Registration Statement No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Ultrapetrol (Bahamas) Limited
(Exact name of registrant as specified in its charter)
Commonwealth of the Bahamas 4412 N/A
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(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Identification No.)
or organization) Classification Code Number)
Ultrapetrol (Bahamas) Limited Seward & Kissel LLP
Attention: Felipe Menendez R. Attention: Lawrence
Ocean Centre, Montague Rutkowski, Esq.
Foreshore One Battery Park Plaza
East Bay St. New York, New York 10004
Nassau, Bahamas (212) 574-1200
P.O. Box SS-19084 (Name, address and
(242) 394-8410 telephone number
(Address and telephone of agent for service)
number of
Registrant's principal
executive offices)
-----------------------
Copies to:
Lawrence Rutkowski, Esq. William J. Whelan, III, Esq.
Seward & Kissel LLP Cravath, Swaine & Moore LLP
One Battery Park Plaza Worldwide Plaza
New York, New York 10004 825 Eighth Avenue
(212) 574-1200 (telephone number) New York, New York 10019
(212) 480-8421 (facsimile number) (212) 474-1000 (telephone number)
(212) 474-3700 (facsimile number)
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
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If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1) Registration Fee (2)
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Common Stock, par value
$.01 per share $175,000,000 $18,725
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Includes common stock, if any, that may be sold pursuant to the
underwriters' over-allotment option.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED , 2006
Shares
insert logo
Ultrapetrol (Bahamas) Limited
Common Stock
---------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We will apply for the quotation of our common stock
on The Nasdaq National Market under the symbol " ".
We are selling shares of our common stock and the selling shareholders are
selling shares of our common stock. We will not receive any of the
proceeds from the shares of common stock sold by the selling shareholders. The
underwriters have an option to purchase a maximum of additional shares from us
and additional shares from the selling shareholders to cover over-allotments of
shares.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 12.
Proceeds to
Ultrapetrol Proceeds to
Underwriting (Bahamas) Selling
Discounts Limited Shareholders
Price to and (Before (Before
Public Commissions Expenses) Expenses)
------ ----------- --------- ---------
Per Share.................... $ $ $ $
Total........................ $ $ $ $
Delivery of the shares of common stock will be made on or about , 2006.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse UBS Investment Bank
The date of this prospectus is , 2006.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities aned Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
CALCULATION OF REGISTRATION FEE...........................................
ENFORCEABILITY OF CIVIL LIABILITIES.......................................
INDUSTRY..................................................................
SUMMARY...................................................................
SUMMARY CONSOLIDATED FINANCIAL DATA.......................................
RISK FACTORS..............................................................
FORWARD-LOOKING STATEMENTS................................................
USE OF PROCEEDS...........................................................
DIVIDEND POLICY...........................................................
CAPITALIZATION............................................................
DILUTION..................................................................
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION........................................
SELECTED FINANCIAL AND OTHER DATA.........................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................
THE INTERNATIONAL SHIPPING INDUSTRY.......................................
BUSINESS..................................................................
MANAGEMENT................................................................
PRINCIPAL AND SELLING SHAREHOLDERS........................................
RELATED PARTY TRANSACTIONS................................................
SHARES ELIGIBLE FOR FUTURE SALE...........................................
DESCRIPTION OF CAPITAL STOCK..............................................
DESCRIPTION OF CREDIT FACILITIES..........................................
BAHAMIAN COMPANY CONSIDERATIONS...........................................
TAX CONSIDERATIONS........................................................
UNDERWRITING..............................................................
NOTICE TO INVESTORS.......................................................
NOTICE TO CANADIAN RESIDENTS..............................................
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION...............................
LEGAL MATTERS.............................................................
EXPERTS...................................................................
WHERE YOU CAN FIND ADDITIONAL INFORMATION.................................
GLOSSARY OF SHIPPING TERMS................................................
INDEX TO COMBINED FINANCIAL STATEMENTS..................................... F-1
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information in this prospectus may only be
accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2006 (25 days after the commencement of the offering),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a Bahamian corporation. Our subsidiaries are incorporated in
Argentina, The Bahamas, Brazil, Chile, Colombia, Liberia, Mexico, Panama,
Paraguay, the United Kingdom, the United States of America and Uruguay. All of
our vessels and barges are flagged in Argentina, Bolivia, Brazil, Chile,
Liberia, Panama or Paraguay. Most of our and our subsidiaries' offices,
administrative activities and other assets, as well as those of the independent
public accountants and the expert named herein, are located outside the United
States. In addition, some of our directors and officers and the directors and
officers of our subsidiaries are residents of jurisdictions other than the
United States, and all or a substantial portion of the assets of such persons
are or may be located outside the United States. As a result, it may be
difficult for you to effect service of process within the United States upon us
or our subsidiaries or such persons and it may be difficult for you to enforce
judgments obtained in United States courts against us or our subsidiaries, our
directors and officers, the directors and officers of our subsidiaries, the
independent public accountants or the expert named herein, or the assets of any
such parties located outside the United States. Further, it may be difficult for
you to enforce judgments obtained in United States courts, including those
predicated upon the civil liability provision of the Federal securities laws of
the United States, against such parties in courts outside of the United States.
INDUSTRY
The discussions relating to the international shipping industry contained
under the sections of this prospectus entitled "Prospectus Summary," "The
International Shipping Industry" and "Business" have been reviewed by Doll
Shipping Consultancy, or DSC, which has confirmed to us that the discussion
contained in those sections accurately describes the international shipping
markets subject to the reliability of the data supporting the statistical and
graphical information present in this prospectus.
DSC is an independent company based in the United Kingdom that provides
market analysis and strategic planning services to the shipping industry, and
has provided us with statistical and other data regarding the shipping industry
and the particular markets in which we operate. You can find these data in this
prospectus, among other locations, in the section entitled "The International
Shipping Industry." DSC has advised us that these data are drawn from published
and private industry sources. DSC has also advised us that:
o some industry data they provided are based upon estimates or
subjective judgments in circumstances where data for actual market
transactions either do not exist or are not publicly available;
o the published information of other maritime data collection experts
may differ from the data provided to us by DSC; and
o while DSC has taken reasonable care in the compilation of the data it
has provided to us and believes such data to be accurate, data
collection is subject to limited audit and validation procedures.
Neither we nor any of our affiliates have independently verified the
information supplied to us by DSC and neither we nor any of our affiliates make
any representations regarding its accuracy.
Ultrapetrol (Bahamas) Limited
Summary Organizational Chart
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-------------- --------------- > Technical
Ultrapetrol 100% Ship Management Management for
(Bahamas) -------------------- Business Ultrapetrol's
Limited "Ravenscroft" vessels as well
-------------- --------------- as third party
| technical
| and/or commercial
| management
|
|
|
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| | | |
| | | |
100%(1) | 94.45%(2) | 100% | 100% |
-------------- ------------------ ---------------- --------------
River Offshore Supply Ocean Passenger
Business Business Business Business
"UABL" "UP Offshore"
-------------- ------------------ ----------------- --------------
> 44 Tank Barges > 3 Platform Supply > 6 Vessels > 2 Passenger
> 446 Dry Barges Vessels ("PSVs") > Total of Vessels
> 23 Pushboats in service 602,398 dwt > 1,593 Total
> 1 Transfer > 3 PSVs under Berths
Station construction
> Total 798,000 > 4,200 dwt and
dwt capacity 840 sq. meters
of deck space each
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1. We currently own 96.43% of our River Business; we have reached an
understanding to purchase the remaining 3.57% and we expect to repay the
resulting obligation with the proceeds of this offering.
2. Our partner in Brazil, Comintra Enterprises Ltd., or Comintra, owns 5.55%
of our Offshore Supply Business.
SUMMARY
This summary highlights selected information in this prospectus. It may
not contain all the information that may be important to you. You should review
carefully the risk factors and the more detailed information and financial
statements, including the consolidated pro forma financial information,
contained elsewhere in this prospectus, for a more complete understanding of our
business and this offering. We recently acquired a 66.67% equity interest in UP
Offshore (Bahamas) Limited, or UP Offshore, the entity through which we operate
our Offshore Supply Business, from LAIF XI Ltd., or LAIF, bringing our ownership
in UP Offshore to 94.45%. LAIF is a related company. We also recently acquired
Ravenscroft Shipping (Bahamas) S.A., or Ravenscroft, the entity through which we
manage the vessels in our Offshore Supply, Ocean, and Passenger Businesses, from
other related companies. Throughout this prospectus, we have included pro forma
financial information that gives effect to the consolidation of UP Offshore into
our financial statements as if we had acquired UP Offshore on January 1, 2005.
In this prospectus, unless the context otherwise indicates, the terms "we," "us"
and "our" (and similar terms) refer to Ultrapetrol (Bahamas) Limited and its
subsidiaries and joint ventures. The information in this prospectus describing
our common stock, including some special voting rights, gives effect to the
adoption of our Amended and Restated Memorandum of Association which will take
effect prior to the effectiveness of the registration statement of which this
prospectus is a part. Unless otherwise indicated, all references to currency
amounts in this prospectus are in U.S. Dollars. See the "Glossary of Shipping
Terms" included in this prospectus for definitions of certain terms used in this
prospectus that are commonly used in the shipping industry.
Our Company
We are 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 that flow
through Argentina, Bolivia, Brazil, Paraguay and Uruguay to ports
serviced by ocean export vessels. According to DSC, these countries,
as a whole, accounted for approximately 47% of world soybean
production in 2005, having increased from 30% in 1994.
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 and contracted 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 tanker. 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.
We have a diverse customer base including large and well-known petroleum,
agricultural, mining and tour operating companies. Some of our significant
customers, over the last three years include affiliates of Archer Daniels
Midland, British Gas, Cargill, Chevron, Continental Grain, Empresa Nacional de
Petroleo (ENAP), the national oil company of Chile, Industrias Oleaginosas,
Panocean, Petrobras, the national oil company of Brazil, Petropar, the national
oil company of Paraguay, Rio Tinto, Swissmarine, Total, Trafigura, Travelplan,
and Vicentin.
We are focused on growing our businesses while maintaining the versatility
of our fleet and the diversity of industries that we serve. We believe
maintaining this versatility and diversity will minimize our dependence on any
particular sector of the marine transportation industry as we pursue our growth
initiatives.
Our Competitive Strengths
We believe that the following strengths have contributed to our success.
o Diversification. We believe that our diversification across four
separate segments of the marine transportation industry provides
significant protection against business cycles in any particular
segment.
o Large Scale Generates Efficiencies. We are the largest provider of
river transportation services in the Hidrovia Region, which gives us
economies of scale and increased negotiating power. Our size has
enabled us, alone among our competitors in the Hidrovia Region, to
implement an operational system through which we provide our customers
with a continuous stream of available barges, while reducing our
operating costs on a per ton basis.
o Advanced Technology. Our PSVs have advanced dynamic positioning
systems and benefit from our proprietary design that includes oil
recovery capabilities and greater cargo capacity and deck space
than PSVs of standard design. These capabilities enable us to
better serve clients operating in challenging offshore
environments. Our River Business uses a navigational system that
allows around-the-clock operation on a river system that lacks the
signals otherwise necessary for night navigation.
o Versatile Ocean Fleet. We can readily switch our Suezmax OBOs between
dry bulk and liquid cargo carriage to take advantage of rate
differentials in these markets. Further, because of her narrow beam,
our Aframax tanker is able, despite her large Aframax dwt, to transit
the Panama Canal.
o Long-Term Customer Relationships. We have long-standing relationships
with large, stable customers, including affiliates of major
international oil and agriculture companies, including Petrobras and
Cargill, which have been our customers for 12 years and eight years
respectively, as well as Archer Daniels Midland, Continental Grain and
ENAP.
o High Standards of Performance and Safety. The quality of our vessels
and the expertise of our vessel manager, crews and engineering
resources help us maintain safe, reliable and consistent performance.
o Established History and Experienced Management Team. Our management
team is led by members of the Menendez family, which has been in the
shipping industry since 1876, and our senior executive officers have
on average 34 years of experience in the shipping industry.
o Preferential Treatment in Brazilian Offshore Market. Brazilian law
provides a preference for the utilization of Brazilian-flagged vessels
in its cabotage trade. Through one of our Brazilian subsidiaries, we
have the competitive advantage of being able to trade our PSVs in the
Brazilian cabotage market, enabling them to obtain employment in
preference to vessels without those cabotage privileges.
Our Business Strategy
Our business strategy is to continue to operate as a diversified marine
transportation company with an aim to maximize our growth and profitability
while limiting our exposure to the cyclical behavior of individual sectors of
the transportation industry. We plan to implement our business strategy by
pursuing the following objectives.
o Capitalizing on Attractive Fundamentals in Our River Business. We
plan to use our leading market position in the Hidrovia Region to
grow our River Business by capitalizing on the region's growing
agricultural and other commodity exports and new production
facilities for pig iron, the cost effectiveness of river transport
compared to available alternatives and our proprietary
transportation infrastructure.
o Increasing Efficiencies in Our River Business. We plan to increase
the size and capacity of many of our existing barges and invest in
new engines that burn less expensive fuel for our line pushboats,
which we use on our longer river voyages.
o Expanding Our Offshore Supply Business. We have taken delivery of
three proprietarily designed PSVs for our Offshore Supply Business
and have three more PSVs under construction. We are negotiating the
construction of four additional PSVs, which would give us a total
fleet of ten vessels.
o Growing Our Ocean Fleet. We plan on incorporating additional
chemical/product tankers into our ocean fleet. We believe that these
ships will fill a demand from our existing customers for vessels to
service routes where both the point of origin and destination are in
South America.
o Redeploying Vessels to the Most Attractive Markets. Under
appropriate market conditions, we intend to take advantage of the
versatility of some of our vessels and to alter the geographic and
industry focus of our operations by redeploying vessels to the most
profitable markets. In addition, we actively manage the deployment
of our fleet between longer-term time charters and shorter-term time
charters.
o Expanding Our Passenger Fleet. We intend to further expand our
Passenger Business through timely and selective acquisitions of
secondhand passenger vessels in accordance with identified customer
needs and to increase revenue by employing our vessels in South
America during its summer season.
o Generating Operational Efficiencies. We intend to pursue identified
opportunities to improve overall efficiency and profitability. For
example, in our River Business, we will continue to focus on
optimizing our barge and tug scheduling, maximizing loads and convoy
size, minimizing empty return voyages and optimizing fuel
consumption.
Chartering Strategy and Fleet Management
We continually monitor developments in the shipping industry and make
charter-related decisions on an individual vessel and segment basis as well as
our view of overall market conditions.
We conduct the day-to-day management and administration of our operations
in-house and through our wholly-owned subsidiaries. Our subsidiary, Ravenscroft,
provides technical ship management for the vessels in our Offshore Supply, Ocean
and Passenger Businesses while our subsidiary, UABL Limited, or UABL, manages
our River Business. In addition to servicing our own vessels, Ravenscroft
manages vessels owned by third parties.
Important Developments and Current Initiatives
We believe the following developments and initiatives will have a
significant impact on the operations of our different businesses.
River Business
--------------
o New vessels - During 2005, we acquired 35 barges and two pushboats
for use in our River Business. Our 2006 operating results will
reflect the deployment of these vessels for a full year.
o Expansion and fuel efficiency initiatives - We have begun a three
year program to expand the size of many of our barges and we are
working on a four year program to replace the diesel engines in our
line pushboats with new engines that will burn less expensive heavy
fuel oil. We anticipate the most significant impact from these
programs on our operations will occur after 2006.
Offshore Supply Business
------------------------
o Acquisition of additional 66.67% interest - In March 2006, we acquired
an additional 66.67% of UP Offshore, which is the holding company for
our Offshore Supply Business, raising our ownership to 94.45%. Prior
to this transaction, we used the equity method of accounting for our
investment in UP Offshore. As a result of the transaction, we will
consolidate UP Offshore into our financial results. In compliance with
the requirements of the indenture governing our 9% First Preferred
Ship Mortgage Notes due 2014, or, the Notes, we obtained a fairness
opinion from an internationally recognized accounting firm in
connection with this acquisition.
o New vessels - During 2005, UP Offshore took delivery of two newly
built PSVs and placed them into service. The 2005 operating results
of UP Offshore reflect only the operation of these two vessels for
less than half-a-year as they were the first vessels UP Offshore put
into service. Our 2006 operating results will reflect the deployment
of these vessels for a full year. Those results will also reflect
the partial year operations of another newly built PSV we received
and placed into service in March 2006 and two other newly built PSVs
we expect to receive and deploy during the second half of 2006. We
have also contracted to receive a sixth newly built PSV in 2007.
Ocean Business
--------------
o Vessel acquisitions and dispositions in our Ocean Business - In May
2005, we disposed of our Capesize bulk carrier, the Cape Pampas, and
in July 2005 we purchased our chemical/product tanker, Miranda I,
which we placed into service in October 2005. Our 2006 operating
results will reflect the operation of the Miranda I for a full year
and the loss of revenue and costs associated with the Cape Pampas.
We are also exploring the acquisition of one or more additional
vessels in our Ocean Business for delivery in 2006.
Passenger Business
------------------
o Vessel deployment in our Passenger Business - We purchased the
passenger vessel, the Grand Victoria, in 2005 and are currently in
the final stages of completing a refurbishment and re-classification
of the vessel. We did not put the Grand Victoria into service in
2005, but we have contracted to employ her for the full European
travel season in 2006. Following the complete refurbishment of our
vessel, the New Flamenco, we are also exploring the deployment of
both our passenger vessels outside of the European travel season.
Vessel Management
-----------------
o Acquisition of Ravenscroft - In March 2006, we acquired Ravenscroft,
the technical manager for our Offshore, Ocean and Passenger
businesses. We expect this transaction to open new business
opportunities for us and to eliminate the management fees paid to
related parties, while bringing the costs of ship management
in-house. In compliance with the requirements of the indenture
governing our Notes, we obtained a fairness opinion from an
internationally recognized accounting firm in connection with this
acquisition.
Our Corporate History
We were originally formed by members of the Menendez family with a single
ocean going vessel in 1992, and were incorporated in our current form as a
Bahamas corporation on December 23, 1997.
Our Ocean Business has grown through the investment of capital from the
operation of our fleet along with other sources of capital to acquire additional
vessels. In 1998, we issued $135.0 million of 10 1/2% First Preferred Ship
Mortgage Notes due 2008, or the Prior Notes. By 2001, our fleet reached 13
oceangoing vessels with a total carrying capacity of 1.1 million dwt. During
2003, in an effort to remain ahead of changing environmental protection
regulations, we began to sell all of our single hull Panamax and Aframax tankers
(five vessels in total), a process that we completed in early 2004.
We began our River Business in 1993 with a fleet consisting of one
pushboat and four barges. In October 2000, we formed a joint venture with
American Commercial Barge Lines Ltd., or ACL. From 2000 to 2004, we built UABL
into the leading river barge company in the Hidrovia Region of South America.
Using some of the proceeds from the sale of our single hull Panamax tankers, in
2004, we purchased from ACL their 50% equity interest in UABL.
During 2000, we received a $50.0 million equity investment from Solimar
Holdings, Ltd., or Solimar, a wholly-owned subsidiary of the AIG-GE Capital
Latin American Infrastructure Fund, or the Fund. The Fund was established at the
end of 1996 to make equity investments in South America, Mexico, Central America
and the Caribbean countries. The Fund was also our partner in other ventures,
including UP Offshore.
In December 2002, we began our relationship with International Finance
Corporation, or IFC, which is the private sector arm of the World Bank Group
that provides loans, equity, and other services to support the private sector in
developing countries. In total, IFC, together with its participant bank and
co-lender, KfW, has provided us with $115.0 million of credit and equity
commitments to support our River and Offshore Supply Businesses.
We formed our Offshore Supply Business during 2003 in a joint venture with
LAIF XI Ltd., or LAIF, a wholly-owned subsidiary of the Fund, and Comintra. We
capitalized the business with $ million of common equity and $70
million of debt and preferred equity from IFC to construct our initial fleet of
six PSVs.
In November 2004, we issued $180.0 million of 9% First Preferred Ship
Mortgage Notes due 2014, or the Notes. The proceeds of the Notes offering were
used principally to prepay the Prior Notes and to buy an additional Ocean
Business asset, further invest in our River Business and to diversify into the
Passenger Business with the acquisition of two passenger vessels.
Corporate Information
We are incorporated in the Commonwealth of The Bahamas under the name
Ultrapetrol (Bahamas) Limited. Our principal offices in the Bahamas are
located at Ocean Centre, Montagu Foreshore, East Bay St., P.O. Box SS-19084,
Nassau, Bahamas. Our telephone number there is 1 (242) 502-5200.
The Offering
Common stock offered by us....... shares.
Common stock offered by the
selling shareholders............. shares.
Underwriters' over-allotment shares from us and
option........................... shares from the selling shareholders.
Common stock to be outstanding
immediately after this offering.. shares.
Use of proceeds.................. We expect to use the net proceeds of
this offering as follows:
o $48.0 million to repay
the note we issued to
LAIF, a related
company, in connection
with our purchase of
its 66.67% interest in
UP Offshore;
o $11.5 million to repay
the notes we issued to
Crosstrees Maritime
Inc. and Crosstrade
Maritime Inc., related
companies, in
connection with our
purchase of
Ravenscroft and
related assets;
o $ million to
repay some of our
variable interest rate
indebtedness;
o $3.8 million to redeem
UP Offshore's
preferred shares
issued to IFC;
o $6.0 million to
discharge the
obligation to IFC
resulting from our
purchase of its
interest in our River
Business;
o $20.6 million to fund
the balance of the
construction expenses
of the three PSVs
being built in Brazil; and
o the remainder for general
corporate purposes.
We will not receive any of the
proceeds from the sale of our
common stock by the selling
shareholders. See "Use of
Proceeds."
Dividend policy.............. We anticipate retaining
most of our future earnings, if
any, for use in our operations and
the expansion of our business. Any
determination as to dividend
policy will be made by our board
of directors and will depend on a
number of factors, including the
requirements of Bahamian law, our
future earnings, capital
requirements, financial condition
and future prospects, restrictions
imposed by the terms of our
indebtedness, and such other
factors as our board of directors
may deem relevant. See "Dividend
Policy."
Nasdaq National We will apply for quotation of our
Market listing............... common stock on The Nasdaq
National Market under the symbol " ".
Special Voting Rights........ Under our Amended and Restated
Memorandum of Association, the
selling shareholders, and one of
our shareholders that is a
wholly-owned subsidiary of a
selling shareholder, are expressly
entitled to seven votes per share
on all shares held directly by
them, and all other holders of
shares of our common stock are
entitled to one vote per share.
These special voting rights of the
selling shareholders are
transferable to each other but are
not transferable to our other
shareholders and apply only to
shares held by them on the date of
this offering and not to any
shares they subsequently purchase
or repurchase. After giving effect
to this offering, our existing
shareholders will have a majority
of the voting power of our common
stock.
Unless we indicate otherwise or the context otherwise requires, all information
in this prospectus assumes that the underwriters do not exercise their
over-allotment option.
Risk Factors
Investing in our common stock involves substantial risks. We summarize
some of these risks below.
o Some of the sectors of the shipping industry in which we operate are
cyclical and volatile. Some of our businesses operate in a highly
volatile and cyclical market characterized by large fluctuations in
demand and charter rates. If these businesses suffer from adverse
market conditions, our results of operations will be adversely
affected.
o Our River Business can be affected by adverse weather conditions
that reduce production of the goods we transport or navigability of
the river system. Droughts and other adverse weather conditions,
such as floods, could result in a decline in production of the
agricultural products we transport. Further, certain conditions,
such as low water levels, could reduce or limit our ability to
effectively transport cargo on the rivers.
o Our vessels are at risk of being damaged due to operational risks
that may lead to unexpected consequences, which may adversely affect
our earnings. Our vessels and their cargos are at risk of being
damaged or lost because of events we cannot control, such as marine
disasters, bad weather, mechanical failures, human error, war,
terrorism, piracy and other circumstances or events. Although we
insure our vessels against those types of risks commonly insured
against by vessel owners and operators, we cannot assure you that we
are adequately insured against all risks.
o We are an international company that is exposed to the risks of
doing business in many different and often less developed emerging
market countries. We conduct almost all of our operations outside of
the United States, including in countries that are less developed,
such as Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay. By
operating in these countries, we are subject to numerous risks,
including political and economic instability, unfavorable legal,
regulatory and tax changes, and others.
o Our selling shareholders will control the outcome of matters on
which our shareholders are entitled to vote following this offering.
Our selling shareholders will control a majority of the voting power
of our common stock after the offering, in part because shares of
common stock held by them will have seven votes and shares of common
stock held by others will have one vote. In cases where their
interest differs from yours, they will have the ability to control
the management of the Company.
o This is our initial public offering and there is no public market
for our common stock. We cannot assure you that a trading market for
our common stock will develop or that you will be able to sell your
stock in the future.
This is not a comprehensive list of risks to which we are subject, and you
should carefully consider all the information in this prospectus prior to
investing in our common stock. In particular, we urge you to consider carefully
the additional factors set forth in the section of this prospectus entitled
"Risk Factors" beginning on page 12.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial
information and other operating data. You should carefully read our audited
consolidated financial statements and the information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Condensed Consolidated Financial
Information" included elsewhere in this prospectus for additional financial
information about us. We derived our summary consolidated statement of
operations data relating to the fiscal years ended December 31, 2003, 2004 and
2005, and our summary consolidated balance sheet data as of December 31, 2004
and 2005, from our audited consolidated financial statements included elsewhere
in this prospectus. We derived our summary consolidated balance sheet data as of
December 31, 2003, from our audited consolidated financial statements not
included in this prospectus. We refer you to the footnotes to our consolidated
financial statements for a discussion of the basis on which our consolidated
financial statements are presented.
We derived our summary unaudited consolidated pro forma financial data
relating to the fiscal year ended December 31, 2005 from our Unaudited Pro Forma
Condensed Consolidated Financial Information included elsewhere in this
Prospectus. The summary unaudited consolidated pro forma statement of operations
data for the year ended December 31, 2005 gives effect to the Transactions (as
defined in "Unaudited Pro Forma Condensed Consolidated Financial Information")
as if they occurred as of January 1, 2005, and the summary unaudited
consolidated pro forma balance sheet data as of December 31, 2005 give effect to
the Transactions as if they occurred as of December 31, 2005.
Pro Forma
Year Ended December 31, Year Ended
----------------------------------- December 31,
2003 2004(1) 2005 2005
---------- ---------- ---------- ----------
(Dollars in thousands) (Unaudited)
Statement of Operations Data:
Revenues........................................... $ 75,233 $ 95,160 $ 125,361
Operating expenses(2).............................. (41,303) (40,815) (73,061)
Depreciation and amortization.................... (22,567) (18,688) (21,333)
Management fees to related parties(3)............ (2,863) (1,513) (2,118)
Administrative and commercial expenses........... (4,955) (7,494) (7,617)
Other operating income (expenses) (4)............ (2,124) 784 22,021
---------- ---------- ----------
Operating profit................................... 1,421 27,434 43,253
Financial expense.................................. (16,207) (16,134) (19,141)
Financial gain (loss) on extinguishment
of debt(5)....................................... 1,782 (5,078) --
Financial income................................... 201 119 1,152
Investment in affiliates(6)........................ 3,140 406 (497)
Other income (expenses)............................ (337) 174 384
---------- ---------- ----------
Income (loss) before income tax and minority
interest......................................... (10,000) 6,921 25,151
Income taxes....................................... (185) (642) (786)
Minority interest(7)............................... (1,333) (1,140) (9,797)
---------- ---------- ----------
Net income (loss).................................. $ (11,518) $ 5,139 $ 14,568
========== ========== ==========
Balance Sheet Data (end of period):
Cash and cash equivalents.......................... $ 8,248 $ 11,602 $ 7,914
Current restricted cash............................ 1,155 2,975 3,638
Working capital(8)................................. 15,416 13,441 26,353
Vessels and equipment.............................. 120,803 160,535 182,069
Total assets....................................... 208,161 273,648 277,747
Total debt......................................... 155,814 220,413 211,275
Shareholders' equity............................... 23,793 28,910 43,474
Other Financial Data:
Net cash provided by operating activities.......... $ 18,602 $ 23,129 $ 16,671
Net cash provided by (used in) investing activities (4,416) (57,556) (26,725)
Net cash provided by (used in) financing activities (10,662) 37,781 6,366
EBITDA(9).......................................... $ 25,659 $ 45,681 $ 55,828
Selected Fleet Data:
River Business
Dry barges......................................... 387 411 446
Tank barges........................................ 44 44 44
---------- ---------- ----------
Total barges....................................... 431 455 490
---------- ---------- ----------
Total barge capacity (approximate dwt) ............ 705,000 744,000 798,000
Number of pushboats................................ 21 21 23
Offshore Support Business
Large PSVs......................................... 0 0 0(10)
Ocean Business
Total ocean vessels................................ 8 5 6
Total ocean vessel capacity (approximate dwt)...... 875,000 747,000 602,000
Passenger Business
Passenger vessels.................................. 0 0 2
Total Passenger Berths............................. 0 0 1,593
(1) In a series of related transactions, on April 23, 2004, through two
wholly-owned subsidiaries, we acquired from ACL the remaining 50% equity
interest in UABL Limited that we did not previously own, along with a
fleet of 50 river barges and seven river pushboats. The results of UABL
Limited's operations have been included in our condensed consolidated
financial statements since that date.
(2) Operating expenses include voyage expenses and running costs. Voyage
expenses, which are incurred when a vessel is operating under a contract
of affreightment (as well as any time when they are not operating under
time or bareboat charter), comprise all costs relating to a given voyage,
including port charges, canal dues and fuel (bunkers) costs, are paid by
the vessel owner and are recorded as voyage expenses. Voyage expenses also
include charterhire payments made by us to owners of vessels that we have
chartered in. Running costs, or vessel operating expenses, include the
cost of all vessel management, crewing, repairs and maintenance, spares
and stores, insurance premiums and lubricants and certain drydocking
costs.
(3) Management fees to related parties include payments to our related
companies Ravenscroft and Oceanmarine for ship management and
administration fees they provided to us. We purchased the business of
Ravenscroft and hired the administrative personnel and purchased the
administration related assets of Oceanmarine in March 2006; accordingly,
after those acquisitions, we do not expect to pay fees to these related
parties, but will directly incur all costs of ship management and
administration, which will appear as expenses in our future results.
(4) Other income in 2005 includes approximately $21.8 million gain from the
sale of our Capesize bulk carrier, the Cape Pampas. This vessel was owned
directly by Ultracape, a company of which we own 60%. Accordingly, the
gain on sale attributable to the remaining 40% that we do not own is
deducted from income as part of minority interest. (See note 7).
(5) During 2003, we repurchased $6.7 million principal amount of our Prior
Notes for a price of $4.8 million and realized a gain of $1.8 million.
During 2004, we repurchased $5.7 million principal amount of our Prior
Notes for a price of $4.3 million and realized a gain of $1.3 million and
we incurred $6.4 million in expenses in relation to our tender offer and
repurchase of our Prior Notes.
(6) Prior to April 2004, we owned 50% of UABL through a joint venture with ACL
and, accordingly, we accounted for it using the equity method.
(7) We own 60% of Ultracape, which owned the Capesize bulk carrier Cape Pampas
prior to its sale in May 2005, and accordingly recognize minority interest
for the 40% we do not own. Figures in 2003 and 2004 principally represent
40% of the income earned by Ultracape, from operation of the Cape Pampas.
The figure in 2005 represents 40% of the income from operations of the
Cape Pampas as well as 40% of the gain on the sale of the vessel in May
2005.
(8) Current assets less current liabilities.
(9) EBITDA consists of net income (loss) prior to deductions for interest
expense and other financial gains and losses, income taxes, depreciation
and amortization of drydock expense and financial gain (loss) on
extinguishment of debt. We do not intend for EBITDA to represent cash
flows from operations, as defined by GAAP (on the date of calculation) and
should not be considered as an alternative to net income as an indicator
of our operating performance or to cash flows from operations as a measure
of liquidity. This definition of EBITDA may not be comparable to similarly
titled measures disclosed by other companies. Generally, funds represented
by EBITDA are available for management's discretionary use. We have
provided EBITDA in this prospectus because we believe it provides useful
information to investors to measure our performance and evaluate our
ability to incur and service indebtedness.
The following table reconciles our EBITDA to our net income (loss). Year
ended December 31,
Year ended December 31,
-----------------------
Pro Forma Year Ended
2003 2004 2005 December 31, 2005
---- ---- ---- -----------------
(dollars in thousands)
Net income (loss) $ (11,518) $ 5,139 $ 14,568
Financial expense 16,207 16,134 19,141
Financial gain on extinguishment of debts (1,782) (1,344) --
Financial losses on extinguishment of debts 6,422 --
Income taxes 185 642 786
Depreciation and Amortization 22,567 18,688 21,333
--------- -------- --------- ---------
EBITDA $25,659 $45,681 $55,828
========= ======== ========= =========
We believe that EBITDA is intended to exclude all items that affect results
relating to financing activities. The gain and losses associated with
extinguishment of debt are a direct financing item that affects our results, and
therefore should not be included in EBITDA.
(10) During 2005, UP Offshore owned two PSVs. We operated these two PSVs under
a bareboat charter from UP Offshore, and accordingly recognized the
revenue from these vessels, which was substantially offset by related
operating expenses and charterhire.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following factors, as well as the other
information set forth in this prospectus, before making an investment in our
common stock. Some of the following risks relate principally to the industry in
which we operate and our business in general. Other risks relate principally to
the securities market and ownership of our stock. Any of these risk factors
could significantly and negatively affect our business, financial condition or
operating results and the trading price of our stock. As a result of these
risks, you may lose all or part of your investment.
Risks Relating to Our Industry
The oceangoing cargo transportation industry is cyclical and volatile, and
this may lead to reductions of, and volatility in, our charter rates and
volatility in our results of operations.
The oceangoing cargo transportation industry is both cyclical and
volatile, with frequent and large fluctuations in charter rates. The charter
rates earned by the vessels in our Ocean Business will depend in part upon the
state of the vessel market at the time we seek to charter them. We can not
control the forces affecting the supply and demand for these vessels or for the
goods that they carry or predict the state of the vessel market on any future
date. If the vessel market is in a period of weakness when our vessels' charters
expire, we may be forced to re-charter our vessels at reduced rates or even
possibly at a rate at which we would incur a loss on operation of our vessels.
Some of the factors that influence the demand for oceangoing vessel
capacity include:
o global production of and demand for petroleum and petroleum products
and dry bulk commodities;
o the distance that these products and commodities must be transported
by sea;
o the globalization of manufacturing and other developments in
international trade;
o global and regional economic and political conditions;
o environmental and other regulatory developments;
o weather; and
o changes in seaborne and other transportation patterns and the supply
of and rates for alternative means of transportation.
Some of the factors that influence the supply of oceangoing vessel
capacity include:
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o the price of steel;
o the number of vessels that are out of service at a given time;
o changes in environmental and other regulations that may limit the
useful life of vessels; and
o port or canal congestion.
Our River Business can be affected by factors beyond our control,
particularly adverse weather conditions that can affect production of the
goods we transport and navigability of the river system.
We derive a significant portion of our River Business revenue from
transporting soybeans and other agricultural products produced in the Hidrovia
Region. Droughts and other adverse weather conditions, such as floods, could
result in a decline in production of these products, which would likely result
in a reduction in demand for our services. In 2005, our results of operations
and financial condition were negatively impacted due to the decline in soybean
production associated with that year's drought. Further, most of the operations
in our River Business occur on the Parana and Paraguay Rivers, and any changes
adversely affecting navigability of either of these rivers, such as low water
levels, could reduce or limit our ability to effectively transport cargo on the
rivers.
The rates we charge and the quantity of freight we transport in our River
Business can also be affected by:
o demand for the goods we ship on our barges;
o adverse river conditions, such as flooding or lock outages, that
slow or stop river traffic;
o any accidents or operational disruptions to ports, terminals or
bridges along the rivers on which we operate;
o changes in the quantity of barges available for river transport;
o the availability of transfer stations and cargo terminals for
loading of freight on and off barges; and
o the availability and price of alternate means of transporting goods
out of the Hidrovia Region.
A prolonged drought or other series of events that is perceived by the market to
have an impact on the region, the navigability of the Parana or Paraguay Rivers
or our River Business in general may, in the short term, result in a reduction
in the market value of the barges and pushboats that we operate in the region.
These barges and pushboats are designed to operate in wide and relatively calm
rivers, of which there are only a few in the world. If it becomes difficult or
impossible to operate our barges and pushboats profitably in the Hidrovia Region
and we are forced to sell them to a third party located outside of the region,
there is a limited market in which we would be able to sell these vessels, and
accordingly we may be forced to sell them at a substantial loss.
Demand for our PSVs depends on the level of activity in offshore oil and gas
exploration, development and production.
