss of $0 in 2004) and a decrease in income from
claims against insurance companies of $0.9 million (income of $1.6 million in
2003, as compared to income of $0.7 million in 2004).
Operating profit. Operating profit for the year ended 2004 was $27.4
million, an increase of $26.0 million in 2003. In comparing these figures, the
difference is mainly attributable to the higher results obtained from the
vessels Princess Susana, Princess Nadia, Princess Katherine and Cape Pampas, the
sale of our Princess Marisol, Princess Veronica, Princess Pia, Princess Eva,
Princess Laura and Alianza G1 in 2003 and 2004 as well as the consolidation of
the results of UABL following the acquisition of the remaining 50% equity
interest in that company, partially counter-balanced by the negative effect
produced by the periods out of service experienced by our vessels Alianza G-3
and Alianza Campana.
Financial expense. Financial expense decreased by about 1%, to $16.1
million in 2004 as compared to $16.2 million in the equivalent 2003 period. This
variation is primarily attributable to the lower level of financial debt and
interest rates on our ocean vessels and related interest costs, offset by an
increase of $1.7 million in interest expenses attributable to the effect of the
consolidation of UABL as our subsidiary.
Financial gain (loss) on extinguishment of debt. During 2004, we
recognized a gain of $1.3 million from repurchases of our Prior Notes as
compared with a gain of $1.8 million during 2003. Also during the fourth quarter
of 2004, we paid $6.4 million in expenses in connection with our tender offer
and repurchase of debts of our Prior Notes.
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.
As of December 31, 2005, we had total indebtedness of $211.2 million,
consisting of $180.0 million due under the Notes and the indebtedness of our
subsidiary UABL, as follows: $19.8 million in a senior loan facility with IFC
and $9.7 million with other lenders plus accrued interest of $1.7 million.
During 2005, we partially funded the construction of some of the vessels
being built for UP Offshore in Brazil. The total outstanding for this financing
on December 31, 2005 was $13.7 million. This amount was repaid by UP Offshore to
us on February 14, 2006.
At December 31, 2005, we had cash and cash equivalents on hand of $7.9
million. In addition, we had $3.6 million in current restricted cash.
Operating Activities
In 2005, we generated $16.7 million in cash flow from operations compared
to $23.1 million in 2004. Net income for the year ended December 31, 2005 was
$14.6 million as compared to $5.1 million in 2004, an increase of $9.5 million.
Net cash provided by operating activities consists of our net income
increased by non-cash expenses, such as depreciation and amortization of
deferred charges, and adjusted by changes in working capital and expenditures
for drydocking.
Investing Activities
During the year ended December 31, 2005, we disbursed $12.7 million in the
purchase of pushboats, river barges and additional equipments; $28.1 million in
the purchase of the passenger vessels, towards the refurbishment of the New
Flamenco and recertification of the Grand Victoria and $10.6 million in the
purchase of Miranda I, which we paid partially with funds available in
restricted cash. Also we received net proceeds of $37.9 million from the
proceeds of the Cape Pampas sale.
Financing Activities
Net cash provided by financing activities was $6.4 million during the year
2005, compared to net cash provided by financing activities of $37.8 million
during 2004. The decrease in cash provided by financing activities in this
period is mainly attributable to the repayments of principal of our financial
debt made during 2005 and the retirement of minority interest in our subsidiary
Ultracape (Holdings) Ltd. partially offset with the application of $29.2 million
of restricted cash to the purchase of the two passenger vessels and one product
tanker, and $7.5 million disbursed from IFC and KfW which is the remainder of
the $30.0 million loan granted to UABL in 2002. Also, on December 28, 2005 we
drew the first $3.0 million from the $10.0 million facility provided by IFC to
UABL Paraguay.
Tabular Disclosure of Contractual Obligations
The following schedule summarizes our contractual obligations and
commercial commitments as of December 31, 2005, which includes both principal
and interest payments:
Payments due by period
------------------------------------------------------------------
Less than One to Four to After
Contractual Obligations Total one year three years five years five years
------------------------------------------------------------------
1. Long - Term Debt Obligations
- International Finance Corporation (a)
* Tranche A (UABL Barges) $ 12,857 $ 2,143 $ 4,286 $ 4,286 $ 2,142
* Tranche B (UABL Barges) 4,000 1,000 2,000 1,000 -
* UABL Paraguay 3,000 750 1,500 750 -
- KFW (a) 8,000 2,000 4,000 2,000
- Citibank NA (a) 988 - 494 494 -
- Transamerica Leasing Inc. (a) 706 706 - - -
9% First Preferred Ship Mortgage Notes due 2014 180,000 - - - 180,000
--------- --------- --------- --------- ---------
Total contractual cash obligations 209,551 6,599 12,280 8,530 182,142
Estimated interest on contractual debt obligation (b)
- International Finance Corporation
* Tranche A (UABL Barges) 3,569 1,092 1,541 807 129
* Tranche B (UABL Barges) 745 321 366 58 -
* UABL Paraguay 655 277 326 52 -
- KFW 1,491 621 746 124 -
- Citibank NA 192 59 96 37 -
- Transamerica Leasing Inc. 42 42 - - -
- 9% First Preferred Ship Mortgage Notes due 2014 145,800 16,200 32,400 32,400 64,800
--------- --------- --------- --------- ---------
Total estimated interest on contractual obligation 152,494 18,612 35,475 33,478 64,929
2. Purchase obligations
- Fuel supply contract (c) 18,000 18,000
3. Other Long-Term Liabilities Reflected on the Company's
Balance Sheet under GAAP of the primary financial
statements
- Minority interest subject to put rights
4,898 4,898
--------- --------- --------- --------- ---------
Grand total $ 385,126 $ 43,394 $ 47,755 $ 42,008 $ 251,969
========= ========= ========= ========= =========
(a) Represents principal amounts due on outstanding debt obligations, current
and long-term, as of December 31, 2005, i.e. a nominal rate of 4.67% per
annum. Amount does not include interest payments.
(b) All interest expense calculations begin January 1, 2006 and end on the
respective maturity dates. The LIBOR rates are the rates in effect as of
December 31, 2005.
The interest rate and term assumptions used in these calculations are
contained in the following table:
Obligation Principal at December 31, 2005 From To Interest Rate
------------------------------------------------------------------------------------------------------------------------------
International Finance Corporation
* Tranche A (UABL Barges) 12,858 1/1/2006 12/15/2011 8.42%
* Tranche B (UABL Barges) 4,000 1/1/2006 12/15/2009 8.17%
* UABL Paraguay 3,000 1/1/2006 12/15/2009 9.71%
KfW 8,000 1/1/2006 12/15/2009 8.17%
Citibank NA 988 1/1/2006 12/31/2010 5.90%
Transamerica Leasing Inc. 706 1/1/2006 5/31/2006 8.00%
9% First Preferred ship Montages Notes due 2014 180,000 1/1/2006 11/24/2014 9.00%
For additional disclosures regarding these obligations and commitments, see Note
6 to the accompanying financial statements.
(c) UABL Paraguay S.A., a subsidiary in our River Business, entered into a
fuel supply contract with Repsol-YPF. For the calculations we use the
market prices as of December 31, 2005.
We believe, based upon current levels of operation, 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 of, 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 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.
Future Capital Requirements
Our near-term cash requirements are related primarily to funding
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.
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. Revenue from our passenger vessels business is recognized upon
completion of voyages, together with revenues from on board and other
activities.
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 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. 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).
Listed below are the estimated useful lives of vessels and equipment:
Useful lives (in
years)
----------------------
Ocean-going vessels 24
Passenger vessels 45
River barges and pushboats 35
Furniture and equipment 5 to 10
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.
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 vessels are deferred and amortized 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 to income when the vessel is sold.
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 generally 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. Insurance claims receivable were approximately $6.2 million and $10.3
million as of December 31, 2005 and 2004, respectively.
Recent accounting pronouncements
SFAS No. 154 "Accounting Changes and Error Corrections" provides guidance
on the accounting for and reporting of accounting changes and error corrections.
It establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principle in the absence of explicit
transition requirements specific to the newly adopted accounting principle. It
also provides guidance for determining whether retrospective application of a
change in accounting principle is impracticable and for reporting a change when
retrospective application is impracticable.
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 COA's, freight rates for
voyage charters are generally sensitive to the price of a ship's fuel. 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
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 approximately $5.9 million of our
total debt as of December 31, 2005. Long term variable rate debt composed
approximately $23.0 million of our total debt as of December 31, 2005. Our
variable rate debt had an average interest rate of approximately 8.25% as of
December 31, 2005. A 1.0% increase in interest rates on $28.9 million of debt
would cause our interest expense to increase on average approximately $0.3
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. dollar 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 rate and, as a result, we could incur unanticipated future
losses.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this Form 6-K 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 shipping industry trends, including charter rates and factors
affecting 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 general market conditions and trends, including charter rates,
vessel values and factors affecting vessel supply and demand;
o changes in governmental rules and regulations or actions taken by
regulatory authorities;
o potential liability from future litigation; and
o other factors, many of which are not in our control.
Exhibit 2
---------
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
Consolidated Financial Statements for the years
ended December 31, 2005, 2004 and 2003
with Report of Independent Registered Public Accounting Firm
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
CONTENTS PAGE
o Report of Independent Registered Public Accounting Firm -
o Financial statements
- Consolidated balance sheets as of December
31, 2005 and 2004 - 1 -
- Consolidated statements of operations for the
years ended December 31, 2005, 2004 and 2003 - 2 -
- Consolidated statements of shareholders'
equity for the years ended December 31, 2005,
2004 and 2003 - 3 -
- Consolidated statements of cash flows for the
years ended December 31, 2005, 2004 and 2003 - 4 -
- Notes to consolidated financial statements
for the years ended December 31, 2005, 2004
and 2003 - 5 -
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, 2005 and 2004, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2005. 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, 2005 and 2004, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
Buenos Aires, Argentina PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.
March 17, 2006 Member of Ernst & Young Global
EZEQUIEL A. CALCIATI
Partner
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2004
(stated in thousands of US dollars, except par value and share amounts)
December 31,
------------------------------------
2005 2004
-------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,914 $ 11,602
Restricted cash 3,638 2,975
Accounts receivable, net of allowance for doubtful
accounts of $324 and $739 in 2005 and 2004, respectively 9,017 6,385
Receivables from related parties 17,944 3,933
Marine and river operating supplies 3,547 2,194
Prepaid expenses 3,239 4,101
Other receivables 4,997 5,941
-------------- ---------------
Total current assets 50,296 37,131
-------------- ---------------
NONCURRENT ASSETS
Other receivables 7,330 7,944
Receivables from related parties 1,995 2,540
Restricted cash 68 30,010
Vessels and equipment, net 182,069 160,535
Dry dock 12,743 11,716
Investment in affiliates 15,698 15,607
Other assets 7,548 8,165
-------------- ---------------
Total noncurrent assets 227,451 236,517
-------------- ---------------
Total assets $ 277,747 $ 273,648
============== ===============
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,696 $ 11,487
Payables to related parties 2,008 768
Current portion of long-term financial debt 8,322 10,108
Other payables 917 1,327
-------------- ---------------
Total current liabilities 23,943 23,690
-------------- ---------------
NONCURRENT LIABILITIES
Long-term notes 180,000 180,000
Financial debt, net of current portion 22,953 29,430
Other payables - 399
-------------- ---------------
Total noncurrent liabilities 202,953 209,829
-------------- ---------------
Total liabilities 226,896 233,519
-------------- ---------------
MINORITY INTEREST 2,479 6,468
-------------- ---------------
MINORITY INTEREST SUBJECT TO PUT RIGHTS 4,898 4,751
-------------- ---------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: authorized shares 2,134,452,
issued and outstanding 2,109,240;
537,144 shares held in treasury 21 21
Additional paid-in capital 68,884 68,884
Treasury stock (20,332) (20,332)
Accumulated other comprehensive income 196 200
Accumulated deficit (5,295) (19,863)
-------------- ---------------
Total shareholders' equity 43,474 28,910
-------------- ---------------
Total liabilities, minority interests and shareholders' equity $ 277,747 $ 273,648
============== ===============
The accompanying notes are an integral part of
these consolidated financial statements.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(stated in thousands of US dollars, except share and per share data)
Year ended December 31,
------------------------------------------------------------
2005 2004 2003
------------------ ------------------ ------------------
REVENUES
Revenues form third parties $ 123,385 $ 89,956 $ 62,996
Revenues from related parties 1,976 5,204 12,237
------------------ ------------------ ------------------
Total revenues 125,361 95,160 75,233
------------------ ------------------ ------------------
OPERATING EXPENSES (1)
Voyage expenses (33,827) (15,923) (12,644)
Running costs (39,234) (24,892) (28,659)
Amortization of drydocking (6,839) (5,195) (7,232)
Depreciation of vessels and equipment (14,494) (13,493) (15,335)
Management fees to related parties (2,118) (1,513) (2,863)
Administrative and commercial expenses (7,617) (7,494) (4,955)
Other operating income (expenses) 22,021 784 (2,124)
------------------ ------------------ ------------------
(82,108) (67,726) (73,812)
------------------ ------------------ ------------------
Operating profit 43,253 27,434 1,421
------------------ ------------------ ------------------
OTHER INCOME (EXPENSES)
Financial expense (19,141) (16,134) (16,207)
Financial gain on extinguishment of debt - 1,344 1,782
Financial loss on extinguishment of debt - (6,422) -
Financial income 1,152 119 201
Investment in affiliates (497) 406 3,140
Other income (expenses) 384 174 (337)
------------------ ------------------ ------------------
Total other expenses (18,102) (20,513) (11,421)
------------------ ------------------ ------------------
Income (loss) before income taxes and minority interest 25,151 6,921 (10,000)
Income taxes (786) (642) (185)
Minority interest (9,797) (1,140) (1,333)
------------------ ------------------ ------------------
Net income (loss) $ 14,568 $ 5,139 $ (11,518)
================== ================== ==================
Net income (loss) per share, basic and diluted $ 9.27 $ 3.27 $ (7.33)
Weighted average number of shares, basic and diluted 1,572,096 1,572,096 1,572,096
(1) In addition to management fees to related parties, operating expenses
included $3,983, $1,757 and $6,833 in 2005, 2004, and 2003,
respectively, from related parties.