The level of offshore oil and gas exploration, development and production
activity has historically been volatile and is likely to continue to be so in
the future. The level of activity is subject to large fluctuations in response
to relatively minor changes in a variety of factors. A prolonged, material
downturn in oil and natural gas prices is likely to cause a substantial decline
in expenditures for exploration, development and production activity, which
would likely result in a corresponding decline in the demand for PSVs and thus
decrease the utilization and charter rates of our PSVs. Such decreases could
have an adverse effect on our financial condition and results of operations.
Moreover, increases in oil and natural gas prices and higher levels of
expenditure by oil and gas companies may not result in increased demand for our
PSVs. The factors affecting the supply and demand for PSVs are outside of our
control, and the nature, timing and degree of changes in industry conditions are
unpredictable. If the PSV market is in a period of weakness when our vessels'
charters expire, we may be forced to re-charter our vessels at reduced rates or
even possibly at a rate at which we would incur a loss on operation of our
vessels.
Some of the factors that influence the supply and demand for PSVs include:
o worldwide demand for oil and natural gas;
o prevailing oil and natural gas prices and expectations about future
prices and price volatility;
o the cost of offshore exploration for, and production and
transportation of, oil and natural gas;
o consolidation of oil and gas service companies operating offshore;
o availability and rate of discovery of new oil and natural gas
reserves in offshore areas;
o local and international political and economic conditions and
policies;
o technological advances affecting energy production and consumption;
o weather conditions;
o environmental regulation;
o volatility in oil and gas exploration, development and production
activity;
o the number of newbuilding deliveries; and
o deployment of PSVs to areas in which we operate.
Our vessels and our reputation are at risk of being damaged due to
operational risks that may lead to unexpected consequences, which may
adversely affect our earnings.
Our vessels and their cargos are at risk of being damaged or lost because
of events such as marine disasters, bad weather, mechanical failures, structural
failures, human error, war, terrorism, piracy and other circumstances or events.
All of these hazards can also result in death or injury to persons, loss of
revenues or property, environmental damage, higher insurance rates or loss of
insurance cover, damage to our customer relationships that could limit our
ability to successfully compete for charters, delay or rerouting, each of which
could adversely affect our business. Furthermore, if one of our vessels were
involved in an accident with the potential risk of environmental contamination,
the resulting media coverage could adversely affect our business.
If our vessels suffer damage, they may need to be repaired. The costs of
repairs are unpredictable and can be substantial. We may have to pay repair
costs that our insurance does not cover in full. The loss of revenue while these
vessels are being repaired and repositioned, as well as the actual cost of these
repairs, would decrease our earnings. In addition, space at repair facilities is
sometimes limited and not all repair facilities are conveniently located. We may
be unable to find space at a suitable repair facility or we may be forced to
travel to a repair facility that is not conveniently located to our vessels'
positions. The loss of earnings while these vessels are forced to wait for space
or to travel to more distant drydocking facilities would decrease our earnings.
Because the fair market value of vessels fluctuates significantly, we may
incur losses when we sell vessels.
Vessel values have historically been very volatile. The market value of
our vessels may fluctuate significantly in the future, and we may incur losses
when we sell vessels, which would adversely affect our earnings. Some of the
factors that affect the fair market value of vessels, all of which are beyond
our control, are:
o general economic, political and market conditions affecting the
shipping industry;
o number of vessels of similar type and size currently on the market
for sale;
o the viability of other modes of transportation that compete with our
vessels;
o cost and number of newbuildings and vessels scrapped;
o governmental or other regulations;
o prevailing level of charter rates; and
o technological advances that can render our vessels inferior or
obsolete.
Compliance with safety, environmental, governmental and other requirements may
be very costly and may adversely affect our business.
The shipping industry is subject to extensive and changing international
conventions and treaties, national, state and local environmental and
operational safety laws and regulations in force in international waters and the
jurisdictional waters of the countries in which the vessels operate, as well as
in the country or countries in which such vessels are registered. These laws and
regulations govern, among other things, the management and disposal of hazardous
materials and wastes, the cleanup of oil spills and other contamination, air
emissions, water discharges and ballast water management, and include (i) the
U.S. Oil Pollution Act of 1990, as amended, or OPA, (ii) the International
Convention on Civil Liability for Oil Pollution Damage of 1969, and its
protocols of 1976, 1984, and 1992, (iii) International Convention for the
Prevention of Pollution from Ships or, MARPOL, (iv) the International Maritime
Organization, or IMO, International Convention for the Safety of Life at Sea of
1974, or SOLAS, (v) the International Convention on Load Lines of 1966, (vi) the
U.S. Maritime Transportation Security Act of 2002 and (vii) the International
Ship and Port Facility Security Code, among others. In addition, vessel
classification societies also impose significant safety and other requirements
on our vessels. Many of these environmental requirements are designed to reduce
the risk of oil spills and other pollution, and our compliance with these
requirements can be costly.
These requirements can affect the resale value or useful lives of our
vessels, require a reduction in cargo-capacity or other operational or
structural changes, lead to decreased availability of insurance coverage for
environmental matters, or result in the denial of access to, or detention in,
certain ports. Local, national and foreign laws, as well as international
treaties and conventions, can subject us to material liabilities in the event
that there is a release of petroleum or other hazardous substances from our
vessels. We could also become subject to personal injury or property damage
claims relating to exposure to hazardous materials associated with our current
or historic operations. In addition, environmental laws require us to satisfy
insurance and financial responsibility requirements to address oil spills and
other pollution incidents, and subject us to rigorous inspections by
governmental authorities. Violations of such requirements can result in
substantial penalties, and in certain instances, seizure or detention of our
vessels. Additional laws and regulations may also be adopted that could limit
our ability to do business or increase the cost of our doing business and that
could have a material adverse effect on our operations. Government regulation of
vessels, particularly in the areas of safety and environmental impact, may
change in the future and require us to incur significant capital expenditure on
our vessels to keep them in compliance, or to even scrap or sell certain vessels
altogether. For example, beginning in 2003 we sold all of our single hull
oceangoing tanker vessels in response to regulatory requirements in Europe and
the United States. In addition, Annex VI of MARPOL, which became effective May,
2005, sets limits on sulphur oxide, nitrogen oxide and other emissions from
vessel exhausts and prohibits deliberate emissions of ozone depleting
substances, such as chlorofluorocarbons. Future changes in laws and regulations
may require us to undertake similar measures, and any such actions may be
costly. We believe that regulation of the shipping industry will continue to
become more stringent and more expensive for us and our competitors. For
example, various jurisdictions are considering regulating the management of
ballast water to prevent the introduction of non-indigenous species considered
to be invasive, which could increase our costs relating to such matters.
All of our vessels will be subject to Annex VI regulations. While we
expect that our newbuilding vessels will meet relevant Annex VI requirements at
the time of their delivery and that our existing fleet will comply with such
requirements, subject to classification society surveys, such compliance could
require modifications to the engines or the addition of expensive emissions
control systems, or both, as well as the use of low sulphur fuels. We expect
that any such modifications will be fitted to existing vessels in the next
intermediate or special survey for each requirements, but do not expect them to
have a material adverse effect on our operating costs.
MARPOL requirements impose phase-out dates for vessels that are not
certified as double hull. Two of our Suezmax OBO vessels currently do not meet
the configuration criteria and will require modifications to comply with these
criteria before the end of 2010. These modifications will not involve major
steel work. Our vessel, Miranda I, does not currently comply with the double
hull requirement unless she limits her loading to center tanks only. However, we
expect to retrofit her to full double hull compliance during the course of 2010.
In the United States, OPA provides that owners, operators and bareboat
charterers are strictly liable for the discharge of oil in U.S. waters,
including the 200 nautical mile zone off the U.S. coasts. OPA provides for
unlimited liability in some circumstances, such as a vessel operator's gross
negligence or willful misconduct. OPA also permits states to set their own
penalty limits. Most states bordering navigable waterways impose unlimited
liability for discharges of oil in their waters. The IMO has adopted a similar
liability scheme that imposes strict liability for oil spills, subject to limits
that do not apply if the release is caused by the vessel owner's intentional or
reckless conduct. The IMO and the European Union, or EU, also have adopted
separate phase-out schedules applicable to non-double hull tankers operating in
international and EU waters. These regulatory programs may require us to
introduce modifications or changes to tank configuration to meet the EU double
hull standards for our vessels or remove them from operation.
Under OPA, with certain limited exceptions, all newly built or converted
tankers operating in U.S. waters must be built with double hulls conforming to
particular specifications. Tankers that do not have double hulls are subject to
structural and operational measures to reduce oil spills and will be precluded
from operating in U.S. waters in most cases by 2015 according to size, age, hull
configuration and place of discharge unless retrofitted with double hulls. In
addition, OPA specifies annual inspections, vessel manning, equipment and other
construction requirements applicable to new and existing vessels that are in
various stages of development by the U.S. Coast Guard, or USCG.
Under OPA, and per USCG interpretations, our Aframax and Suezmax OBOs will
be precluded from operation in U.S. waters in 2014. The following information
has been extracted from the TVEL/COC corresponding to the vessels' last
inspection at a U.S. Port.
Name Phase-out date* Last TVEL/COC issuance date**
---- --------------- -----------------------------
Princess Katherine N/A March 26, 2003
Princess Nadia January 2014 August 26, 2001
Princess Susana November 2014 February 18, 2003
Princess Marina March 2014 August 29, 2002
----------
* As per the last Tank Vessel Examination Letter, or TVEL/Certificate of
Compliance, or COC.
** The USCG inspects vessels upon entry to U.S. ports and determines when
such vessels will be phased out under OPA, the dates of which are recorded
in the TVEL or the COC. On April 30, 2001, the USCG replaced the TVEL with
a newly generated document, the COC. The USCG, issues the COC for each
tanker if and when the vessel calls on a U.S. port and the COC is valid
for a period of two years, with mid-period examination. All above TVEL are
therefore expired and these vessels must be re-inspected upon their next
entry into a U.S. Port.
There was no phase-out date imposed on Princess Katherine at the time of
its last inspection by the USCG. Although Princess Nadia, Princess Marina and
Princess Susana are double hull vessels, due to configuration requirements under
the U.S. double hull standards, the phase-out dates indicated above are
applicable. For the same reasons, Princess Katherine could be given a phase out
date if or when next inspected by the USCG.
In 2010, the IMO will enforce mandatory SOLAS requirements so that all
passenger vessels operating must be built under regulation SOLAS 60, Part H,
restricting use of combustible material and requiring that all passenger vessels
be fully outfitted with sprinklers in both the passenger and engine room spaces.
The Grand Victoria was built according to the rules of regulation SOLAS
60, but using method II, along with a sprinkler system installed during
construction. However, under method II generally there was no restriction on any
type of internal division and this method allowed combustible material to be
used during construction which is now generally not permissible pursuant to the
SOLAS amendments. Therefore, for trading beyond 2010, this vessel will require a
complete refurbishment that we cannot assure you will be economically viable.
The oceangoing cargo transportation industry is highly competitive, and we may
not be able to compete successfully for charters with new entrants or
established companies with greater resources.
We employ our vessels in highly competitive markets. The oceangoing market
is international in scope and we compete with many different companies,
including other vessel owners and major oil companies, such as Transpetro, a
subsidiary of Petrobras. In our Offshore Supply Business, we compete with
companies that operate PSVs, such as Maersk, Seacor and Tidewater. Some of these
competitors are significantly larger than us and have significantly greater
resources than we do. This may enable these competitors to offer their customers
lower prices, higher quality service and greater name recognition than we do.
Accordingly we may be unable to retain our current customers or to attract new
customers. Further, some of these competitors, such as Transpetro, are
affiliated with or owned by the governments of certain countries, and may
receive government aid or legally imposed preferences or other assistance, that
are unavailable to us.
Increased inspection procedures and tighter import and export controls could
increase costs and disrupt our business.
International shipping is subject to various security and customs
inspection and related procedures in countries of origin and destination.
Inspection procedures can result in the seizure of our vessels or their cargos,
delays in the loading, offloading or delivery and the levying of customs duties,
fines or other penalties against us.
It is possible that changes to inspection procedures could impose
additional financial and legal obligations on us. Furthermore, changes to
inspection procedures could also impose additional costs and obligations on our
customers and may, in certain cases, render the shipment of certain types of
cargo uneconomical or impractical. Any such changes or developments may have a
material adverse effect on our business, financial condition, results of
operations and ability to pay dividends.
Compliance with safety and other vessel requirements imposed by classification
societies or flag states may be very costly and may adversely affect our
business.
The hull and machinery of our offshore supply fleet, ocean fleet, passenger
fleet and parts of our river fleet are classed by a classification society. The
classification society certifies that a vessel is in class and may also issue
the vessel's safety certification in accordance with the applicable rules and
regulations of the country of registry of the vessel and SOLAS. Our classed
vessels are currently enrolled with classification societies that are members of
the International Association of Classification Societies.
A classed vessel must undergo Annual Surveys, Intermediate Surveys and
Special Surveys. In lieu of a Special Survey, a vessel's machinery may be placed
on a continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. Our vessels are on Special Survey cycles
for hull inspection and continuous survey cycles for machinery inspection.
Generally, classed vessels are also required to be drydocked every two to three
years for inspection of the underwater parts of such vessels. However, classed
vessels must be drydocked for inspection at least twice every five years.
If a vessel does not maintain its class, that vessel will, in practical
terms, be unable to trade and will be unemployable, which would negatively
impact our revenues, and could cause us to be in violation of certain covenants
in our loan agreements and/or our insurance policies.
Our vessels could be subject to seizure through maritime arrest or government
requisition.
Crew members, suppliers of goods and services to a vessel, shippers of
cargo and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime
lienholder may enforce its lien by arresting the vessel or, under the "sister
ship" theory of liability followed in some jurisdictions, arrest the vessel that
is subject to the claimant's maritime lien or any other vessel owned or
controlled by the same owner. In addition, a government could seize ownership of
one of our vessels or take control of a vessel and effectively become her
charterer at charter rates dictated by the government. Generally, such
requisitions occur during a period of war or emergency. The maritime arrest,
government requisition or any other seizure of one or more of our vessels could
interrupt our operations, reducing related revenue and earnings, and may require
us to pay very large sums of money to have the arrest lifted.
The impact of terrorism and international conflict on the world or regional
economy could lead to reduced demand for our services, which would adversely
affect our revenues and earnings.
Terrorist attacks such as the attacks on the United States on September
11, 2001, and the continuing response of the United States to these attacks, as
well as the threat of future terrorist attacks, continue to cause uncertainty in
the world markets and may affect our business, results of operations and
financial condition. The conflict in Iraq may lead to additional acts of
terrorism, regional conflict and other armed conflict around the world, which
may contribute to further instability in the global markets. In addition, future
terrorist attacks could result in a an economic recession affecting the United
States or the entire world. The effects of terrorism on financial markets could
also adversely affect our ability to obtain additional financing on terms
acceptable to us or at all.
Terrorist attacks have, in the past, targeted shipping interests,
including ports or vessels. For example in October 2002, there was a terrorist
attack on the VLCC Limburg, a vessel not related to us. Any future attack in the
markets we serve may negatively affect our operations or demand for our
services, and such attacks may also directly impact our vessels or our
customers. Furthermore, insurance may not cover our loss or liability for
terrorist attacks on our vessels, cargo or passengers either fully or at all.
Any of these occurrences could have a material adverse impact on our operating
results, revenue and costs.
Demand for cruises in our Passenger Business may be affected by many factors
that are outside our control.
Demand for cruises in our Passenger Business may be affected by a number
of factors. Sales are dependent on the underlying economic strength of the
countries in which we operate and the country of origin of our passengers, which
is currently primarily countries in Europe. Adverse economic conditions can
reduce the level of consumers' disposable income that is available for their
vacation choices. In addition, events or circumstances that make cruises
relatively less attractive relative to other vacation or leisure alternatives
will reduce consumer demand for cruises. Finally, the overall increase in
passenger capacity in the cruise industry could lead to reduced demand for our
vessels, and if the charterer of one of our vessels does not perform under the
charter, we will be unable to re-charter that vessel in the middle of a cruise
season.
Moreover, adverse incidents involving passenger vessels and adverse media
publicity concerning the cruise industry in general or our vessels in particular
may reduce demand. The operation of passenger vessels involves the risk of
accidents and other incidents, which may bring into question passenger safety
and security and adversely affect future industry performance. Any accidents and
other incidents involving our passenger vessels would adversely affect our
future revenues and earnings. In addition, adverse media publicity concerning
the cruise industry in general could impact customer demand and, therefore, have
an adverse impact on our revenues and earnings.
In addition, armed conflicts or political instability in areas where our
passenger vessels operate can adversely affect demand for our cruises to those
areas. Also, acts of terrorism and threats to public health can have an adverse
effect on the public's attitude toward the safety and security of travel and the
availability of air service and other forms of transportation, which some of our
passengers use to travel.
Environmental, health, safety and security legislation and regulation of
passenger vessels could increase our operating costs in our Passenger
Business.
Some environmental groups have lobbied for more stringent regulation of
passenger vessels. Some groups also have generated negative publicity about the
cruise industry and its environmental impact. As a result of these and other
actions, governmental and regulatory authorities around the world may enact new
environmental, health, safety and security legislation and regulations, such as
those governing wastewater discharges. Stricter environmental, health, safety
and security legislation and regulations could increase the cost of compliance
and adversely affect the cruise industry.
In addition, as a result of the 2002 Protocol of the Athens Convention and
any similar legislation, vessel operators are, and may be in the future,
required to adopt enhanced security procedures and approved vessel security
plans. Stricter environmental, health, safety, insurance and security
legislation and regulations could increase the cost of compliance and adversely
affect the cruise industry. We cannot assure you that our costs of complying
with current and future laws and regulations, or liabilities arising from past
or future releases of, or exposure to, hazardous substances, or to vessel
discharges, will not have a material adverse effect on our financial results.
Risks Relating to Our Company
Our earnings may be lower and more volatile if we do not efficiently deploy
our vessels between longer term and shorter term charters.
We employ our ocean and offshore vessels on spot voyages, which are
typically single voyages for a period of less than 60 days for our ocean vessels
and five days for our PSVs, and on time charters and contracts of affreightment,
which are longer term contracts for periods of typically three months to three
years or more. As of December 31, 2005, three of our six oceangoing vessels were
employed under time charters expiring on dates ranging between four and 33
months, the vast majority of our fleet of pushboats and barges in our River
Business were employed under contracts of affreightment, ranging from one month
to four years and one of our two PSVs was chartered for the duration of drilling
of two wells, which typically lasts three to four months. In addition, our third
PSV delivered in February 2006 is time chartered for six months with an option
to extend the charter for an additional month.
Although time charters and contracts of affreightment provide steady
streams of revenue, vessels committed to such contracts are unavailable for spot
voyages or for entry into new longer term time charters or contracts of
affreightment. If such periods of unavailability coincide with a time when
market prices have risen, such vessels will be unable to capitalize on that
increase in market prices. If our vessels are available for spot charter or
entry into new time charters or contracts of affreightment, they are subject to
market prices, which may vary greatly. If such periods of availability coincide
with a time when market prices have fallen, we may have to deploy our vessels on
spot voyages or under long term time charters or contracts of affreightment at
depressed market prices, which would lead to reduced or volatile earnings and
may also cause us to suffer operating losses.
We may not be able to grow our business or effectively manage our growth.
A principal focus of our strategy is to continue to grow, in part by
increasing the number of vessels in our fleet. The rate and success of any
future growth will depend upon factors which may be beyond our control,
including our ability to:
o identify attractive businesses for acquisitions or joint ventures;
o identify vessels for acquisitions;
o integrate any acquired businesses or vessels successfully with our
existing operations;
o hire, train and retain qualified personnel to manage and operate our
growing business and fleet;
o identify new markets;
o expand our customer base;
o improve our operating and financial systems and controls; and
o obtain required financing for our existing and new operations.
We may not be successful in executing our growth plans and could incur
significant expenses and losses in connection therewith.
Our planned investments in our River Business vessels are subject to
significant uncertainty.
We intend to invest in expanding the size of our barges and installing new
engines that burn less expensive fuel in our line pushboats. It is possible that
these initiatives will fail to result in increased revenues and lower fuel costs
and that they will lead to other complications that would adversely affect our
business.
The increased capacity created by expanding the size of our barges may not
be utilized by the local transportation market at prevailing prices or at all.
Our expansion activities may also be subject to delays, which may result in cost
overruns or lost revenues. Any of these developments would adversely affect our
revenue and earnings.
While we expect the heavier fuel that our new engines burn to continue to
be available at a discount to the price of the fuel that we currently use, the
heavier fuel may not be available at such a large discount or at any discount at
all. In addition, operating our new engines will require specially trained
personnel, and such personnel may not be readily available. Higher fuel or
personnel costs would adversely affect our profitability. The operation of these
new engines may also result in other complications that cannot easily be
foreseen and that may adversely affect the quantity of freight we carry or lead
to additional costs, which could adversely affect our revenue and earnings.
We may not be able to charter our new offshore supply vessels at attractive
rates.
We have contracted with a shipyard in Brazil to build three new PSVs and
expect to take delivery of these vessels during 2006 and 2007 and are
negotiating with other shipyards to construct a further four new PSVs for
deliveries beyond 2007. These vessels are not currently subject to charters and
may not be subject to charters on their date of delivery. Although we intend to
charter these vessels to Petrobras and other charterers, we may not be able to
do so. Even if we do obtain charters for these vessels, the charters may be at
rates lower than those that currently prevail or those that we anticipated at
the time of ordering the vessels. If we fail to obtain charters or if we enter
into charters with low charter rates our financial condition and results of
operations could suffer.
We may face delays in delivery under our newbuilding contracts for PSVs which
could adversely affect our financial condition and results of operations.
Our three PSVs currently under construction and additional newbuildings
for which we intend to enter into contracts may be subject to delays in their
respective deliveries or non-delivery from the shipyards. The delivery of our
PSVs could be delayed, canceled, become more expensive or otherwise not
completed because of, among other things:
o quality or engineering problems;
o changes in governmental regulations or maritime self-regulatory
organization standards;
o work stoppages or other labor disturbances at the shipyard;
o bankruptcy or other financial crises of the shipyard;
o economic factors affecting the yard's ability to continue building
the vessels as originally contracted;
o a backlog of orders at the shipyard;
o weather interference or a catastrophic event, such as a major
earthquake or fire or any other force majeure;
o our requests for changes to the original vessel specifications;
o shortages of or delays in the receipt of necessary construction
materials, such as steel;
o our inability to finance the purchase of the PSVs;
o our inability to obtain requisite permits or approvals or to receive
the required classifications for the vessels from authorized
classification societies; or
o a shipbuilder's failure to otherwise meet the scheduled delivery
dates for the PSVs or failure to deliver the vessels at all.
If the delivery of any PSV is materially delayed or canceled, especially
if we have committed that PSV to a charter for which we become responsible for
substantial liquidated damages to the customer as a result of the delay or
cancellation, our business, financial condition and results of operations could
be adversely affected. Although the building contracts typically incorporate
penalties for late delivery, we cannot assure you that the vessels will be
delivered on time or that we will be able to collect the late delivery payment
from the shipyards.
We cannot assure you that we will be able to repossess the vessels under
construction or their parts in case of a default of the shipyards and in those
cases where we may have performance guarantees, we cannot assure that we will
always be able to collect or that it will be in our interest to collect these
guarantees.
We may use the proceeds of this offering for general corporate purposes with
which you may not agree
We may use the proceeds of this offering for general corporate purposes
with which you may not agree. For example, if the shipyard building our PSVs
currently under construction fails to deliver the PSVs to us as agreed, or if we
cancel a contract because the shipyard has not met its obligations, our
management will have the discretion to apply the proceeds of this offering that
we would have used to purchase those PSVs to acquire other vessels or for
general corporate purposes that you may not agree with. We will not escrow the
proceeds from this offering and will not return the proceeds to you if we do not
take delivery of one or more PSVs. It may take a substantial period of time
before we can locate and purchase other suitable vessels. During this period,
the portion of the proceeds of this offering originally planned for the
acquisition of these PSVs may only be invested on a short-term basis and
therefore may not yield returns at rates comparable to those these PSVs might
have earned.
Secondhand vessels are more expensive to operate and repair than newbuildings
and may have a higher likelihood of accidents.
We purchased all of our oceangoing vessels and substantially all of our
other vessels, except our PSVs, secondhand and our current business strategy
includes growth through the acquisition of additional secondhand vessels. While
we inspect secondhand vessels prior to purchase, we may not discover defects or
other problems with such vessels prior to purchase. Any such hidden defects or
problems, when detected, may be expensive to repair, and if not detected, may
result in accidents or other incidents for which we are liable to third parties.
New vessels may experience initial operational difficulties.
New vessels, during their initial period of operation, have the
possibility of encountering structural, mechanical and electrical problems.
Normally, we will receive a warranty from the yard but we cannot assure you that
it will always be effective to resolve the problem without additional costs to
us.
As our fleet ages, the risks and costs associated with older vessels increase.
The costs to operate and maintain a vessel in operation increase with the
age of the vessel. Charterers may prefer newer vessels which carry lower cargo
insurance rates and are more fuel-efficient than older vessels. Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which these vessels may
engage. As our vessels age, market conditions may not justify the expenditures
necessary for us to continue operation of our vessels, and charterers may no
longer charter our vessels at attractive rates or at all. Either development
could adversely affect our earnings.
We depend on a few significant customers for a large part of our revenues, and
the loss of one or more of these customers could adversely affect our revenues.
In each of our business segments, we derive a significant part of our
revenues from a small number of customers. In 2005, our largest customer
accounted for 25% of our total revenues, our second largest customer accounted
for 17% of our total revenues, and our six largest customers in terms of
revenues, in aggregate, accounted for 70% of our total revenues. In addition,
some of our customers, including many of our most significant customers such as
Petrobras and Archer Daniels Midland, operate vessels of their own. These
customers may decide to cease or reduce the use of our services for any number
of reasons, including in order to utilize their own vessels. The loss of any one
or a number of our significant customers, whether to our competitors or
otherwise, could adversely affect our revenues and earnings.
Our success depends upon our management team and other employees, and if we are
unable to attract and retain key management personnel and other employees, our
results of operations may be negatively impacted.
Our success depends to a significant extent upon the abilities and efforts
of our management team and our ability to retain them. In particular, many
members of our senior management team, including our CEO and Executive Vice
President, have extensive experience in the shipping industry and have held
their roles with us since our inception. If we were to lose their services for
any reason, it is not clear whether any available replacements would be able to
manage our operations as effectively. The loss of any of the members of our
management team could adversely affect our business prospects and results of
operations and could lead to an immediate decrease in the price of our common
stock. We do not maintain "key man" insurance on any of our officers. Further,
the efficient and safe operation of our vessels requires skilled and experienced
crew members. Difficulty in hiring and retaining such crew members could
adversely affect the operation of our vessels, and in turn adversely affect our
results of operations.
We are an international company that is exposed to the risks of doing business
in many different, and often less developed and emerging market countries.
We are an international company and conduct almost all of our operations
outside of the United States, and we expect to continue doing so for the
foreseeable future. Some of these operations occur in countries that are less
developed and stable than the United States, such as Argentina, Bolivia, Brazil,
Chile, Paraguay and Uruguay. Some of the risks we are exposed to by operating in
these countries include among others:
o political and economic instability, changing economic policies and
conditions, and war and civil disturbances;
o recessions in economies of countries in which we have business
operations;
o the imposition of additional withholding taxes or other taxes on our
foreign income, tariffs or other restrictions on foreign trade or
investment, including currency exchange controls and currency
repatriation limitations;
o the imposition of executive and judicial decisions upon our vessels
by the different governmental authorities associated with some of
these countries;
o the imposition of or unexpected adverse changes in foreign laws or
regulatory requirements;
o longer payment cycles in foreign countries and difficulties in
collecting accounts receivable;
o difficulties and costs of staffing and managing our foreign
operations; and
o acts of piracy or terrorism.
These risks may result in unforeseen harm to our business and financial
condition. Also, some of our customers are headquartered in South America, and a
general decline in the economies of South America, or the instability of certain
South American countries and economies, could adversely affect that part of our
business.
Our business in emerging markets requires us to respond to rapid changes
in market conditions in these countries. Our overall success in international
markets depends, in part, upon our ability to succeed in different legal,
regulatory, economic, social and political conditions. We may not continue to
succeed in developing and implementing policies and strategies which will be
effective in each location where we do business. Furthermore, the occurrence of
any of the foregoing factors may have a material adverse effect on our business
and results of operations.
We may not have adequate insurance to compensate us if our vessels are damaged
or lost or if we harm third parties or their property or the environment.
We insure against tort claims and some contractual claims (including
claims related to environmental damage and pollution) through memberships in
protection and indemnity, or P&I, associations, or clubs. We also procure hull
and machinery insurance and war risk insurance for our fleet. In most instances,
we do not procure loss of hire insurance, which covers business interruptions
that result in the loss of use of a vessel.
All insurance policies that we carry include deductibles (and some include
limitations on partial loss) and since it is possible that a large number of
claims may be brought, the aggregate amount of these deductibles could be
material. Further, our insurance may not be sufficient to fully compensate us
against losses that we incur, whether from damage to or loss of our vessels,
through liability to a third party, for harm to the environment or for other
catastrophic claims. For example, our protection and indemnity insurance has a
coverage limit of $1 billion regarding oil spills and related harm to the
environment. Although this is a significant sum, it may be insufficient to fully
compensate us, and any uninsured losses that we incur may be substantial and may
have a very significant effect on our financial condition. In addition, our
insurance may be voidable by the insurers as a result of certain of our actions,
such as our ships failing to maintain certification with applicable maritime
self-regulatory organizations or lack of payment of premium.
We cannot assure you that we will be able to renew our existing insurance
policies on the same or commercially reasonable terms, or at all, in the future.
For example, more stringent environmental regulations have led in the past to
increased costs for, and in the future may result in lack of availability of,
protection and indemnity insurance against risks of environmental damage or
pollution. Each of our policies is also subject to limitations and exclusions,
and our insurance policies may not cover all types of losses that we could
incur. Any uninsured or under insured loss could harm our business, financial
condition and operating results. Furthermore, we cannot assure you that the P&I
clubs to which we belong will remain viable. We may also become subject to
funding calls due to our membership in the P&I clubs which could adversely
affect our profitability. Also certain claims may be covered by our P&I
insurance, but subject to the review and at the discretion of the board of the
P&I club. We cannot assure you that the board will exercise its discretion to
vote to approve the claim.
Labor disruptions in the shipping industry could adversely affect our business.
As of December 31, 2005 we employed 110 land-based employees and
approximately 770 seafarers as crew on our vessels. These seafarers are covered
by industry-wide collective bargaining agreements that set basic standards
applicable to all companies who hire such individuals as crew. Because most of
our employees are covered by these industry-wide collective bargaining
agreements, failure of industry groups to renew these agreements may disrupt our
operations and adversely affect our earnings. In addition, we cannot assure you
that these agreements will prevent labor interruptions. Any labor interruptions
could disrupt our operations and harm our financial performance.
Certain conflicts of interest may adversely affect us.
Certain of our directors and officers hold similar positions with other
related companies. Felipe Menendez R., who is our President, Chief Executive
Officer, and a Director, is a Director of Oceanmarine, a related company that
previously provided administrative services to the Company and has entered into
joint ventures with the Company in salvage operations. Oceanmarine also operates
slot charter container services between Argentina and Brazil, an activity in
which the Company does not engage at the present time. Ricardo Menendez R., who
is our Executive Vice President and one of our Directors, is the President of
Oceanmarine, and is also the Chairman and President of The Standard Steamship
Owners' Protection and Indemnity Association (Bermuda) Limited, or Standard, a
P&I club with which some of our vessels are entered. Both Mr. Ricardo Menendez
R. and Felipe Menendez R. are Directors of Maritima SIPSA, a company owned 49%
by us and 51% by SIPSA (a related company), which has entered into agreements to
purchase and resell to and from our subsidiaries our vessel Princess Marina, and
Directors of I. Shipping Services, a company that provides vessel agency
services for third parties in Argentina and occasionally for the Company's
vessels calling at Buenos Aires and other Argentinean ports. The Company is not
engaged in the vessel agency business and the services provided by I. Shipping
Services to the Company amounted to less than $10,000 in 2005. Although these
directors and officers attempt to perform their duties within each company
independently, in light of their positions with such entities, these directors
and officers may face conflicts of interest in selecting between our interests
and those of Oceanmarine, I. Shipping Services and the Standard. In addition, I.
Shipping Services and Oceanmarine are indirectly controlled by the Menendez
family, including Felipe Menendez R. and Ricardo Menendez R. These conflicts may
limit our fleet's earnings and adversely affect our operations. We refer you to
"Related Party Transactions" for more information on Related Party Transactions.
To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness,
including the Notes and any amounts borrowed under any of our subsidiaries'
credit facilities, and to fund our operations, will depend on our ability to
generate cash in the future, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. We cannot assure you that our business will generate
sufficient cash flow from operations, that currently anticipated business
opportunities will be realized on schedule or at all or that future borrowings
will be available to us in amounts sufficient to enable us to service our
indebtedness, including the Notes and any amounts borrowed under our
subsidiaries' credit facilities, or to fund our other liquidity needs.
If we cannot service our debt, we will have to take actions such as
reducing or delaying capital investments, selling assets, restructuring or
refinancing our debt or seeking additional equity capital. We cannot assure you
that any of these remedies could, if necessary, be effected on commercially
reasonable terms, or at all. In addition, the indenture for the Notes and the
credit agreements governing our subsidiaries' various credit facilities may
restrict us from adopting any of these alternatives.
We may not be able to fulfill our obligations in the event we suffer a change of
control.
If we suffer a change of control, we will be required to make an offer to
repurchase the Notes at a price of 101% of their principal amount plus accrued
and unpaid interest. Under certain circumstances, a change of control of our
company may also constitute a default under our credit facilities resulting in
our lenders' right to accelerate their loans. We cannot assure you that we will
be able to satisfy our obligations if a change of control occurs.
Our subsidiaries' credit facilities and the indenture governing our Notes
impose significant operating and financial restrictions on us that may limit
our ability to successfully operate our business.
Our subsidiaries' credit facilities and the indenture governing the Notes
impose significant operating and financial restrictions on us, including those
that limit our ability to engage in actions that may be in our long term
interests. These restrictions limit our ability to, among other things:
o incur additional debt;
o pay dividends or make other restricted payments;
o create or permit certain liens;
o make investments;
o engage in sale and leaseback transactions;
o sell vessels or other assets;
o create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us;
o engage in transactions with affiliates; and
o consolidate or merge with or into other companies or sell all or
substantially all of our assets.
See "Description of Credit Facilities and Other Indebtedness." These
restrictions could limit our ability to finance our future operations or capital
needs, make acquisitions or pursue available business opportunities.
In addition, some of our subsidiaries' credit facilities require that our
subsidiaries maintain specified financial ratios and satisfy financial
covenants. We may be required to take action to reduce our debt or to act in a
manner contrary to our business objectives to meet these ratios and satisfy
these covenants. Events beyond our control, including changes in the economic
and business conditions in the markets in which our subsidiaries operate, may
affect their ability to comply with these covenants. We cannot assure you that
our subsidiaries will meet these ratios or satisfy these covenants or that our
subsidiaries' lenders will waive any failure to do so. A breach of any of the
covenants in, or our inability to maintain the required financial ratios under,
our subsidiaries' credit facilities would prevent our subsidiaries from
borrowing additional money under the facilities and could result in a default
under them.
If a default occurs under our credit facilities or of those of our
subsidiaries, the lenders could elect to declare that debt, together with
accrued interest and other fees, to be immediately due and payable and proceed
against the collateral securing that debt. Moreover, if the lenders under a
credit facility or other agreement in default were to accelerate the debt
outstanding under that facility, it could result in a default under other debt.
If all or any part of our debt were to be accelerated, we may not have or be
able to obtain sufficient funds to repay it or to repay the Notes upon
acceleration.
If we are unable to fund our capital expenditures, we may not be able to
continue to operate some of our vessels, which would have a material adverse
effect on our business and our ability to pay dividends.
In order to fund our capital expenditures, we may be required to incur
borrowings or raise capital through the sale of debt or equity securities. Our
ability to obtain credit facilities and access the capital markets through
future offerings may be limited by our financial condition at the time of any
such offering as well as by adverse market conditions resulting from, among
other things, general economic conditions and contingencies and uncertainties
that are beyond our control. Our failure to obtain the funds necessary for
future capital expenditures would limit our ability to continue to operate some
of our vessels and could have a material adverse effect on our business, results
of operations and financial condition and our ability to pay dividends. Even if
we are successful in obtaining such funds through financings, the terms of such
financings could further limit our ability to pay dividends.
We are a holding company, and we depend entirely on the ability of our
subsidiaries to distribute funds to us in order to satisfy our financial and
other obligations.
We are a holding company, and as such we have no significant assets other
than the equity interests of our subsidiaries. Our subsidiaries conduct all of
our operations and own all of our operating assets. As a result, our ability to
pay dividends and service our indebtedness depends on the performance of our
subsidiaries and their ability to distribute funds to us. The ability of our
subsidiaries to make distributions to us may be restricted by, among other
things, restrictions under our credit facilities and applicable laws of the
jurisdictions of their incorporation or organization. For example, some of our
subsidiaries' existing credit agreements contain significant restrictions on the
ability of our subsidiaries to pay dividends or make other transfers of funds to
us. See "Description of Credit Facilities and Other Indebtedness." Furthermore,
some countries in which our subsidiaries are incorporated require our subsidiary
to receive central bank approval before transferring funds out of that country.
In addition, under limited circumstances, the indenture governing the Notes
permits our subsidiaries to enter into additional agreements that can limit our
ability to receive distributions from such subsidiaries. If we are unable to
obtain funds from our subsidiaries, we will not be able to pay dividends or
service our debt, unless we obtain funds from other sources, which may not be
possible.
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations
that could harm our reported revenue and results of operations.
We are an international company and, while our financial statements are
reported in U.S. dollars, some of our operations are conducted in foreign
currencies. For example, in 2005, 84% of our revenues were denominated in U.S.
dollars, 11% were denominated in Euros, and 5% were denominated in British
pounds. If the value of the dollar appreciates relative to the value of these
other currencies, the U.S. dollar value of the revenues that we report on our
financial statements could be materially affected. Changes in currency exchange
rates could adversely affect our reported revenues and could require us to
reduce our prices to remain competitive in foreign markets, which could also
have a material adverse effect on our results of operations. Further, we incur
costs in multiple currencies that are different than, or in a proportion
different to, the currencies in which we receive our revenues. Accordingly, if
the currencies in which we incur a large portion of our costs appreciate in
value against the currencies in which we receive a large portion of our revenue,
our margins could be adversely affected. We have not historically hedged our
exposure to changes in foreign currency exchange rates and, as a result, we
could incur unanticipated losses.
We may have to pay tax on United States source income, which would reduce our
earnings and cash flows.
Under the United States Internal Revenue Code of 1986, as amended, or the
Code, 50% of the gross shipping income of our vessel owning or chartering
subsidiaries attributable to transportation that begins or ends, but that does
not both begin and end, in the U.S. will be characterized as U.S. source
shipping income. Such income will be subject to a 4% U.S. Federal income tax
without allowance for deduction, unless our subsidiaries qualify for exemption
from tax under Section 883 of the Code and the Treasury Regulations promulgated
thereunder, which became effective for our calendar year subsidiaries on January
1, 2005.
Our subsidiaries filed U.S. tax returns for 2004 and 2003 and took the
position on those returns that they qualified for the exemption on their U.S.
source shipping income under Section 883 based on the determination that more
than 50% of their stock was beneficially owned by qualified shareholders.
However, that claim for exemption by our subsidiaries may not prevail if
challenged on audit. In the absence of the availability of the exemption for
2004 and 2003, our subsidiaries would be subject to a 4% Federal income tax of
approximately $0 and $249,264, respectively. For the calendar year 2005, our
subsidiaries did not derive any U.S. source shipping income and therefore were
not subject to any U.S. Federal income tax regardless of their qualification for
exemption under Section 883.
For 2006 and tax years after this offering, we believe that the U.S.
source shipping income of our subsidiaries will qualify for the exemption from
tax under Section 883 on the basis that our stock will be primarily and
regularly traded on the Nasdaq. However, we cannot assure you that our
subsidiaries will qualify for that exemption. In addition, changes in the Code,
the Treasury Regulations or the interpretation thereof by the Internal Revenue
Service or the courts could adversely affect the ability of our subsidiaries to
qualify for such exemption. If our subsidiaries are not entitled to that
exemption, they would be subject to a 4% U.S. Federal income tax on their U.S.
source shipping income. The imposition of this tax could have a negative affect
on our business and would result in decreased earnings.
Our OBOs are less desired by certain charterers in the tanker market.
OBOs are versatile because they can transport both petroleum products and
dry bulk cargos. Unlike the more traditional type of tanker, an OBO has fewer
tanks, but each tank is generally larger. Prior to the advent of computerized
loading systems, due to the amount of available free space and the possibility
of cargo shifting and causing the vessel to become unstable, extra caution had
to be used when loading an OBO. While this problem, like other problems
originally linked to OBOs, have been solved with new technology, OBOs are still
less desired by certain charterers who prefer to use the more traditional form
of tanker to transport oil and other petroleum products. To the extent any
charterers elect not to use our OBOs and instead use standard tankers, this
could have a negative impact on our business and financial results.
Rising fuel prices may adversely affect our profits.
Fuel is the largest operating expense in our River Business where most of
our contracts are contracts of affreightment under which we are paid per ton of
cargo shipped. Currently, many of these agreements permit the adjustment of
freight rates based on changes in the price of fuel. We may not be able to
include this provision in these contracts when they are renewed or in future
contracts with new customers. In our Ocean, Offshore Supply and Passenger
Businesses, the risk of variation of fuel prices under the vessels' current
employment is generally borne by the charterers, since the charterers are
generally responsible for the supply of fuel. In the future we may become
responsible for the supply of fuel to such vessels, in which case variations in
the price of fuel could affect our earnings.
To the extent our contracts do not pass on changes in fuel prices, we will
be forced to bear the cost of fuel price increases. We may hedge in the futures
market all or part of our exposure to fuel price variations. We cannot assure
you that we will be successful in hedging our exposure. In the event of a
default by our charterers or other circumstance affecting the performance of a
contract of affreightment, we are subject to exposure under, and may incur
losses in connection with, our hedging instruments.
In certain jurisdictions, the price of fuel is affected by high local
taxes and may become more expensive than prevailing international prices. We may
not be able to pass onto our customers the additional cost of such taxes and may
suffer losses as a consequence.
Risks Relating to this Offering and Our Common Stock
There is no guarantee that an active and liquid public market for you to resell
shares of our common stock will develop.
Prior to this offering, there has not been a public market for our common
stock. A liquid trading market for our common stock may not develop. If an
active, liquid trading market does not develop, you may have difficulty selling
any of our common shares you buy. The initial public offering price will be
determined in negotiations between the representatives of the underwriters and
us and may not be indicative of prices that will prevail in the trading market.
The price of our common stock after this offering may be volatile, and may
fluctuate due to factors such as:
o actual or anticipated fluctuations in quarterly and annual results;
o mergers and strategic alliances in the shipping industry;
o market conditions in the industry;
o changes in government regulation;
o our operating results falling short of those forecast by securities
analysts;
o announcements concerning us or our competitors;
o the general state of the securities market; and
o other developments affecting us, our industry or our competitors.
The market price for our common stock may be volatile. Consequently, you
may not be able to sell shares of our common stock at prices equal to or greater
than those paid by you in this offering.
You will experience immediate and substantial dilution as a result of this
offering and may experience additional dilution in the future.
If you purchase common stock in this offering, you will pay more for your
shares of common stock than the amounts paid by existing shareholders for their
shares. As a result, assuming an initial public offering price of $ per
share (representing the mid-point of the price range shown on the cover of this
Prospectus) you will incur immediate and substantial dilution of $ per
share, representing the difference between the estimated initial public offering
price and our pro forma as adjusted net tangible book value per share at
December 31, 2005, after giving effect to this offering and the transactions
described under "Unaudited Pro Forma Condensed Consolidated Financial
Information." In addition, assuming the initial public offering price stated
above, purchases of our common stock in this offering will have contributed
approximately % of the aggregate price paid by all purchasers of our common
stock, but will own only approximately % of the shares outstanding after
this offering. In addition, through our Equity Incentive Plan or others, we may
issue additional shares that will be dilutive. We refer you to the discussion
under the heading "Dilution."
The selling shareholders will control the outcome of matters on which our
shareholders are entitled to vote following this Offering.
The selling shareholders will own, directly or indirectly, approximately %
of our outstanding common stock after this Offering, assuming the underwriters
do not exercise their over-allotment option. Each share of our common stock,
when held by a selling shareholder, is entitled to seven votes while shares held
by all other shareholders are entitled to one vote, which means the selling
shareholders will control % of the voting power of our common stock.
This increased voting power gives the selling shareholders control over the
outcome of matters on which shareholders are entitled to vote, including the
election of directors, the adoption or amendment of provisions in our memorandum
of association or articles of association and possible mergers, corporate
control contests and other significant corporate transactions. Further, the
selling shareholders are party to a shareholders' agreement pursuant to which
they have agreed to vote together on certain matters, including mergers and
acquisitions. This concentration of voting power may have the effect of
delaying, deferring or preventing a change in control, a merger, consolidation,
takeover or other business combination. This concentration of voting power could
also discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which could in turn have an adverse effect
on the market price of our common stock. Finally, the interests of the selling
shareholders may be different from your interests. For example, potentially
contrary to your interests, the selling shareholders may resist attempts to
change the current composition of the board of directors and attempts by outside
third parties to gain control of or acquire our Company.
Future sales of shares could depress our stock prices.
Upon consummation of our offering, our existing shareholders will own
shares, or approximately %, of our outstanding common stock, which
may be resold subject to the volume, manner of sale and notice requirements of
Rule 144 under the Securities Act of 1933, as amended, as a result of their
status as our "affiliates." Unless sold to the other selling shareholder, each
share sold by such shareholders will have one vote per share in the hands of the
buyer. Shares held by our existing shareholders as well as our officers,
directors and certain other shareholders will be subject to the underwriters'
lock-up agreement in which they have agreed not to dispose of any shares of
common stock, subject to limited exceptions, for a period of 180 days after the
date of this Prospectus, without the consent of the underwriters. We refer you
to the discussion under the heading "Shares Eligible for Future Sale" in this
prospectus. Sales or the possibility of sales of substantial amounts of shares
of our common stock by our existing shareholders in the public markets could
adversely affect the market price of our common stock in the future.
We have entered into a registration rights agreement with Inversiones Los
Avellanos S.A., or Los Avellanos, Hazels (Bahamas) Investments, Inc., or Hazels
and Solimar, pursuant to which we granted them, and certain of its
transferees, the right, under certain circumstances and subject to certain
restrictions, including restrictions included in the lock-up agreements
described above, to require us to register under the Securities Act of 1933, as
amended, or the Securities Act, shares of our common stock held by them. Under
the registration rights agreement, Los Avellanos, Hazels and Solimar each have
the right to request that we register the sale of shares held by it on its
behalf and may require us to make available shelf registration statements
permitting sales of shares into the market from time to time over an extended
period. In addition, Los Avellanos, Hazels and Solimar have the ability to
exercise certain piggyback registration rights in connection with registered
offerings initiated by us. Registration of such shares under the Securities Act
would, except for shares purchased by affiliates, result in such shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of such registration. In addition, shares not registered
pursuant to the registration rights agreement may, subject to the lock-up
agreements described above, be resold pursuant to an exemption from the
registration requirements of the Securities Act, including the exemptions
provided by Rule 144 under the Securities Act. We refer you to the sections of
this prospectus entitled "Certain Relationships and Related Party
Transactions--Registration Rights Agreement," "Shares Eligible for Future Sale"
and "Underwriting" for further information regarding the circumstances under
which additional shares of our common stock may be sold.
Anti-takeover provisions in our organizational documents could make it difficult
for our shareholders to replace or remove our current board of directors or have
the effect of discouraging, delaying or preventing a merger or acquisition,
which could adversely affect the market price of our common stock.
Several provisions of our memorandum of association and articles of
association could make it difficult for our shareholders to change the
composition of our board of directors in any one year, preventing them from
changing the composition of management. In addition, the same provisions may
discourage, delay or prevent a merger or acquisition that shareholders may
consider favorable.
These provisions include:
o seven to one voting rights for shares held by our selling
shareholders prior to this offering;
o authorizing our board of directors to issue "blank check" preferred
stock without shareholder approval;
o prohibiting cumulative voting in the election of directors; and
o limiting the persons who may call special meetings of shareholders.
These anti-takeover provisions substantially impede the ability of public
shareholders to benefit from a change in control and, as a result, may adversely
affect the market price of our common stock and your ability to realize any
potential change of control premium. In addition, our selling shareholders,
Solimar, Los Avellanos and Hazels, are party to a shareholder agreement pursuant
to which they have agreed to vote together on certain matters, including mergers
and acquisitions of us that makes it more difficult for a third party to acquire
us without the support of our board of directors and principal shareholders.
Investor confidence and the market price of our common stock may be adversely
impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act
of 2002.
After this offering, we will become subject to Section 404 of the
Sarbanes-Oxley Act of 2002, which will require us to include in our annual
report on Form 20-F our management's report on, and assessment of the
effectiveness of, our internal controls over financial reporting. In addition,
our independent registered public accounting firm will be required to attest to
and report on management's assessment of the effectiveness of our internal
controls over financial reporting. These requirements will first apply to our
annual report for the fiscal year ending December 31, 2006. If we fail to
achieve and maintain the adequacy of our internal controls over financial
reporting, we will not be in compliance with all of the requirements imposed by
Section 404. Any failure to comply with Section 404 could result in an adverse
reaction in the financial marketplace due to a loss of investor confidence in
the reliability of our financial statements, which ultimately could harm our
business and could negatively impact the market price of our common stock. We
believe the total cost of our initial compliance and the future ongoing costs of
complying with these requirements may be substantial.
We cannot assure you that we will pay dividends.
We will make dividend payments to our shareholders only if our board of
directors, acting in its sole discretion, determines that such payments would be
in our best interest and in compliance with relevant legal and contractual
requirements. The principal business factors that our board of directors expects
to consider when determining the timing and amount of dividend payments will be
our earnings, financial condition and cash requirements at the time. Currently,
the principal contractual and legal restrictions on our ability to make dividend
payments are those contained in the Indenture governing the Notes, our
subsidiaries' loan agreements and those created by Bahamian law. Bahamian law
generally prohibits the payment of dividends other than from surplus or while a
company is insolvent or would be rendered insolvent upon the payment of such
dividends. There can be no assurance that we will pay any dividends.
We may incur other expenses or liabilities that would reduce or eliminate
the cash available for distribution as dividends. We may also enter into new
agreements or new legal provisions may be adopted that will restrict our ability
to pay dividends.
U.S. tax authorities could treat us as a "passive foreign investment company,"
which could have adverse U.S. federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a "passive foreign investment
company," or PFIC, for U.S. Federal income tax purposes if either (1) at least
75% of its gross income for any taxable year consists of certain types of
"passive income" or (2) at least 50% of the average value of the corporation's
assets produce or are held for the production of those types of "passive
income." For purposes of these tests, "passive income" includes dividends,
interest, and gains from the sale or exchange of investment property and rents
and royalties other than rents and royalties which are received from unrelated
parties in connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of services does
not constitute "passive income." U.S. shareholders of a PFIC are subject to a
disadvantageous U.S. Federal income tax regime with respect to the income
derived by the PFIC, the distributions they receive from the PFIC and the gain,
if any, they derive from the sale or other disposition of their shares in the
PFIC.
Based on our proposed method of operation, we do not believe that we will
be a PFIC with respect to any taxable year. In this regard, we intend to treat
the gross income we derive or are deemed to derive from our period chartering
activities as services income, rather than rental income. Accordingly, we
believe that our income from our period chartering activities does not
constitute "passive income," and the assets that we own and operate in
connection with the production of that income do not constitute passive assets.
There is, however, no direct legal authority under the PFIC rules
addressing our proposed method of operation. Accordingly, no assurance can be
given that the U.S. Internal Revenue Service, or IRS, or a court of law will
accept our position, and there is a risk that the IRS or a court of law could
determine that we are a PFIC. Moreover, no assurance can be given that we would
not constitute a PFIC for any future taxable year if there were to be changes in
the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable
year, our U.S. shareholders will face adverse U.S. tax consequences. Under the
PFIC rules, unless those shareholders make an election available under the Code
(which election could itself have adverse consequences for such shareholders, as
discussed below under "Tax Considerations - United States Federal Income
Taxation of U.S. Holders"), such shareholders would be liable to pay U.S.
federal income tax at the then prevailing income tax rates on ordinary income
plus interest upon excess distributions and upon any gain from the disposition
of our common stock, as if the excess distribution or gain had been recognized
ratably over the shareholder's holding period of our common stock. See "Tax
Considerations--U.S. Federal Income Taxation of U.S. Holders" for a more
comprehensive discussion of the U.S. Federal income tax consequences to U.S.
shareholders if we are treated as a PFIC.
We are not a United States corporation, and our shareholders may be subject to
the uncertainties of a foreign legal system in protecting their interests.
Our corporate affairs are governed by our memorandum of association and
articles of association and by the corporate laws of The Bahamas. The corporate
laws of The Bahamas may differ in material respects from the corporate laws in
U.S. jurisdictions. Thus, our shareholders may have more difficulty protecting
their interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation organized in a
U.S. jurisdiction. It is unlikely that Bahamian courts would entertain original
actions against Bahamian companies predicated solely upon U.S. federal
securities laws. Furthermore, judgments based on any civil liability provisions
of the U.S. federal securities laws are not directly enforceable in The Bahamas.
Rather, a lawsuit must be brought in The Bahamas on any such judgment.
Generally, a final judgment obtained in a court of competent jurisdiction is
actionable in Bahamian courts and is impeachable only upon the grounds of fraud,
public policy and natural justice. See "Bahamas Company Considerations."
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus concerning our operations,
cash flows and financial position, including, in particular, the likelihood of
our success in developing and expanding our business, include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions, or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," "projects,"
"forecasts," "will," "may," "should," and similar expressions are
forward-looking statements. Although these statements are based upon assumptions
we believe to be reasonable based upon available information, including
projections of revenues, operating margins, earnings, cash flow, working
capital, and capital expenditures, they are subject to risks and uncertainties
that are described more fully in this prospectus in the section titled "Risk
Factors." These forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus and are not intended to give
any assurance as to future results. As a result, you should not place undue
reliance on any forward-looking statements. We assume no obligation to update
any forward-looking statements to reflect actual results, changes in assumptions
or changes in other factors, except as required by applicable securities laws.
Factors that might cause future results to differ include, but are not limited
to, the following:
o future operating or financial results;
o pending or recent acquisitions, business strategy and expected
capital spending or operating expenses, including drydocking and
insurance costs;
o 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 discussed in the section titled "Risk Factors."
USE OF PROCEEDS
We estimate the net proceeds to us of this offering will be approximately
$ million after deducting the underwriters' discount and the estimated
expenses related to this offering. These estimates are based on an assumed
public offering price of $ per share (the mid-point of the range set forth
on the cover of this prospectus). A $1.00 increase or decrease in the assumed
initial public offering price per share would increase or decrease the estimated
net proceeds to us of this offering by approximately $ million.
We expect to use the net proceeds of this offering to:
o $48.0 million to repay the note issued to LAIF, a related party, in
connection with our purchase of its 66.67% interest in UP Offshore;
o $11.5 million to repay the notes we issued to Crosstrees Maritime Inc.
and Crosstrade Maritime Inc., related companies, in connection with
our purchase of Ravenscroft and related assets;
o $ million to repay some of our variable interest rate indebtedness;
o $3.8 million to redeem UP Offshore's preferred shares issued to IFC;
o $6.0 million to discharge the obligations to IFC in resulting from our
purchase of its interest in our River Business;
o $20.6 million to fund the balance of the construction expenses of
the three PSVs being built in Brazil; and
o the remainder for general corporate purposes.
The purchase price for UP Offshore was $48.0 million, based on
negotiations and the purchase price for Ravenscroft was $11.5 million, based on
negotiations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Related Party Transactions" and "Recent
Developments."
The indebtedness we will repay with the proceeds of this offering carry
the following terms.
o The $48.0 million note we issued to LAIF is non-interest bearing and
matures on the earlier of (i) the closing of this offering or (ii)
September 30, 2006.
o The $11.5 million notes we issued to Crosstrees Maritime Inc. and
Crosstrade Maritime Inc. are non-interest bearing and mature on the
earlier of (i) the closing of this offering or (ii) September 30,
2006.
o Our variable interest rate indebtedness carries an interest rate of
% and matures on .
We will use some of the proceeds of this offering for general corporate or
working capital purposes. See "Risk Factors--Risks Related to Our Company -- We
may use the proceeds of this offering for general corporate purposes with which
you may not agree" for a discussion of the risks associated with our use of the
proceeds.
We will not receive any proceeds of the offering by the selling
shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The payment of dividends is in the discretion of our board of directors,
subject to certain limitations described in this prospectus under "Dividend
Policy." We anticipate retaining most of our future earnings, if any, for use in
our operations and the expansion of our business. Any determination as to
dividend policy will be made by our board of directors and will depend on a
number of factors, including the requirements of Bahamian law, our future
earnings, capital requirements, financial condition and future prospects and
such other factors as our board of directors may deem relevant. Bahamian law
generally prohibits the payment of dividends other than from surplus, when a
company is insolvent or if the payment of the dividend would render the company
insolvent.
Our ability to pay dividends is restricted by the Notes, which we issued
in 2004. In addition, we may incur expenses or liabilities, including
extraordinary expenses, which could include costs of claims and related
litigation expenses, or be subject to other circumstances in the future that
reduce or eliminate the amount of cash that we have available for distribution
as dividends or for which our board of directors may determine requires the
establishment of reserves. The payment of dividends is not guaranteed or assured
and may be discontinued at any time at the discretion of our board of directors.
Because we are a holding company with no material assets other than the stock of
our subsidiaries, our ability to pay dividends is dependent upon the earnings
and cash flow of our subsidiaries and their ability to pay dividends to us. If
there is a substantial decline in any of the markets in which we participate,
our earnings will be negatively affected, thereby limiting our ability to pay
dividends. We refer you to "Risk Factors--Risks Relating to Our Company--We
cannot assure you that we will pay dividends" for a discussion of the risks
related to our ability to pay dividends.
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 2005.
You should read this table in conjunction with our audited consolidated
financial statements and the related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Use of Proceeds"
included in this prospectus.
As of December 31, 2005
-----------------------
Actual As Adjusted
------ -----------
(Dollars in thousands)
Cash and cash equivalents(1) $7,914
Restricted cash 3,638
--------- ---------
Total $11,552
========= =========
Debt
Current portion of long-term debt 6,599
Total long-term debt, net of current portion 202,953
--------- ---------
Total debt(2) 209,552
Minority interest 7,377
Redeemable preferred shares -
--------- ---------
Total shareholders' equity 43,474
--------- ---------
Total capitalization $260,403
========= =========
1. A $1.00 increase or decrease in the assumed public offering price per
share would increase or decrease each of cash and cash equivalents,
additional paid-in capital, total shareholders equity and total
capitalization, on an as adjusted basis, by approximately $ million
(approximately $ million if the underwriters exercise their
over-allotment option in full).
2. Total debt amounts presented in this table do not include accrued
interest, an item included in the calculation of total debt used elsewhere
in this registration statement, amounting to $1,723 in the Actual column
presented above.
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. Dilution results from the fact that the per share
offering price of the common stock is in excess of the book value per share
attributable to the existing shareholders for the presently outstanding common
stock.
At December 31, 2005, we had net tangible book value of $ million, or
$ per share of common stock. After giving effect to the sale of shares of
common stock at a price of $ per share of common stock, which is the
mid-point of the expected price range of $ to $ per share of common
stock in this offering, deducting the estimated underwriting discounts,
commissions and estimated offering expenses and assuming that the underwriters'
over-allotment option is not exercised, the pro forma net tangible book value at
December 31, 2005, would have been $ million or $ per share of
common stock. This represents an immediate appreciation in net tangible book
value of $ per share of common stock to existing shareholders and an immediate
pro forma dilution of net tangible book value of $ per share to new investors. A
$1.00 increase or decrease in the assumed initial public offering price of $
per share (the mid-point of the price range set forth on the cover of this
prospectus) would (i) increase or decrease our pro forma net tangible value by $
million, or $ per share of common stock, and (ii) increase or decrease
the dilution per share of common stock to new investors by $ per share
of common stock, (assuming the number of shares offered by us, as set forth on
the cover page of this prospectus, remains the same and after deducting
estimated underwriting discounts and offering expenses payable by us). The
following table illustrates the pro forma per share dilution and appreciation at
December 31, 2005.
Assumed initial public offering price per
share $
Net tangible book value per share as of
December 31, 2005 $
Increase in net tangible book value per share
attributable to new investors in this offering $
Pro forma net tangible book value per share
after giving effect to this offering $
Dilution per share to new investors $
=============
Net tangible book value per share of our common stock is determined by
dividing our tangible net worth, which consists of tangible assets less
liabilities, by the number of shares of our common stock outstanding. Dilution
is determined by subtracting the net tangible book value per share of common
stock after this offering from the public offering price per share. Dilution per
share to new investors would be $ if the underwriters exercise in full
their over-allotment option.
The following table summarizes, on a pro forma basis as of December 31,
2005, as adjusted to give effect to this offering the differences between the
number of shares of common stock purchased from us, the total amount paid to us
and the average price per share of common stock paid by the existing holders of
shares of our common stock and by our new investors in this offering, based upon
the assumed initial public offering price of $ per share (the mid-point
of the range set forth on the cover of this prospectus) before deducting
estimated underwriting and offering expense payable by us.
Average
Shares Purchased Total Consideration Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing shareholders % $ % $
New investors....... % $ % $
Total......... % $ % $
The table and calculations above assume no exercise of the underwriters'
over-allotment option. To the extent this option is exercised, there will be
further dilution to new investors.
A $1.00 increase or decrease in the assumed initial public offering price
of $ per share (the mid-point of the price range set forth on the cover of
this prospectus) would (i) increase or decrease the total consideration paid by
new investors and the total consideration paid by all shareholders by $
million, and (ii) increase or decrease the average price paid by all
shareholders by $ per share of common stock, assuming no change in the
number of shares of common stock sold by us as set forth on the cover of this
prospectus and without deducting the underwriting discounts and commissions and
other expenses of the offering.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
We have derived the following unaudited pro forma condensed consolidated
financial information as of and for the year ended December 31, 2005 from our
historical consolidated financial statements as of and for the year ended
December 31, 2005 and the historical consolidated financial statements of UP
Offshore as of and for the year ended December 31, 2005 set forth elsewhere in
this prospectus, and such information is qualified in its entirety by reference
to, and should be read in conjunction with, such financial statements.
The unaudited pro forma condensed consolidated financial information for
the year ended December 31, 2005 gives effect to the following events (the
"Transactions"):
o the UP Offshore Acquisition (as described below), and
o this offering and the planned use of proceeds.
The unaudited pro forma consolidated statement of operations gives effect
to the transactions as if they had occurred on January 1, 2005 and the unaudited
pro forma consolidated balance sheet gives effect to the transactions as if they
had occurred on December 31, 2005.
The footnotes to the unaudited pro forma condensed consolidated financial
information contain a more detailed discussion of how adjustments to reflect the
events described above are presented.
On March 20, 2006, we purchased, for $11.5 million in the form of notes,
all of the issued and outstanding capital stock of Ravenscroft. The pro forma
information regarding this acquisition is not material for the unaudited pro
forma financial information presented herein.
On March 21, 2006, we purchased an additional 66.67% of the outstanding
capital stock of UP Offshore (Bahamas) Ltd., or the UP Offshore Acquisition.
This acquisition will be accounted for by the purchase method in accordance with
SFAS No. 141, Business Combinations.
The unaudited pro forma condensed consolidated financial information for
the year ended December 31, 2005 assumes that we will use the proceeds from the
issuance of common shares at an assumed offering price of $ per share
(representing the midpoint of the price range set forth on the cover of this
prospectus) to:
o $48.0 million to repay the note we issued to LAIF, a related company,
in connection with our purchase of its 66.67% interest in UP Offshore;
o $11.5 million to repay the notes we issued to Crosstrade Maritime Inc.
and Crosstrees Maritime Inc., related companies, in connection with
our purchase of Ravenscroft and related assets;
o $ million to repay some of our variable interest rate indebtedness;
o $3.8 million to redeem UP Offshore's preferred shares issued to IFC;
o $6.0 million to discharge our obligations to IFC resulting from our
purchase of its interest in our River Business;
o $20.6 million to fund the balance of the construction expenses of
the three PSVs being built in Brazil; and
o the remainder for general corporate purposes.
These transactions are described in greater detail under "Use of Proceeds."
We provide this unaudited pro forma condensed consolidated financial
information for informational and comparative purposes only. Assumptions
underlying the pro forma adjustments applied are described in the accompanying
footnotes, which you should read in conjunction with this unaudited pro forma
condensed consolidated financial information. We have made the pro forma
adjustments described in the accompanying footnotes based on available
information, and in our opinion, the adjustments are reasonable.
Certain pro forma adjustments reflect an allocation of the purchase price,
material charges, credits and related tax effects that are directly attributable
to the UP Offshore Acquisition. We have based the pro forma adjustments on a
preliminary assessment of the value of the assets acquired and liabilities
assumed as part of the UP Offshore Acquisition.
The actual impact on our consolidated financial statements upon the
closing of the UP Offshore Acquisition will depend on a number of factors,
including additional information available and the carrying value of the net
assets acquired on the closing date of the UP Offshore Acquisition. We expect
the adjustments included in the pro forma statements to change as valuations of
assets and liabilities are finalized and additional information becomes
available. Therefore, the actual adjustments will differ from the pro forma
adjustments, and the differences may be material.
We cannot give any assurance that the assumptions used in the preparation
of the unaudited pro forma condensed consolidated financial information will
prove to be correct. The pro forma adjustments do not purport to be and should
not be considered indicative of what our actual financial position or results of
operations would have been if the transactions had been completed as of the date
or for the period presented or for any future date or for any period. The
unaudited pro forma condensed consolidated financial statements should be read
together with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the audited consolidated
historical financial statements of our Company and UP Offshore and the footnotes
thereto, and the other financial information included elsewhere in this
prospectus.
ULTRAPETROL (BAHAMAS) LIMITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005 (Unaudited)
(U.S. dollars in thousands)
Pro Forma
Adjustments for for UP Adjustments
Ultrapetrol UP Offshore the UP Offshore Offshore for this Pro
Historical Historical Acquisition Acquisition offering forma
------------ ----------- ---------------- ------------- ---------- -------
(A) (C)
Revenues Ocean business $ 49,874 $ - $ - $ 49,874 $ $
Revenues Offshore supply business 6,532 3,977 (3,977) (A.1) 6,532
Revenues River business 54,546 - - 54,546
Revenues Passenger business 14,409 - - 14,409
------------ ----------- ---------------- ------------- ---------- -------
Total revenues 125,361 3,977 (3,977) 125,361
------------ ----------- ---------------- ------------- ---------- -------
Voyage expenses Ocean business (1,371) - - (1,371)
Voyage expenses Offshore supply business (4,980) - 3,977 (A.1) (1,003)
Voyage expenses River business (25,710) - - (25,710)
Voyage expenses Passenger business (1,766) - - (1,766)
Running cost Ocean business (12,636) - - (12,636)
Running cost Offshore supply business (1,218) (1,331) - (2,549)
Running cost River business (17,820) - - (17,820)
Running cost Passenger business (7,560) - - (7,560)
Amortization of drydocking (6,839) - - (6,839)
Depreciation of vessels and equipment (14,494) (757) (250) (A.2) (15,501)
Administrative and commercial expense &
management fees (9,735) (1,270) - (11,005)
Other operating income 22,021 - - 22,021
------------ ----------- ---------------- ------------- ---------- -------
Total operating expenses (82,108) (3,358) 3,727 (81,739)
------------ ----------- ---------------- ------------- ---------- -------
Operating profit (loss) 43,253 619 (250) 43,622
------------ ----------- ---------------- ------------- ---------- -------
Financial expense (19,141) - (126) (A.3) (19,267)
Financial income 1,152 - - 1,152
Investment in affiliates (497) - 5 (A.3) (492)
Other income 384 2 - 386
------------ ----------- ---------------- ------------- ---------- -------
Total other income (expenses) (18,102) 2 (121) (18,221)
------------ ----------- ---------------- ------------- ---------- -------
Income before income tax and minority interest 25,151 621 (371) 25,401
Income taxes (786) - - (786)
Minority interest (9,797) - (207) (A.4) (10,004)
------------ ----------- ---------------- ------------- ---------- -------
Net (loss) income $ 14,568 $ 621 $ (578) $ 14,611 $ $
============ =========== ================ ============= ========== =======
Net income per share, basic and diluted $ $ $ $ $ $
Weighted average number of shares, basic and
diluted
The accompanying introduction and the notes appearing after these unaudited pro
forma condensed consolidated financial information are an integral part of the
unaudited pro forma condensed consolidated statement of operations of
Ultrapetrol (Bahamas) Limited.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(U.S. dollars in thousands)
(A): The amounts in this column reflect the following adjustments to reflect
the acquisition of UP Offshore by Ultrapetrol as if it had occurred on
January 1, 2005.
(A.1): Since their respective dates of delivery in 2005, UP Offshore has
chartered the PSV's UP Safira and UP Esmeralda to Ultrapetrol under a
bareboat charter. These adjustments eliminate the bareboat charter
payments from Ultrapetrol to UP Offshore.
(A.2): This adjustment reflects additional depreciation expense from the
write-up to fair value of UP Offshore's vessels.
(A.3): These adjustments represent the elimination of Ultrapetrol's 27.78%
interest in the income of UP Offshore accounted by the equity method net
of $126 related to the elimination of intercompany profits we recognized
on our loan to UP Offshore.
(A.4): The adjustment to minority interest reflects the following:
Dividends on redeemable preferred shares (1) (183)
Minority interest not owned by Ultrapetrol (24)
--------
Total (207)
========
(1) Represents the accrued but unpaid dividends on UP Offshore's
preferred redeemable shares owned by IFC. As a result of the UP
Offshore acquisition, we will include the accrual of these
dividends as an increase in minority interest in our
consolidated income statement.
ULTRAPETROL (BAHAMAS) LIMITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2005 (Unaudited)
(U.S. dollars in thousands)
Adjustments Pro Forma
for the UP for Adjustments
Ultrapetrol UP Offshore Offshore UP Offshore for this Pro
Historical Historical Acquisition Acquisition offering forma
------------ ----------- ---------------- ------------- ---------- -------
ASSETS (B) (C)
CURRENT ASSETS
Cash and cash equivalents $ 7,914 $ 88 $ - $ 8,002 $ $
Restricted cash 3,638 - - 3,638
Accounts receivable 9,017 - - 9,017
Receivables from related parties 17,944 - (13,726)(B.1) 4,218
Marine and river operating supplies 3,547 - - 3,547
Prepaid expenses 3,239 133 - 3,372
Other receivables 4,997 320 - 5,317
------------ ----------- ---------------- ------------- ---------- -------
Total current assets 50,296 541 (13,726) 37,111
------------ ----------- ---------------- ------------- ---------- -------
NONCURRENT ASSETS
Other receivables 7,330 - - 7,330
Receivables from related parties 1,995 - - 1,995
Restricted cash 68 651 - 719
Vessels and equipment, net 182,069 89,296 19,794 (B.2) 291,159 -
Dry dock 12,743 - - 12,743 -
Investments in affiliates 15,698 - (13,638)(B.3) 2,060 -
Other assets 7,548 1,980 - 9,528
------------ ----------- ---------------- ------------- ---------- -------
Total noncurrent assets 227,451 91,927 6,156 325,534
------------ ----------- ---------------- ------------- ---------- -------
Total assets $ 277,747 $ 92,468 $ (7,570) $ 362,645 $ $
============ =========== ================ ============= ========== =======
LIABILITIES, MINORITY INTERESTS AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,696 $ 1,796 $ - $ 14,492 $ $
Payables to related parties 2,008 - - 2,008
Current portion of long term financial debt 8,322 3,152 - 11,474
Promissory notes issued - - 48,000 (B.5) 48,000
Other payables 917 32 759 (B.4) 1,708
------------ ----------- ---------------- ------------- ---------- -------
Total current liabilities 23,943 4,980 48,759 77,682
------------ ----------- ---------------- ------------- ---------- -------
NONCURRENT LIABILITIES
Long term notes 180,000 - - 180,000
Financial debt, net of current portion 22,953 25,300 - 48,253
Accounts payable and accrued expenses - - - -
Due to related parties - 13,726 (13,726)(B.1) -
Total noncurrent liabilities 202,953 39,026 (13,726) 228,253
Total liabilities 226,896 44,006 35,033 305,935
MINORITY INTEREST 2,479 - 2,504 (B.6) 4,983
REDEEMABLE PREFERRED SHARES - 3,355 - 3,355
MINORITY INTEREST SUBJECT TO PUT RIGHTS 4,898 - 4,898
SHAREHOLDERS' EQUITY
Common stock, less shares held in treasury 21 5 (5) 21
Additional paid-in capital 68,884 44,641 (44,641) 68,884
Treasury stock (20,332) - - (20,332)
Accumulated other comprehensive income 196 707 (707) 196
Accumulated deficit (5,295) (246) 246 (5,295)
------------ ----------- ---------------- ------------- ---------- -------
Total shareholders' equity 43,474 45,107 (45,107) 43,474
------------ ----------- ---------------- ------------- ---------- -------
Total liabilities, minority interests and
shareholders' equity $ 277,747 $ 92,468 $ (7,570) $ 362,645 $ $
============ =========== ================ ============= ========== =======
The accompanying introduction and the notes appearing after these unaudited pro forma condensed consolidated
financial information are an integral part of the unaudited pro forma condensed consolidated balance sheet of
Ultrapetrol (Bahamas) Limited.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2005
(U.S dollars in thousands)
(B): The amounts in this column reflect the following adjustments to reflect
the acquisition of UP Offshore by Ultrapetrol as if it had occurred on
December 31, 2005.