The accompanying notes are an integral part of
these consolidated financial statements.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(stated in thousands of US dollars)
Additional Accumulated other
Common paid-in Treasury comprehensive Accumulated
Balance stock capital stock income deficit Total
------------------------------------ ---------- ---------- ---------- ------------- ------------- -----------
December 31, 2002 $ 21 $ 68,884 $ (20,332) $ - $ (13,484) $ 35,089
- Change in value of derivatives - - - 222 - 222
- Net loss - - - - (11,518) 11,518)
--------- ---------- ----------- ------------- ------------- ------------
Total comprehensive loss - - - - - 11,296)
December 31, 2003 21 68,884 (20,332) 222 (25,002) 23,793
Comprehensive income:
- Changes in value of derivatives - - - (22) - (22)
- Net income - - - - 5,139 5,139
--------- ---------- ----------- ------------- ------------- ------------
Total comprehensive income - - - (22) 5,139 5,117
--------- ---------- ----------- ------------- ------------- ------------
December 31, 2004 21 68,884 (20,332) 200 (19,863) 28,910
Comprehensive income:
- Changes in value of derivatives - - - (4) - (4)
- Net income - - - - 14,568 14,568
--------- ---------- ----------- ------------- ------------- ------------
Total comprehensive income - - - (4) 14,568 14,564
--------- ---------- ----------- ------------- ------------- ------------
December 31, 2005 $ 21 $ 68,884 $ (20,332) $ 196 $ (5,295) $ 43,474
========= ========== =========== ============= ============= ============
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, 2005, 2004 AND 2003
(stated in thousands of US dollars)
Year ended December 31,
----------------------------------------------------
2005 2004 2003
----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 14,568 $ 5,139 $ (11,518)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation of vessels and equipment 14,494 13,493 15,335
Amortization of drydocking 6,839 5,195 7,232
Expenditures for drydocking (8,427) (11,139) (3,580)
Note issuance expenses amortization 1,037 568 585
Minority interest in equity of subsidiaries 9,797 1,140 1,333
Financial gain on extinguishment of debt - (1,344) (1,782)
Financial loss on extinguishment of debt - 6,422 -
(Gain) loss on vessels disposal (21,867) (41) 3,686
Net (gain) loss from investment in affiliates 497 (406) (3,140)
Allowance for doubtful accounts (415) 355 882
Changes in assets and liabilities, net of the effects
from purchase of UABL Limited and UABL
Terminals companies in 2004:
(Increase) decrease in assets:
Accounts receivable (2,217) 5,365 1,028
Receivable from related parties (905) 3,783 5,518
Marine and river operating supplies (1,353) 405 583
Prepaid expenses 862 (994) 725
Other receivables 2,114 (318) (568)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,209 1,801 1,404
Payables to related parties 1,240 (3,498) 1,387
Other payables (583) (251) (363)
Other (219) (2,546) (145)
----------------------------------------------------
Net cash provided by operating activities 16,671 23,129 18,602
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment (51,461) (59,934) (17,089)
Increase in loan to affiliate (13,141) - (1,750)
Proceeds from disposals of vessels 37,888 6,430 14,423
Purchase of UABL and UABL Terminals companies
net of cash acquired - (1,713) -
Investment in affiliates - (1,542) -
Other (11) (797) -
----------------------------------------------------
Net cash used in investing activities (26,725) (57,556) (4,416)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (19,354) (39,149) (4,946)
Decrease (increase) in restricted cash 29,279 (13,333) (15,954)
Proceeds from long-term debt 10,500 27,700 -
Redemption of minority interest (13,400) - -
Proceeds from 2014 Senior Notes - 180,000 -
Payments of deferred financing costs under
2014 Senior Notes - (6,655) -
Minority interest in equity of subsidiaries - 17,959 16,192
Payments of 2008 Senior Notes - (131,502) (4,754)
Proceeds from issuance of redeemable preference
shares of subsidiary - 3,000 -
Funds used in acquisition of treasury stock - - (1,200)
Other (659) (239) -
----------------------------------------------------
Net cash provided by (used in) financing activities 6,366 37,781 (10,662)
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,688) 3,354 3,524
Cash and cash equivalents at the beginning of year $ 11,602 $ 8,248 $ 4,724
----------------------------------------------------
Cash and cash equivalents at the end of year $ 7,914 $ 11,602 $ 8,248
====================================================
The accompanying notes
are an integral part of these consolidated financial statements.
1. CORPORATE ORGANIZATION
Ultrapetrol (Bahamas) Limited ("Ultrapetrol Bahamas", "the Company", "us"
or "we") is a company organized and registered as a Bahamas Corporation since
December 1997.
The Company is a diversified ocean and river transportation company
involved in the carriage of dry and liquid cargoes as well as passengers. 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 Sea. In our River Business we are an 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 addition we
made an investment in an offshore services transportation company, which has
commenced operations in the third quarter of 2005.
On June 28, 2001, the Company issued 138,443 new shares for $5,295 which
were totally subscribed by Inversiones Los Avellanos SA, one of the Company's
original shareholders and was paid $3,297 in 2001 and $1,104 in 2002 and the
balance are payable in July 2006. At December 31, 2005 and 2004 the outstanding
payment was $894 and was shown as a reduction of shareholders' equity. The
Company has an option to repurchase 25,212 of its shares for a total price of
$894 from Inversiones Los Avellanos S.A. until July 2006.
At December 31, 2005 the shareholders of Ultrapetrol Bahamas are Solimar
Holdings Ltd., Inversiones Los Avellanos S.A., Hazels (Bahamas) Investments Inc.
(a wholly owned subsidiary of Inversiones Los Avellanos S.A.) and Avemar
Holdings (Bahamas), a wholly owned subsidiary of the Company (see Note 12), in
the proportion of 46.66%, 24.43%, 3.74% and 25.17%, respectively. Since Avemar
Holdings (Bahamas) granted an irrevocable proxy to Inversiones Los Avellanos
S.A. in full for all of its voting powers related to its interest in the
Company, at December 31, 2005, Inversiones Los Avellanos S.A. held directly and
indirectly 53.34% of the Company's voting rights. However, pursuant to a
shareholder agreement between Solimar Holdings Ltd. and Inversiones Los
Avellanos S.A., both shareholders hold sufficient participating rights in the
operation of the Company that results in neither shareholder having control of
the Company.
2. SUMMARY OF 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 consolidation. Investments in 50% or less owned
affiliates, in which the Company exercises significant influence, are
accounted for by the equity method.
The consolidated financial statements for 2004 and 2003 have been
reclassified to conform with the 2005 presentation of certain items.
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 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. Revenue from our
passenger business is recognized upon completion of voyages, together
with revenues from on board and other activities.
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 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 SFAS No. 52, Foreign Currency Translation ("SFAS 52").
Assets and liabilities 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. Translation gains and losses
resulting from changes in exchange rates for each year are included in
the consolidated statements of operations.
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
loan retention account. The amount deposited is 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 that will fall due on the repayment date.
At December 31, 2004 the noncurrent restricted cash included $30,000
from the proceeds of the issuance of the 9% First Preferred Ship
Mortgage Notes due 2014. This amount was released during 2005 in
connection with the acquisition by the Company of additional vessels
(see Notes 5 and 6).
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, 2005, were as follow:
2005 2004 2003
---- ---- ----
Balance at January 1 $ 739 $1,142 $810
Provision 290 679 882
Recovery (44) (324) -
Amounts written off (661) (758) (550)
------ ------ -------
Balance at December 31 $ 324 $ 739 $1,142
====== ====== ======
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
generally 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 the Company is a member. Insurance claims receivable,
included in other receivables in the accompanying balance sheets,
amounts $6,152 and $10,318 at December 31, 2005 and 2004,
respectively.
i) Marine and river operating supplies
Such amounts consist 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 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. 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).
Listed below are the estimated useful lives of vessels and equipment:
Useful lives
(in years)
---------------------
Ocean-going vessels 24
Passenger vessels 45
River barges and push boats 35
Furniture and equipment 5 to 10
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.
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 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 to
income when the vessel is sold.
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, 2005 and 2004 includes our interest in 50% of Puertos del Sur S.A.
and OTS S.A., 49% in Maritima Sipsa S.A. and 27.78% in UP Offshore
(Bahamas).
The Company capitalized interest on the amount invested in UP Offshore
(Bahamas) Ltd. (Up Offshore) during the period that UP Offshore had
its vessels under construction and until its planned principal
operations commenced. Interest capitalized amounted to $557 and $685
in 2005 and 2004, respectively.
m) Other assets
This account includes costs incurred to issue debt net of amortization
costs and which are being amortized over the debts' term.
n) Accounts payable and accrued expenses
Accounts payable and accrued expenses included in current liabilities
as of December 31, 2005 and 2004 consist of insurance payables,
operating expenses, customers advances collected, among others.
o) Comprehensive Income (Loss)
SFAS 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.
p) 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 a 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
SFAS No.133, such financial instruments are marked-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.
There are no forward fuel purchases outstanding at December 31, 2005.
q) Net income per share
Basic net income per share is computed by dividing the net income by
the weighted average number of common shares outstanding during the
year net of the shares owned by our wholly-owned subsidiary, Avemar
Holdings (Bahamas) Limited. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts
to issue common stock result in the issuance of such stock. The
Company has no outstanding securities or other similar contracts which
would dilute net income per share.
r) Fair value of financial instruments
The following methods and assumptions were used to estimate the fair
value of financial instruments included in the following categories:
- Cash and cash equivalents and restricted cash: the carrying
amounts reported in the balance sheet approximate fair value due
to the short-term nature of such instruments.
- Long-term notes and financial debt: the carrying amounts reported
in the balance sheet of variable rate borrowings approximate fair
value as the interest rates either adjust based on LIBOR. In the
case of fixed rate borrowings, fair value approximates the
estimated quoted market prices.
The following table presents the carrying value and fair value of the
financial instruments at December 31.
2005 2004
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Cash and cash equivalents $ 7,914 $ 7,914 $ 11,602 $ 11,602
Restricted cash 3,638 3,638 2,975 2,975
Liabilities
Long-term notes (Note 6) $ 180,000 $ 175,500 $ 180,000 $ 180,000
Financial debt (Note 6) 31,275 31,275 39,538 39,538
s) Concentration of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and cash equivalents, restricted cash, investments, accounts
receivable, receivables from affiliates and other receivables. The
Company places its cash and cash equivalents with high credit
qualified financial institutions. The Company performs periodic
evaluations of the relative credit standing for those financial
institutions. Concentrations of credit risk with respect to accounts
receivable are limited due to the number of entities comprising the
Company's customer base and their credit rating.
The Company does not obtain rights to collateral to reduce its credit
risk.
t) Other operating income (expense)
For the three years ended December 31, 2005, this account includes:
2005 2004 2003
---- ---- ----
Gain (Loss) on vessels disposal $ 21,867 $ 41 $(3,686)
Claims against insurance companies - 743 1,562
Other 154 - -
-------- -------- --------
$ 22,021 $784 $(2,124)
======== ======== ========
u) Income taxes
Ultrapetrol Bahamas accounts for income taxes under the liability
method in accordance with SFAS No. 109 "Accounting for Income Taxes".
Under this method, deferred tax 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. Diferred tax assets are recognized for all temporary items and an
offsetting valuation allowance is recorded to the extent that it is
not more likely than not that the asset will be realized.
v) Recent accounting pronouncements
SFAS No. 154 "Accounting Changes and Error Corrections" provides
guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes, unless impracticable, retrospective
application as the required method for reporting a change in
accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. It
also provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable and
for reporting a change when retrospective application is
impracticable.
3. NEW OPERATIONS AND ORGANIZATION OF NEW AFFILIATES
a) 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"). In
addition, it acquired from the same vendor a fleet of 50 river barges
and 7 push boats, which UABL Limited and its subsidiaries previously
leased from ACBL, certain receivables and liabilities.
UABL operates a river transportation business on the Parana, Paraguay
and Uruguay rivers in Argentina, Bolivia, Brazil, Paraguay and
Uruguay. As a result of the acquisition, the Company is the leading
barge transportation company in South America and has consolidated its
position in the river business through the Hidrovia region. The
results of UABL's operations have been consolidated in the
consolidated financial statements since the date of acquisition.
The aggregate purchase price was $26,100, including $24,100 in cash
and 2,000 shares of ACBL acquired by the Company for $2,000 shortly
before this transaction.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed and allocation of purchase price at
the date of acquisition.
Current assets $ 10,472
Property and equipment:
o Fair value $ 68,627
o Re-allocation of purchase credit (34,497) 34,130
--------- --------
Other noncurrent assets 3,967
--------
Total assets acquired 48,569
--------
Current liabilities (8,592)
Noncurrent liabilities (13,877)
--------
Total liabilities assumed (22,469)
--------
Total purchase price $ 26,100
========
If the transaction had been consummated on January 1, 2003 the
Company's unaudited pro forma revenues and net income (loss) for the
years ended December 31, 2004 and 2003, 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)
2004 2003
---- ----
Revenues $ 103,473 $ 111,131
Net income (loss) $ 5,591 $ (6,543)
Basic and diluted earnings (loss) per share $ 3.56 $ (4.16)
b) UP Offshore (Bahamas) Ltd. and subsidiaries
In April 2002, the Company formed a company in the Bahamas, named UP
Offshore (Bahamas) Ltd (UP Offshore). The Company has a 27.78%
interest in UP Offshore. UP Offshore has contracted for the
construction of six Platform Supply Vessels (PSVs) whose deliveries
commenced in the second quarter of 2005. At December 31, 2005 the
amount invested in UP Offshore was $12,500. The Company has not
guaranteed any debt of UP Offshore.
UP Offshore was a restricted subsidiary under the indenture governing
the Notes due 2008, since the Company had the right to control its
Board of Directors. Accordingly, the Company consolidated UP Offshore'
financial statements with its financial statements for 2003 and 2002.
In connection with the discharge of the indenture governing the Notes
due 2008, on November 24, 2004, the Company relinquished control of
the Board of Directors of UP Offshore. Accordingly, UP Offshore is
accounted for by the equity method since such date. At December 31,
2005 and 2004, the Company's investment in UP Offshore was $13,096 and
$13,638, respectively and is presented in investment in affiliates in
the consolidated balance sheets.
c) UP River (Holdings) Ltd.
On June 2003, the Company sold to the International Finance
Corporation (IFC) a 7.14% interest in UP River (Holdings) Ltd.
Also, the Company agreed to pay to the 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, the IFC paid
to the Company $5,000.
During the period beginning on December 31, 2009 and ending on
December 31, 2010 the IFC will be able to exercise an option to put
all of the shares of UP River (Holdings) Ltd. then owned by it to UP
River (Holdings) Ltd. for an amount in cash equal to $5,000 minus the
amount of any cash received by IFC in respect of ownership of such
shares (whether by dividend, proceeds from Charter Party Payments or
otherwise) plus interest thereon, compounded annually calculated as a
rate equal to LIBOR plus 200 basic points.
Also, Ultrapetrol shall have the right, exercisable from time to time
to purchase from the IFC all of the shares of UP River (Holdings) Ltd.
then owned by IFC. The purchase price for the shares to be purchased,
which shall be an amount sufficient to result in a realized internal
return rate to the IFC on such shares equal to 18% per annum.
Upon the occurrence of an Ultrapetrol IPO the IFC has 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, gives 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,
gives the IFC a realized internal return rate of 12% per annum on its
investment in the UP River (Holdings) LTD's shares.
At December 31, 2005 and 2004, the Company presents $4,898 and $4,751,
respectively, 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.
4. DRY DOCK
The capitalized amounts in dry dock at December 31, 2005 and 2004 were as
follows:
2005 2004
--------- ----------
Original book value $ 26,257 $ 28,196
Accumulated amortization (13,514) (16,480)
--------- ----------
Net book value $ 12,743 $ 11,716
========= ==========
5. VESSELS AND EQUIPMENT, NET
The capitalized cost of all vessels and equipment and the related
accumulated depreciation at December 31, 2005 and 2004 were as follows:
2005 2004
----------------------------
Original book value
----------------------------
Ocean-going vessels $ 126,776 $ 134,825
River barges and pushboats 116,054 105,426
Passenger vessels 28,105 -
Furniture and equipment 6,173 4,672
Land and operating base 6,525 4,758
Prepayment to suppliers - 1,242
---------- ----------
Total original book value 283,633 250,923
Accumulated depreciation (101,564) (90,388)
---------- ----------
Net book value $ 182,069 $ 160,535
========== ==========
At December 31, 2005 the net book value of the assets pledged as a
guarantee of the debt was approximately $164,659.
During 2004 and 2003 the Company sold certain older single hull tankers
serving the regional trade of Argentina and Brazil. A gain of $41 in 2004
and a loss of $3,686 in 2003 relating to disposal of such vessels are
presented in other operating income (expense).
In March 2005, the Company entered into an agreement to sell its vessel,
Cape Pampas for a total price of approximately $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.
On April 29, 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.
On April 28, 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.
On October 7, 2005 the Company purchased 11 dry barges from our river
subsidiary UABL International S.A. $2,900 was funded by funds deposited
available 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.