(B.1) These adjustments eliminate accounts receivable and accounts
payable between Ultrapetrol and UP Offshore.
(B.2) Represents an adjustment of $18,686 to write-up to fair value
the UP Offshore vessels (see B.4) plus an adjustment of $1,108
related to capitalized interest at Ultrapetrol (Bahamas) Limited
level (see B.3).
(B.3) Represents the elimination of $12,530 corresponding to the
27.78% interest that we had already held and accounted for by
the equity method and $1,108 corresponding to capitalized
interest on our 27.78% participation in UP Offshore during the
period that UP Offshore had its vessels under construction and
until its planned principal operations commenced.
(B.4) Adjustment to record the allocation of the purchase price to the
net assets of UP Offshore, which is subject to change based on
our final analysis, for the 66.67% interest acquired.
66.67% interest of the estimated increase to fair value of UP
Offshore identifiable net assets acquired:
Write up of fair value of vessels and equipment $ 18,686
Deferred income taxes on book/tax basis differences (34%) (759)
Remaining net book value of identifiable net assets
acquired and liabilities assumed 30,073
----------
Estimated fair value of identifiable
net assets acquired 48,000
==========
(B.5) Represents the adjustment to record the debt in the amount of
$48,000 owed to LAIF in the form of an interest free note in
connection with the purchase by Ultrapetrol of LAIF's 66.67%
interest in UP Offshore.
(B.6) Represents an adjustment to record the minority interest of
5.55% of UP Offshore we did not acquire in the UP Offshore
Acquisition.
(C): The amounts in this column reflect the following adjustments to reflect
this offering and the use of proceeds as if those transactions had
occurred on December 31, 2005.
SELECTED FINANCIAL AND OTHER DATA
We derived the following selected financial information set forth below
for Ultrapetrol (Bahamas) Limited as of and for the years ended December 31,
2001, 2002, 2003, 2004 and 2005 from our audited consolidated financial
statements. The information below is selected information and should be read in
conjunction with our historical financial statements and related notes, and our
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this prospectus. The historical results below
and elsewhere in this prospectus may not be indicative of our future
performance.
Year Ended December 31,
-----------------------
2001 2002 2003 2004(1) 2005
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
Statement of Operations Data:
Revenues:........................................ $ 111,208 $ 73,124 $ 75,233 $ 95,160 $ 125,361
Operating expenses(2)............................ (60,504) (37,582) (41,303) (40,815) (73,061)
Depreciation and amortization.................. (23,443) (24,807) (22,567) (18,688) (21,333)
Management fees to related parties(3).......... (3,250) (3,176) (2,863) (1,513) (2,118)
Administrative and commercial expenses......... (4,520) (3,642) (4,955) (7,494) (7,617)
Other operating income (expenses)(4)........... 1,534 1,741 (2,124) 784 22,021
Loss on involuntary conversion Arg. Receivable(5) - (2,704) - - -
----------- ---------- ---------- ---------- ----------
Operating profit................................. 21,025 2,954 1,421 27,434 43,253
Financial expense................................ (17,698) (16,763) (16,207) (16,134) (19,141)
Financial gain (loss) on extinguishment of debt(6) 1,782 (5,078)
Financial income................................. 296 326 201 119 1,152
Investment in affiliates(7)...................... (692) (45) 3,140 406 (497)
Other income (expenses).......................... (126) (43) (337) 174 384
Income (loss) before income tax and minority interest 2,805 (13,571) (10,000) 6,921 25,151
Income taxes..................................... (390) (150) (185) (642) (786)
Minority interest(8)............................. (132) (1,333) (1,140) (9,797)
----------- ---------- ---------- ---------- ----------
Net income (loss)................................ $ 2,415 $ (13,853) $ (11,518) $ 5,139 $ 14,568
========== ========== ========= ========== ==========
Balance Sheet Data (end of period):
Cash and cash equivalents........................ $ 5,872 $ 4,724 $ 8,248 $ 11,602 $ 7,914
Current restricted cash......................... - 1,662 1,155 2,975 3,638
Working capital(9)............................... 18,920 21,013 15,416 13,441 26,353
Vessels and equipment............................ 135,289 134,797 120,803 160,535 182,069
Total assets..................................... 225,576 213,546 208,161 273,648 277,747
Total debt....................................... 165,445 168,994 155,814 220,413 211,275
Shareholders' equity............................. 47,838 35,089 23,793 28,910 43,474
(1) In a series of related transactions, on April 23, 2004, through two
wholly owned subsidiaries, we acquired from ACL the remaining 50% equity
interest in UABL Limited that we did not previously own, along with a
fleet of 50 river barges and seven river pushboats. The results of UABL
Limited's operations have been included in our condensed consolidated
financial statements since that date.
(2) Operating expenses include voyage expenses and running costs. Voyage
expenses, which are incurred when a vessel is operating under a contract
of affreightment (as well as any time when they are not operating under
time or bareboat charter), comprise all costs relating to a given
voyage, including port charges, canal dues and fuel (bunkers) costs, are
paid by the vessel owner and are recorded as voyage expenses. Voyage
expenses also include charter hire payments made by us to owners of
vessels that we have chartered in. Running costs, or vessel operating
expenses, include the cost of all vessel management, crewing, repairs
and maintenance, spares and stores, insurance premiums and lubricants
and certain drydocking costs.
(3) Management fees to related parties include payments to our related
companies Ravenscroft and Oceanmarine for ship management and
administration services that they provide to us. We purchased the
business of Ravenscroft and hired the administrative personnel and
purchased the administrative related assets of Oceanmarine in March
2006; accordingly, we do not expect to pay fees to these related parties
after those acquisitions. Ship management and administration costs will
appear as expenses in our future results.
(4) Other income in 2005 includes approximately $21.8 million gain from the
sale of our Capesize bulk carrier, the Cape Pampas. This vessel was
owned directly by Ultracape, a company of which we own 60%. Accordingly,
the gain on sale attributable to the remaining 40% that we do not own is
deducted from income as minority interest. (See note 8).
(5) This relates to a loss resulting from the involuntary conversion of
certain receivables from U.S. dollars to Argentine pesos. This
conversion was the result of legislation passed by the Argentine
government in January 2002. Under this law, U.S. dollar obligations
between private parties due after January 6, 2002 were to be liquidated
in Argentine pesos at a negotiated rate of exchange which reflects a
sharing of the impact of the devaluation. Our settlement in Argentine
pesos of the U.S. dollar denominated agreements was completed in 2002
and resulted in a loss of $2.7 million.
(6) During 2003, we repurchased $6.7 million principal amount of our Prior
Notes for a price of $4.8 million and realized a gain of $1.8 million.
During 2004, we repurchased $5.7 million principal amount of our Prior
Notes for a price of $4.3 million and realized a gain of $1.3 million,
and we incurred $6.4 million in expenses in relation to our tender
offer and repurchase of our Prior Notes.
(7) Prior to April 2004, we owned 50% of UABL through a joint venture with
ACL and, accordingly, we accounted for it using the equity method.
(8) We own 60% of Ultracape, which owned the Capesize bulk carrier, the Cape
Pampas prior to its sale in May 2005, and accordingly recognize minority
interest for the 40% we do not own. Figures in 2003 and 2004 principally
represent 40% of the income earned by Ultracape, from operation of the
Cape Pampas. The figure in 2005 represents 40% of the income from
operations of the Cape Pampas as well as 40% of the gain on the sale of
the vessel in May 2005.
(9) Current assets less current liabilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information included under the captions "Unaudited Pro Forma Consolidated
Financial Information" and "Selected Financial and Other Data," our historical
consolidated financial statements and their notes included elsewhere in this
prospectus. This discussion contains forward-looking statements. For a
discussion on the accuracy of these statements please refer to the section
"Forward-Looking Statements" that reflect our current views with respect to
future events and financial performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, such as those set forth in the section entitled "Risk
Factors" and elsewhere in this prospectus.
Our Company
We are 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 this 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 this 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 this
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 this 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 have reached an understanding with 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, IFC will waive its
option to convert its interest in UP River to shares in our company and its
right to participate in this offering. This understanding is subject to the
successful completion of this offering and our obligation under this
understanding will be paid from proceeds of this offering.
On March 20, 2006, Los Avellanos and Avemar Holdings (Bahamas) Ltd., or
Avemar, two of our shareholders, subject to the successful completion of this
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 this offering. As a consequence, Solimar will own 63.36% of our
shares and the remaining 36.64% will be directly and indirectly owned by Los
Avellanos.
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 the 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 $10,246 301.24%
Attributable to Ocean Business 54,049 64,987 -16.83%
--------- --------- -------
Totals 95,160 75,233 26.49%
========= ========= =======
Voyage expenses
Attributable to River Business (15,340) (39) 39,233.33%
Attributable to Ocean Business (583) (12,605) -95.37%
--------- --------- -------
Total (15,923) (12,644) 25.93%
========= ========= =======
Running cost
Attributable to River Business (12,512) (6,696) 86.86%
Attributable to Ocean Business (12,380) (21,963) -43.63%
--------- --------- -------
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 and the fact that Princess Marina was out of service for 52 days due to
accidents during the first quarter. 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.
THE INTERNATIONAL SHIPPING INDUSTRY
The information and data in this section relating to the international
maritime transportation industry have been provided by Doll Shipping
Consultancy, or DSC, an independent United Kingdom-based company providing
market analysis and strategic planning services to the shipping industry. DSC
bases its analysis on information drawn from published and private industry
sources. For purposes of this Industry Overview, Latin America includes Central
America, South America, and the Caribbean Basin islands. Consistent with revised
International Energy Agency definitions, North America includes the United
States, Canada, and Mexico. DSC has advised us that (i) some industry data
included in this discussion is based on estimates or subjective judgments in
circumstances where data for actual market transactions either does not exist or
is not publicly available, (ii) the published information of other maritime data
collection experts may differ from this data, and (iii) while DSC has taken
reasonable care in the compilation of the industry statistical data and believe
them to be correct, data collection is subject to limited audit and validation
procedures.
River Business
Key factors driving cargo movements in the Hidrovia Region are
agricultural production and exports, particularly soybeans, from Argentina,
Brazil, Paraguay and Bolivia, exports of Brazilian iron ore, regional demand and
Paraguay and Bolivia imports of petroleum products. Exports of Argentine forest
products and other commodities are also significant. Practically all the cargos
transported in the Hidrovia Region are export or import-related cargos.
The Parana/Paraguay, the High Parana and the Uruguay rivers consist of
over 2,200 miles of a single natural interconnected navigable river system
serving five countries namely Brazil, Bolivia, Paraguay, Uruguay and Argentina.
The size of this river system is comparable to the Mississippi river in the
United States, but its real economic importance only started to develop about
1997.
Dry Bulk Cargo
Soybeans. Argentina, Brazil, Paraguay, and Bolivia produced about 41.5
million tons, or mt, of soybeans in 1994 and a 97.8 mt in 2004, a CAGR of 9.0%
from 1994. Production for these countries for 2005 is estimated at 105.5 mt.
These countries accounted for about 45% of world soybean production in 2004,
growing from only 30% in 1994.
----------------------------------------------------------------------------
Soybean production 0 yr CAGR
in million metric 1994-2004
tons 1994 2004 2005(e) 1
----------------------------------------------------------------------------
Argentina 12.5 39.0 40.5 12.1%
Bolivia 0.9 2.0 2.0 8.8%
Brazil 25.9 53.0 58.5 7.4%
Paraguay 2.2 3.8 4.5 5.6%
Regional 41.5 97.8 105.5 9.0%
United States 68.4 85.0 84.0 2.2%
China 16.0 17.4 17.0 0.8%
Other Countries 11.9 15.1 16.3 2.4%
World 137.8 215.3 222.8 4.6%
Source: Doll Shipping Consultancy from Industry Sources
The Hidrovia Region is one of the few areas left in the world where unused
farmland is available. Within the five countries of the Hidrovia Region, acreage
harvested in soybeans has increased from approximately 18.9 Mha (million
hectares, 1 hectare = 2.47 acres) in 1993 to 40.2 Mha in 2004, a CAGR of 7.8%.
Further, with advances in technology, productivity of farmland has also
improved.
The growth in soybean production has not occurred at the expense of other
key cereal grains. Production of corn (maize) in the Region grew from 50.1 mt in
1994 to 56.4 mt in 2004, a CAGR of 1.2%. Production of wheat in the Region grew
from 13.9 mt in 1994 to 22.5 mt in 2004, a CAGR of 4.9%.
The installation of crushing plants in Bolivia and Paraguay has generated
a large volume of vegetable oils and soybean meal that are also shipped via the
river for export. Soybean meal exports from Bolivia and Paraguay totaled about
1.5 mt in 2004, while soybean oil exports were about 0.4 mt.
Iron Ore. In the Corumba area in Brazil, two large iron ore mines owned by
international mining companies Rio Tinto and Companhia Vale do Rio Doce, or
CVRD, are located near the High Paraguay river. Their combined production of
iron ore, which is entirely transported by barge, has doubled in the last five
years to over three million tons per annum. Rio Tinto is considering expansion
of its mine.
Forest Products. Areas adjacent to the Hidrovia Region in Northern
Argentina comprise most of Argentina's forest and forest product producing
areas. Higher value added sectors of the forest products industry have grown at
high rates, while lower value added sectors (e.g. logs, fuel wood) have remained
stable or declined. Sawn wood, wood-based panels, paper, paperboard, and wood
pulp sectors comprise about 99% of 2002 (the last year for which data is
available) export revenues (total revenues $273 million).
Oil transportation
The Hidrovia Region is a key link in Argentina's oil supply network. In
2003, Argentine oil demand was estimated at about 430,000 barrels per day, or
bpd, while production for 2005 was estimated at approximately 770,000 bpd. Total
refining capacity is estimated at about 625,000 bpd.
Paraguay has no indigenous sources of petroleum. Barges using the rivers
in the Hidrovia Region are currently the preferred method of supplying Paraguay
with crude and petroleum products, totaling between 1.1 million cubic meters to
1.3 million cub meters per year in the last 6 years.
All the petroleum products travel north to destinations in Northern
Argentina, Paraguay and Bolivia, creating synergies with dry cargo volumes that
mostly travel south.
Brazil does not yet transport any significant quantity of petroleum
products via the rivers in the Hidrovia Region, mainly due to lack of discharge
facilities. However, incentives exist to switch to barge transportation for
petroleum product distribution to Brazilian cities near the river. Currently,
interior regions of Brazil near the Hidrovia are supplied over land by truck.
Fleet developments and utilization
In the last 10 years the barge fleet in the Hidrovia Region has more than
doubled, maintaining a high level of utilization. This has occurred not only due
to the growth of production in the area, but also because cargo that in the past
was transported by truck started to shift to river transport as the
infrastructure developed. Today's available barge fleet in the area consists
approximately of 1,000 dry and tank barges, in contrast with approximately
27,900 barges in the Mississippi River System in the United States.
UABL owns and operates approximately 43% of total dry cargo capacity. The
closest competitor, Fluviomar, operates approximately 19% of the dry cargo
tonnage capacity. There are approximately 10 different companies operating dry
cargo barges in the Hidrovia Region.
The barge business in the Parana river has seasonal fluctuations due to
the agricultural aspect of the trade. The high season in 1993 was from March
through July, and in 2003 the high season had extended from February through
September. However, the October through January period is now much more active
due to the construction of a large soybean crushing plant along the Parana river
that works most of the year.
Freight levels are much less cyclical than in ocean transportation and are
based on local supply and demand factors that are generally not related to ocean
freights.
Mode Comparison
Along with growth in production of commodities transported by barge in the
Hidrovia Region, cost, safety and environmental incentives exist to shift
commodity transport to barges.
Inland barge transportation is generally the most cost efficient, safest
and cleanest means of transporting bulk commodities as compared with railroads
and trucks.
One barge has the carrying capacity of approximately 15 railcars or
approximately 58 tractor-trailer trucks and is able to move 514 ton-miles per
gallon of fuel compared to 202 ton-miles per gallon of fuel for rail
transportation or 59 ton-miles per gallon of fuel for tractor-trailer
transportation. On a cost per ton-mile basis in the United States, rail
transportation is 3.1 times more expensive and truck transportation is 37.0
times more expensive than barge transportation. In addition, when compared to
inland barges, trains and trucks produce 3.5 times and 19.0 times, respectively,
the amount of certain smog-causing chemicals when moving equivalent amounts of
freight over equivalent distances. According to the U.S. Bureau of
Transportation Statistics, barge transportation is also the safest mode of
freight transportation, based on the percentage of fatalities and the number of
hazardous materials incidents, fatalities and injuries from 1999 through 2002.
Inland barge transportation predominantly operates away from population centers,
which generally reduces both the number and impact of waterway incidents.
In terms of unit transportation cost for most dry bulk cargos, barge is
cheapest, rail is second cheapest, and truck is third cheapest. There are clear
and significant incentives to build port infrastructure and switch from truck to
barge to reduce cost.
Offshore Supply Business
The market for offshore supply vessels, or OSVs, both on a worldwide basis
and within Brazil, is driven by a variety of factors. On the demand side, the
driver is the growth in offshore oil development/production activity, which in
the long term is driven by the price of oil and the cost of developing the
particular offshore reserves. Demand for OSVs is further driven by the location
of the reserves, with fields located further offshore and in deeper waters
requiring more vessels per field and larger, more technologically sophisticated
vessels. The supply side is driven by the availability of the vessel type needed
(i.e., appropriate size and technology), which in turn is driven by historical
newbuilding patterns and scrapping rates as well as the current employment of
vessels in the worldwide fleet (i.e., whether under long-term charter) and the
rollover schedule for those charters. Technological developments also play an
important role on the supply side, with technology such as dynamic positioning
better able to meet certain support requirements.
Both demand for and supply of OSVs are heavily influenced by cabotage
laws. Since most offshore supply activities occur within the jurisdiction of a
country, they fall within that country's cabotage laws. This distinguishes the
OSV sector from most other types of shipping. Cabotage laws may restrict the
supply of tonnage, give special preferences to locally flagged ships or require
that any vessel working in that country's waters be flagged, crewed, and in some
cases, constructed in that country.
OSVs generally support oil exploration, production, construction and
maintenance activities on the continental shelf and have a high degree of cargo
capacity and flexibility relative to other offshore vessel types. They utilize
space above and below deck to transport dry and liquid cargo, including heavy
equipment, pipe, drilling fluids, provisions, fuel, dry bulk cement and drilling
mud.
The OSV sector includes conventional supply vessels, or SVs, and platform
supply vessels, or PSVs. PSVs are large and often sophisticated vessels
constructed to allow for economic operation in environments requiring some
combination of deepwater operations, long distance support, economies of scale,
and demanding operating conditions. PSVs serve drilling and production
facilities and support offshore construction and maintenance work for clusters
of offshore locations and/or relatively distant deepwater locations. They have
larger deck space and larger and more varied cargo handling capabilities
relative to other offshore support vessels to provide more economic service to
distant installations or several locations. Some vessels may have dynamic
positioning which allows close station keeping while underway. PSVs can be
designed with certain characteristics required for specific offshore trades such
as the North Sea or deepwater Brazilian service.
The industry OSV fleet (SVs and PSVs) has approximately 1,089 vessels,
with about 119 vessels on order.
The industry SV fleet has approximately 729 vessels with about 26 vessels
on order. The average of age of the industry SV fleet is 22 years, with
approximately three quarters of the vessels in the industry fleet being age 20
years or older.
The industry PSV fleet has approximately 360 vessels, with approximately
93 vessels on order. The average age of the industry PSV fleet is approximately
10 years.
The world PSV fleet can be divided into three vessel sizes by dwt, which
is an approximate measure of a vessel's cargo carrying capacity.
Industry PSV Fleet as of March 1, 2006
-------------------------------------------------------------------
Cargo
Carrying
Capacity Total No. Average
(in DWT) Vessels Age Orderbook
-------------------------------------------------------------------
Small 1,499 or less 16 20 0
Medium 1,500 to 3,999 258 10 43
Large 4,000 + 86 6 50
Total 360 93
-------------------------------------------------------------------
Source: Doll Shipping Consultancy based on industry sources and estimates
Typically, larger and newer PSVs support facilities that are located in
more demanding environments are often more distant from shore. The large PSV
segment is the youngest portion of the industry fleet. Large PSVs typically are
equipped with the advanced technological and cargo handling features noted above
that allow service in demanding offshore areas while realizing efficiencies by
supplying large cargoes to multiple offshore areas.
Brazilian Offshore Industry
Driven by Brazil's policy of becoming energy self-sufficient as well as by
oil price and cost considerations, offshore exploration, development, and
production activities within Brazil have grown. Since most Brazilian reserves
are located far offshore in deep waters, where large,
technologically-sophisticated vessels are needed, today, Brazil is a world
leader in deep drilling technology.
The primary customer for PSVs in Brazil is Petrobras, the Brazilian
national oil company. The Brazilian government has also allowed foreign
companies to participate in offshore oil and gas exploration and production
since 1999. Other companies active in Brazil in offshore oil and gas exploration
and production industry include Total, Shell, BP and ChevronTexaco. The
deepwater Campos Basin, an area located about 80 miles offshore, has been the
leading area for offshore activity. Activities have been extended to the
deepwater Santos and Espirito Santo Basins as well with activities now taking
place in areas of water depths of over 9,000 ft.
Deepwater service favors modern vessels that can provide a full range of
flexible services while providing economies of scale to installations distant
from shore. Cabotage laws favor employment of Brazilian flag vessels. However,
many of the Brazilian flag PSV's and supply vessels are old, with approximately
half of the national fleet are at least 20 years of age. Temporary authority is
granted for foreign vessels to operate only if no Brazilian flag vessels are
available.
Brazilian-Flag PSV and Supply Vessels
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Age Percent
--------- -------
0-4 40%
5-9 10%
10-14 0%
15-19 2%
20 and + 48%
Source: Doll Shipping Consultancy based on industry sources
Of a total of approximately 71 Brazilian flag offshore vessels, 42 are
categorized as PSVs and SVs, including four large PSVs of 4,000 dwt or more. The
current orderbook for Brazilian flag PSVs and SVs is 15 vessels, including nine
large PSVs.
The North Sea Market
The North Sea is a similarly demanding offshore market due to difficult
weather and sea conditions, significant water depths, long distances to be
traveled, and sophisticated technical requirements.
In 2000 and 2001, increases in oil prices led to increased North Sea
exploration activity and higher OSV demand. Oil prices fell in early 2002,
leading to questions regarding the sustainability of the higher oil prices and
reduced exploration and development activity. Even with recovery in the Brent
price to an average of about $29 per barrel in 2003, North Sea exploration and
development activity remained low. Low oil prices and availability of more
attractive opportunities elsewhere resulted in a shift of activities by oil
majors towards other regions. Oil prices continued their increase, with average
Brent crude prices of about $38 per barrel in 2004 and $55 per barrel in 2005.
Exploration and development activities increased. Major oil companies returned
to the North Sea while the independents remained and increased their activities.
High demand led to increases in large PSV rates, averaging approximately
$15,900 per day in 2004 and $30,400 per day in 2005. Large PSVs do not have a
long rate history due to their relatively recent entry into service. After
averaging about $16,900 per day in early 2006, large PSV rates increased to
about $38,000 per day in early 2006.
Oil Tanker Industry Overview
The demand for tankers is a function of the volume of crude oil and
petroleum products to be transported by sea and the distance between areas of
oil consumption and oil production. The volume of crude oil and petroleum
products transported is affected by overall demand for these products, which in
turn is influenced by, among other things, general economic conditions, oil
prices, weather, competition from alternative energy sources, and environmental
concerns.
World oil demand increased from about 69.8 million barrels per day, or
MBD, in 1995 to 83.3 MBD in 2005, a compounded annual growth rate, or CAGR, of
approximately 1.8%. Oil demand increased in all regions of the world except for
the former Soviet Union. In 2005 oil demand grew by approximately 1.1 MBD.
During this same period, world oil supply increased from about 70.6 MBD in
1995 to 84.1 MBD in 2005, a CAGR of about 1.8%. In 2005 oil production grew by
1.1 MBD. OPEC crude oil production increased from 25.2 MBD 1995 to 29.2 MBD in
2005, a CAGR of approximately 1.5%. Non-OPEC crude oil production increased from
42.7 MBD to 50.2 MBD, a CAGR of about 1.6%.
Benchmark West Texas Intermediate crude, or WTI, averaged $18.43 per
barrel in 1995 (all crude prices are expressed in United States dollars) and
averaged between approximately $14 and $23 through the rest of the 1990's. WTI
prices increased in 2003 to an average of $31.08 per barrel, increased to an
average $41.50 per barrel in 2004 and $56.63 per barrel in 2005. Some months in
2005 and 2006 averaged over $65 per barrel, with February 2006 averaging $61.63.
Tanker Classifications and Primary Trade Routes
As the table below demonstrates, the world oil tanker fleet is generally
divided into six vessel sizes classified by dwt, which is an approximate measure
of a vessel's cargo carrying capacity. In general, VLCC's/ULCC's primarily
transport crude oil on long-haul trade routes (where oil producers are located
more than approximately 5,000 miles from the end user, such as from the Arabian
Gulf to the Far East, from the Arabian Gulf to Rotterdam via the Cape of Good
Hope, from the Arabian Gulf to the Red Sea, and from the Arabian Gulf to the US
Gulf/Caribbean. Suezmax tankers trade on long-haul and short-haul routes as
discussed below, while Aframax, Panamax, and Handy tankers serve routes
typically in short-haul, regional markets (e.g., Latin America, Mediterranean,
Southeast Asia).
Industry Tanker Fleet as of March 1, 2006
--------------------------------------------------------------------------------
Cargo
Carrying % of Total % of Fleet
Capacity Total No. Total Tanker Fleet Age 20 yrs
(in DWT) Vessels MDWT (by DWT) or older
--------------------------------------------------------------------------------
Small 1,000 to 9,999 3,849 15.0 4% 46%
Handy 10,000 to 49,999 2,125 65.2 18% 29%
Panamax 50,000 to 79,999 337 22.2 6% 35%
Aframax 80,000 to 119,999 678 68.4 19% 10%
Suezmax 120,000 to 199,999 331 49.7 14% 6%
VLCC/ULCC 200,000+ 481 140.4 39% 5%
Total 7,801 360.9 100%
--------------------------------------------------------------------------------
Source: Doll Shipping Consultancy based on industry sources and estimates
Suezmax vessels are active in dirty trades (i.e., the transportation of
crude oil and dirty petroleum products) from West Africa to the Americas, and in
some Latin American dirty trades, including backhauls (return trips with a short
ballast leg) to Europe and North America. Other major Suezmax trades include
cross Mediterranean and intra-European trades.
Aframax tankers are active in Latin American dirty trades. Since Aframax
tankers are the largest vessels capable of entering many U.S. ports, these
vessels are often utilized on Latin America to U.S. trade routes to take
advantage of economies of scale. Other major Aframax dirty trades include
intra-European and cross-Mediterranean trades. In Aframax clean trades, major
routes include voyages from the Middle East to Japan, Southeast Asia, and South
Asia.
Factors Affecting Supply of Oil Tankers
The supply of tankers is determined by the size and technical suitability
of the available fleet (i.e., size of a vessel versus port constraints, clean
versus dirty cargo capabilities, charterer acceptability, etc.). Tanker owners
include oil companies, government-owned shipping companies and independent
vessel owners. Independent owners are now the largest group, owning about 80% of
the tanker fleet. There are also operators who do not own vessels but who
charter their tonnage from independent vessel owners. The existing tanker fleet
increases by newbuilding deliveries and decreases by the number of tankers
scrapped or otherwise removed from the fleet. Fleet size also decreases when
vessel tonnage becomes unavailable due to floating storage, layup, or repair.
Newbuilding, scrapping, and vessel unavailability are affected by current and
expected future vessel prices, charter hire rates, operating costs, age profile
of the fleet, and government and industry regulation. For example, compared to
historical averages, 2004-2005 earnings were high, while scrapping was low. If
vessel earnings were to decrease, repair and retention of older vessels would
become less economically attractive, and industry scrapping could increase.
The International Maritime Organization, or IMO, adopted accelerated
phase-out regulations for single hull tankers of 5,000 dwt or more carrying
petroleum or petroleum products which entered into force in April 2005. The
regulations are a complex set of requirements that accelerate the phase-out of
pre-International Convention for the Prevention of Pollution from Ships, or
MARPOL, "Category 1" tankers without protectively located segregated ballast to
2005. Single hull tankers with protectively located segregated ballast are to be
phased out in 2010. Flag States may make exceptions for certain single hull,
double bottom, or double sided vessels meeting determined quality and/or
structural requirements that allow the vessels to continue in service until age
25 or the year 2015, whichever is earlier. Single hull vessels are also to be
banned from carriage of certain heavy oils, with some exceptions allowed for
double bottom or double sided vessels meeting certain quality criteria. Certain
crude oils have been exempted. Port states may recognize the Flag State
exemptions or may choose to enforce the earlier phase-out dates. The effects of
the regulations are complex but will tend to accelerate the phase-out of single
hull vessels. Actual scrapping behavior will depend upon many variables
including the state of the market and future Flag State and Port State
implementation.
The European Union has had regulations in effect since 2003 that require
double hull vessels be used for certain heavy oils, with no exceptions. These
regulations apply to tankers of 5,000 dwt or more registered in European Union
countries or entering waters within jurisdiction of European Union countries.
Along with mandatory regulations, other factors encourage scrapping of
single hull tankers. Many charterers require or show preference for double hull
vessels. This preference tends to reduce utilization of single hull vessels and
to encourage scrapping.
Also, port congestion and canal congestion serve to limit effective supply
at any one time.
Fleet Development
In 2005, 0.4 million dwt, or Mdwt, of Suezmaxes were scrapped, while 4.2
Mdwt were delivered. As of March 1, 2006, none have been scrapped, while 0.8
Mdwt have been delivered. The current orderbook is 9.6 Mdwt (61 vessels) with
3.3 Mdwt due for delivery this year, 3.8 Mdwt next year and 1.7 Mdwt in 2008.
About 38.9 Mdwt of Suezmaxes have double hulls, 3.1 Mdwt have double bottoms or
double sides, and 7.7 Mdwt have single hulls.
Suezmax Fleet Development
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
(in DWT)
Year Deliveries Deletions Net Change
---- ---------- --------- ----------
1995 1,130,232 -985,196 145,036
1996 1,466,778 -1,035,477 431, 301
1997 1,432,658 -609,863 822,795
1998 3,095,821 -867,547 2,228,274
1999 2,367,677 -3,422,237 -1,054,560
2000 3,483,414 -2,502,230 981,184
2001 2,498,007 -3,286,810 -788,803
2002 3,746,456 -2,080 153 1,666,303
2003 3,926,818 -2,183,319 1,743,499
2004 4,085,270 -1,212,499 2,872,771
2005 4,200,062 -434,552 3,765,510
2006 781,890 781,890
Source: Doll Shipping Consultancy based on industry sources
Charter Hire Rates
One-year time charter rate assessments for a standard Suezmax vessel type
are shown below. Time charter rate assessments ignore the wide variation in time
charter rates based on different vessel specifications and performance, and are
intended to demonstrate trends. Time charter rates tend to be less volatile than
spot charter rates as they incorporate rate expectations, which change less
quickly than the day to day spot freight market.
Suezmax One-Year Timecharter Rates
($ / day)
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
Jan-95 19,000
Feb-95 19,000
Mar-95 18,800
Apr-95 18,500
May-95 18,500
Jun-95 18,500
Jul-95 18,500
Aug-95 18,500
Sep-95 19,100
Oct-95 19,500
Nov-95 19,500
Dec-95 19,500
Jan-96 19,875
Feb-96 20,000
Mar-96 20,000
Apr-96 20,375
May-96 20,800
Jun-96 21,188
Jul-96 21,375
Aug-96 21,500
Sep-96 21,750
Oct-96 22,000
Nov-96 22,000
Dec-96 22,000
Jan-97 22,000
Feb-97 22,000
Mar-97 22,000
Apr-97 23,000
May-97 23,000
Jun-97 23,000
Jul-97 23,000
Aug-97 23,200
Sep-97 23,750
Oct-97 24,000
Nov-97 24,125
Dec-97 24,875
Jan-98 25,000
Feb-98 25,000
Mar-98 25,000
Apr-98 24,938
May-98 24,550
Jun-98 24,125
Jul-98 23,600
Aug-98 23,750
Sep-98 22,688
Oct-98 20,900
Nov-98 20,500
Dec-98 20,100
Jan-99 19,500
Feb-99 19,250
Mar-99 18,688
Apr-99 18,200
May-99 18,000
Jun-99 18,000
Jul-99 17,950
Aug-99 17,875
Sep-99 17,500
Oct-99 17,500
Nov-99 17,625
Dec-99 18,000
Jan-00 19,063
Feb-00 20,625
Mar-00 22,100
Apr-00 23,500
May-00 23,750
Jun-00 25,650
Jul-00 28,750
Aug-00 30,250
Sep-00 32,000
Oct-00 37,625
Nov-00 40,250
Dec-00 39,800
Jan-01 41,063
Feb-01 38,000
Mar-01 38,000
Apr-01 37,000
May-01 36,750
Jun-01 32,400
Jul-01 29,000
Aug-01 28,100
Sep-01 28,500
Oct-01 28,375
Nov-01 20,500
Dec-01 18,750
Jan-02 17,875
Feb-02 16,875
Mar-02 16,750
Apr-02 17,188
May-02 17,250
Jun-02 17,250
Jul-02 17,000
Aug-02 16,750
Sep-02 17,000
Oct-02 17,500
Nov-02 18,600
Dec-02 23,875
Jan-03 26,200
Feb-03 27,250
Mar-03 27,250
Apr-03 24,750
May-03 24,600
Jun-03 24,500
Jul-03 23,000
Aug-03 22,400
Sep-03 22,750
Oct-03 23,200
Nov-03 25,000
Dec-03 26,875
Jan-04 31,800
Feb-04 29,250
Mar-04 29,000
Apr-04 29,000
May-04 28,625
Jun-04 29,000
Jul-04 29,600
Aug-04 30,750
Sep-04 31,375
Oct-04 43,800
Nov-04 49,000
Dec-04 45,300
Jan-05 35,500
Feb-05 36,500
Mar-05 35,000
Apr-05 33,400
May-05 35,000
Jun-05 35,000
Jul-05 34,000
Aug-05 34,000
Sep-05 34,200
Oct-05 35,500
Nov-05 36,000
Dec-05 35,800
Jan-06 34,500
Feb-06 34,000
Source: Doll Shipping Consultancy from industry sources.
During 2004, 2005, and through March 2006, the concurrence of a number of
positive factors resulted in high tanker earnings. Tanker demand increased while
the industry fleet grew moderately. Growth in long-haul trades to Asia and the
United States (including ongoing substitution of long-haul oil for short-haul
Venezuelan oil) and higher U.S. oil import requirements due to damage from
hurricanes were positive factors, all resulting in strong tanker earnings.
Chemical Tankers
Vessels with IMO Chemical Classification are required for transport of
chemicals. International regulations for the transportation of chemicals specify
protective location, stability requirements, safety criteria for survivability
and containment in certain damage cases, maximum tank sizes and other criteria.
These standards are grouped into IMO Chemical Classifications. A "Type 1" vessel
is a chemical tanker intended for the transportation of products considered to
present the greatest overall hazard and "Type 2" and "Type 3" vessels for
products of progressively lesser hazards. Vessels may have tank capacity on
board meeting different IMO classifications. For example, a vessel may have Type
1 and Type 2 cargo tanks or Type 2 and Type 3 tanks. Type 1 and Type 2 capacity
vessels have protective location requirements that require void spaces between
bottom and side shell plating of the vessels, effectively requiring double
bottoms or double hulls. Type 3 capacity vessels do not have protective location
requirements.
Revised MARPOL Annex 2 regulations take effect on January ___, 2007,
requiring Type 2 or double hull Type 3 vessels for the transport of vegetable
and other edible oils (vegoils) and expanding IMO class chemical transport
requirements.