In January 2005 the Company purchased 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.
6. LONG-TERM DEBT AND OTHER FINANCIAL DEBT
10.5% First Preferred Ship Mortgage Notes due 2008
At December 31, 2003 the aggregating outstanding amount related with its
10.5% First Preferred Ship Mortgage Notes due 2008 ("Notes due 2008") 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 Notes due 2008.
9% First Preferred Ship Mortgage Notes due 2014
On November 24, 2004 the Company completed an 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 Notes due 2008, 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 issued 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.
At the time of the Offering, approximately $30,000, was deposited in an
Escrow Account, and classified as restricted cash, which was released in
connection with the acquisition by the Company of the vessels above
mentioned. To the extent that after December 31, 2005 amounts on deposit in
the Escrow Account exceed $1,000, the Company will be required to redeem as
much principal amount of Notes as can be redeemed with such amounts on
deposit at a redemption price equal to 101% of the principal amount of such
Notes together with accrued and unpaid interest thereon to the date of such
redemption.
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.
Early Extinguishment of Debt
In connection with the 2014 Senior Notes offering, the Company paid
$122,641 to redeem principal of its Notes due 2008. 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 on extinguishment of debt of
$1,344 and $1,782 in 2004 and 2003, respectively related to the repurchases
of its Notes due 2008.
Loan Agreement with Deutsche Schiffbank Aktiengesellschaft ("DSB")
On October 27, 2004, Braddock Shipping Inc. a 60% owned subsidiary
("Braddock"), entered into a $10 million loan agreement with DSB 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 is 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.
Loan Agreements with IFC and KfW entered into by UABL barges
On December 17, 2002, UABL Barges, a subsidiary in the river business,
entered into a loan agreement with the International Financial Corporation
(IFC) in an aggregate principal amount of $20,000.
This loan is divided into two tranches:
- Tranche A, amounting to $15,000, is payable in 14 semiannual
installments of $1,071 each, beginning on June 15, 2005 and ending on
December 15, 2011 and accrues interest at LIBOR plus 3.75% per annum,
and
- Tranche B, amounting to $5,000, is payable in 10 semiannual
installments of $500 each, beginning on June 15, 2005 and ending on
December 15, 2009 and accrues interest at LIBOR plus 3.50% per annum.
The aggregate outstanding principal balance of the loan was $16,858 and
$15,000 at December 31, 2005 and 2004, respectively.
In addition, on February 27, 2003, UABL Barges, a subsidiary in our river
business, entered into a loan agreement with Kreditanstalt fur Wiederaufbau
(KfW) in an aggregate principal amount of $10,000.
This loan is payable in 10 semiannual installments of $1,000 each,
beginning on June 15, 2005 and ending on December 15, 2009 and accrues
interest at LIBOR plus 3.50% per annum.
The aggregate outstanding principal balance of the loan was $8,000 and
$7,500 at December 31, 2005 and 2004, respectively.
Each of the IFC Loan and the KfW Loan is guaranteed by UABL Limited, the
parent of UABL Barges. Each loan is also secured by mortgages on existing
and future barges and push boats belonging to the subsidiaries of UABL
Limited and by a stock pledge of 100% of the stock of UABL Barges. Each
loan requires that at all times, the vessels pledged as security have a
fair market value of at least 175% of the then outstanding loan amount. The
Company's obligations under these loans are secured by 221 barges and 2
pushboats with a book value of $42,597 at December 31, 2005.
Each loan also contains certain restrictive covenants applicable to UABL
Barges, including, among other customary covenants and restrictions: a
minimum debt service coverage ratio not lower than 1.00; a limitation on
the incurrence of additional debt; a limitation on making expenditures for
assets; a prohibition on paying dividends or other distributions or
repurchasing, redeeming or otherwise acquiring its stock without the
consent of IFC or KfW, as applicable; a limitation on transactions with
affiliates; a limitation on selling, leasing, transferring, pledging or
disposing of its assets and a prohibition to enter into any derivative
transaction other than any for which the IFC is the transaction counter
party. Each loan also contains customary events of default. If an event of
default occurs and is continuing, IFC or KfW, as applicable, may require
that the entire amount of the applicable loan be immediately repaid in
full.
In addition, as guarantor of the loans, UABL Limited is subject to certain
restrictive covenants, including, among other customary covenants and
restrictions: a minimum consolidated debt service coverage ratio of 1.25
until June 15, 2005, and 1.5 thereafter; a maximum consolidated debt to
equity ratio of 1.0; a limitation on its or its subsidiaries incurrence of
indebtedness; a limitation on it or its subsidiaries making expenditures
for assets; a prohibition on its payment of dividends or other
distributions, or the purchase, redemption or other acquisition of its
shares of stock, unless the proposed distribution or payment is out of
retained earnings; a limitation on its and its subsidiaries ability to
enter into transactions with affiliates; and a limitation on its or its
subsidiaries selling, transferring, pledging or disposing of their
respective assets. Each loan also contains a limitation on changes of
control, including the sale or pledge by Ultrapetrol (Bahamas) Limited of
the stock it holds in the parent entities of UABL Limited.
Neither UABL Barges nor UABL Limited, nor any subsidiaries of UABL Limited,
will be a subsidiary guarantor of the 2014 Senior Notes. With IFC's and
KfW's consent, approximately $16,000 of barges owned by certain
subsidiaries of UABL Limited will be pledged as collateral to secure the
2014 Senior Notes.
During January 2006, UABL Paraguay S.A., a river subsidiary of the Company,
rolled over its fuel supply contract for another year that could be
considered as a "take or pay" contract. UABL Limited, the parent company of
UABL Paraguay S.A. and our river subsidiary guaranteed the compliance with
this contract and UABL S.A., a river subsidiary of the Company, mortgaged
its push boat "San Jose V" to secure such contract. These facts resulted in
the noncompliance with sections 16 (g) and (h) of the Guarantee Agreement
by UABL Limited in favor of IFC and KfW. On February 18, 2004 (for the
years 2003 and 2004) and on February 28, 2005 (for the years 2005 and
2006), the IFC signed a waiver to sections 16 (g) and (h) of the Guarantee
Agreement in order to allow UABL Paraguay S.A. to enter into the "take or
pay" fuel supply contract, allow UABL S.A. to mortgage its push boat "San
Jose V" as a security for the fuel supply contract and UABL Limited to
guarantee the compliance with this contract. On February 12, 2004, KfW
signed a waiver to sections 16 (g) and (h) of the Guarantee Agreement for
all the years.
At December 31, 2005 the UABL Limited's consolidated debt service coverage
ratio was 1.37.
On December 19, 2005, the IFC agreed to waive the requirement of Section 15
(i) of each of the guarantee agreement (that UABL Limited shall maintain a
guarantor debt service coverage ratio, calculated on a consolidated basis,
of not less than 1.5) provided that:
(a) From June 15, 2005 until the date of the second disbursement under the
UABL Paraguay loan agreement UABL Limited shall maintain a guarantor
debt service coverage ratio, calculated on a consolidated basis, of
not less than 1.35; and
(b) From after the date of the second disbursement under the UABL Paraguay
loan agreement UABL Limited shall maintain a guarantor debt service
coverage ratio, calculated on a consolidated basis, of not less than
1.5.
On January 24, 2006 KfW waived compliance with the provision of Section (j)
of the Guarantee Agreement, dated December 17, 2002, solely for the purpose
of allowing UABL Limited to maintain a guarantor debt service coverage
ratio, of 1.25, up to and including March 31, 2006 and not less than 1.5,
thereafter.
On September 1, 2005 the IFC granted a waiver to UABL Limited and its
subsidiaries for the purpose of allowing the companies to enter into
derivative transactions with others parties than the IFC to hedge against
fluctuations in fuel cost and for any not exceeding, individually or in the
aggregate, the equivalent of 1 year fuel consumption. On September 11,
2005, KfW granted a waiver to this matter.
Loan Agreement with IFC entered into by UABL Paraguay
On March 27, 2003, UABL Paraguay, a subsidiary in the river business,
entered into a loan agreement with the IFC in an aggregate principal amount
of $10,000.
This loan is divided into two tranches:
- Tranche A, amounting to $5,000 payable in 8 semiannual installments of
$625 each, beginning on June 15, 2006 and ending on December 15, 2009
which accrues interest at LIBOR plus 5.0% per annum, and
- Tranche B, amounting to $5,000 payable in 8 semiannual installments of
$625 each, beginning on June 15, 2006 and ending on December 15, 2009
which accrues interest at LIBOR plus 5.0% per annum.
At December 31, 2005 UABL Paraguay received the first disbursement and the
aggregate outstanding principal balance of the loan totaled $3,000.
The Company must pay a fee of 0.50% per annum on the unused portion of the
loan on a semiannual basis.
This loan is guaranteed by UABL Limited, the parent company of UABL
Paraguay, and UABL S.A., Sernova S.A. and UABL International S.A., all of
these related companies of UABL Paraguay, and secured by a second ranking
mortgage taken on existing barges and tugboats belonging to UABL Limited
and its subsidiaries. UABL Paraguay's obligations under these loans are
secured by 199 barges with a book value of $36,559 at December 31, 2005.
The funds deriving from such loans shall be used to (a) the acquisition and
refurbishing of barges, (b) the enlargement of existing barges to be used
by UABL Paraguay and its related companies and the construction of new
barges.
UABL Paraguay has agreed to keep a debt service coverage ratio not less
than 1 and a debt to equity ratio at not greater than 1.5 at all times.
UABL Limited assumed the same guaranties and covenants for this loan
afforded to the loan entered by UABL Barges with the IFC.
Balances of financial debt at December 31, 2005 and 2004:
Nominal value
-----------------------------
Financial Accrued
institution / other Due-year Current Noncurrent interest Total Average rate
--------------------------------------------------------------------------------------------------------------
Ultrapetrol Bahamas Notes 2014 $ - $ 180,000 $ 1,620 $ 181,620 9.00%
UABL Barges IFC Through 2011 2,143 10,715 51 12,909 Libor + 3.75%
UABL Barges IFC Through 2009 1,000 3,000 15 4,015 Libor + 3.50%
UABL Barges Kfw Through 2009 2,000 6,000 31 8,031 Libor + 3.50%
UABL Paraguay IFC Through 2009 750 2,250 6 3,006 Libor + 5.00%
UABL Paraguay Citibank N.A. Through 2010 - 988 - 988 Libor + 2.75%
UABL Limited Transamerica Leasing Inc. Through 2006 706 - - 706 8.00%
-------------------------------------------------
December 31, 2005 $ 6,599 $ 202,953 $ 1,723 $ 211,275
=================================================
December 31, 2004 $ 8,337 $ 209,430 $ 1,771 $ 219,538
=================================================
Aggregate annual future payments due on the long-term debt:
Year ending December 31:
2006 $ 8,322
2007 6,140
2008 6,140
2009 6,140
2010 2,390
Thereafter 182,143
---------------
Total $ 211,275
===============
7. 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.
Argentinian Customs Dispute
Ultrapetrol S.A., one of the Company's subsidiaries, was involved in a
customs dispute with the Customs Authority of Bahia Blanca in Argentina
over the alleged unauthorized operation of the Princess Pia in Argentina
during 2001. As a result, the Customs Authority of Bahia Blanca issued a
resolution claiming the equivalent to $1,610 as import taxes and the
equivalent to $1,610 as fines. In response to said resolution, on March 16,
2004, Ultrapetrol S.A. submitted an appeal with the Argentine Tax Court
arguing that it did not breach any applicable customs laws since the
Princess Pia operated within Argentine territory only during the periods in
which it was expressly authorized by the competent authorities. The
Argentine Tax Court entered judgments in favor of the Company. This
decision is final and binding upon the parties. Costs shall be borne by the
fiscal authorities.
Brazilian Customs Dispute
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 G3 and Alianza Campana (collectively, the
"Vessel") in Brazil during 2004. As a result, the Brazilian Customs tax
authorities commenced an administrative proceeding and applied the penalty
of apprehension of the Vessel which required the Vessel to remain in port
or within a maximum of five nautical miles from the Brazilian maritime
coast. The maximum custom penalty that could be imposed would be
confiscation of the Vessel, which is estimated by the Brazilian Customs tax
authorities to be valued at $4,560. On the same day that Ultrapetrol S.A.
presented its defense to this administrative proceeding, a writ of
injunction was filed on behalf of Ultrapetrol S.A. seeking a judicial
authorization allowing the return of the Vessel to Boias de Xareu, which is
located almost 20 nautical miles from the Brazilian maritime coast, so the
Vessel could resume its prior services. The preliminary injunction was
granted by the court in favor of Ultrapetrol S.A. on September 17, 2004,
conditioned on the weekly presentation of shipping letters describing the
location of the Vessel.
On February 22, 2005, the Company was notified of the decision that grounds
on which the tax assessment was based were ratified. In response to this
decision, on February 28, 2005, the Company presented a specific request
for clarification of the decision. The Company simultaneously presented a
petition to the Secretary of the Brazilian Tax Authorities requesting the
replacement of the confiscation penalty applied to the vessel by a penalty
corresponding to 1% (one percent) of the value of the vessel. Both of the
Company requests made on February 28, 2005 are still pending judgment.
Based upon the facts and circumstances of the case, including the fact that
the Vessel was operating under a specific written authorization officially
granted by the Brazilian government and the existing regulations, the
Company does not believe that the outcome of this matter should have an
adverse impact on its financial position or results of operations. In case
the Company is not successful on the merits, under applicable insurance
coverage, it could request from, the Vessel's P&I insurer, an indemnity
corresponding to the value of the Vessel.
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 $2.2 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
"Paraguay Customs Authority"). We believe that this finding is erroneous
and UABL has formally replied to the Paraguay Customs Authority contesting
all of the allegations upon which the finding was based. We are awaiting
the determination of the Paraguay Customs Authority in this matter. That
determination, if adverse to UABL, is subject to court review upon
application. We intend to vigorously contest any adverse determination in
court. 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.
Fuel supply contract of UABL Paraguay
In January 2006, 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
2006 and to make a minimum annual payment of approximately $18,000. The
price for the cubic meter is equivalent to the price in the international
market plus a margin.
Other
At December 31, 2005, we employed several land-based employees and
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.
We do not believe, any labor interruptions will disrupt our operations and
harm our financial performance.
8. 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 from sources
outside 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
Our subsidiaries Parfina S.A., Oceanpar S.A., UABL Paraguay, Parabal
S.A., Yataiti and Riverpar are subject to Paraguayan corporate income
taxes.
d) Argentina
Our subsidiaries Ultrapetrol S.A., UABL 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 tax on minimum
presumed income 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) Chile
Our subsidiary Corporacion de Navegacion Mundial S.A. (Cor.Na.Mu S.A.)
is subject to Chilean corporate income taxes.
f) The United States of America
Pursuant to Section 883 of the US tax code and the final regulations
thereunder which became effective for calendar year taxpayers
commencing January 1, 2005, a foreign corporation which meets the
definition of a "Qualified Foreign Corporation", will be exempt from
United States of America corporate income tax on its U.S. source
shipping income which, as defined, means 50% of the income derived by
a corporation from the international operation of a ship or ships and
the performance of certain services directly related thereto that is
attributable to the transport of cargo to or from U.S. ports.
A corporation will be considered a Qualified Foreign Corporation if
(i) its country of incorporation is a "Qualified Foreign Country"
which, as defined, is a foreign country that exempts US corporations
from income tax on the type(s) of shipping income (bareboat, time or
voyage income) for which exemption is being claimed (the
"Incorporation Test"), (ii) it meets the "Ultimate Owner Test", and
(iii) it files a US Federal income tax return (Form 1120F) to claim
the Section 883 exemption.