There are 2,125 Handysize tankers (from 10,000 dwt to 49,999 dwt)
totalling 65.2 million dwt Mdwt (Mdwt). 1,221 vessels, or 35.5 Mdwt, are
chemical tankers (certificated to carry Type 1, 2, or 3 cargos.) Type 1, Type 2,
and Type 3 capacity totals 0.7 million metric tons (mmt), 14.5 mmt, and 20.3 mmt
respectively. Included in the Handysize chemical tanker totals is about 6.9 mmt
of stainless steel capacity.
The current orderbook for Handysize tankers totals 588 vessels of
approximately 17.8 Mdwt, approximately 27% of the existing fleet. Scheduled
deliveries for 2006, 2007 and 2008 are 7.3, 5.9 and 3.2 Mdwt., respectively.
Included are 453 chemical tankers, or 12.7 Mdwt. Scheduled chemical tanker
deliveries for 2006, 2007 and 2008 are 6.3, 4.4 and 1.5 Mdwt., respectively.
Type 1, Type 2, and Type 3 capacity on order totals 0.1 mmt, 4.6 mmt, and 8.0
mmt, respectively. Included in the Handysize chemical tanker orderbook is
approximately 2.2 mmt of stainless steel capacity.
There are 3,849 small tankers (from 1,000 dwt to 9,999 dwt) totalling 15.0
Mdwt. 1,077 vessels or 5.9 Mdwt are chemical tankers (certificated to carry Type
1, 2, or 3 cargos.) Type 1, Type 2, and Type 3 capacity totals about 1.0 mmt,
3.0 mmt, and 1.9 mmt respectively. Included in the small chemical tanker totals
is approximately 2.5 mmt of stainless steel capacity.
The current orderbook for small tankers totals 245 vessels or
approximately 1.2 Mdwt. about 8% of the existing fleet. Scheduled deliveries for
2006, 2007 and 2008 are 0.8, 0.3 and 0.1 Mdwt. respectively. Included are 68
chemical tankers, or 0.7 Mdwt. Scheduled chemical tanker deliveries for 2006,
2007 and 2008 are 0.5, 0.2 and 0 Mdwt., respectively. Type 1, Type 2, and Type 3
capacity on order totals 0.0 mmt, 0.5 mmt, and 0.2 mmt respectively. Included in
the small chemical tanker orderbook is approximately 0.1 mmt of stainless steel
capacity.
Chemical tankers of 5,000 to 20,000 dwt typically trade in intraregional
and in short to medium haul interregional markets for specialized cargoes.
Typical intraregional trades for these vessels would include intraregional
trades in Latin America, the Caribbean, Northern Europe and the Mediterrranean,
Southeast Asia, and Northeast Asia. Typical interregional trades would be
North-South trades in the Americas, the Mediterranean to and from Northern
Europe, South East Asia to Australia, and trades to and from adjacent Asian
regions (e.g. Southeast Asia to South Asia).
Chemical tanker capacity is in excess of chemical tanker requirements and
is projected to remain in excess of future chemical tanker requirements.
Therefore many chemical tankers will spend all or part of their lives in clean
product trades. Vessel characteristics that allow tranport of more demanding
chemicals, such as stainless steel capacity, would increase the likelihood of
the vessel trading in chemicals.
While the changes in regulations by themselves are not projected to cause
a shortage of tonnage, product tanker time charter rates and chemical tanker
freight rates have been at historically high levels during 2004 and 2005,
indicating high levels of demand versus supply. High petroleum product demand in
Asia and the United States required local refineries to run at or near capacity,
leading to high product prices and attractive margins for product imports.
Growth in product imports to the U.S. was supplied by Russia and Europe, while
imports from Latin America were stable. Damage to refineries in the Gulf of
Mexico from the hurricanes in the United States in the fall of 2005 further
increased demand for product imports in the United States.
Handysize Product Tanker one year time charter rate $/day
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
Jan-95 13,500
Feb-95 13,500
Mar-95 13,500
Apr-95 13,500
May-95 13,500
Jun-95 13,500
Jul-95 13,500
Aug-95 13,563
Sep-95 13,750
Oct-95 13,750
Nov-95 13,750
Dec-95 13,750
Jan-96 13,750
Feb-96 13,750
Mar-96 13,750
Apr-96 13,750
May-96 13,900
Jun-96 14,188
Jul-96 14,250
Aug-96 14,250
Sep-96 14,250
Oct-96 14,250
Nov-96 14,100
Dec-96 14,000
Jan-97 14,000
Feb-97 14,000
Mar-97 14,000
Apr-97 14,313
May-97 14,600
Jun-97 14,750
Jul-97 14,875
Aug-97 14,790
Sep-97 14,800
Oct-97 14,650
Nov-97 14,438
Dec-97 14,250
Jan-98 14,200
Feb-98 14,000
Mar-98 13,875
Apr-98 13,500
May-98 12,850
Jun-98 12,750
Jul-98 12,650
Aug-98 12,500
Sep-98 12,500
Oct-98 12,500
Nov-98 12,500
Dec-98 13,000
Jan-99 12,500
Feb-99 12,438
Mar-99 11,750
Apr-99 11,400
May-99 11,000
Jun-99 11,000
Jul-99 10,950
Aug-99 10,875
Sep-99 11,188
Oct-99 11,350
Nov-99 11,125
Dec-99 11,300
Jan-00 11,875
Feb-00 12,500
Mar-00 12,700
Apr-00 12,750
May-00 13,313
Jun-00 13,900
Jul-00 14,063
Aug-00 14,625
Sep-00 15,300
Oct-00 15,750
Nov-00 16,500
Dec-00 19,650
Jan-01 20,188
Feb-01 20,000
Mar-01 19,800
Apr-01 19,500
May-01 19,500
Jun-01 19,100
Jul-01 18,625
Aug-01 18,000
Sep-01 17,813
Oct-01 17,375
Nov-01 15,200
Dec-01 14,188
Jan-02 13,625
Feb-02 13,000
Mar-02 12,650
Apr-02 12,563
May-02 12,450
Jun-02 12,438
Jul-02 13,000
Aug-02 13,250
Sep-02 13,375
Oct-02 13,250
Nov-02 13,250
Dec-02 13,563
Jan-03 14,250
Feb-03 14,250
Mar-03 14,250
Apr-03 14,463
May-03 14,410
Jun-03 14,250
Jul-03 14,400
Aug-03 14,850
Sep-03 14,225
Oct-03 14,040
Nov-03 14,238
Dec-03 14,463
Jan-04 14,500
Feb-04 15,000
Mar-04 15,188
Apr-04 15,250
May-04 15,275
Jun-04 15,638
Jul-04 17,550
Aug-04 17,938
Sep-04 18,625
Oct-04 21,300
Nov-04 23,000
Dec-04 23,000
Jan-05 22,500
Feb-05 21,000
Mar-05 21,250
Apr-05 22,000
May-05 22,000
Jun-05 22,000
Jul-05 21,000
Aug-05 21,000
Sep-05 21,000
Oct-05 21,000
Nov-05 23,500
Dec-05 23,000
Jan-06 21,000
Feb-06 21,000
Mar-06 21,000
Source: Doll Shipping Consultancy based on industry sources and estimates
Dry Bulk Industry
The international dry bulk cargo market is a global industry and is
affected by many factors throughout the world. Important industry conditions for
dry bulk shipping include world dry bulk commodity production and demand, the
size of the international dry bulk vessels and combination carrier fleet, the
new production and scrapping of oceangoing dry bulk vessels and freight rates.
Both Capesize dry bulk vessels and combination carriers transport dry bulk
cargos, such as iron ore and coal.
Dry Bulk Demand and Production
Seaborne iron ore trade grew from an estimated 402 mmt in 1995 to about
651 mmt in 2005, a CAGR of 4.9%. High demand for steel in China has led to
growth in Chinese iron ore imports from about 41 mmt in 1995 to 275 mmt in 2005,
a CAGR of 20.9%. This increase includes growth of about 67 mmt in 2005, a year
on year increase of about 32%.
China Monthly Iron Ore Imports
(Millions of metric tons)
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
Date China iron ore imports
---- ----------------------
Jan-99 4.35
Feb-99 2.36
Mar-99 5.09
Apr-99 4.35
May-99 3.47
Jun-99 4.18
Jul-99 5.04
Aug-99 4.18
Sep-99 5.8
Oct-99 4.66
Nov-99 6.21
Dec-99 5.7
Jan-00 5.81
Feb-00 4.85
Mar-00 6.31
Apr-00 5.95
May-00 5.36
Jun-00 5.95
Jul-00 5.91
Aug-00 5.63
Sep-00 6.09
Oct-00 5.09
Nov-00 6.06
Dec-00 6.98
Jan-01 6.42
Feb-01 5.97
Mar-01 7.21
Apr-01 9.25
May-01 7.39
Jun-01 5.83
Jul-01 8.2
Aug-01 8.24
Sep-01 8.66
Oct-01 6.9
Nov-01 9.31
Dec-01 9.1
Jan-02 7.85
Feb-02 6.03
Mar-02 9.93
Apr-02 11.1
May-02 7.25
Jun-02 8.88
Jul-02 10.18
Aug-02 10.98
Sep-02 10.93
Oct-02 8.71
Nov-02 11.22
Dec-02 8.43
Jan-03 11.49
Feb-03 11.62
Mar-03 11.12
Apr-03 12.99
May-03 13.82
Jun-03 11.47
Jul-03 12.28
Aug-03 12.01
Sep-03 13.91
Oct-03 11.03
Nov-03 13.15
Dec-03 14.07
Jan-04 12.9
Feb-04 18.7
Mar-04 19.12
Apr-04 17.62
May-04 13.22
Jun-04 16.21
Jul-04 18.17
Aug-04 16.42
Sep-04 18.72
Oct-04 16.33
Nov-04 19.92
Dec-04 20.75
Jan-05 20.86
Feb-05 18.16
Mar-05 24.22
Apr-05 24.26
May-05 21.75
Jun-05 20.7
Jul-05 21.6
Aug-05 23.07
Sep-05 23.02
Oct-05 22.27
Nov-05 27.28
Dec-05 26.3
Source: Doll Shipping Consultancy from industry sources
Other Asian countries, such as Japan and Korea, have required increasing
iron ore imports. The top iron ore exporters are Australia and Brazil,
accounting for about 72% of estimated 2003 seaborne iron ore trade. Australian
exports grew from 132 mmt in 1995 to 242 mmt in 2005, including 31 mmt of growth
in 2005. Brazil's iron ore exports increased from 129 mmt in 1995 to 225 mmt in
2005, which includes 20 mmt of growth in 2005.
Coal trade is made up of thermal coal (steam coal), burned for its heat
value primarily in power generation, and metallurgical coal (coking coal, met
coal), used in steelmaking. Estimated seaborne steam coal trade grew from about
242 mmt in 1995 to about 498 mmt in 2005, a CAGR of 7.5%, which includes 24 mmt
of growth in 2005. Leading coal exporters are Indonesia, Australia, South
Africa, and China.
Capesize dry bulk vessels and combination carriers
Capesize dry bulk vessels and combination carriers have a cargo carrying
capacity of 80,000 dwt or greater based on representative sizes of vessels too
large to pass through the Panama Canal. However, most Capesize tonnage (about
94%) is comprised of vessels of 100,000 dwt or greater. Capesizes primarily
transport iron ore and coal on trade routes where lack of port constraints
(especially depth of water) and cargo parcel size limits allow realization of
economies of scale.
Capesize Fleet Development
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
Deliveries Deletions Net Change
---------- ---------- ----------
1993 4,454,541 -1,962,375 2,492,166
1994 4,315,768 -2,561,625 1,754,143
1995 5,835,026 -1,395,675 4,439,351
1996 7,808,648 -2,731,302 5,077,346
1997 7,577,782 -2,247,938 5,329,844
1998 1,892,881 -4,016,217 -2,123,336
1999 4,642,057 -3,058,928 1,583,129
2000 6,051,849 -920,121 5,131,728
2001 5,592,132 -1,707,607 3,884,525
2002 3,907,440 -1,412,539 2,494,901
2003 5,584,519 -1,049,522 4,534,997
2004 7,966,389 0 7,966,389
2005 10,226,386 -247,292 9,979,094
2006 2,200,607 0 2,200,607
Source: Doll Shipping Consultancy from Industry Sources
As of March 1, 2006, there were 763 Capesize dry bulk vessels comprising
approximately 121.7 Mdwt. Capesizes primarily transport iron ore and coal on
trade routes where lack of port or canal constraints allow realization of
economies of scale. In 2005, 0.2 Mdwt of Capesizes were scrapped, while 10.2
Mdwt were delivered. As of March 1, 2006, none have been scrapped, while 2.2
Mdwt have been delivered. The current orderbook is 38.1 Mdwt (249 vessels) with
13.3 Mdwt due for delivery this year, 8.5 Mdwt next year and 10.3 Mdwt in 2008.
The remainder are scheduled to bed delivered in 2009 and 2010. Total Capesize
combination carrier dwt is 6.7 million, with an estimated 3.9 Mdwt (58%)
currently employed in dry bulk trades. None were delivered since 2003 or are
currently on order. None were scrapped in 2005 or as of March 1, 2006.
Improved trade in year 2000 resulted in average one-year time charter
rates of about $17,100 per day. Slower trade growth and high fleet growth in
2001 and 2002 resulted in lower time charter rates, with average one-year time
charter rates of $12,800 per day in 2001 and $12,300 per day in 2002. Throughout
2003, there were large increases in dry bulk trade and tonnage demand that
offset fleet growth, with one-year time charter rates averaging $26,400 per day.
In 2004, led by high Chinese iron ore import growth and strong coal markets,
Capesize one-year time charter rates increased to an average $49,100 per day.
High Chinese imports of iron ore and other dry bulk commodities continued in
2005, supported by commodity trade growth elsewhere. Port delays have further
increased vessel demand. Even so, high vessel demand was outpaced by dry bulk
fleet growth in 2005, and dry bulk vessel time charter rates decreased, with one
year Capesize time charter rates decreasing to an average $42,500 per day.
Industry Scrapping
In 2004 and 2005, industry scrapping has been low compared to historical
standards. For example, during the years 1993 through 2003, tanker scrapping
averaged about 11.9 Mdwt per year, while in 2004 and 2005 tanker scrappings were
approximately 7.8 Mdwt and 4.1 Mdwt, respectively. During the years 1993 through
2003, dry bulk vessel scrapping averaged approximately 5.8 Mdwt per year, while
in 2004 and 2005 dry bulk vessel scrappings were about 0.4 Mdwt and 0.7 Mdwt
respectively. In 2006, scrapping through Feb. 15, 2006 totaled approximately 0.1
Mdwt for tankers and 0.3 Mdwt for dry bulk vessels.
Tanker and Dry Bulk Vessel Scrapping
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
Tanker and Dry Bulk Vessel Scrapping
Total
Tanker
------
1993 11,123,397
1994 12,479,623
1995 11,132,906
1996 5,780,330
1997 3,587,928
1998 5,030,753
1999 16,764,471
2000 14,802,063
2001 13,470,057
2002 18,108,349
2003 19,064,227
2004 7,832,662
2005 4,078,913
2006 146,704
Total
Drybulk
-------
1993 3,413,574
1994 4,177,354
1995 2,024,421
1996 6,485,716
1997 6,492,329
1998 10,895,625
1999 9,670,717
2000 4,042,344
2001 7,442,961
2002 5,649,281
2003 3,810,851
2004 420,663
2005 737,582
2006 333,968
Scrapped
--------
1993 14,536,971
1994 16,656,977
1995 13,157,327
1996 12,266,046
1997 10,080,257
1998 15,926,378
1999 26,435,188
2000 18,844,407
2001 20,913,018
2002 23,757,630
2003 22,875,078
2004 8,253,325
2005 4,816,495
2006 480,672
Source: Doll Shipping Consultancy based on industry sources and estimates
Passenger Vessel Industry
Passenger vessel demand is a function of overall demand for the global
cruise industry. Principal sources of cruise passengers are North America,
Europe, Asia and the South Pacific (including Australia and New Zealand), and
South America.
The estimated number of cruise passengers in North America has grown from
5.0 million in 1997 to 9.1 million in 2004, a CAGR of 8.8%. This increase
includes growth of 1.1 million in 2004, an annual increase of 11.1%. The total
population of North America (excluding Mexico) is estimated at about 320
million. The number of cruise passengers in 2004 comprises an estimated 2.8 % of
total population in North America.
The estimated number of cruise passengers in major European markets is
also growing. The number of cruise passengers from Europe grew from 2.66 million
in 2003 to 2.8 million in 2004, representing annual growth of 5.3%. In the
United Kingdom, the number of cruise passengers grew from about 964,000 in 2003
to 1.03 million in 2004, an annual increase of 7%. In Germany, the number of
cruise passengers grew from 529,000 in 2003 to 551,000, an annual increase of
4%. In Italy, the number of passengers grew from 346,000 to 400,000, an annual
increase of 16%.
The total population of Western Europe is estimated at about 392 million,
and the number of cruise passengers in 2005 comprises an estimated 0.7 % of
total population in Western Europe.
Industry Fleet: Passenger vessels engaged in international ocean cruise service
--------------------------------------------------------------------------
Standard Capacity Vessels Total Standard % of Standard
Capacity Capacity
--------------------------------------------------------------------------
under 250 52 6,298 2%
250-499 28 10,658 4%
500-999 53 37,520 13%
1000-1999 68 103,932 35%
2000-2999 52 119,072 40%
3000+ 6 18,684 6%
Total 259 296,164 100%
--------------------------------------------------------------------------
Source: Doll Shipping Consultancy based on industry sources and estimates
As of March 1, 2006, there were approximately 259 vessels engaged in
international ocean cruise service with a standard lower berth capacity of
approximately 296,000. This figure represents the total number of lower berths,
estimated at two passengers per cabin; the actual passenger count may be higher
due to the availability of upper berths, cots, or other arrangements. In 2005,
approximately four vessels with a standard lower berth capacity of 9,456 were
delivered, and five vessels of with a standard lower berth capacity of 4,282
were scrapped. In 2006, one vessel with a standard passenger capacity of
approximately 1,848 has been delivered, and none have been scrapped.
The current orderbook is approximately 28 vessels with a standard lower
berth capacity of approximately 81,380. In 2006, approximately six vessels with
a standard lower berth capacity of approximately 16,918 are scheduled to be
delivered. In 2007, about nine vessels with a standard lower berth capacity of
approximately 26,756 are under contract to be delivered. In 2008, approximately
eight vessels with a standard lower berth capacity of approximately 22,906 are
scheduled to be delivered, and in 2009 approximately five vessels, with a
standard lower berth capacity of approximately 14,800, are scheduled to be
delivered. All of these vessels have a standard lower berth capacity of 2,000 or
more.
BUSINESS
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 region with growing agricultural, forest and mineral related
exports. This region is crossed by navigable rivers that flow
through Argentina, Brazil, Bolivia, Paraguay and Uruguay to ports
serviced by ocean export vessels.
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 currently in operation and three currently under construction;
two of our PSVs currently under construction are contracted to be
delivered in the second half of 2006, with the third to be delivered
in 2007.
o Our Ocean Business owns and operates six oceangoing vessels,
including three versatile Suezmax OBO vessels, capable of carrying
either dry bulk or liquid cargos, one Aframax tanker, one
semi-integrated 43,000 deadweight ton, or dwt, tug/barge unit and
one chemical/product carrier. Our Ocean Business fleet has an
aggregate capacity of approximately 600,000 dwt.
o Our Passenger Business fleet comprises two vessels with a total
carrying capacity of approximately 1,600 passengers, and operates
primarily in the European cruise market.
We are focused on growing our businesses with an efficient and versatile
fleet that will allow us to provide an array of transportation services to
customers in several different industries. Our business strategy is to leverage
our expertise and strong customer relationships to grow the volume, efficiency,
and market share in a targeted manner. For example, we are currently increasing
the cargo capacity of our existing river barges to help increase our efficiency
and market share. In addition, we have commenced a program to replace the
current engines in our pushboats with new engines that will allow us to operate
using less expensive heavy fuel. We expect that the delivery of the three
additional PSVs we have on order will allow us to further capitalize on the
attractive offshore petroleum services market. We are also pursuing the
expansion of our ocean and passenger fleets through acquisitions of specific
types of vessels to participate in identified market segments. We believe that
the versatility of our fleet and the diversity of industries that we serve
reduce our dependency on any particular sector of the shipping industry and
offer numerous growth opportunities.
We have a diverse customer base including large and well-known petroleum,
agricultural, mining and tour operating companies. Some of our significant
customers in the last three years include affiliates of Archer Daniels Midland,
British Gas, Cargill, Chevron, Continental Grain, ENAP, Industrias Oleaginosas,
Panocean, Petrobras, the national oil company of Brazil, Petropar the national
oil company of Paraguay, Rio Tinto, Swissmarine, Total, Trafigura, Travelplan
and Vicentin.
Our Competitive Strengths
We believe that the following strengths have contributed to our success.
o We Are a Diversified Transportation Company. We operate in four
different sectors of the marine transportation industry. While we
believe that there are synergies between our businesses,
particularly in terms of the operational expertise, vessel
management and customer base, the many factors that affect supply
and demand, particular cost structure, and particular business risks
are different. Accordingly, we believe that our diversification
effectively provides a significant hedge against cyclical results in
one or more of the segments in which we operate.
o Our Large Scale Generates Efficiencies That Provides Us With Better
Control Over Pricing in our River Business. We are the largest
provider of river transportation services in the Hidrovia Region of
South America, and our river fleet has a cargo-carrying capacity of
approximately 798,000 dwt and approximately 490 barges. Our size
offers economies of scale and increased negotiating power. For
example, our size has allowed us to implement a different
operational system than that of our competitors, called trunk mode,
which enables us to service our clients with a continuous stream of
available barges while reducing our operating costs on a per ton
basis. The trunk mode is based upon the principle that the pushboat,
which is the most expensive operational asset for a river
transportation company, should operate continuously, and the barges
operate through a fleeting point or hub and, once loaded or
discharged, are picked up and taken to their next destination by the
next available pushboat. We have also been able to enter long-term
contracts for a substantial portion of our fleet for the next one to
four years and have successfully negotiated fuel price adjustment
clauses into many of our new contracts to insulate us from
fluctuations in the price of fuel.
o We Possess Competitively Advanced Technology in Two of Our
Businesses. We have made significant investments in our technology
systems. In our River Business, we use a navigational system that
allows our convoys to navigate 24 hours a day on a river system that
lacks the signals otherwise necessary for night navigation. This
system enables us to use our River Business assets more efficiently
than many of our competitors. In our Offshore Supply Business, we
have also developed a proprietary design for our new PSVs in
conjunction with the renowned Norwegian vessel design firm, the
Vik-Sandvik Group. This design can only be reproduced with our
consent, which, to date, we have not granted. We have equipped our
PSVs with advanced technology such as dynamic positioning
capabilities, dedicated oil recovery tanks for the performance of
oil recovery duties, and greater cargo capacity and deck space,
enabling these vessels to serve our customers in any of the major
offshore markets including the challenging North Sea.
o We Have a Versatile Ocean Fleet. Over the past decade, we have
focused on building a versatile ocean fleet to meet the demands of a
changing marketplace. We believe that our three Suezmax OBO vessels
are ideally suited to take advantage of the changing conditions of
the dry bulk and liquid cargo markets. We can readily switch our
Suezmax OBO vessels from one type of cargo to another. Further,
because of her narrow beam, our Aframax tanker is able, despite her
large Aframax dwt, to transit the Panama Canal. This design is
particularly appealing to customers who wish to employ an Aframax
size vessel but who occasionally need to bring cargos through the
Panama Canal. Our chemical/product carrier Miranda I has the
capability to segregate up to seventeen different classes of cargo
in center stainless steel tanks, and can be adapted to the
requirements of many different trades.
o We Have Long-Term, High Quality Customer Relationships. We have
operated our vessels around the globe since we began our business in
1992. We have long-standing relationships with large, established
customers, including affiliates of major international oil and
agriculture companies, such as Petrobras, Archer Daniels Midland,
Cargill, Continental Grain and ENAP. These long-term customer
relationships arise from our proven reliability and high-quality
service. For example, two of our customers, Petrobras and Cargill
Incorporated, have been customers of the Company for 12 and eight
years, respectively.
o We Maintain High Standards of Performance and Safety. We pride
ourselves on our operational excellence, our ability to provide high
caliber service and our commitments to safety, quality and the
environment. The quality of our vessels as well as the expertise of
our vessel manager, crews and engineering resources help us maintain
safe, reliable and consistent performance. We maintain well
documented and internationally certified safety and quality
management systems, perform periodic audits and conduct training,
each of which affects all areas of our activities, including
operations, maintenance and crewing. In our Offshore, Ocean and
Passenger Businesses, our subsidiary Ravenscroft has all necessary
certificates and licenses, and is certified under the International
Safety Management, or ISM Code, and is certified by the
International Organization for Standardization, or ISO, as ISO
9001:2000 certified.
o We Have an Established History and Experienced Management Team. Our
management team is led by members of the Menendez family. The family
has been involved in the shipping industry since 1876. Our senior
executive officers have on average 34 years of experience in the
shipping industry. Our management team has significant expertise in
various lines of business and has been instrumental in developing
and maintaining our certified safety and quality management systems
and our operational plans. Further, our management team has helped
us design and develop innovative and versatile PSVs in our Offshore
Supply Business.
o Preferential Treatment in Brazilian Offshore Market. Brazilian law
provides a preference for the utilization of Brazilian-flagged
vessels in its cabotage trade. Through one of our Brazilian
subsidiaries we have the competitive advantage of being able to
trade our PSVs in the Brazilian cabotage market, enabling them to
obtain employment in preference to vessels without those cabotage
privileges. In addition, since four of our initial six PSVs will
have been constructed in Brazil, we have the advantage of being able
to charter our foreign flagged PSVs to our Brazilian subsidiary
entitling those PSVs to the same preferential treatment received by
our Brazilian-flagged vessels. Currently, there are approximately
160 vessels in the Brazilian offshore market, of which, according to
DSC estimates, only 71 are Brazilian flag. Half of these vessels are
in excess of 20 years of age, and we estimate that only 12 PSVs are
modern and adequately equipped to service deepwater rigs. Of these
12, according to DSC estimates, only four are large PSVs of 4,000
dwt or more. Brazil's oil reserves are the second largest in South
America and over 90% of these reserves are located offshore.
Petrobras has a majority of the market share in the offshore
drilling market in Brazil, but recently the oil exploration and
production market was opened to private and foreign participation,
which we believe will allow for further growth and customer
diversification.
Our Business Strategy
Our business strategy is to continue to operate as a diversified marine
transportation company with an aim to maximize our growth and profitability
while limiting our exposure to the cyclical behavior of individual sectors of
the transportation industry. We plan to implement our business strategy by
pursuing the following objectives.
o Capitalize on Growth Opportunities. We are the leading river
transportation company in the Hidrovia Region, utilizing an
efficient trunk system, self-operated loading and discharging
terminals, and owned repair facilities to maximize asset efficiency.
The Hidrovia Region's agricultural footprint already represents a
significant portion of the world's soybean production, and,
according to DSC, its share is expected to grow. Additionally,
producers of iron ore and pig iron are scheduled to establish new
production facilities and increase existing capacity in the region.
In our Offshore Supply Business, we currently have three and are
taking delivery of three additional, proprietarily designed PSVs
that are capable of operating on a global basis, to capitalize on
the strong offshore platform supply market conditions, and are
actively exploring the construction of a further four PSVs.
o Capitalizing on Attractive Fundamentals in Our River Business. The
Hidrovia Region offers a number of attractive fundamentals for the
growth of our River Business.
- Growing Agricultural Exports. During 2005, Brazil, Argentina,
Paraguay and Bolivia produced over 105 million tons of soy,
which represented approximately 47% of world production, as
compared to the 84 million tons or approximately 38% of world
production by the United States. Moreover, the region
continues to have large amounts of unused arable land
available for soy and other crops.
- New Production in the Hidrovia Region. For example, EBX (a
Brazilian steel producer) is constructing a pig iron facility
in Bolivia and owns an iron ore mine in Brazil. We expect that
these facilities will reach full production capacity of
800,000 tons of pig iron and 600,000 tons of iron ore in 2007.
Rio Tinto has increased its iron ore production from a rate of
1.2 to 2.0 million tons per year since June 2005.
- Efficient Means of Transportation. River barges provide an
efficient and cost-effective transportation alternative
relative to railroads and trucks. One barge can transport as
much cargo as 58 trucks, making the capacity of our 30 barge
tow equivalent to 1740 trucks. Notably, our 30 barge tow
requires a crew of only nine. Given the efficiencies of river
transportation, we believe that by building the necessary
infrastructure, forest products, which are currently
transported by truck and rail, offer significant growth
opportunities for our River Business.
- Captive Infrastructure. The products and goods for export in
the Hidrovia Region are geographically very distant (over
1,000 miles) from ocean ports. The navigable portion of the
Hidrovia Region is over 2,200 miles long and, passing through
the heart of this region, is ideally situated to suit the
needs of the agricultural community. Historically, lack of
infrastructure to load and discharge cargo has been a limiting
factor both physically and economically. Over the past several
years, directly or through a joint venture, we have added a
significant amount of infrastructure to the river system, such
as docks, ports and terminals, over which we have a right of
first use. Our proprietary infrastructure allows us to better
serve our customers by loading the cargos or discharging them
directly into ocean vessels as near as possible to production,
thus increasing the number of barges we can efficiently load
on the river and optimizing overall logistics from point of
origin to destination through the use of our facilities.
We plan to capitalize on these attractive fundamentals by leveraging
our leading market position and pursuing the following initiatives.
- Increasing the Cargo Carrying Capacity of Our Barges. In an
effort to maximize the utilization of our fleet of barges, we
are in the process of increasing the carrying capacity of 130
of the barges in our fleet. This process involves cutting the
barge length-wise, inserting a new midsection and welding the
three pieces (the two original sides and the new midsection)
together. Through this process the overall capacity of each of
these barges will increase by approximately 67%. Because the
fixed costs of pushing a wider barge are the same as pushing
the narrower barges we currently operate, we will be able to
transport higher quantities of cargo at limited incremental
cost.
- Replacing Diesel Oil Consuming Engines with Others that
Consume Less Expensive, Heavier Fuel. Given the differential
pricing between heavy fuel and diesel fuel, significant
savings can be achieved by replacing the diesel engines in our
16 line pushboats with new engines designed to consume less
expensive heavier fuel oil.
- Expanding our Barge Business Elsewhere in Latin America. As
the largest barge operator in South America, we believe we are
uniquely well-positioned to take advantage of growth
opportunities elsewhere in Latin America, and are currently
exploring specific opportunities in Brazil, Colombia, and
Mexico.
o Expanding Our Offshore Supply Business. We have taken delivery of
three modern, large, technologically advanced PSVs for our Offshore
Supply Business and are currently constructing three more for
delivery in 2006 and 2007. In addition, we are negotiating the
construction of four additional PSVs, which would give us a fleet of
ten PSVs. Currently, two of our three PSVs are operating in the
North Sea. Our experience in this challenging market positions us
well to expand market share as our new PSVs are delivered. Our third
PSV is on a six-month charter ending in October 2006 to Petrobras,
in Brazil. We believe there are numerous opportunities to charter
modern PSVs to Petrobras and other oil, exploration and drilling
companies primarily for use in Brazil. Additionally, high oil prices
are causing expanded exploration activity on a worldwide basis.
o Growing Our Ocean Fleet with Targeted Acquisitions. We intend to
expand our ocean fleet by selectively acquiring secondhand and newly
built vessels to capitalize on attractive market opportunities in
which we recognize demand for the vessels employment. For example,
we plan on adding chemical/product carriers to our fleet to fill a
demand from our existing customers for vessels to service routes
where both the point of origin and destination is in South America.
o Redeploying Vessels to the Most Attractive Markets. Due to the
versatility of our vessels, we intend, under appropriate market
conditions, to alter the geographic and industry focus of our
operations by redeploying vessels to the most profitable markets.
For example, as a result of rising demand out of China during 2003,
we switched our three Suezmax OBO vessels from liquid to dry cargo
carriers, and at the beginning of February 2006, when dry cargo
rates in the Pacific Ocean began to fall, we switched the Princess
Susana back to operating as a tanker. We have also deployed two of
our PSVs to the North Sea to take advantage of the high charter
rates currently prevailing in that region. In addition, we actively
manage the deployment of our fleet between longer-term time charters
and shorter-term time charters. Our vessel deployment strategy is
designed to provide greater cash flow stability through the use of
longer-term time charters, while maintaining the flexibility to
benefit from improvements in market rates by deploying the balance
of our vessels on shorter term time charters.
o Expanding our Passenger Fleet. We intend to further expand our
passenger fleet through timely and selective acquisitions of
secondhand passenger vessels in accordance with identified customer
needs. We are also exploring opportunities to acquire a small
passenger vessel to conduct river and coastal cruises in South
America.
o Focusing on Generating Operational Efficiencies. In all of our
business segments, we have identified opportunities to improve
overall efficiency and profitability. For example, in our Ocean
Business, key initiatives include continued analysis and
reorganization of vessel schedules thereby maximizing yield. In our
River Business, we will continue to focus on optimizing our barge
and tug scheduling, maximizing loads and convoy size and minimizing
empty back-hauls. In our Passenger Business, we will focus on
generating counter-seasonal trades for our vessels to operate
year-round and on providing ancillary services to enhance our
revenues and profitability.
Our Lines of Business
River Business. We have developed our River Business from one river convoy
comprising one pushboat and four barges in 1993 to the leading river
transportation company in the Hidrovia Region today. Our River Business, which
we operate through our subsidiary UABL, has approximately 490 barges with
approximately 798,000 dwt capacity and 23 pushboats. We own 446 dry barges that
transport agricultural and forestry products, iron ore and other cargos and 44
tanker barges that carry petroleum products, vegetable oils and other liquids.
We believe that we have more than twice the number of barges and dwt capacity as
our nearest competitor. In addition, we use one 35,000 dwt barge designed for
ocean trading, the Alianza G2, as a transfer station to provide storage and
transshipment services of cargo from river barges to ocean export vessels.
We are in the process of expanding the size of some of our barges to
increase their cargo carrying capacity and maximize our fleet utilization. We
believe that enlarging our existing barges is the most cost-effective way of
growing our fleet's cargo carrying capacity. We also have begun a program to
replace the engines in all 16 of our line pushboats. The new engines will
consume heavier grades of fuel which have, over the last years been between
% and % less expensive than the diesel fuel we currently consume.
We operate our pushboats and barges on the navigable waters of the Parana,
Paraguay and Uruguay Rivers and part of the River Plate in South America, also
known as the Hidrovia Region. We believe that this river system offers the most
efficient means of transportation for bulk cargos through the Hidrovia Region.
At over 2,200 miles in length, the Hidrovia Region is comparable to the
Mississippi River in the United States and produces and exports a significant
and growing amount of agricultural products. For example, Argentina, Brazil,
Paraguay, and Bolivia produced, in the aggregate, 41.5 million tons of soybeans
in 1994 compared to an estimated 105.5 million tons in 2005, a compound annual
growth rate of 8.9%. These countries accounted for over 47% of world soybean
production in 2005, growing from only 30% in 1995. In addition to agricultural
products, companies in the Hidrovia Region are expanding and initiating the
production of other goods, including forest products, iron ore, and pig iron.
Today's available barge fleet in the Hidrovia Region consists of approximately
1,000 dry and tank barges which compares with 27,900 barges in the Mississippi
River system.
Through joint ventures, we own and operate terminals at certain key
locations to provide integral transportation services to our customers from
origin to destination. We also own a drydock and repair facility to carry out
fleet maintenance and have a long-term lease on another facility where we intend
to conduct part of the barge enlargement program. We utilize night-running
technology, which allows for night navigation and improves asset efficiency.
Offshore Supply Business. Our Offshore Supply Business, which we operate
through UP Offshore, is focused on serving companies that are involved in the
complex and logistically demanding activities of deepwater oil exploration and
production. We have ordered the construction of six proprietarily designed and
technologically advanced PSVs. We received delivery of and placed into service
three of these vessels in 2005 and early 2006, and we expect the remaining three
to be delivered and placed into service in 2006 and 2007. Our PSVs are designed
to transport supplies, equipment, drill casings and pipes on deck, along with
fuel, water, drilling fluids and bulk cement in under-deck tanks and a variety
of other supplies to drilling rigs and platforms. We employ two of these vessels
in the spot market in the North Sea and employ the third on time charter in
Brazil with Petrobras. Upon delivery of the three PSVs we currently have under
construction, we intend to employ them in Brazil and other international
markets. We are negotiating the construction of four additional PSVs of our
proprietary design, for a total fleet of ten PSVs. Through one of our Brazilian
subsidiaries, we have the competitive advantage of being able to trade a number
of our PSVs in the Brazilian market with cabotage trading privileges, enabling
the PSVs to obtain employment in preference to non-Brazilian flagged vessels.