A foreign corporation meets the Ultimate Owner Test if (a) more than
50% of the value of its stock is ultimately owned for more than half
the days of the tax year by "Qualified Shareholders" which, as defined
includes an individual who is a tax resident of a Qualified Foreign
Country, an individual tax resident of a Qualified Foreign Country
that is a beneficiary of a pension plan administered in or by such
country or another Qualified Foreign Country, the government (or a
political subdivision or local authority) of a Qualified Foreign
Country and certain not-for-profit organizations organized in a
Qualified Foreign Country.
For the years ended December 31, 2004 and 2003, Princely and Ultracape
(Holdings) Ltd. satisfied the Incorporation Test because they were
incorporated in Panama and Bahamas, respectively, each of which has
been recognized by the U.S. tax authorities as a Qualified Foreign
Country as confirmed by Revenue Ruling 2001-48.
For the tax year 2005, since neither Princely and Ultracape earned any
U.S. source shipping income, each will file a U.S. tax return on IRS
Form 1120F claiming exemption from tax on such basis.
The provision for income taxes (which includes TOMPI) is comprised of:
For the year ended December 31,
Income tax expense 2005 2004 2003
------- ------- -------
Current $178 $570 $108
Deferred 608 72 77
------- ------- -------
$786 $642 $185
======= ======= =======
Ultrapetrol's pre-tax income for the three years ended December 31,
2005 was taxed in foreign jurisdictions (principally 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,
-------------------------------
2005 2004 2003
--------- -------- ---------
Pre-tax income (loss) $ 25,151 $ 6,921 $(10,000)
Sources not subject to income tax
(tax exempt income) (23,480) (7,468) 5,271
--------- -------- ---------
1,671 (547) (4,729)
Statutory tax rate 35% 35% 35%
--------- -------- ---------
Tax expense (benefit) at statutory tax rate 585 (192) (1,655)
Decrease in valuation allowance - - (33)
Rate differential (360) - -
Effects of foreign exchange changes related
to Argentine subsidiary - 527 1,873
Others 561 307 -
--------- -------- ---------
Income tax provision $ 786 $ 642 $ 185
========= ======== =========
At December 31, 2005, Argentine subsidiaries had a consolidated credit
related to TOMPI of $1,514 which expires $2 in 2009, $260 in 2010,
$239 in 2011, $322 in 2012, $174 in 2013, $244 in 2014 and $273 in
2015.
At December 31, 2005, Argentine subsidiaries had accumulated tax loss
carryforwards ("NOLs") for a consolidated total of $317 that expire
$46 in 2006, $189 in 2009 and $82 in 2010. The use of the NOLs will
depend upon future taxable income in Argentina.
At December 31,
---------------
2005 2004
---- ----
Deferred tax assets
NOLs $ 110 $886
------- -------
TOMPI credit 1,514 1,250
Other, net 100 149
Total deferred assets $ 1,724 $2,285
------- -------
Deferred tax liabilities
Vessels and equipment 826 793
Dry dock 269 519
------- -------
Total deferred liabilities $ 1,095 $ 1,312
------- -------
Net deferred tax assets (liabilities) $ 629 $ 973
======= =======
9. RELATED PARTY TRANSACTIONS
At December 31, 2005 and 2004, the balances of receivables from related
parties, were as follows:
At December 31,
---------------
2005 2004
-------- --------
Current:
- Ravenscroft Shipping Inc. $ 2,574 $ 2,533
- UP Offshore and its subsidiaries (1) 13,726 76
- Puerto del Sur S.A. 1,612 -
- Maritima Sipsa S.A. 16 754
- Comintra - 250
- Oceanmarine - 204
- Other 16 116
-------- --------
$17,944 $ 3,933
======== ========
(1) This loan accrues 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.
At December 31,
---------------------
2005 2004
------ ------
Noncurrent:
- OTS S.A $ -- $ 260
- Puerto del Sur S.A. (1) 1,995 2,280
------ ------
$1,995 $2,540
====== ======
(1) This loan accrues interest at a nominal interest rate of 3% per year,
payable annually. The principal will be repaid in 8 equal annual
installments, beginning on June 30, 2006.
At December 31, 2005 and 2004 the balances of current payables to related
parties were as follows:
At December 31,
--------------------
2005 2004
------ ------
- Ravenscroft Shipping Inc. $2,008 $ 587
- OTS S.A -- 146
- Other -- 35
------ ------
$2,008 $ 768
====== ======
For the three years ended December 31, 2005, the revenues derived from
related parties were as follows:
2005 2004 2003
------- ------- -------
- Maritima Sipsa S.A. (1) $ 1,976 $ 2,467 $ 1,953
- UABL and its subsidiaries (2) -- 2,737 10,284
------- ------- -------
$ 1,976 $ 5,204 $12,237
======= ======= =======
(1) Sale and repurchase of vessel Princess Marina:
In March 2003 the Company entered into certain transactions to sell,
and repurchase in March 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 consolidated basis
at the time of execution. The loan is repaid to the Company on a
quarterly basis over a three-year period ending in June 2006, when the
vessel will be delivered to the Company. The transaction was
recognized in the Company's statements of operations as a lease,
reflecting quarterly payments as charter revenues for $1,976, $2,467
and $1,953 in 2005, 2004 and 2003, respectively, while the vessel
remains presented in the accompanying balance sheets as an asset.
(2) 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 a consolidated bases. Therefore, these transactions
have been eliminated in the consolidated financial statements. Prior
to acquisition, the equity method was used.
Management fees to related parties
For the three years ended December 31, 2005, management fees expensed to
these related parties for such services amounted to:
2005 2004 2003
------ ------ ------
Oceanmarine (1) $ 620 $ 680 $1,215
Ravenscroft (2) 1,498 833 1,648
------ ------ ------
Total $2,118 $1,513 $2,863
====== ====== ======
(1) The Company through certain of its subsidiaries has contracted with
Oceanmarine, a company of the same control group as Inversiones Los
Avellanos S.A., for certain administrative services. This agreement
stipulates 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., and the Company's relevant vessel-owning subsidiaries,
Ravenscroft Bahamas has agreed to provide certain ship management
services for all of the Company's vessels. Ravenscroft Bahamas has
subcontracted the provision of these services to Ravenscroft Shipping
Inc., a Miami-based related party of the Company. This agreement
stipulates a fee of $12.5 per month and per ocean going cargo vessel.
Under these contracts, these related parties are 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 are paid to those related
parties.
In addition, the Company pays Ravenscroft a monthly technical ship
management fee of (euro)20,000 (equivalent to $23.5 at December 31,
2005) per passenger vessel for services including technical
management, crewing, provisioning, superintendence and related
accounting functions. The Company pays Ravenscroft for each passenger
vessel (euro)25,000 (equivalent to $29.5 at December 31, 2005)
administrative and operational fee per month for all operational
functions as well as administering the subcontractors, concessions and
credit card/collection system onboard.
Brokerage commissions
Ravenscroft from time to time acts as a broker in arranging charters for
the Company's oceangoing vessels for which Ravenscroft charges a brokerage
commissions of 1.25% on the freight, hire and demurrage of each such
charter. Total commission expenses incurred by the Company under this
arrangement amounted to $707, $694 and $429 respectively, for the three
years ended December 31, 2005.
Voyage expenses paid to related parties
For the three years ended December 31, 2005, the voyage expenses paid to
related parties were as follows:
2005 2004 2003
------ ------ ------
Bareboat charter paid (1) $3,977 $ -- $ --
Agency fees (2) 6 21 100
Ship management fees (3) -- 1,736 6,691
Other -- -- 42
------ ------ ------
Total $3,983 $1,757 $6,833
====== ====== ======
(1) Through our subsidiary, Corporacion Naviera Mundial S.A., the Company
entered into a bareboat charter with UP Offshore (Panama) S.A., a
wholly owned subsidiary of UP Offshore (Bahamas) Ltd. for the rental
of the two PSVs named UP Safira and UP Esmeralda for a six-month
period for a daily lease amount for each one.