The trend for offshore petroleum exploration has been to move toward
deeper, larger and more complex projects, which has resulted in increased demand
for more sophisticated and technologically advanced PSVs to handle the more
challenging environments and greater distances. Our PSVs are equipped with
dynamic positioning capabilities, dedicated oil recovery tanks for the
performance of oil recovery duties, and greater cargo capacity and deck space,
all of which provide us a competitive advantage in efficiently servicing our
customers' needs.
Ocean Business. In our Ocean Business, we own and operate six oceangoing
vessels including one semi-integrated oceangoing tanker barge unit under the
trade name, Ultrapetrol. Our three Suezmax OBO vessels transport liquid cargo,
such as petroleum and petroleum products, as well as dry cargo, such as iron ore
and coal, on major routes around the globe. Our Aframax tanker carries both
crude oil and a variety of refined petroleum products internationally. Our
semi-integrated tug barge Alianza G-3/Alianza Campana operates under long-term
charter as a support vessel in North Brazil. Our chemical/product carrier,
Miranda I, transports chemicals and petroleum products in the regional trade of
Argentina and Brazil. Our current ocean fleet has an aggregate cargo carrying
capacity in excess of 600,000 dwt and an average age of approximately 17.2
years.
Our Suezmax OBO vessels are versatile and have the ability to serve
virtually all major routes used for transportation of petroleum and petroleum
products. In addition, our three Suezmax OBO vessels have the added versatility
of being able to carry either petroleum products or dry bulk cargos to take
advantage of changing market conditions. Given the rise during 2003 and early
2004 in spot market prices for dry cargo globally, we employed these vessels in
the carriage of dry bulk cargos on trade routes around the world, mostly
transporting coal and iron ore from South America, Australia and South Africa to
Europe, China and other Far East countries. Currently, however, the market
prices for carrying petroleum and petroleum products surpass the market prices
for carrying dry cargo, and accordingly we are employing our Suezmax OBO vessels
as tankers, as was the case with the Princess Susana in February 2006. During
2005, we derived over 84% of our Ocean Business revenues from charterers in
Europe and Asia, some of which are Cargill, SwissMarine and Pan Ocean Shipping.
Over the same period, we derived approximately 96% of our Ocean Business
revenues from time charters with at least three months duration and 4% from spot
voyages.
Our Aframax tanker, Princess Marina, has been employed under a long-term
charter in Chile with ENAP which expires in April 2006 and has been renewed for
three to four months at a substantially improved current market rate.
We currently employ Miranda I, our chemical/product carrier, on a
three-year charter with an option for an additional two years to Petrobras, a
major oil company serving the regional trade of Argentina and Brazil, through
September 2008. We intend to grow our chemical/product carrier fleet through the
purchase of secondhand chemical/product carriers in the 6,000 - 18,000 dwt size
range.
All of our oceangoing vessels, with the exception of Miranda I, are double
hull. However, they are not all certified as double hull tankers by their
respective certification societies at this time. We expect that Princess Susana
will receive Class Certification as double hull after her drydock in the fourth
quarter of 2006 as her sister vessel Princess Nadia already received in March
2005. Miranda I may be used as double hull when carrying petroleum products in
her center tanks only and we intend to have her retrofitted and certified as
double hull for all products before the end of 2006.
Passenger Business. In our Passenger Business, we own and operate two
vessels that we purchased in 2005, the New Flamenco, with a 1,010 person
capacity and 401 cabins, and the Grand Victoria, with a 583 person capacity and
242 cabins. We recently completed an extensive refurbishment of the New
Flamenco, including all passenger areas, and we conducted work to recertify the
Grand Victoria and upgraded some of her passenger areas. We currently employ
these vessels under seasonal charters with European tour operators cruising the
Mediterranean, Black Sea and Norwegian Fjords.
The charter for the New Flamenco is a two-year, "full-service charter,"
extendable for an additional year at the charterer's option, pursuant to which
we are responsible for operating and maintaining the vessel, paying the full
vessel's staff and providing passenger services such as entertainment and food
and beverages, while our charterer is responsible for marketing and ticket sales
as well as fuel and port charges. Pursuant to the charter, our charterer pays us
an agreed amount per passenger, per day, which escalates each year, and is
subject to a guaranteed minimum occupancy equivalent to an average of
approximately 80% of the lower berth capacity. We also receive the revenues, as
applicable, from on board sales of goods and services, a portion of which are
shared with the charterer or concessionaire.
In the current charter for the Grand Victoria, we are responsible only for
operating and maintaining the vessel and paying the vessel's deck and engine
staff. Our charterer is responsible for all passenger services, including paying
the passenger services staff, paying all fuel and port charges and marketing and
ticket sales to passengers. Pursuant to this charter, we are paid a fixed daily
fee.
The structure of our seasonal contracts for our Passenger Business
provides us with a stable revenue stream as well as the flexibility to operate
the vessels in other regions of the world at the end of the seasonal contract
term. We are currently negotiating opportunities to operate these vessels during
periods other than the European travel season.
Ultrapetrol Fleet Summary
Number of
River Fleet Vessels Capacity Description
----------------------- ---------- ------------- -----------------------
Alianza G2/Alianza 1 35,000 tons Transfer Station
Rosario
Pushboat Fleet 23 777,502HP Various Sizes and
Horse Power
Tank Barges 44 95,578 m3 Carry Liquid Cargo
(Petroleum Products,
Veg. Oil)
Dry Barges 446 702,700 tons Carry Dry Cargo
(Soy, Iron Ore)
----------------------- ---------- ------------- -----------------------
Total 514 N/A
----------------------- ---------- ------------- -----------------------
Year Capacity Delivery
Offshore Supply Fleet Built (DWT) Date
----------------------- ---------- ------------- -----------------------
In Operation
------------
UP Esmeralda 2005 4,200 2005
UP Safira 2005 4,200 2005
UP Agua-Marinha 2006 4,200 2006
On Order
--------
UP Topazio (EI-482) 2006 4,200 2006 (e)
UP Diamante (El - 483) 2006 4,200 2006 (e)
UP Rubi (El- 484) 2007 4,200 2007 (e)
----------------------- ---------- ------------- -----------------------
Total 25,200
Year
Ocean Fleet Built DWT Description
----------------------- ---------- ------------- -----------------------
Princess Nadia 1987 152,328 Suezmax OBO
Princess Susana 1986 152,301 Suezmax OBO
Princess Katherine 1986 164,100 Suezmax OBO
Princess Marina(1) 1986 83,930 Aframax Tanker
Alianza/G-3 1993(2) 43,164 Semi Integrated Tug/
Barge Unit
Miranda I 1995 6,575 Product Carrier/
Chemical Tanker
----------------------- ---------- ------------- -----------------------
Total 602,398
(1) We currently hold the Princess Marina through our 49% ownership of
Maritima SIPSA S.A., a company controlled by Chilean citizens, to whom we
sold the Princess Marina upon the beginning of her charter in Chile in May
2003. As part of this arrangement, we have contracted to repurchase the
Princess Marina upon the expiry of the charter in June 2006. We recognize
as charter revenue on this transaction the difference between our sale
price to Maritima SIPSA and their sale price back to us, of this vessel.
See "Related Party Transactions - Maritima SIPSA S.A."
(2) Originally built in 1982, converted in 1993 to double hull product tank
barge.
Total Total
Capacity Number
Passenger Fleet (Passengers) of Cabins
----------------------- ------------------- ----------------
New Flamenco 1,010 401
Grand Victoria 583 242
----------------------- ------------------- ----------------
Total 1,593 643
Chartering Strategy
We continually monitor developments in the shipping industry and make
charter-related decisions based on an individual vessel and segment basis, as
well as on our view of overall market conditions. In our River Business, we have
contracted a substantial portion of our fleet's capacity on a one- to four-year
basis to major clients. These contracts provide fixed pricing, minimum volume
requirements and fuel price adjustment formulas, and we intend to develop new
customers and cargos as we grow our fleet capacity.
In our Offshore Supply Business, we plan to charter our PSV fleet in
Brazil for medium-term (one to six months) charters or long-term employment (up
to seven years). Currently there is no spot market in Brazil for PSVs. In the
North Sea, we intend to continue to operate our PSVs in the spot market (short
duration, one day or more) combined with longer-term charters.
We historically have operated our Ocean Business vessels in both the spot
market, which allows us to take advantage of potentially higher market rates,
and under period charters, which allows us to achieve high utilization rates. We
intend to continue to operate some of our ocean vessels in the spot market and
others under period charters. We believe that this balanced approach to
chartering will provide us with relatively stable revenue streams while enabling
us to participate in favorable market developments.
We intend to employ our passenger vessels primarily in conjunction with
tour operators that will at least partially guarantee the vessels' revenue.
Our Fleet Management
We conduct the day-to-day management and administration of our operations
in-house and through our wholly-owned subsidiaries.
Following our recent acquisition of Ravenscroft and after acquiring the
administrative-related assets and the hiring of personnel of Oceanmarine
associated with the administration and accounting services, all technical,
commercial and administrative management functions will be conducted in-house.
Ravenscroft, operating from its office in Coral Gables, Florida, employs
36 persons and will continue to undertake all technical and marine related
management for our offshore, ocean and passenger vessels including the
purchasing of supplies, spare parts and husbandry items, crewing,
superintendency and preparation and payment of all related accounts on our
behalf. Ravenscroft also continues to be responsible for the administration and
execution of the onboard services and management accounting system on our
Passenger vessels New Flamenco and Grand Victoria. For the New Flamenco,
Ravenscroft monitors the shore excursion sales, the performance of the Food &
Beverage and Entertainment concessionaires and also controls certain aspects of
onboard revenue such as the duty free shop which generate additional income for
us. Ravenscroft is a self-contained full service ship management company which
includes a commercial department and is certified for ISM and is also ISO
9001:2000 certified. It holds Documents of Compliance for the management and
operation of OBOs, tankers, bulk carriers, PSVs, general cargo vessels,
passenger vessels and also for the ship management of vessels sold for
demolition.
Ravenscroft will continue to manage vessels for and on behalf of vessels
owners who are not related to us and will actively pursue new business
opportunities in line with its track record to date. Its future business
development will be strengthened due to increased resources now being available
through our ownership.
In the case of our River Business, our commercial and technical management
continues to be performed in-house by UABL personnel.
Competition
River Business
We maintain a leading market share in our River Business. We own the
largest fleet of pushboats and barges in the Hidrovia Region. We believe that we
have more than twice the number of barges and dwt than our nearest competitor.
We compete based on reliability, efficiency and price. Key competitors include
Horamar, and Fluviomar. In addition, some of our customers, including ADM and
Rio Tinto, have some of their own dedicated barge capacity, which they can use
to transport cargoes in lieu of hiring a third party. Our River Business also
indirectly competes with other forms of land-based transportation such as truck
and rail.
Offshore Supply Business
In our Offshore Supply Business, our main competitors are the Brazilian
offshore companies that own and operate modern PSVs. The largest of these
companies is CBO, which currently owns four modern PSVs and is building an
additional PSV in Brazil. Also, some of the international offshore owners, such
as Tidewater and Maersk have built Brazilian-flagged PSVs.
Ocean Business
We face competition in the transportation of crude oil and petroleum
products as well as other bulk commodities from other independent ship owners
and from vessel operators who primarily charter-in vessels to meet their cargo
carrying needs. The charter markets in which our vessels compete are highly
competitive. Competition is primarily based on prevailing market charter rates,
vessel location and vessel manager reputation. Our primary competitor in crude
oil and petroleum products transportation within Argentina, and between
Argentina and other South American countries, as well as in Chile, is Antares
Naviera S.A. and its affiliated companies, including Ultragas, Lauderdale
Tankers Corp., and Sonap S.A., an independent tanker owner and operator. The
other major participant in the Argentina/Brazil trade is Transpetro. Transpetro
is a subsidiary of Petrobras, our primary customer in Brazil. In other South
American trades our main competitors are Heidmar Inc., Naviera Sur Petrolera
S.A., Naviera El Cano (through their various subsidiaries) and Sonacol S.A.
These companies and other smaller entities are regular competitors of ours in
our primary tanker trading areas. In our dry bulk trades, we operate our vessels
internationally where we compete against the main fleets of Capesize ships, with
companies such as the Offer Group, Frontline, Bocimar and others.
Passenger Business
The tour operators that are our clients in the Passenger Business compete
for consumers' leisure-time dollars with both other cruise lines and a wide
array of other vacation options located throughout the world, including numerous
land-based destinations and package holiday, tour and timeshare vacation
operators. Many of these operators attempt to obtain a competitive advantage by
lowering prices and/or by improving their products, such as by offering
different vacation experiences and locations. In the event that we or the tour
operators that are our clients do not compete effectively with other cruise
companies and other vacation operators, our results of operations from our
Passenger Business would be adversely affected.
Employees
As of December 31, 2005, we employed approximately 773 employees,
consisting of 110 land-based employees and approximately 663 seafarers as crew
on our vessels, of which 236 were in our River Business, 28 were in our Offshore
Supply Business, 176 were in our Ocean Business, and 223 were in our Passenger
Business. These employees were employed through various manning agents depending
on the nationality as listed below:
o Indian crew: Orient Ship Management & Manning Pvt., Ltd.,
Mumbai, India
o Argentine crew: Tecnical Services S.A., a related company,
Montevideo, Uruguay
o Filipino crew: C.F. Sharp Crew Management, Manila,
Philippines
o Ukrainian crew: South Star Ltd., Odessa, Ukraine
o Romanian crew: Corona Shipping SRL,Constantza, Romania
o Indonesian crew: Indomarimo Maju PT, Jakarta, Indonesia
o Chilean crew: Maritima SIPSA, a related company, Santiago,
Chile
o Greek and Eastern crew: Nova Manning Services, Piaraeus, Greece
o Paraguayan crew: Tecnical Services S.A., a related company,
Montevideo, Uruguay
Our crew is employed under the standard collective bargaining agreements
with the seafarers' union in their respective countries. The crew is employed on
contractual terms valid for a fixed duration of service on board the vessels. We
ensure that all the crew employed on board our vessels have the requisite
experience, qualifications and certification to comply with all international
regulations and shipping conventions. Our training requirements for the crew
exceed the applicable statutory requirements. We always man our vessels above
the safe manning requirements of the vessels' flag state in order to ensure
proper maintenance and safe operation of the vessels. We have in force special
programs such as a performance-related incentive bonus, which is paid to some of
our senior officers upon rejoining our ships. This ensures retention of
qualified and competent staff.
Environmental and Other Regulation
Government regulation significantly affects our operations, including the
ownership and operation of our vessels. Our operations are subject to
international conventions, national, state and local laws, and regulations in
force in international waters and the jurisdictional waters of the countries in
which our vessels may operate or are registered, including OPA, the
Comprehensive Environmental Response, Compensation, and Liability Act, or
CERCLA, the U.S. Port and Tanker Safety Act, the Act to Prevent Pollution from
Ships, regulations adopted by the IMO and the European Union, various volatile
organic compound emission requirements, the IMO/U.S. Coast Guard pollution
regulations and various SOLAS amendments, as well as other regulations.
Compliance with these requirements entails significant expense, including vessel
modifications and implementation of certain operating procedures.
A variety of governmental and private entities, each of which may have
unique requirements, subject our vessels to both scheduled and unscheduled
inspections. These entities include the local port authorities (U.S. Coast
Guard, harbor master or equivalent), classification societies, flag state
administration (country of registry) and charterers, particularly terminal
operators. Certain of these entities require us to obtain permits, licenses and
certificates for the operation of our vessels. Failure to maintain necessary
permits or approvals could require us to incur substantial costs or temporarily
suspend operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns
among insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the industry. Increasing environmental
concerns have created a demand for vessels that conform to the stricter
environmental standards. We are required to maintain operating standards for all
of our vessels for operational safety, quality maintenance, continuous training
of our officers and crews, and compliance with U.S. and international
regulations. We believe that the operation of our vessels is in substantial
compliance with applicable environmental laws and regulations; however, because
such laws and regulations are frequently changed and may impose increasingly
stricter requirements, such future requirements may limit our ability to do
business, increase our operating costs, force the early retirement of our
vessels, and/or affect their resale value, all of which could have a material
adverse effect on our financial condition and results of operations.
Environmental Regulation--International Maritime Organization, or IMO
The IMO has negotiated international conventions that impose liability for
oil pollution in international waters and a signatory's territorial waters. For
example, the International Convention for the Prevention of Pollution from Ships
or MARPOL, imposes environmental standards on the shipping industry relating to
oil spills, management of garbage, the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. In particular,
MARPOL requirements impose phase-out dates for vessels that are not certified as
double hull. Two of our Suezmax OBO vessels currently do not meet the
configuration criteria and will require modifications to comply with these
criteria before the end of 2010. These modifications will not involve major
steel work. Our vessel, Miranda I, does not currently comply with the double
hull requirement unless she limits her loading to center tanks only. However, we
expect to retrofit her to full double hull compliance during the course of 2010.
Annex III of MARPOL regulates the transportation of marine pollutants, including
standards on packing, marking, labeling, documentation, stowage, quality
limitations and pollution prevention. These requirements have been expanded by
the International Maritime Dangerous Goods Code, which imposes additional
standards for all aspects of the transportation of dangerous goods and marine
pollutants by sea. In September 1997, the IMO adopted Annex VI to the
International Convention for the Prevention of Pollution from Ships to address
air pollution from ships. Annex VI was ratified in May 2004, and became
effective in May 2005. Annex VI sets limits on sulphur oxide and nitrogen oxide
emissions from vessel exhausts and prohibits deliberate emissions of ozone
depleting substances, such as chlorofluorocarbons. Annex VI also includes a
global cap on the sulphur content of fuel oil and allows for special areas to be
established with more stringent controls on sulphur emissions. Additional or new
conventions, laws and regulations may be adopted that could adversely affect our
ability to manage our ships.
The operation of our vessels is also affected by the requirements set
forth in the ISM Code. The ISM Code requires vessel owners and bareboat
charterers to develop and maintain an extensive "Safety Management System" that
includes, among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies. The ISM Code requires
that vessel operators obtain a safety management certificate for each vessel
they operate. No vessel can obtain a certificate unless its manager has been
awarded a document of compliance, issued by each flag state, under the ISM Code.
The failure of a vessel owner or bareboat charterer to comply with the ISM Code
may subject such party to increased liability, may decrease available insurance
coverage for the affected vessels, and may result in a denial of access to, or
detention in, certain ports. Currently, each of the vessels in our fleet is ISM
code-certified. However, there can be no assurance that such certification will
be maintained indefinitely.
Environmental Regulations--The United States Oil Pollution Act of 1990, or OPA
The United States Oil Pollution Act of 1990, or OPA, established an
extensive regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the United States territorial
sea and its 200 nautical mile exclusive economic zone.
Under OPA, vessel owners, operators and bareboat charterers are
"responsible parties" and are liable without regard to fault (unless the spill
results solely from the act or omission of a third party, an act of God or an
act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels, including
bunkers (vessel fuel).
OPA limits liability of a responsible party to the greater of $1,200 per
gross ton or $10 million per tanker that is over 3,000 gross tons (subject to
possible adjustment for inflation). OPA also limits the liability of responsible
parties to the greater of $600 per gross ton or $0.5 million per dry bulk vessel
that is over 300 gross tons (subject to possible adjustment for inflation).
These OPA liability limits do not apply if an incident was caused by a violation
of certain construction or operating regulations or a responsible party's gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil removal
activities. In addition, CERCLA, which applies to the discharge of hazardous
substances (other than oil) whether on land or at sea, contains a similar
liability regime and provides for cleanup, removal and natural resource damages.
Liability under CERCLA is limited to the greater of $300 per gross ton or $5
million, unless the incident is caused by gross negligence, willful misconduct,
or a violation of certain regulations, in which case liability is unlimited.
We currently maintain, for each of our vessels, pollution liability
coverage insurance in the amount of $1 billion per incident. If the damages from
a catastrophic spill exceeded our insurance coverage, it could have a material
adverse effect on our business and the results of operations.
The financial responsibility regulations issued under OPA require owners
and operators of vessels to establish and maintain with the United States Coast
Guard evidence of financial responsibility in the amount of $1,500 per gross
ton, which combines the OPA limitation on liability of $1,200 per gross ton and
the CERCLA limit of $300 per gross ton. Under the regulations, vessel owners and
operators may evidence their financial responsibility by showing proof of
insurance, surety bond, self-insurance, or guaranty and are required only to
demonstrate evidence of financial responsibility in an amount sufficient to
cover the vessels in the fleet having the greatest maximum liability under OPA.
The Coast Guard's regulations concerning certificates of financial
responsibility provide, in accordance with OPA, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility. In the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may
have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA laws, including the major protection and indemnity
organizations, have declined to furnish evidence of insurance for vessel owners
and operators if they are subject to direct actions or required to waive
insurance policy defenses. Under the self-insurance provisions, the vessel owner
or operator must have a net worth and working capital, measured in assets
located in the United States against liabilities located anywhere in the world,
that exceeds the applicable amount of financial responsibility. We have complied
with the Coast Guard regulations by providing a financial guaranty evidencing
sufficient self-insurance.
OPA expressly permits individual states to impose their own liability
regimes with regard to oil pollution incidents occurring within their
boundaries, and some states have enacted legislation providing for unlimited
liability for oil spills. In some cases, states which have enacted such
legislation, have not yet issued implementing regulations defining vessels
owners' responsibilities under these laws. OPA also amended the Federal Water
Pollution Control Act to require owners and operators of vessels to adopt
contingency plans for reporting and responding to oil spill scenarios up to a
"worst case" scenario and to identify and ensure, through contracts or other
approved means, the availability of necessary private response resources to
respond to a "worst case discharge." In addition, periodic training programs for
shore and response personnel and for vessels and their crews are required. The
U.S. Coast Guard has approved our vessel response plans.
OPA also requires that tankers over 5,000 gross tons calling at U.S. ports
have double hulls if contracted after June 30, 1990 or delivered after January
1, 1994. Furthermore, under OPA, oil tankers without double hulls will not be
permitted to come to U.S. ports or trade in U.S. waters by 2015. Although all of
our oceangoing vessels are double hull, four of these vessels are subject to
phase-out under OPA due to configuration requirements. Based on current OPA
requirements, these four vessels will not be eligible to carry oil as cargo
within the 200 nautical mile United States exclusive economic zone starting in
2014, except that these tankers may trade in U.S. waters until 2015 if their
operations are limited to discharging their cargoes at the Louisiana Offshore
Oil Port of off-loading by lightering within authorized lightering zones more
than 60 miles offshore.
We believe we are in substantial compliance with OPA, CERCLA and all
applicable state regulations in the ports where our vessels call.
Environmental Regulation--Other Environmental Initiatives
In July 2003, in response to the m.t. Prestige oil spill in November 2002,
the European Union adopted regulation that accelerates the IMO single hull
tanker phase-out timetable. The European Union is also considering legislation
that will affect the liability of owners for oil pollution. It is difficult to
predict what legislation, if any may be promulgated by the European Union or any
other country or authority.
Although the United States is not a party thereto, many countries have
ratified and follow the liability scheme adopted by the IMO and set out in the
International Convention of Civil Liability for Oil Pollution Damage, or the
CLC, and the Convention for the Establishment of an International Fund for Oil
Pollution of 1971, as amended. Under these conventions, a vessel's registered
owner is strictly liable for pollution damage caused on the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defenses. Many of the countries that have ratified the CLC have
increased the liability limits through a 1992 Protocol to the CLC. The liability
limits in the countries that have ratified this Protocol are, currently,
approximately $6.5 million plus approximately $909 per gross registered ton
above 5,000 gross tons with an approximate maximum of $129.3 million per vessel.
As the CLC calculates liability in terms of a basket of currencies, these
figures are based on currency exchange rates as of March 1, 2006. The right to
limit liability is forfeited under the CLC where the spill is caused by the
owner's actual fault or privity and, under the 1992 Protocol, where the spill is
caused by the owner's intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not been adopted,
various legislative schemes or common law govern, and liability is imposed
either on the basis of fault or in a manner similar to the CLC.
In addition, a U.S. District Court ruled in March 2005 that the U.S.
Environmental Protection Agency (or U.S. EPA) lacks the authority to exclude
discharges of vessel ballast water from permitting requirements under the Clean
Water Act and ordered the U.S. EPA to repeal regulations it had adopted
exempting discharges of ballast water from such permitting requirements. Unless
this decision is overturned on appeal or the relief in question is modified,
vessels entering waters subject to the Clean Water Act's jurisdiction would be
required to have a permit to discharge ballast water. This could require the
instillation of equipment on our vessels to treat ballast water before it is
discharged at substantial cost and/or otherwise restrict some or all of our
vessels from entering waters of the United States that are subject to this
ruling.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a
variety of initiatives intended to enhance vessel security. On November 25,
2002, the U.S. Maritime Transportation Security Act of 2002 (MTSA) came into
effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast
Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of
the United States. Similarly, in December 2002, amendments to SOLAS created a
new chapter of the convention dealing specifically with maritime security. The
new chapter went into effect in July 2004 and imposes various detailed security
obligations on vessels and port authorities, most of which are contained in the
newly created International Ship and Port Facilities Security, or the ISPS Code.
We are in compliance with the ISPS Code. Among the various requirements are:
o on-board installation of automatic information systems, or AIS, to
enhance vessel-to-vessel and vessel-to-shore communications;
o on-board installation of vessel security alert systems;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
Inspection by Classification Societies
Every oceangoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and
checks that are required by regulations and requirements of the flag state.
These surveys are subject to agreements made in each individual case and/or to
the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull,
machinery, including the electrical plant, and any special equipment classed are
required to be performed as follows:
Annual Surveys. For oceangoing vessels, annual surveys are conducted for
the hull and the machinery, including the electrical plant, and, where
applicable, for special equipment classed, at intervals of 12 months from the
date of commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half years after
commissioning and each class renewal. Intermediate surveys may be carried out on
the occasion of the second or third annual survey.
Special Surveys. Special surveys, also known as class renewal surveys, are
carried out every five years for the vessel's hull, machinery, including the
electrical plant, and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At the special
survey, the vessel is thoroughly examined, including audio-gauging to determine
the thickness of the steel structures. Should the thickness be found to be less
than class requirements, the classification society would prescribe steel
renewals. The classification society may grant a one-year grace period for
completion of the special survey. Substantial amounts of funds may have to be
spent for steel renewals to pass a special survey if the vessel experiences
excessive wear and tear. In lieu of the special survey, a vessel owner has the
option of arranging with the classification society for the vessel's hull or
machinery to be on a continuous survey cycle, in which every part of the vessel
would be surveyed within a five-year cycle. This process is also referred to as
continuous class renewal. We have made arrangements with the classification
societies for our vessels to be on a continuous survey cycle.
Currently our oceangoing vessels are scheduled for intermediate surveys
and special surveys as follows:
Intermediate survey Special survey
------------------- -------------------
No. of No. of
Year vessels Year vessels
---- ------- ---- -------
2006 0 2006 2
2007 3 2007 4
2008 2 2008 0
2009 7 2009 1
2010 0 2010 4
2011 0 2011 3
All areas subject to survey as defined by the classification society are
required to be surveyed at least once per class period, unless shorter intervals
between surveys are prescribed elsewhere. The period between two subsequent
surveys of each area must not exceed five years.
Most oceangoing vessels are also drydocked every 30 to 36 months for
inspection of the underwater parts and for repairs related to inspections. If
any defects are found, the classification surveyor will issue a "recommendation"
which must be rectified by the vessel owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage
that a vessel be certified as "in class" by a classification society which is a
member of the International Association of Classification Societies. All our
oceangoing vessels are certified as being "in class."
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical
failure, collision, property loss, cargo loss or damage and business
interruption due to political circumstances in foreign countries, hostilities
and labor strikes. In addition, there is always an inherent possibility of
marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
We believe that we maintain insurance coverage against various casualty
and liability risks associated with our business that we consider to be adequate
based on industry standards and the value of our fleet, including hull and
machinery and war risk insurance, loss of hire insurance at certain times for
certain vessels and protection and indemnity insurance against liabilities to
employees and third parties for injury, damage or pollution and other customary
insurance. While we believe that our present insurance coverage is adequate, we
cannot guarantee that all risks will be insured, that any specific claim will be
paid, or that we will always be able to obtain adequate insurance coverage at
reasonable rates or at all.
Hull and Machinery and War Risk Insurance
We maintain marine hull and machinery and war risk insurance, which
includes the risk of actual or constructive total loss, for our wholly-owned
vessels. At times, we also obtain for part of our fleet increased value coverage
and additional freight insurance during periods of improved market rates, where
applicable. This increased value coverage and additional freight coverage
entitles us, in the event of total loss of a vessel, to some recovery for
amounts not otherwise recoverable under the hull and machinery policy. When we
obtain these additional insurances, our vessels will each be covered for at
least their fair market value, subject to applicable deductibles (and some may
include limitations on partial loss). We cannot assure you, however, that we
will obtain these additional coverages on the same or commercially reasonable
terms, or at all, in the future.
Loss of Hire
We maintain loss of hire insurance at certain times for certain vessels.
Loss of hire insurance covers lost earnings resulting from unforeseen incidents
or breakdowns that are covered by the vessel's hull and machinery insurance and
result in loss of time to the vessel. Although loss of hire insurance will cover
up to ninety days of lost earnings, we must bear the applicable deductibles
which generally range between the first 14 to 30 days of lost earnings. We
intend to renew these insurance policies or replace them with other similar
coverage if rates comparable to those on our present policies remain available.
There can be no assurance that we will be able to renew these policies at
comparable rates or at all. Future rates will depend upon, among other things,
our claims history and prevailing market rates.
Protection and Indemnity Insurance
Protection and indemnity insurance covers our legal liability for our
shipping activities. This includes the legal liability and other related
expenses of injury or death of crew, passengers and other third parties, loss or
damage to cargo, fines and other penalties imposed by customs or other
authorities, claims arising from collisions with other vessels, damage to other
third-party property, pollution arising from oil or other substances and
salvage, towing and other related costs, wreck removal and other risks. Coverage
is limited for vessels in our Ocean Business to approximately $4.25 billion with
the exception of oil pollution liability, which is limited to $1.0 billion per
vessel per incident. Vessels in our River Business have lower amounts of
coverage.
This protection and indemnity insurance coverage is provided by protection
and indemnity associations, or P&I Clubs, which are non-profit mutual assurance
associations made up of members who must be either ship owners or ship managers.
The members are both the insured parties and the providers of capital. The P&I
Clubs in which our vessels are entered are currently members of the
International Group of P&I Associations, or the International Group and are
reinsured themselves and through the International Group in Lloyds of London and
other first class reinsurance markets. We may be subject to calls based on each
Club's yearly results. Similarly, the same P&I Clubs provide freight demmurage
and defense insurance which, subject to applicable deductibles, covers all legal
expenses in case of disputes, arbitrations and other proceedings related to our
vessels.
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 grounds on which the tax assessment was based were ratified. In response to
this decision, on February 28, 2005, we presented a specific request
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. The tax
authorities determined that the petition requesting for 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
that was granted in our favor. In view of this decision, tax authorities filed
an appeal to the Superior Court of Justice and Ultrapetrol filed its
counterargument. Currently, our lawsuit and the appeal of 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 will have a material impact on
our financial position or results of operations. In case we are not successful
on the merits, under our insurance coverage we could request an indemnity
corresponding to the value of the Alianza Campana from The Standard Club, the
Alianza Campana's P&I insurer.
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.
Properties
Ravenscroft is headquartered in our 16,000 square foot building located at
3251 Ponce de Leon Boulevard, Coral Gables, Florida, United States of America.
In addition we own a repair facility and drydock at Pueblo Esther,
Argentina, and also own land large enough for the construction of two terminals
in Argentina and through 50% joint venture participations, two grain loading
terminals in Paraguay. We also rent offices in Argentina, Brazil, and Paraguay.
Through a subsidiary of ours, Ultracape Delaware LLC, we also own land in
Mexico, which we purchased on October 15, 2004 from a related party with a view
to develop our business in that area.
Exchange Controls
Under Bahamian law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls or restrictions that
affect the remittance of dividends, interest or other payments to non-resident
holders of our common stock.
MANAGEMENT
Directors and Executive Officers
Set forth below are the names, ages and positions of our directors and
executive officers. Our board of directors is elected annually, and each
director elected holds office until his successor has been duly elected and
qualified, except in the event of his death, resignation, removal or the earlier
termination of his term of office. has agreed to serve on our audit committee.
Officers are elected from time to time by vote of our board of directors and
hold office until a successor is elected. The business address of each of our
executive officers and directors is H&J Corporate Services Ltd., Ocean Centre,
Montagu Foreshore, East Bay St., P.O. Box SS-19084, Nassau, Bahamas.
Name Age Position
---- --- --------
Felipe Menendez R....... 51 Chief Executive Officer, President
and Director
Ricardo Menendez R...... 57 Executive Vice President and
Director; Chief Executive Officer
of UP Offshore
Leonard J. Hoskinson.... 52 Chief Financial Officer, Secretary
and Director
James F. Martin......... 51 Director
Katherine A. Downs...... 51 Director
Biographical information with respect to each of our directors, executives
and key personnel is set forth below.
Felipe Menendez R. Mr. Menendez has been President, Chief Executive
Officer and a Director of the Company since incorporation in December 1997, and
is the brother of Ricardo Menendez. He is also President, and has been a
Director of Ultrapetrol S.A. since its incorporation in 1992 as well as the
President and CEO of UABL. Mr. Menendez is also a Director of SIPSA S.A., or
SIPSA, a Chilean publicly traded company controlled by the Menendez family. Mr.
Menendez has been, and continues to be, actively involved in other businesses
associated with the Menendez family, as well as other companies affiliated with
SIPSA.
Ricardo Menendez R. Mr. Menendez is the Executive Vice President of the
Company and CEO of UP Offshore and has been a Director since incorporation in
December 1997, and is the brother of Felipe Menendez. Mr. Menendez began his
career in the shipping industry in 1970 with Compania Chilena de Navegacion
Interoceania S.A., and has continuously been involved in the management of the
Menendez family's shipping interests. He is the President of Oceanmarine, and
has been the Executive Vice President and a Director of Ultrapetrol S.A. since
it was formed in 1992. Mr. Menendez is also a Director of SIPSA, and remains
involved in the management of other Menendez family businesses. Mr. Menendez has
been a member of the board of The Standard Steamship Owners' Protection &
Indemnity Association (Bermuda) Limited (a member of the International Group of
Protection & Indemnity Associations) since 1993 and is currently its President
and Chairman. Mr. Menendez is also a Director of UABL.
Leonard J. Hoskinson. Mr. Hoskinson is the Chief Financial Officer of the
Company, was appointed Director of the Company in March 2000 and assumed the
position of Secretary six months later. Mr. Hoskinson has been employed by the
Company and its subsidiaries for over 16 years. Prior to that he had an
international banking career specializing in ship finance spanning over 18 years
and culminating as the Head of Shipping for Marine Midland Bank NA in New York
(part of the HSBC banking group). He is also a Director of UABL.
James F. Martin. Mr. Martin has been a Director since 2000. He is a
Managing Director with Emerging Markets Partnership, or EMP, principal adviser
to the Bermuda-based AIG-GE Capital Latin America Infrastructure Fund L.P.,
where he heads a sector team focusing on transportation, environmental services,
and oil and gas investments. Prior to joining EMP in 1997, Mr. Martin was head
of a team responsible for investments in water and environmental infrastructure
at International Finance Corporation. Mr. Martin is also a Director of UABL and
UP Offshore.
Katherine A. Downs. Ms. Downs has been a Director since 2000. Ms. Downs is
a Director with EMP, where she focuses on transportation, environmental
services, and oil and gas investments. Prior to joining EMP in 1997, Ms. Downs
was a Managing Vice President in the private placement group of the Prudential
Insurance Company of America. Ms. Downs is also a Director of UABL and UP
Offshore.
Compensation of Directors and Executive Officers
The aggregate annual net cost to us for the compensation paid to members
of the board of directors and our executive officers was $1.3 million for the
fiscal year ended December 31, 2005 ($0.4 million as monitoring fees and $0.9
million as a bonus to certain directors and officers).
Board Practices
Upon the closing of this offering, we will establish an audit committee
composed of at least one board member, that will be responsible for reviewing
our accounting controls and recommending to the board of directors the
engagement of our outside auditors. The member of the audit committee will be an
independent director. The initial member of the audit committee will
be . Our corporate governance practices are in compliance with
Bahamian law, and we expect to be exempt from the corporate governance
provisions of the Nasdaq Marketplace Rules other than those related to the
establishment of an audit committee.
Equity Incentive Plan
We expect to adopt an equity incentive plan, or the Plan, which will
entitle our officers, key employees and directors to receive options and grants
to acquire common stock. Under the Plan, a total of
shares of common stock will be reserved for issuance.
The Plan will be administered by our board of directors. Under the terms of the
Plan, our board of directors would be able to grant new options exercisable at a
price per share to be determined by our board of directors. The initial exercise
price will be equal to the offering price of $ per share. Under the terms of the
Plan, no options would be able to be exercised until at least two years after
the closing of this offering. Any shares received on exercise of the options
would not be able to be sold until three years after the closing of this
offering. All options will expire ten years from the date of grant. The Plan
will expire ten years from the closing of this offering.
Employment Agreements
We intend to enter into employment contracts with our President and
Chief Executive Officer, Felipe Menendez R., our Executive Vice President,
Ricardo Menendez R., and our Chief Financial Officer, Leonard J. Hoskinson.
Each of these employment agreements is expected to have a maximum term of
three years from the date of the closing of this offering.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the selling
shareholders and the owners of more than five percent of our common stock as of
the date of our prospectus, and after giving effect to this offering. The
address of each of the shareholders set forth below is Ocean Centre, Montagu
Foreshore, East Bay St., P.O. Box SS-19084, Nassau, Bahamas.
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering*
--------------------- -------------------
Number Percent Number Percent of
Number of Shares of Class Number of of Shares Class
of Shares Voting Beneficially Beneficially Number of Shares Voting Beneficially Beneficially
Name Owned Percentage Owned Owned Shares Sold Owned(8) Percentage Owned Owned
------------------ --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------
Solimar Holdings 996,009 47.22% 1,015,929(5) 63.81%(5)
Ltd.
(2)(3)(4)(5)
Inversiones Los 496,221 52.78% 576,087(6) 36.64%
Avellanos
S.A.(2)(4)(6)(7)
Hazels (Bahamas) 79,866 3.79% 79,866 5.08%
Investments Inc.
Avemar Holdings 537,144 - - -
(Bahamas)
Limited(6)
All directors and - 52.78% 576,087(6) 36.64%
executive officers
as a group(6)
----------
* Assumes the underwriters do not exercise their over-allotment option.
(1) Based on 1,572,096 shares outstanding, which excludes the 537,144
shares owned by Avemar, which is our wholly-owned subsidiary.
(2) If the underwriters exercise in full their over-allotment option, the
selling shareholders will sell additional shares
of common stock, which sale is not reflected in the table above.
(3) Solimar is a wholly-owned subsidiary of the AIG-GE Capital Latin American
Infrastructure Fund L.P., a Bermuda limited partnership.
(4) Solimar and Los Avellanos have entered into an agreement pursuant to which
they have agreed to vote their respective shares together in all matters
where a vote of the shareholders of the Company is required.
See "Related Party Transactions."
(5) Includes warrants entitling Solimar to purchase as of the date of this
prospectus up to 19,920 shares of the Company's non-voting common stock at
an exercise price of $50.20 per share, and after the completion of this
offering, up to shares of our non-voting common stock at an
exercise price of $ .
(6) The full voting power over the shares owned by Avemar has been granted to
Los Avellanos by irrevocable proxy. Los Avellanos is controlled by members
of the Menendez family, including Felipe Menendez R., our President, Chief
Executive Officer and a director, and Ricardo Menendez R., our Executive
Vice President and a director. The sole shareholder of Los Avellanos is
SIPSA S.A. Avemar is our wholly-owned subsidiary.
(7) Includes 79,866 shares owned by Hazels, a wholly-owned subsidiary of Los
Avellanos.
(8) When we adopt our Amended and Restated Articles of Incorporation, Solimar,
Los Avellanos and Hazels will each be entitled to seven votes for each
share of our common stock that they hold, and all other holders of our
common stock are entitled to one vote for each share of common stock held.
RELATED PARTY TRANSACTIONS
Our revenues derived from transactions with related parties for each of
the years ended December 31, 2003, 2004 and 2005 amounted to approximately $12.2
million, $5.2 million and $2.0 million, respectively. As of December 31, 2004
and 2005, the net balances of the accounts receivable and payables from all
related parties were approximately $5.7 million and $17.9 million, respectively.
Maritima SIPSA S.A.
A significant part of our revenue from related parties is derived from the
chartering activity of Maritima SIPSA S.A. In May 2003, the Princess Marina was
chartered by a Chilean national petroleum company under a time charter that
required her to be flagged in Chile. Pursuant to Chilean Law in order for her to
be flagged in Chile, she needed to be owned by a legal entity controlled by
Chilean citizens. Maritima SIPSA S.A. is controlled by Chilean citizens. We own
49% of Maritima SIPSA S.A., and the other shareholder of Maritima SIPSA S.A.,
SIPSA S.A., is a Chilean public company that is controlled by members of the
Menendez family, which includes Felipe Menendez R., our President and Chief
Executive Officer and Director, and Ricardo Menendez R., our Executive Vice
President and Director. In order to effect the re-flagging of the vessel, we
sold the Princess Marina to Maritima SIPSA S.A. for a purchase price of
approximately $15.1 million, and partially financed the sale by lending Maritima
SIPSA S.A. $7.4 million. Under the terms of our agreement, Maritima SIPSA S.A.,
pays us installments of the purchase price on a monthly basis that we record as
charter revenue. For the year ended December 31, 2005, this charter revenue
amounted to approximately $2.0 million, and for the year ended December 31,
2004, this charter revenue amounted to approximately $2.5 million. We are
obligated to repurchase (and Maritima SIPSA S.A. is obligated to sell to us) the
Princess Marina in June 2006 at a purchase price of $7.7 million, to be paid
with $0.3 million in cash, and the balance through the cancellation of debt
which Maritima SIPSA S.A. owes to us.
I. Shipping Services S.A.
We and our subsidiaries also contract with related parties for various
services. Pursuant to an agency agreement with us, I. Shipping Services S.A.
has agreed to perform the duties of port agent for us in Argentina. I.
Shipping Services S.A. is indirectly controlled by the Menendez family, which
includes Felipe Menendez R. and Ricardo Menendez R. For these services, we
pay I. Shipping Services S.A. fees ranging from $800 to $1,875 per port call.
For each of the years ended December 31, 2003, 2004 and 2005 the amounts paid
and/or accrued for such services amounted to $0.1 million, $0.02 million, and
$0.0 million respectively. We believe that payments made under the above
agreements reflect market rates for the services provided and are similar to
what third parties pay for similar services.
Certain of our directors and senior management hold similar positions with
our related parties. Felipe Menendez R., who is our President, Chief Executive
Officer and a director, is also a Director of Maritima SIPSA S.A., and I.
Shipping Services S.A. Ricardo Menendez R., who is our Executive Vice President
and one of our Directors, is also the President of I. Shipping Services S.A.,
and is a Director of Maritima SIPSA S.A. In light of their positions with such
entities, these officers and directors may experience conflicts of interest in
selecting between our interests and those of Maritima SIPSA S.A. and I. Shipping
Services Inc.
Ravenscroft Acquisition
On March 20, 2006, we purchased all of the issued and outstanding capital
stock of Ravenscroft Shipping (Bahamas) S.A. from two of our related companies.
Crosstrade Maritime Inc., and Crosstrees Maritime Inc., for the purchase price
of $11.5 million. The purchase price included a building in Coral Gables,
Florida, U.S., independently valued at $4.5 million. Ravenscroft Shipping
(Bahamas) Inc. is a holding company that is the ultimate parent of our vessel
managers, Ravenscroft Ship Management Inc., which manages the vessels in our
Ocean Business and Offshore Supply Business, and Elysian Ship Management Inc.,
which manages the vessels in our Passenger Business. 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 the earlier of (i) the closing of this
offering and (ii) September 30, 2006. The purchase price of this acquisition was
paid in the form of a non-interest bearing promissory note secured by a pledge
of the shares of Ravenscroft and payable upon the earlier of (i) the closing of
this offering or (ii) September 30, 2006. In compliance with the requirements of
our indenture related to the 9% First Preferred Ship Mortgage Notes due 2014, we
obtained a fairness opinion from an internationally recognized accounting firm
in connection with this acquisition.
UP Offshore Acquisition
Separately, we purchased 66.67% of the issued and outstanding capital
stock of UP Offshore (Bahamas) Ltd., the company through which we operate our
Offshore Supply Business, from LAIF, an affiliate of Solimar Holdings Ltd, 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 the earlier of (i) the closing of this
offering or (ii) September 30, 2006. The purchase price of this acquisition was
paid in the form of a non-interest bearing promissory note secured by a pledge
of the purchased shares of UP Offshore and payable upon the earlier of (i) the
closing of this offering or (ii) September 30, 2006. In compliance with the
requirements of our indenture related to the 9% First Preferred Ship Mortgage
Notes due 2014, we obtained a fairness opinion from an internationally
recognized accounting firm in connection with this acquisition.
UP River (Holdings) Ltd.
We have reached 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, for the price of $6.0 million. As part of this
understanding, IFC has agreed to waive its option to convert its interest in UP
River to shares in our company and its right to participate in this offering.
This understanding is subject to the successful completion of this offering and
our obligation under this understanding will be paid from the proceeds of this
offering.
Shareholders Arrangements
On March 20, 2006 Los Avellanos and Avemar, two of our shareholders,
subject to the successful completion of this 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 this offering. As a
consequence, Solimar will own 63.36% of our shares and the remaining 36.64% will
be directly and indirectly owned by Los Avellanos.
Share Repurchase
On March 20, 2006, we exercised our option to repurchase from Los
Avellanos 25,212 shares of our common stock for a total consideration of
$900,000, and the $900,000 note originally issued in connection with the option
was cancelled.
Solimar Holdings Ltd. Warrants
Under the terms of the warrant agreement dated March 16, 2000, our
shareholder Solimar owns warrants to purchase as of the date of this prospectus,
up to 19,920 non-voting shares of our common stock at an exercise price of
$50.20, and after the completion of this offering, up to shares of our
non-voting common stock at an exercise price of $ . These warrants may
be exercised at any time up to and including March 1, 2010.
Registration Rights Agreement
We have entered into a registration rights agreement with Los Avellanos,
Hazels, and Solimar, our existing shareholders, pursuant to which we will grant
them and certain of their transferees, the right, under certain circumstances
and subject to certain restrictions, including restrictions included in the
lock-up agreements to which Los Avellanos, Hazels and Solimar are party, to
require us to register under the Securities Act shares of our common stock held
by Los Avellanos, Hazels or Solimar. Under the registration rights agreement,
Los Avellanos, Hazels and Solimar have the right to request that we register the
sale of shares held by them on their behalf and may require that we make
available shelf registration statements permitting sales of shares into the
market from time to time over an extended period. In addition, Los Avellanos,
Hazels and Solimar have the ability to exercise certain piggyback registration
rights in connection with registered offerings initiated by us. Immediately
after this offering, Los Avellanos, Hazels and Solimar will own shares
and shares entitled to these registration rights, respectively.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding. Of these shares, only the shares sold in this offering,
or shares if the underwriters' over-allotment option is exercised in
full, will be freely transferable in the United States without restriction under
the Securities Act, except for any shares purchased by one of our "affiliates,"
which would then be subject to the resale limitations of Rule 144 under the
Securities Act. Immediately after consummation of this Offering, our existing
shareholders will own shares of common stock, which were acquired in
private transactions not involving a public offering and are therefore treated
as "restricted securities" for purposes of Rule 144. The restricted securities
held by the selling shareholders will be subject to the underwriters' 180-day
lock-up agreement as described below. Restricted securities may not be resold
except in compliance with the registration requirements of the Securities Act or
under an exemption from those registration requirements, such as the exemptions
provided by Rule 144, Regulation S and other exemptions under the Securities
Act. Furthermore, our selling shareholders will have seven votes per share of
our common stock held by them.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person or persons whose shares are aggregated,
who owns shares that were acquired from the issuer or an affiliate at least one
year ago, would be entitled to sell within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of our common stock, which would be approximately shares immediately after
this offering, and (ii) an amount equal to the average weekly reported volume of
trading in shares of our common stock on all national securities exchanges
and/or reported through the automated quotation system of registered securities
associations during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales in reliance on Rule 144 are also
subject to other requirements regarding the manner of sale, notice and
availability of current public information about us. A person or persons whose
shares are aggregated, who is not deemed to have been one of our affiliates at
any time during the 90 days immediately preceding the sale may sell restricted
securities in reliance on Rule 144(k) without regard to the limitations
described above, provided that two years have expired since the later of the
date on which the same restricted securities were acquired from us or one of our
affiliates. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, that same issuer.
Our selling shareholders, officers and directors have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of each of Credit
Suisse Securities (USA) LLC and UBS Securities LLC for a period of 180 days
after the date of this prospectus. However, in the event that either (1) during
the last 17 days of the "lock-up" period, we release earnings results or
material news or a material event relating to us occurs or (2) prior to the
expiration of the "lock-up" period, we announce that we will release earnings
results during the 16-day period beginning on the last day of the "lock-up"
period, then in either case the expiration of the "lock-up" will be extended
until the expiration of the 18-day period beginning on the date of the release
of the earnings results or the occurrence of the material news or event, as
applicable, unless Credit Suisse and UBS waive, in writing, such an extension.
We have entered into a registration rights agreement with our existing
shareholders of record pursuant to which we granted them and certain of their
transferees, the right, under certain circumstances and subject to certain
restrictions, including restrictions included in the lock-up agreements to which
Los Avellanos, Hazels and Solimar are party, to require us to register under the
Securities Act shares of our common stock held by them. Shares of common stock,
when registered under any registration statement, will be available for sale in
the open market unless restrictions apply. See "Certain Relationships and
Related Party Transactions--Registration Rights Agreement." In addition, all of
these shares would be available for sale into the public market after one year
pursuant to Rule 144 and other exemptions under the Securities Act, as described
above.
As a result of these lock-up agreements and rules of the Securities Act,
the restricted shares will be available for sale in the public market, subject
to certain volume and other restrictions, as mentioned above, as follows:
Number of Shares
Days After the Date of this Prospectus Eligible for Sale Comment
Date of prospectus............
180 days......................
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that future sales
or the availability of shares for sale will have on the market price of our
common stock prevailing from time to time. Nevertheless, sales of substantial
amounts of our common stock in the public market, including shares issued upon
the exercise of options that may be granted under any employee stock option or
employee stock award plan of ours, or the perception that those sales may occur,
could adversely affect prevailing market prices for our common stock.
DESCRIPTION OF CAPITAL STOCK
Under our memorandum of association, our authorized capital stock consists
of 100,000,000 shares of common stock, par value $0.01 per share, of which
2,109,240 shares were issued and outstanding as of the date of this prospectus
and 25,000,000 shares of preferred stock, par value $0.01 per share, of which no
shares were issued and outstanding as of the date of this prospectus. Upon
completion of this offering, we will have outstanding shares of common
stock and no shares of preferred stock. All of our shares of stock are in
registered form.
Common Stock
As of the date of this prospectus, we have 2,109,240 shares of common
stock issued and outstanding. Upon consummation of this offering, we will
have shares of common stock outstanding. Subject to preferences
that may be applicable to any outstanding shares of preferred stock, holders of
shares of common stock are entitled to receive ratably all dividends, if any,
declared by our board of directors out of funds legally available for dividends.
Holders of common stock do not have conversion, redemption or preemptive rights
to subscribe to any of our securities. The rights, preferences and privileges of
holders of common stock are subject to the rights of the holders of any shares
of preferred stock that we may issue in the future.
Other Matters
Purpose
Our purpose is to engage in any act or activity that is not prohibited
under any law for the time being in force in The Bahamas. Subject to any
limitations in, inter alia, Sections 57 and 80 of the International Business
Corporations Act, 2000, or the IBCA, which require shareholder authorization or
approval, all corporate powers will be exercised by or under the authority of
our Board of Directors. Our business and corporate affairs will be managed by
our Board of Directors. Our memorandum and articles of association do not impose
any limitations on the ownership rights of our shareholders.
Shareholder Meetings
Under our articles of association, annual shareholder meetings will be
held at a time and place selected by our Board of Directors. The meetings may be
held in or outside of The Bahamas. Special meetings may be called by the Board
of Directors, or by the Chairman of the Board, by the President or by holders of
majority of the votes of the shares issued and outstanding and entitled to vote
at such meeting. Our Board of Directors may set a record date between 15 and 60
days before the date of any meeting to determine the shareholders that will be
eligible to receive notice and vote at the meeting.
Directors
Our directors are elected annually by holders of a majority of the votes
of the shares entitled to vote in the election. Cumulative voting may not be
used to elect directors or for any other purpose.
Our Board of Directors consist of seven members. The Board of Directors
may change the number of directors only by a vote of at least 70% of the entire
board. Each director shall be elected to serve until his successor shall have
been duly elected and qualified, except in the event of his death, resignation,
removal, or the earlier termination of his term of office. Vacancies are filled
by action of the Board of Directors. The Board of Directors determines the
compensation of our directors. We may also reimburse our directors for all
travel, hotel and other expenses properly incurred by them in connection with
our business or their duties as directors.
There is no limitation on the powers of our Board of Directors to incur
indebtedness on our behalf. There is no requirement in our articles of
association or the ICBA that directors hold any shares of our common stock that
our directors must retire at a certain age.
Interested Transactions
Our articles of association provide that we may not enter, with some
exceptions, into any transaction (including the purchase, sale, lease or
exchange of any property, employee compensation arrangements or the rendering of
any service) with any of our directors unless the terms thereof (1) are no less
favorable to us than those that could be obtained at the time of such
transaction in an arm's-length dealings with a person other than our director,
(2) if such transaction involves an amount in excess of $500,000, (i) are set
forth in writing and (ii) have been approved by a majority of the members of our
Board of Directors having no personal stake in such transaction and (3) if such
transaction (other than chartering contracts or contracts for the transportation
of cargo not in excess of 13 months) involves an amount in excess of $2,000,000,
have been determined by an independent qualified appraiser given the size and
nature of the transaction to be fair, from a financial standpoint, to the
Company.
Dividends
Declaration and payment of any dividend is subject to the discretion of
our Board of Directors. Bahamian law generally prohibits the payment of
dividends other than from surplus or while a company is insolvent or would be
rendered insolvent upon the payment thereof.
Dissenters' Rights of Appraisal and Payment
Under Sections 80 to 83 of the IBCA, our shareholders have the right to
dissent from various corporate actions, including any merger or sale of all or
substantially all of our assets not made in the usual course of our business,
and receive payment of the fair value of their shares. The dissenting
shareholder must follow the procedures set forth in Section 83 of the IBCA to
receive payment. In the event that we and any dissenting shareholder fail to
agree on a price for the shares, the procedures under Section 83 of the IBCA
involve, among other things, the designation of appraisers who will fix the fair
value of the shares owned by such dissenting shareholder.
Shareholders' Derivative Actions
Under Bahamian common law, any of our shareholders may bring an action in
our name to procure a judgment in our favor, also known as a derivative action,
provided, inter alia, that the shareholder bringing the action is a holder of
our common stock both at the time the derivative action is commenced and at the
time of the transaction to which the action relates and that the action falls
within the scope of the certain limited circumstances in which a shareholder may
bring such an action, for example, where a majority of shareholders has
confirmed: (i) an act which is ultra vires to the company or otherwise illegal;
(ii) an act which constitutes a fraud against the minority and the wrongdoers
are themselves in control of the company; (iii) an irregularity in the passing
of a resolution which requires a qualified majority; or (iv) an act which
infringes the personal rights of an individual shareholder.
Limitations on Liability and Indemnification of Officers and Directors
The IBCA authorizes corporations to limit or eliminate the personal
liability of directors and officers to corporations and their shareholders for
monetary damages for breaches of directors' fiduciary duties. Our articles of
association include a provision that eliminates the personal liability of
directors for monetary damages for actions taken as a director to the fullest
extent permitted by law.
Our articles of association provide that we must indemnify our directors
and officers to the fullest extent authorized by law. We are also expressly
authorized to advance certain expenses (including attorneys' fees and
disbursements and court costs) to our directors and officers and carry
directors' and officers' insurance policies providing indemnification for our
directors, officers and certain employees for some liabilities. We believe that
these indemnification provisions and insurance are useful to attract and retain
qualified directors and executive officers.
The limitation of liability and indemnification provisions in our articles
of association may discourage shareholders from bringing a lawsuit against
directors for breach of their fiduciary duty. These provisions may also have the
effect of reducing the likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might otherwise benefit us
and our shareholders. In addition, your investment may be adversely affected to
the extent we pay the costs of settlement and damage awards against directors
and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving
any of our directors, officers or employees for which indemnification is sought.
Anti-takeover Provisions of our Charter Documents
Several provisions of our memorandum of association and articles of
association may have anti-takeover effects. These provisions are intended to
avoid costly takeover battles, lessen our vulnerability to a hostile change of
control and enhance the ability of our board of directors to maximize
shareholder value in connection with any unsolicited offer to acquire us.
However, these anti-takeover provisions, which are summarized below, could also
discourage, delay or prevent (1) the merger or acquisition of our Company by
means of a tender offer, a proxy contest or otherwise, that a shareholder may
consider in its best interest and (2) the removal of incumbent officers and
directors.
Special Voting Rights
Special Voting Rights. The shareholders listed in the Principal and
Selling Shareholder Table contained herein are entitled to seven votes for each
share of our common stock that they hold and all others holders of our common
stock are entitled to one vote for each share of common stock held.
Blank Check Preferred Stock. Under the terms of our memorandum of
association, our Board of Directors has authority, without any further vote or
action by our shareholders, to issue 25 million shares of preferred stock. Our
board of directors is authorized, subject to limitations prescribed by Bahamian
law and our memorandum of association, to determine the terms and conditions of
the preferred stock, including the powers, designations, preferences and rights
of the preferred shares. Our Board of Directors may issue shares of preferred
stock on terms calculated to discourage, delay or prevent a change of control of
our Company or the removal of our management.
Election and Removal of Directors. Our articles of association prohibit
cumulative voting in the election of directors and require parties other than
the board of directors to give advance written notice of nominations for the
election of directors. Generally, to be timely, a shareholder's notice must be
received at our principal executive offices not less than 60 days nor more than
90 days prior to the anniversary date of the immediately preceding annual
meeting. Our articles of association also specify requirements as to the form
and content of a shareholder's notice. These provisions may discourage, delay or
prevent the removal of incumbent directors.
Limited Actions by Shareholders. Our articles of association provide that
any action required or permitted to be taken by our shareholders must be
effected at an annual or special meeting of shareholders. Our articles of
association provide that only our Board of Directors, or our Chairman of the
Board, or our President or holders of majority of the votes of the shares
entitled to vote may call special meetings of our shareholders and the business
transacted at the special meeting is limited to the purposes stated in the
notice. Section 18 of the IBCA provides that the affirmative vote of a majority
of the outstanding shares entitled to vote at a meeting of shareholders is
required to amend a corporation's memorandum of association.
Registrar and Transfer Agent
The registrar and transfer agent for our common stock is . We
will apply to list the shares of our common stock for quotation on the Nasdaq
National Market under the symbol " ".
DESCRIPTION OF CREDIT FACILITIES AND OTHER INDEBTEDNESS
9% First Preferred Ship Mortgage Notes due 2014
On November 24, 2004, we completed an offering of $180 million of 9% First
Preferred Ship Mortgage Notes due 2014, or the Notes, through a private
placement to institutional investors eligible for resale under Rule 144A and
Regulation S, or the Note Offering. The net proceeds of the Note Offering were
used to repay our 10.5% First Preferred Ship Mortgage Notes due 2008, or the
Prior Notes, certain other existing credit facilities and to fund an escrow
account.
Interest on the Notes is payable semi-annually on May 24 and November 24
of each year. The Notes are senior obligations guaranteed by some of our
subsidiaries directly involved in our Ocean and Passenger River Businesses. The
Notes are secured by first preferred ship mortgages on 18 vessels, two
oceangoing barges and 193 river barges.
The Notes are subject to certain covenants, including, among other things,
limiting our's and our subsidiaries' ability to incur additional indebtedness or
issued preferred stock, pay dividends to shareholders, incur liens or execute
sale leasebacks of certain principal assets and certain restrictions on our
consolidating with or merging into any other person.
Upon the occurrence of a change of control event, each holder of the Notes
shall have the right to require us to repurchase such notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest. After the completion of this offering, a change of control means:
o if any person holds more than 35% of our voting stock and Solimar
and Los Avellanos, the Permitted Holders, together own a lesser
percentage and do not control the election of the majority of the
board of directors of the Company, or
o during any period of two consecutive years, individuals who at the
beginning of such period constituted our board of directors
(together with any new directors whose election by such board of
directors or whose nomination for election by our shareholders was
approved by a vote of 66 2/3% of our directors then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the board of
directors then in office; or
o our merger or consolidation with or into another person or the
merger of another person with or into us, or the sale of all or
substantially all of our assets (determined on a consolidated basis)
to another person other than (A) a transaction in which the survivor
or transferee is a person that is controlled by the Permitted
Holders or (B) a transaction following which (1) in the case of a
merger or consolidation transaction, holders of securities that
represented 100% of our common stock eligible to vote on matters
requiring a shareholder vote immediately prior to such transaction
(or other securities into which such securities are converted as
part of such merger or consolidation transaction) own directly or
indirectly at least a majority of the voting power of the common
stock eligible to vote on matters requiring a shareholder vote of
the surviving person in such merger or consolidation transaction
immediately after such transaction and (2) in the case of a sale of
assets transaction, each transferee becomes an obligor in respect of
the Notes and a subsidiary of the transferor of such assets.
In the first quarter of 2005, the SEC declared effective an exchange offer
we filed to register substantially identical senior notes to be exchanged for
the Notes pursuant to a registration rights agreement, to allow the Notes to be
eligible for trading in the public markets.
Loan Agreements with IFC and KfW entered into by UABL Barges (Panama)
On December 17, 2002, UABL Barges, a subsidiary in the River Business,
entered into a loan agreement with International Financial Corporation, or IFC
in an aggregate principal amount of $20.0 million.
This loan is divided into two tranches:
o Tranche A, in the amount of $15.0 million, is payable in 14
semiannual installments of $1.07 million each, beginning on June 15,
2005 and ending on December 15, 2011, and accrues interest at LIBOR
plus 3.75% per annum; and
o Tranche B, in the amount of $5.0 million, is payable in 10
semiannual installments of $500,000 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 $16.9 million
at December 31, 2005.
In addition, on February 27, 2003, UABL Barges, a subsidiary in our River
Business, entered into a loan agreement with KfW in an aggregate principal
amount of $10.0 million.
This loan is payable in 10 semiannual installments of $1.0 million 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 $8.0 million
at December 31, 2005.
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 pushboats 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 obligations under these loans are
secured by 221 barges and two pushboats.
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
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 us of the stock we hold in
the parent entities of UABL Limited.
Neither UABL Barges nor UABL Limited, nor any subsidiaries of UABL
Limited, is a subsidiary guarantor of the Notes. With IFC's and KfW's consent,
approximately $16.0 million of barges owned by certain subsidiaries of UABL
Limited have been pledged as collateral to secure the Notes.
During January 2006, UABL Paraguay S.A., our river subsidiary, 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., our
river subsidiary, mortgaged its pushboat 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 28,
2005 (for the years 2005 and 2006), 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 years.
At December 31, 2005, UABL Limited's consolidated debt service coverage
ratio was 1.37.
On December 19, 2005, 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
bases, 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, 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 IFC to hedge against fluctuations in fuel cost not
exceeding, individually or in the aggregate, the equivalent of 1 year of 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 IFC in an aggregate principal amount of $10.0
million.
This loan is divided into two tranches:
o Tranche A, in the amount of $5 million payable in eight semiannual
installments of $625,000 each, beginning on June 15, 2006 and ending
on December 15, 2009, which accrues interest at LIBOR plus 5% per
annum; and
o Tranche B, in the amount of $5 million payable in eight semiannual
installments of $625,000 each, beginning on June 15, 2006 and ending
on December 15, 2009, which accrues interest at LIBOR plus 5% per
annum.
On December 28, 2005, UABL Paraguay received the first disbursement and
the aggregate outstanding principal balance of the loan was $3.0 million.
We 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 the
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 $36.6 million at December 31, 2005.
The funds deriving from such loans shall be used for (a) the acquisition
and refurbishing of barges and (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 1.0 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 IFC.
BAHAMIAN COMPANY CONSIDERATIONS
Our corporate affairs are governed by our Memorandum and Articles of
Association and by the International Business Companies Act, 2000, or the IBCA.
There have been few, if any, court cases interpreting the IBCA in the
Commonwealth of The Bahamas, or "The Bahamas" and we cannot predict whether
Bahamian courts would reach the same conclusions as U.S. courts. Accordingly,
you may have more difficulty protecting your interests in the face of actions by
our management, directors or controlling shareholders than would shareholders of
a corporation incorporated in a United States jurisdiction which has developed a
substantial body of case law. The following table provides a comparison between
the statutory provisions of the IBCA and the Delaware General Corporation Law
relating to shareholders' rights.
The Bahamas Delaware
Shareholder Meetings
--------------------
o Subject to any limitations in the o May be held at such time or place as
Memorandum or Articles of Association designated in the certificate of
or in any unanimous shareholder incorporation or the bylaws, or if not
agreement, may be held at such time, so designated, as determined by the
manner or place as determined by the board of directors.
board of directors or upon the written
request of shareholders holding more
than 50 percent of the votes of the
outstanding voting shares (or such
lesser percentage contained in the
Memorandum or Articles of Association
or any unanimous shareholder
agreement).
o May be held within or without The o May be held within or without Delaware.
Bahamas.
o Notice: o Notice:
o Whenever shareholders are required o Whenever stockholders are required
to take action at a meeting, the to take any action at a meeting, a
directors shall give written notice written notice of the meeting shall
stating the place, date and hour of be given which shall state the
the meeting. place, if any, date and hour of the
meeting, and the means of remote
communication, if any.
o Subject to any requirement in the o Written notice shall be given not
Memorandum or Articles of Association less than 10 nor more than 60 days
or in any unanimous shareholder before the meeting.
agreement to give longer notice,
written notice of any meeting
shall be given not less than
seven days before the meeting.
The Bahamas Delaware
Shareholder's Voting Rights
---------------------------
o Subject to any limitations in the o Stockholders may act by written
Memorandum or Articles of Association, consent to elect directors.
any action required to be taken by
meeting of shareholders may be taken
without meeting if consent is in
writing and is signed by and holding a
majority of votes.
o Any person authorized to vote may o Any person authorized to vote may
authorize another person to act for authorize another person or persons to
him by proxy. act for him by proxy.
o The quorum is that fixed by the o For stock companies, certificate of
Memorandum or Articles; but where no incorporation or bylaws may specify
quorum is so fixed, a meeting is the number to constitute a quorum. In
properly constituted if at the the absence of this, one-third of the
commencement of the meeting there are members shall constitute a quorum.
present in person or by proxy
shareholders representing more than
one-half of the shares of each class
or series thereof.
o The IBCA does not provide for cumulative o The certificate of incorporation may
voting, however the Articles of provide for cumulative voting.
Association may provide for cumulative
voting.
Directors
o Board must consist of at least one o Board must consist of at least one
member. member.
o Number of members can be changed by an o Number of board members shall be fixed
amendment to the Articles of by the bylaws, unless the certificate
Association, subject to any limitations of incorporation fixes the number of
in the Memorandum or Articles of directors, in which case a change in
Association. the number shall be made only by
amendment of the certificate of
incorporation.
Dissenter's Rights of Appraisal
o Shareholders have a right to dissent o Appraisal rights shall be available
from (i) a merger, (ii) a for the shares of any class or series
consolidation, (iii) any sale of stock of a corporation in a merger
transfer, lease, exchange or other or consolidation.
disposition of more than fifty
percent (50%), by value, of the
assets of the company, if not made in
the usual manner or regular course of
business, (iv) a redemption of a
shareholder's minority shares by the
company, and (v) an arrangement, if
permitted by the court, and to
receive payment of the fair value of
their shares.
The Bahamas Delaware
Shareholder's Derivative Actions
--------------------------------
o An action may be brought by an o In any derivative suit instituted by a
individual shareholder, registered in stockholder or a corporation, it shall
the share register of the company as be averred in the complaint that the
a holder of its shares, on behalf of plaintiff was a stockholder of the
himself and other shareholders to corporation at the time of the
exercise a right of action vested in transaction of which he complains or
or derived from the company for the that such stockholder's stock
protection of the company of which he thereafter devolved upon such
is a member. stockholder by operation of law.
o A shareholder may bring a derivative
action in the following limited
circumstances: where the majority of
shareholders has confirmed: (i) an
act which is ultra vires the company
or illegal; (ii) an act which
constitutes a fraud against the
minority and the wrongdoers are
themselves in control of the company;
(iii) an irregularity in the passing
of a resolution which requires a
qualified majority; and (iv) an act
which infringes the personal rights
of an individual shareholder.
o A shareholder/plaintiff in a
derivative action shall establish a
prima facie case that the company is
entitled to the relief claimed and
that the action falls within the
scope of the aforementioned limited
circumstances in which a shareholder
may bring such an action.
TAX CONSIDERATIONS
The following is a discussion of the material Bahamian and United States
federal income tax considerations relevant to an investment decision by a U.S.
Holder, as defined below, with respect to the common stock. This discussion does
not purport to deal with the tax consequences of owning common stock to all
categories of investors, some of which, such as dealers in securities, investors
whose functional currency is not the United States dollar and investors that
own, actually or under applicable constructive ownership rules, 10% or more of
our common stock, may be subject to special rules. This discussion deals only
with holders who purchase common stock in connection with this offering and hold
the common stock as a capital asset. You are encouraged to consult your own tax
advisors concerning the overall tax consequences arising in your own particular
situation under United States federal, state, local or foreign law of the
ownership of common stock.
Bahamian Tax Considerations
In the opinion of Higgs & Johnson, the following are the material Bahamian
tax consequences of our activities to us and shareholders of our common stock.
We are incorporated in the Commonwealth of The Bahamas. Under current Bahamian
law, we are not subject to tax on income or capital gains, and no Bahamian
withholding tax will be imposed upon payments of dividends by us to our
shareholders for a period of twenty years from our date of incorporation.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, our United States counsel, the
following are the material United States federal income tax consequences to us
of our activities and to U.S. Holders, as defined below, of our common stock.
The following discussion of United States federal income tax matters is based on
the United States Internal Revenue Code of 1986, as amended, or the Code,
judicial decisions, administrative pronouncements, and existing and proposed
regulations issued by the United States Department of the Treasury, all of which
are subject to change, possibly with retroactive effect. This discussion is
based in part upon Treasury Regulations promulgated under Section 883 of the
Code in August of 2003, which became effective on January 1, 2005, for calendar
year taxpayers such as ourselves and our subsidiaries. The discussion below is
based, in part, on the description of our business as described in "Business"
above and assumes that we conduct our business as described in that section.
References in the following discussion to "we" and "us" are to Ultrapetrol
(Bahamas) Limited and its subsidiaries on a combined basis.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: in General
We anticipate that the Company will earn substantially all its income from
the hiring or leasing of vessels for use on a time, voyage or bareboat charter
basis or from the performance of services directly related to those uses, which
we refer to as "shipping income."
Unless exempt from United States federal income taxation under the rules
of Section 883 of the Code, or Section 883, as discussed below, we will be
subject to United States federal income tax on our shipping income that is
treated as derived from sources within the United States, to which we refer as
"United States source shipping income." For these purposes, United States source
shipping income includes 50% of our shipping income that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States.
Shipping income attributable to transportation that both begins and ends
in the United States is considered to be 100% from sources within the United
States. We do not expect to engage in transportation that produces income which
is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between
non-U.S. ports will be considered to be 100% derived from sources outside the
United States. Shipping income derived from sources outside the United States
will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883, our gross
U.S.-source shipping income would be subject to a 4% tax imposed without
allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the final Treasury Regulations
promulgated thereunder, or the final regulations, which became effective on
January 1, 2005, for calendar taxpayer such as ourselves, a foreign corporation
will be exempt from United States federal income taxation on its U.S.-source
shipping income if:
(1) it is organized in a qualified foreign country which, as defined, is
one that grants an "equivalent exemption" to corporations organized
in the United States in respect of each category of shipping income
for which exemption is being claimed under Section 883 and to which
we refer to as the "Country of Organization Test"; and
(2) either
(A) more than 50% of the value of its stock is beneficially owned,
directly or indirectly, by qualified shareholders which as
defined includes individuals who are "residents" of a
qualified foreign country which we refer to as the "50%
Ownership Test," or
(B) its stock, or that of its 100% parent, is "primarily and
regularly traded on an established securities market" in a
qualified foreign country or in the United States, which we
refer to as the "Publicly-Traded Test."
The Commonwealth of The Bahamas and Panama, the jurisdictions where we and
our vessel-owning subsidiaries are incorporated, each have been officially
recognized by the United States Internal Revenue Service, or IRS, as a qualified
foreign country that grants the requisite equivalent exemption from tax in
respect of each category of shipping income we and our subsidiaries earn and
currently expect to earn in the future. Therefore, we and each of our
subsidiaries will be exempt from United States federal income taxation with
respect to our U.S.-source shipping income if we satisfy either the 50%
Ownership Test or the Publicly-Traded Test. After this offering, we do not
expect to be able to satisfy the 50% Ownership Test due to the widely-held
ownership of our stock. Our ability and that of our subsidiaries to qualify for
exemption under Section 883 is solely dependent upon satisfaction of the
Publicly-Traded Test as discussed below.