(2) Pursuant to an agency agreement with Ultrapetrol S.A., I. Shipping
Services 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.
(3) Certain of our companies 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.
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.
Administration agreement with UP Offshore
On June 25, 2003 the Company signed an administration agreement with UP
Offshore.
Under this agreement Ultrapetrol agrees to assist UP Offshore by providing
management services required by the latter, including providing the
services of the Chief Executive Officer and to provide ongoing management
and commercial advisory services up to 2013.
The parties agreed that Ultrapetrol professional fees under this agreement
shall be 2% of UP Offshore annual EBITDA as defined in the agreement. In
2005 the professional fee amounted $28. No fees were recognized in 2004 and
2003, because UP Offshore had no EBITDA.
Acquisition of land for a liquids terminal in Mexico
In October 2004 the Company through a subsidiary, purchased 99.99% of
Parque Ecologico Industrial Altamira S.A. (PEISA) for $2,000 from a related
party of its shareholder, LAIF. The only asset of PEISA is land for
expansion of a liquids terminal in Mexico.
10. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
Since 2004, the Company organizes its business and started to evaluate
performance by its operating segments, Ocean, River, Offshore Supply and
starting in 2005 the new Passenger Business. Prior to that date the Company
operated with no segments. 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 5 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 of UP Offshore, which are employed in the spot market in the North Sea
which are temporarily operated since July 2005 by our subsidiary
Corporacion Naviera Mundial S.A. under six-month bareboat charters. 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.
Operations were concentrated in the Mediterranean 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 year ended December 31,
------------------------------------
2005 2004 2003
-------- -------- --------
Revenues (1)
- South America $ 55,455 $ 39,871 $ 23,739
- Europe 59,245 30,356 21,349
- Asia 9,989 21,647 5,188
- Central America 672 3,286 10,351
- North America -- -- 14,606
-------- -------- --------
$125,361 $ 95,160 $ 75,233
======== ======== ========
(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 operations,
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, 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 97,717 122,594 27,625 29,811 277,747
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
The following schedule presents segment information about the Company's
operations for the year ended December 31, 2004:
Offshore
Ocean River supply
business business business Total
-------- -------- -------- --------
Revenues $ 54,049 $ 41,111 $ -- $ 95,160
Running and voyage expenses 12,963 27,852 -- 40,815
Depreciation and amortization 13,483 5,205 -- 18,688
Segment operating profit (losses) 22,831 5,217 (614) 27,434
Segment assets 150,959 109,592 13,097 273,648
Investments in affiliates 145 2,365 13,097 15,607
Income (loss) from investment in affiliates 262 153 (9) 406
Additions to long-lived assets 4,044 23,877 32,013 59,934
Contributions to affiliates -- -- 1,542 1,542
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 the 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
represents approximately $17,000, or 18% of the Company's consolidated
revenues.
In 2003 revenues from three customers of the Company represent
approximately $39,000, or 52% of the Company's consolidated revenues.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest and income taxes paid for the three years ended December 31, 2005,
were as follows:
For year ended December 31,
---------------------------------
2005 2004 2003
------- ------- -------
Interest paid $17,932 $18,346 $14,983
Income taxes paid $ 209 $ 784 $ 182
12. TREASURY STOCK
On October 12, 2000 the Company through a wholly owned subsidiary, Avemar
Holdings (Bahamas) Limited ("Avemar"), purchased 537,144 shares of the
Company previously owned by Societe Internationale D'Investissement S.A.
(Bahamas) ("SII"). The nominal purchase price of said shares was $20,000,
$8,000 of which was paid in, 2000 and the balance of which was payable
$6,400 in 2001, $4,400 in 2002 and $1,200 in 2003.
At December 31, 2005 and 2004, the Company presents $20,332 in the
"Treasury stock" account, $20,000 of which relates to the amount paid to
SII and $332 relates to direct cost of acquisition.
13. SUMMARIZED FINANCIAL INFORMATION OF UABL
Summarized statements of operations of UABL Limited for the year ended
December 31, 2003 for which such affiliate was accounted for by the equity
method is presented below:
Revenues 60,260
Operating expenses (54,537)
-------
Operating income 5,723
Other income (expense) (1,359)
-------
Income before tax on minimum presumed income and income tax 4,364
Recovery of tax on minimum presumed income 529
Tax on minimum presumed income (3)
Income taxes (623)
-------
Net income for the year 4,267
=======
14. SUBSEQUENT EVENTS (UNAUDITED)
Recently, the Company commenced preparation for an initial public offering
of its common shares to be registered in the United States of America. The
shares held directly by our existing shareholders are expressly entitled to
seven votes per share and all other holders of our common shares will be
entitled to one vote per share. The special voting rights of the existing
shareholders are not transferable. Following the completion of the initial
public offering, our existing shareholders will continue to have a majority
of the voting power of our common shares.
On March 20, 2006 we purchased, for $11.5 million 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 purchase price of this acquisition was paid in the form of a
non-interest bearing promissory note payable upon the earlier of (i) the
successful completion of the initial public offering or (ii) September 30,
2006. The promissory note is secured by a first-ranking pledge over the
shares purchased. We have the option to cause Crosstrade Maritime Inc. and
Crosstrees Maritime Inc. to repurchase all, but not less than all, of the
Ravenscroft shares purchased for the original consideration. The put option
shall commence on the first day after the closing of this acquisition and
shall terminate upon the earlier of (i) the successful completion of the
initial public offering (ii) or September 30, 2006.
Separately, on March 21, 2006, we purchased for $48 million, an additional
66.67% of the issued and outstanding capital stock of UP Offshore (Bahamas)
Ltd. (UP Offshore), from LAIF XI Ltd. (LAIF), an affiliate of Solimar
Holdings Ltd, one of our shareholders. Following the acquisition of the
shares of UP Offshore from LAIF, we hold 94.45% of the issued and
outstanding shares of UP Offshore. The purchase price was paid in the form
of a non-interest bearing promissory note payable upon the earlier of (i)
the successful completion of the initial public offering of the Company or
(ii) September 30, 2006. The promissory note is secured by a first-ranking
pledge over the shares purchased. We have the option to cause LAIF to
repurchase from us all, but not less than all, of the UP Offshore shares
purchased for the original consideration. The put option shall commence on
the first day after the closing of the transaction and shall terminate upon
the earlier of (i) the successful completion of the initial public offering
of the Company or (ii) September 30, 2006.
The purchase price allocation for these two acquisitions has not yet been
completed, but the purchase price in each transaction is expected to be in
excess of the carrying value of the net assets acquired.
Also, in March 2006 we hired the administrative personnel and purchased the
administrative related assets of Oceanmarine.
We have reached an understanding with the IFC, to purchase from the IFC the
7.14% of our subsidiary UP River (Holdings) Ltd., which we do not own for
the price of $6 million. As part of this understanding the IFC will waive
its option to convert its interest in UP River (Holdings) Ltd. to our
shares and its right to participate in the initial public offering of the
Company. This understanding is subject to the successful completion of the
offering and the purchase price will be paid from proceeds of the offering.
On March 20, 2006 two of our shareholders, Inversiones Los Avellanos S.A.
and Avemar Holdings (Bahamas) Ltd. (Avemar) (our wholly owned subsidiary),
subject to the successful completion of this offering, 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. As
a consequence, Solimar Holding Ltd. will own 63.36% of our shares and the
remaining 36.64% will be owned directly and indirectly by Inversiones Los
Avellanos S.A. This agreement to cancel the shares owned by Avemar is
subject to the succesful completion of the offering.
On March 20, 2006, we exercised our option to repurchase, from Inversiones
Los Avellanos S.A., 25,212 shares of our common stock for a total price of
$900 and the $900 Note issued in connection with the option was cancelled.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ULTRAPETROL (BAHAMAS) LIMITED
(registrant)
Dated: March 30, 2006 By: /s/ Felipe Menedez R.
---------------------
Felipe Menendez R.
President
SK 02351 0009 656795