The final regulations provide, in pertinent part, that stock of a foreign
corporation will be considered to be "primarily traded" on an established
securities market if the number of shares of each class of stock that are traded
during any taxable year on all established securities markets in that country
exceeds the number of shares in each such class that are traded during that year
on established securities markets in any other single country. Upon completion
of our offering, our common stock, which will be the sole class of our issued
and outstanding stock, will be "primarily traded" on The Nasdaq National Market.
Under the final regulations, our common stock will be considered to be
"regularly traded" on an established securities market if one or more classes of
our stock representing 50% or more of our outstanding shares, by total combined
voting power of all classes of stock entitled to vote and total value, will be
listed on the market, which we refer to as the listing threshold. Since our
common stock is listed on The Nasdaq National Market, we will satisfy the
listing requirement.
It is further required that with respect to each class of stock relied
upon to meet the listing threshold (i) such class of stock is traded on the
market, other than in minimal quantities, on at least 60 days during the taxable
year or 1/6 of the days in a short taxable year; and (ii) the aggregate number
of shares of such class of stock traded on such market during the taxable year
is at least 10% of the average number of shares of such class of stock
outstanding during such year or as appropriately adjusted in the case of a short
taxable year. We believe we will satisfy the trading frequency and trading
volume tests. Even if this were not the case, the final regulations provide that
the trading frequency and trading volume lists will be deemed satisfied if, as
we expect to be the case with our common stock, such class of stock is traded on
an established market in the United States and such stock is regularly quoted by
dealers making a market in such stock.
Notwithstanding the foregoing, the final regulations provide, in pertinent
part, that a class of stock will not be considered to be "regularly traded" on
an established securities market for any taxable year in which 50% or more of
the issued and outstanding shares of such class of stock are owned, actually or
constructively under specified stock attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and
value of such class of stock, which we refer to as the "5 Percent Override
Rule."
For purposes of being able to determine the persons who own 5% or more of
our stock, or the 5% Shareholders, the final regulations permit us to rely on
those persons that are identified on Schedule 13G and Schedule 13D filings with
the United States Securities and Exchange Commission, or the "SEC," as having a
5% or more beneficial interest in our common stock. The final regulations
further provide that an investment company identified on a SEC Schedule 13G or
Schedule 13D filing which is registered under the Investment Company Act of
1940, as amended, will not be treated as a 5% Shareholder for such purposes.
After the offering, we anticipate that our 5% Shareholders will own a
majority of our common stock. Therefore, we anticipate that we will be subject
to the 5% Override Rule unless we can establish that among the closely-held
group of 5% Shareholders, there are sufficient 5% Shareholders that are
qualified 5% shareholders for purposes of Section 883 to preclude non-qualified
5% Shareholders in the closely-held group from owning 50% or more of our common
stock for more than half the number of days during the taxable year. In order to
establish this, sufficient 5% Shareholders that are qualified 5% shareholders
would have to comply with certain documentation and certification requirements
designed to substantiate their identity as qualified shareholders.
We believe that immediately following the offering, we will be able to
establish that there are sufficient qualified 5% shareholders among our 5%
Shareholders in order to qualify for the benefits of Section 883. However, there
can be no assurance that we will be able to continue to satisfy the
substantiation requirements in the future.
To the extent the benefits of Section 883 are unavailable, our U.S. source
shipping income, to the extent not considered to be "effectively connected" with
the conduct of a U.S. trade or business, as described below, would be subject to
a 4% tax imposed by Section 887 of the Code on a gross basis, without the
benefit of deductions. Since under the sourcing rules described above, no more
than 50% of our shipping income would be treated as being derived from U.S.
sources, the maximum effective rate of U.S. federal income tax on our shipping
income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable
and our U.S. source shipping income is considered to be "effectively connected"
with the conduct of a U.S. trade or business, as described below, any such
"effectively connected" U.S. source shipping income, net of applicable
deductions, would be subject to the U.S. federal corporate income tax currently
imposed at rates of up to 35%. In addition, we may be subject to the 30% "branch
profits" taxes on earnings effectively connected with the conduct of such trade
or business, as determined after allowance for certain adjustments, and on
certain interest paid or deemed paid attributable to the conduct of its U.S.
trade or business.
Our U.S. source shipping income would be considered "effectively
connected" with the conduct of a U.S. trade or business only if:
o we have, or are considered to have, a fixed place of business in the
United States involved in the earning of shipping income; and
o substantially all of our U.S. source shipping income is attributable
to regularly scheduled transportation, such as the operation of a
vessel that follows a published schedule with repeated sailings at
regular intervals between the same points for voyages that begin or
end in the United States.
We do not intend to have, or permit circumstances that would result in
having any vessel operating to the United States on a regularly scheduled basis.
Based on the foregoing and on the expected mode of our shipping operations and
other activities, we believe that none of our U.S. source shipping income will
be "effectively connected" with the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
If we and our subsidiaries qualify for exemption under Section 883 in
respect of the shipping income derived from the international operation of our
vessels, then gain from the sale of any such vessel should likewise be exempt
from tax under Section 883. In the absence of the benefits of exemption under
Section 883, we and our subsidiaries will not be subject to United States
federal income taxation with respect to gain realized on a sale of a vessel,
provided the sale is considered to occur outside of the United States under
United States federal income tax principles. In general, a sale of a vessel will
be considered to occur outside of the United States for this purpose if title to
the vessel, and risk of loss with respect to the vessel, pass to the buyer
outside of the United States. It is anticipated that any sale of a vessel by us
will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of common
stock that is a United States citizen or resident, United States corporation or
other United States entity taxable as a corporation, an estate the income of
which is subject to United States federal income taxation regardless of its
source, or a trust if a court within the United States is able to exercise
primary jurisdiction over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
If a partnership holds our common stock, the tax treatment of a partner
will generally depend upon the status of the partner and upon the activities of
the partnership. If you are a partner in a partnership holding our common stock,
you should consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below,
any distributions made by us with respect to our common stock to a U.S. Holder
will generally constitute dividends, which may be taxable as ordinary income or
"qualified dividend income" as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of our earnings
and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common stock will generally be treated as
"passive income" (or "passive category income" for taxable years beginning after
December 31, 2006) or, in the case of certain types of U.S. Holders, "financial
services income," (which will be treated as "general category income" for
taxable years beginning after December 31, 2006) for purposes of computing
allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual,
trust or estate (a "U.S. Individual Holder") should be treated as "qualified
dividend income" that is taxable to such U.S. Individual Holders at preferential
tax rates (through 2008) provided that: (1) our common stock is readily tradable
on an established securities market in the United States (such as The Nasdaq
National Market on which our common stock will be traded); (2) we are not a
passive foreign investment company for the taxable year during which the
dividend is paid or the immediately preceding taxable year (which we do not
believe we are, have been or will be); and (3) the U.S. Individual Holder has
owned the common stock for more than 60 days in the 121-day period beginning 60
days before the date on which the common stock becomes ex-dividend. Any
dividends paid by the Company which are not eligible for these preferential
rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any "extraordinary dividend"--generally, a
dividend equal to or in excess of ten percent of a shareholder's adjusted basis
(or fair market value in certain circumstances) in a share of common stock--paid
by us. If we pay an "extraordinary dividend" on our common stock that is treated
as "qualified dividend income," then any loss derived by a U.S. Individual
Holder from the sale or exchange of such common stock will be treated as
long-term capital loss to the extent of such dividend. Depending upon the amount
of a dividend paid by us, such dividend may be treated as an "extraordinary
dividend."
Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any
taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a
sale, exchange or other disposition of our common stock in an amount equal to
the difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Subject to the discussion of extraordinary dividends above, such gain or loss
will be treated as long-term capital gain or loss if the U.S. Holder's holding
period is greater than one year at the time of the sale, exchange or other
disposition. Such capital gain or loss will generally be treated as U.S.-source
income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S.
Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a U.S. Holder that
holds stock in a foreign corporation classified as a passive foreign investment
company for United States federal income tax purposes. In general, we will be
treated as a passive foreign investment company with respect to a U.S. Holder
if, for any taxable year in which such holder held our common stock, either:
o at least 75% of our gross income for such taxable year consists of
passive income (e.g., dividends, interest, capital gains and rents
derived other than in the active conduct of a rental business); or
o at least 50% of the average value of the assets held by the
corporation during such taxable year produce, or are held for the
production of, passive income.
For purposes of determining whether we are a passive foreign investment
company, we will be treated as earning and owning our proportionate share of the
income and assets, respectively, of any of our subsidiary corporations in which
we own at least 25 percent of the value of the subsidiary's stock. Income
earned, or deemed earned, by us in connection with the performance of services
would not constitute passive income. By contrast, rental income would generally
constitute "passive income" unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe
that we are, nor do we expect to become, a passive foreign investment company
with respect to any taxable year. Although there is no legal authority directly
on point, our belief is based principally on the position that, for purposes of
determining whether we are a passive foreign investment company, the gross
income we derive or are deemed to derive from the period chartering and voyage
chartering activities of our wholly-owned subsidiaries should constitute
services income, rather than rental income. Correspondingly, such income should
not constitute passive income, and the assets that we and our wholly-owned
subsidiaries own and operate in connection with the production of such income,
in particular, the vessels, should not constitute passive assets for purposes of
determining whether we are a passive foreign investment company. We believe
there is substantial legal authority supporting our position consisting of case
law and Internal Revenue Service pronouncements concerning the characterization
of income derived from period charters and voyage charters as services income
for other tax purposes. However, in the absence of any legal authority
specifically relating to the statutory provisions governing passive foreign
investment companies, the Internal Revenue Service or a court could disagree
with our position. In addition, although we intend to conduct our affairs in a
manner to avoid being classified as a passive foreign investment company with
respect to any taxable year, we cannot assure you that the nature of our
operations will not change in the future.
As discussed more fully below, if we were to be treated as a passive
foreign investment company for any taxable year, a U.S. Holder would be subject
to different taxation rules depending on whether the U.S. Holder makes an
election to treat us as a "Qualified Electing Fund," which election we refer to
as a "QEF election." As an alternative to making a QEF election, a U.S. Holder
should be able to make a "mark-to-market" election with respect to our common
stock, as discussed below.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer
to as an "Electing Holder," the Electing Holder must report each year for United
States federal income tax purposes his pro rata share of our ordinary earnings
and our net capital gain, if any, for our taxable year that ends with or within
the taxable year of the Electing Holder, regardless of whether or not
distributions were received from us by the Electing Holder. The Electing
Holder's adjusted tax basis in the common stock will be increased to reflect
taxed but undistributed earnings and profits. Distributions of earnings and
profits that had been previously taxed will result in a corresponding reduction
in the adjusted tax basis in the common stock and will not be taxed again once
distributed. An Electing Holder would generally recognize capital gain or loss
on the sale, exchange or other disposition of our common stock. A U.S. Holder
would make a QEF election with respect to any year that our company is a passive
foreign investment company by filing one copy of IRS Form 8621 with his United
States federal income tax return and a second copy in accordance with the
instructions to such form. If we were aware that we were to be treated as a
passive foreign investment company for any taxable year, we would provide each
U.S. Holder with all necessary information in order to make the QEF election
described above.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a passive foreign investment
company for any taxable year and, as we anticipate, our stock is treated as
"marketable stock," a U.S. Holder would be allowed to make a "mark-to-market"
election with respect to our common stock, provided the U.S. Holder completes
and files IRS Form 8621 in accordance with the relevant instructions and related
Treasury Regulations. If that election is made, the U.S. Holder generally would
include as ordinary income in each taxable year the excess, if any, of the fair
market value of the common stock at the end of the taxable year over such
holder's adjusted tax basis in the common stock. The U.S. Holder would also be
permitted an ordinary loss in respect of the excess, if any, of the U.S.
Holder's adjusted tax basis in the common stock over its fair market value at
the end of the taxable year, but only to the extent of the net amount previously
included in income as a result of the mark-to-market election. A U.S. Holder's
tax basis in his common stock would be adjusted to reflect any such income or
loss amount. Gain realized on the sale, exchange or other disposition of our
common stock would be treated as ordinary income, and any loss realized on the
sale, exchange or other disposition of the common stock would be treated as
ordinary loss to the extent that such loss does not exceed the net
mark-to-market gains previously included in income by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a passive foreign investment company
for any taxable year, a U.S. Holder who does not make either a QEF election or a
"mark-to-market" election for that year, whom we refer to as a "Non-Electing
Holder," would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our common stock in a taxable year in excess of 125
percent of the average annual distributions received by the Non-Electing Holder
in the three preceding taxable years, or, if shorter, the Non-Electing Holder's
holding period for the common stock), and (2) any gain realized on the sale,
exchange or other disposition of our common stock. Under these special rules:
o the excess distribution or gain would be allocated ratably over the
Non-Electing Holders' aggregate holding period for the common stock;
o the amount allocated to the current taxable year would be taxed as
ordinary income; and
o the amount allocated to each of the other taxable years would be
subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year, and an interest charge
for the deemed deferral benefit would be imposed with respect to the
resulting tax attributable to each such other taxable year.
These penalties would not apply to a pension or profit sharing trust or
other tax-exempt organization that did not borrow funds or otherwise utilize
leverage in connection with its acquisition of our common stock. If a
Non-Electing Holder who is an individual dies while owning our common stock,
such holder's successor generally would not receive a step-up in tax basis with
respect to such stock.
United States Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of common stock that is not a U.S. Holder is
referred to herein as a "Non-U.S. Holder."
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to United States federal
income tax or withholding tax on dividends received from us with respect to our
common stock, unless that income is effectively connected with the Non-U.S.
Holder's conduct of a trade or business in the United States. If the Non-U.S.
Holder is entitled to the benefits of a United States income tax treaty with
respect to those dividends, that income is generally taxable only if it is
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to United States federal
income tax or withholding tax on any gain realized upon the sale, exchange or
other disposition of our common stock, unless:
o the gain is effectively connected with the Non-U.S. Holder's conduct
of a trade or business in the United States. If the Non-U.S. Holder
is entitled to the benefits of an income tax treaty with respect to
that gain, that gain is generally taxable only if it is attributable
to a permanent establishment maintained by the Non-U.S. Holder in
the United States; or
o the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more during the taxable year of disposition
and other conditions are met.
If the Non-U.S. Holder is engaged in a United States trade or business for
United States federal income tax purposes, the income from the common stock,
including dividends and the gain from the sale, exchange or other disposition of
the stock that is effectively connected with the conduct of that trade or
business will generally be subject to regular United States federal income tax
in the same manner as discussed in the previous section relating to the taxation
of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its
earnings and profits that are attributable to the effectively connected income,
which are subject to certain adjustments, may be subject to an additional branch
profits tax at a rate of 30%, or at a lower rate as may be specified by an
applicable income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within
the United States to a non-corporate U.S. Holder will be subject to information
reporting requirements and backup withholding tax if a non-corporate U.S.
Holder:
o fails to provide an accurate taxpayer identification number;
o is notified by the Internal Revenue Service that it has failed to
report all interest or dividends required to be shown on its federal
income tax returns; or
o in certain circumstances, fails to comply with applicable
certification requirements.
Non-U.S. Holders may be required to establish their exemption from
information reporting and backup withholding by certifying their status on IRS
Form W-8BEN, W-8ECI or W-8IMY, as applicable.
If a Non-U.S. Holder sells its common stock to or through a United States
office or broker, the payment of the proceeds is subject to both United States
backup withholding and information reporting unless such holder certifies that
it is a non-U.S. person, under penalties of perjury, or otherwise establishes an
exemption. If a Non-U.S. Holder sells its common stock through a non-United
States office of a non-United States broker and the sales proceeds are paid to
such holder outside the United States then information reporting and backup
withholding generally will not apply to that payment. However, United States
information reporting requirements, but not backup withholding, will apply to a
payment of sales proceeds, even if that payment is made to a Non-U.S. Holder
outside the United States, if such holder sells its common stock through a
non-United States office of a broker that is a United States person or has some
other contacts with the United States.
Backup withholding tax is not an additional tax. Rather, a holder
generally may obtain a refund of any amounts withheld under backup withholding
rules that exceed its income tax liability by filing a refund claim with the
Internal Revenue Service.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2006, we and the selling shareholders have agreed to
sell to the underwriters named below, for whom Credit Suisse Securities (USA)
LLC and UBS Securities LLC are acting as representatives, the following
respective numbers of shares of common stock:
Number
Underwriter of Shares
----------- ---------
Credit Suisse Securities (USA) LLC(1).................
UBS Securities LLC(2).................................
Total...........................................
(1) Eleven Madison Avenue, New York, NY 10010
(2) 299 Park Avenue, New York, NY 10171
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
The selling shareholders have granted to the underwriters a 30-day option
to purchase up to additional shares from the selling shareholders at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the
representatives may change the public offering price and concession and discount
to broker/dealers.
The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay.
Per Share Total
-------------------------- ------------------------
Without Without With With
Over- Over- Over- Over-
allotment allotment allotment allotment
-----------------------------------------------------
Underwriting Discounts
and Commissions paid
by us............... $ $ $ $
Expenses payable by us. $ $ $ $
Underwriting Discounts
and Commissions paid
by selling shareholders $ $ $ $
Expenses payable by the
selling shareholders $ $ $ $
A $1.00 increase or decrease in the assumed initial offering price per
share of common stock would increase or decrease the estimated net proceeds of
this offering by approximately $ million (approximately $ million if
the underwriters' option to purchase additional shares is exercised in full).
The underwriters have informed us that they do not expect sales to
accounts over which the underwriters have discretionary authority to exceed 5%
of the share of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
or the Securities Act, relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse
Securities (USA) LLC and UBS Securities LLC for a period of 180 days after the
date of this prospectus. However, in the event that either (1) during the last
17 days of the "lock-up" period, we release earnings results or material news or
a material event relating to us occurs or (2) prior to the expiration of the
"lock-up" period, we announce that we will release earnings results during the
16-day period beginning in the last day of the "lock-up" period, then in either
case the expiration of the "lock-up" period will be extended until the
expiration of the 18-day period beginning on the date of the release of the
earnings results or the occurrence of the material news or event, as applicable,
unless Credit Suisse Securities (USA) LLC and UBS Securities LLC waive, in
writing, such an extension.
Our officers and directors and existing shareholders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, other than certain transfers to a family member, trust or
controlled affiliate, any shares of our common stock, other than, in the case of
the selling shareholders, common stock offered under this prospectus, or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, enter into a transaction that would have the same effect, or enter
into any swap, hedge or other arrangement that transfers, in whole or in part,
any of the economic consequences of ownership of our common stock, whether any
of these transactions are to be settled by delivery of our common stock or other
securities, in cash or otherwise, or publicly disclose the intention to make any
offer, sale, pledge or disposition, or to enter into any transaction, swap,
hedge or other arrangement, without, in each case, the prior written consent of
Credit Suisse Securities (USA) LLC and UBS Securities LLC for a period of 180
days after the date of this prospectus. However, in the event that either (1)
during the last 17 days of the "lock-up" period, we release earnings results or
material news or a material event relating to us occurs, or (2) prior to the
expiration of the "lock-up" period, we announce that we will release earnings
results during the 16-day period beginning on the last day of the "lock-up"
period, then in either case the expiration of the "lock-up" period will be
extended until the expiration of the 18-day period beginning on the date of the
release of the earnings results or the occurrence of the material news or event,
as applicable, unless Credit Suisse Securities (USA) LLC and UBS Securities LLC
waive, in writing, such an extension.
We and the selling shareholders have each agreed severally to indemnify
the underwriters against certain liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in that
respect.
We intend to apply to list the shares of common stock on The Nasdaq
National Market.
Certain of the underwriters and their respective affiliates have from time
to time performed, and may in the future perform, various financial advisory,
commercial banking and investment banking services for us and for our affiliates
in the ordinary course of business for which they have received and would
receive customary compensation. In particular, Credit Suisse Securities (USA)
LLC was the initial purchaser in connection with issuance of the November 2004
offer and sale of our 9% First Preferred Ship Mortgage Notes due 2014.
Prior to the offering, there has been no market for our common stock. The
initial public offering price will be determined by negotiation between us and
the underwriters and will not necessarily reflect the market price of the common
stock following the offering. The principal factors that will be considered in
determining the public offering price will include:
o the information presented in this prospectus and otherwise available
to the underwriters;
o the history of and the prospects for the industry in which we will
compete;
o the ability of our management;
o the prospects for our future earnings;
o the present state of our development and our current financial
condition;
o the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies; and
o the general condition of the securities markets at the time of the
offering.
We offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active trading market for the
common stock will develop and continue after the offering.
In connection with the offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934, or the Exchange Act.
o Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
o Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number of
shares that they may purchase in the over-allotment option. In a
naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters
may close out any covered short position by either exercising their
over-allotment option and/or purchasing shares in the open market.
o Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been completed
in order to cover syndicate short positions. In determining the
source of shares to close out the short position, the underwriters
will consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which they
may purchase shares through the over-allotment option. If the
underwriters sell more shares than could be covered by the
over-allotment option, a naked short position, the position can only
he closed out by buying shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
o Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally
sold by the syndicate member is purchased in a stabilizing or
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the market price of
our common stock or preventing or retarding a decline in the market price of the
common stock. As a result the price of our common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters, or selling group members, if any,
participating in this offering and one or more of the underwriters participating
in this offering may distribute prospectuses electronically. The representatives
may agree to allocate a number of shares to underwriters and selling group
members for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters and selling group members
that will make internet distributions on the same basis as other allocations.
NOTICE TO INVESTORS
The shares of common stock are offered for sale in those jurisdictions in
the United States, Europe and elsewhere where it is lawful to make such offers.
Other than with respect to the public offering of the shares of common
stock listed on The Nasdaq National Market, no action has been or will be taken
in any country or jurisdiction by us or the underwriters that would permit a
public offering of the shares of common stock, or possession or distribution of
any offering material in relation thereto, in any country or jurisdiction where
action for that purpose is required. Accordingly, the shares of common stock may
not be offered or sold, directly or indirectly, and neither this offering
memorandum nor any other offering material or advertisements in connection with
the shares of common stock may be distributed, published, in or from any country
or jurisdiction, except in compliance with any applicable rules and regulations
of any such country or jurisdiction. This prospectus does not constitute an
offer to sell or a solicitation of an offer to purchase in any jurisdiction
where such offer or solicitation would be unlawful.
European Economic Area
In relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (each, a "Relevant Member State"), each
Underwriter represents and agrees that with effect from and including the date
on which the Prospectus Directive is implemented in that Relevant Member State
(the "Relevant Implementation Date") it has not made and will not make an offer
of Securities to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the Securities which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the
Relevant Implementation Date, make an offer of Securities to the public in that
Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated, whose
corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at
least 250 employees during the last financial year; (2) a total
balance sheet of more than (euro)43,000,000 and (3) an annual net
turnover of more than (euro)50,000,000, as shown in its last annual
or consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the manager for any such offer; or
(d) in any other circumstances which do not require the publication by
the Issuer of a prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of this provision, the expression an "offer of Shares to
the public" in relation to any Shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the
terms of the offer and the Shares to be offered so as to enable an investor to
decide to purchase or subscribe the Shares, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member
State and the expression Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant Member State.
United Kingdom
Each of the underwriters severally represents, warrants and agrees to
follow:
(a) It has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement
to engage in investment activity (within the meaning of section 21
of FSMA) to persons who have professional experience in matters
relating to investments falling with Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of FSMA does not apply to the
company; and
(b) it has complied with, and will comply with all applicable provisions
of FSMA with respect to anything done by it in relation to the
shares of common stock in, from or otherwise involving the United
Kingdom.
France
The shares of common stock are being issued and sold outside the Republic
of France and that, in connection with their initial distribution, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of common stock to the public in the Republic of France, and that it has not
distributed and will not distribute or cause to be distributed to the public in
the Republic of France this prospectus or any other offering material relating
to the shares of common stock, and that such offers, sales and distributions
have been and will be made in the Republic of France only to qualified investors
(investisseurs qualifies) in accordance with Article L.411-2 of the Monetary and
Financial Code and decret no. 98-880 dated 1st October, 1998.
Netherlands
Our shares of common stock may not be offered, sold, transferred or
delivered in or from the Netherlands as part of their initial distribution or at
any time thereafter, directly or indirectly, other than to, individuals or legal
entities situated in The Netherlands who or which trade or invest in securities
in the conduct of a business or profession (which includes banks, securities
intermediaries (including dealers and brokers), insurance companies, pension
funds, collective investment institution, central governments, large
international and supranational organizations, other institutional investors and
other parties, including treasury departments of commercial enterprises, which
as an ancillary activity regularly invest in securities; hereinafter,
"Professional Investors"), provided that in the offer, prospectus and in any
other documents or advertisements in which a forthcoming offering of our shares
of common stock is publicly announced (whether electronically or otherwise) in
The Netherlands it is stated that such offer is and will be exclusively made to
such Professional Investors. Individual or legal entities who are not
Professional Investors may not participate in the offering of our shares of
common stock, and this prospectus or any other offering material relating to our
shares of common stock may not be considered an offer or the prospect of an
offer to sell or exchange our shares of common stock.
Italy
Neither the shares of common stock, this prospectus nor any other material
relating to the shares of common stock will be offered, sold, delivered,
distributed or made available in the Republic of Italy other than to
professional investors ("investiton professionali") as defined in Article 30,
Paragraph 2, of Legislative Decree No. 58, of 24 February 1998 (the "Financial
Laws Consolidation Act"), as subsequently amended and supplemented, which refers
to the definition or "operatori qualificati" as defined in Article 31, Paragraph
2, of CONSOB Regulation No. 11,522, of 1 July 1998, as subsequently amended and
supplemented, or pursuant to Article 100 of the Financial Laws Consolidation and
Article 33, Paragraph 1, of CONSOB Regulation n. 11,971, of 14 May 1999, as
subsequently amended and supplemented and in accordance with applicable Italian
laws and regulations.
Any offer of the shares of common stock to professional investors in the
Republic of Italy shall be made only by banks, investment firms or financial
companies enrolled in the special register provided for in Article 107 of the
Consolidated Banking Act, to the extent that they are duly authorized to engage
in the placement and/or underwriting of financial instruments in the Republic of
Italy in accordance with the relevant provisions of the Financial Laws
Consolidations Act and/or any other applicable laws and regulations and in
compliance with Article 129 of the Consolidated Banking Act.
Insofar as the requirements above are based on laws that are superseded at
any time pursuant to the implementation of the Directive 20O3/71/CE ("Prospectus
Directive"), such requirements shall be replaced by the applicable requirements
under the Prospectus Directive.
Spain
Neither the shares of common stock nor this prospectus have been approved
or registered in the administrative registries of the Spanish Securities Markets
Commission ("Comision Nacional del Mercado de Valores"). Accordingly, the shares
of common stock may not be offered in Spain except in circumstances which do not
constitute a public offer of securities in Spain within the meaning of Article
3Obis of the Spanish Securities Market Law, of 28 July 1988 ("Ley 24/1988, de 28
de julio, del Mercado de Valores), as amended and restated, and supplemental
rules enacted thereunder.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the shares in Canada is being made only on a private
placement basis exempt from the requirement that we and the selling shareholders
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the shares of our common stock are made. Any resale of
the shares in Canada must be made under applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made under available statutory exemptions or under a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the shares.
Representations of Purchasers
By purchasing the shares in Canada and accepting a purchase confirmation a
purchaser is representing to us and the selling shareholders and the dealer from
whom the purchase confirmation is received that:
o the purchaser is entitled under applicable provincial securities
laws to purchase the shares without the benefit of a prospectus
qualified under those securities laws;
o where required by law, that the purchaser is purchasing as principal
and not as agent;
o the purchaser has reviewed the text above under Resale Restrictions;
and
o the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of the shares to the
regulatory authority that by law is entitled to collect the
information.
Further details concerning the legal authority for this information is available
on request.
Rights of Action - Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who purchase a
security offered by this prospectus during the period of distribution will have
a statutory right of action for damages, or while still the owner of the shares,
for rescission against us and the selling shareholders in the event that this
prospectus contains a misrepresentation without regard to whether the purchaser
relied on the misrepresentation. The right of action for damages is exercisable
not later than the earlier of 180 days from the date the purchaser first had
knowledge of the facts giving rise to the cause of action and three years from
the date on which payment is made for the shares. The right of action for
rescission is exercisable not later than 180 days from the date on which payment
is made for the shares. If a purchaser elects to exercise the right of action
for rescission, the purchaser will have no right of action for damages against
us or the selling shareholders. In no case will the amount recoverable in any
action exceed the price at which the shares were offered to the purchaser and if
the purchaser is shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling shareholders will have no liability. In
the case of an action for damages, we and the selling shareholders will not be
liable for all or any portion of the damages that are proven to not represent
the depreciation in value of the shares as a result of the misrepresentation
relied upon. These rights are in addition to, and without derogation from, any
other rights or remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein and
the selling shareholders may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon us or those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against us or those persons in
Canada or to enforce a judgment obtained in Canadian courts against us or those
persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of the shares should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the shares of
our common stock in their particular circumstances and about the eligibility of
the shares for investment by the purchaser under relevant Canadian legislation.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate the expenses in connection with the issuance and distribution
of our common stock in this offering, other than underwriting discounts and
commissions, as follows:
SEC Registration Fee.................................... $
Printing and Engraving Expenses.........................
Legal Fees and Expenses.................................
Accountants' Fees and Expenses..........................
Nasdaq National Market Listing Fee......................
NASD Fee................................................
Blue Sky Fees and Expenses..............................
Transfer Agent's Fees and Expenses......................
Miscellaneous Costs.....................................
Total $
================
LEGAL MATTERS
The validity of the common stock will be passed upon for us by Seward &
Kissel LLP, New York, New York with respect to matters of U.S. and Higgs &
Johnson with respect to matters of Bahamian law. The underwriters have been
represented by Cravath, Swaine & Moore LLP, New York, New York.
EXPERTS
The consolidated financial statements of Ultrapetrol (Bahamas) Limited at
December 31, 2005 and 2004 and for each of the three years in the period ended
December 31, 2005 and the consolidated financial statements of UP Offshore
(Bahamas) Limited at December 31, 2005 and for the year then ended included in
this prospectus and registration statement have been audited by Pistrelli, Henry
Martin y Asociados S.R.L., an independent registered public accounting firm and
a member of Ernst & Young Global, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in auditing and accounting.
The section of this prospectus entitled "The International Shipping
Industry" has been reviewed by DSC, an independent U.K.-based company providing
market analysis and strategic planning services to the shipping industry. DSC
has confirmed to us that "The International Shipping Industry" section
accurately describes the industries that it purports to describe, subject to the
availability and reliability of the data supporting the statistical and
graphical information presented in such section, and DSC's consent to use such
information herein is filed as an exhibit to the registration statement on Form
F-1 under the Securities Act of which this prospectus is a part.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the common stock
offered by this prospectus. For the purposes of this section, the term
registration statement means the original registration statement and any and all
amendments including the schedules and exhibits to the original registration
statement or any amendment. This prospectus does not contain all of the
information set forth in the registration statement we filed. Each statement
made in this prospectus concerning a document filed as an exhibit to the
registration statement is qualified by reference to that exhibit for a complete
statement of its provisions. The registration statement, including its exhibits
and schedules, may be inspected and copied at the public reference facilities
maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the public reference room by calling
1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
20549. The SEC maintains a website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
We will furnish holders of shares of our common stock with annual reports
containing audited financial statements and a report by our independent public
accountants, and intend to make available quarterly reports containing selected
unaudited financial data for the first three quarters of each fiscal year. The
audited financial statements will be prepared in accordance with United States
generally accepted accounting principles and those reports will include a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section for the relevant periods. As a "foreign private issuer," we
will be exempt from the rules under the Exchange Act prescribing the furnishing
and content of proxy statements to shareholders, but will be required to furnish
those proxy statements to shareholders under Nasdaq National Market rules. We do
not expect to conform to those proxy statements to Schedule 14A of the proxy
rules promulgated under the Exchange Act. In addition, as a "foreign private
issuer," we will be exempt from the rules under the Exchange Act relating to
short swing profit reporting and liability.
GLOSSARY OF SHIPPING TERMS
The following are definitions of certain terms that are commonly used in
the shipping industry and in this prospectus.
Aframax. A tanker ranging in size from 80,000 dwt to 119,999 dwt.
Annual survey. The inspection of a vessel pursuant to international
conventions, by a classification society surveyor or on behalf of the flag
state, that takes place every year.
Bareboat charter. Charter of a vessel under which the vessel owner is
usually paid a fixed amount of charterhire for a certain period of time during
which the charterer is responsible for the vessel's operating expenses, and
voyage expenses, as well as the management of the vessel, including crewing. A
bareboat charter is also known as a "demise charter" or a "time charter by
demise."
Bulk carrier. A vessel designed for the carriage of dry bulk cargos.
Bunker. The fuel oil used to operate a vessel's engines and generators.
Capesize. A dry bulk carrier that is greater than 80,000 dwt in size.
Charter. The hire of a vessel for a specified period of time or to carry a
cargo from a loading port to a discharging port.
Charterer. The company that hires a vessel.
Charterhire. A sum of money paid to the vessel owner by a charterer under
a charter.
Classification society. An independent society that certifies that a
vessel has been built and maintained according to that society's rules for that
type of vessel and complies with the applicable rules and regulations of the
country of the vessel and the international conventions to which that country is
a member. A vessel that receives its certification is referred to as being
"in-class."
Clean petroleum products. Liquid products refined from crude oil whose
color is less than or equal to 2.5 on the National Petroleum Association scale.
Clean petroleum products include naphtha, jet fuel, gasoline and diesel/gas oil.
Contract of affreightment or COA. A contract for the carriage of a
specific type and quantity of cargo, with payment based on metric tons of cargo
carried, which will be carried in one or more shipments. For a COA, the vessel
owner or operator generally pays all voyage expenses and vessel operating
expenses and has the right to substitute one vessel for another. The rate is
generally expressed in dollars per metric ton of cargo. Revenues earned under
COAs are referred to as "freight." When used in this prospectus, COA also refers
to a voyage charter.
Dirty petroleum products. Liquid products refined from crude oil whose
color is greater than 2.5 on the National Petroleum Association scale. Dirty
products will usually require heating during the voyage as their viscosity or
waxiness makes discharge difficult at ambient temperatures. Dirty petroleum
products include fuel oil, Low Sulphur Waxy Residue, or LSWR, and Carbon Black
Feedstock, or CBFS.
Double hull. Hull construction design in which a vessel has an inner and
outer side and bottom separated by void space.
Drydocking. The removal of a vessel from the water for inspection and/or
repair of those parts of a vessel which are below the water line. During
drydockings, which are required to be carried out periodically, certain
mandatory classification society inspections are carried out and relevant
certifications issued.
Dwt or Deadweight ton. A unit of a vessel's capacity for cargo, fuel oil,
stores and crew measured in metric ton units which is equal to 1,000 kilograms.
Gross ton. A unit of measurement for the total enclosed space within a
vessel equal to 100 cubic feet or 2.831 cubic meters.
Hidrovia Region. A region of navigable waters in South America on the
Parana, Paraguay and Uruguay Rivers and part of the River Plate, which flow
through Argentina, Bolivia, Brazil, Paraguay and Uruguay. The region covers the
entire length of the Parana River south of the Itaipu Dam, the entire length of
the Paraguay River south of Corumba, the Uruguay River and the River Plate west
of Buenos Aires. Our definition of the Hidrovia Region is wider than the common
usage of such term.
Hull. Shell or body of a vessel.
IMO. International Maritime Organization, a United Nations agency that
issues international standards for shipping.
Intermediate survey. The inspection of a vessel by a classification
society surveyor that takes place 24 to 36 months after each Special Survey.
ISM Code. The IMO's International Management Code for the Safe Operation
of Ships and Pollution Prevention.
Newbuilding. A new vessel under construction or just completed.
OBO or Oil/Bulk/Ore. A combination carrier capable of transporting oil
products, ore or dry bulk commodities.
Off hire. The period a vessel is unable to perform the services for which
it is immediately required under a time charter. Off hire periods include days
spent on repairs, drydocking and surveys, whether or not scheduled.
OPA. The United States Oil Pollution Act of 1990, as amended.
OPEC. Organization of Petroleum Exporting Countries.
Panamax. A vessel of approximately 50,000 to 79,999 dwt. The term is
derived from the maximum length, breadth and draft of a vessel capable of
passing through the Panama Canal.
Petroleum Products. Refined crude oil products, such as fuel oils,
gasoline and jet fuel.
Product Tanker. A tanker designed to carry a variety of liquid products
varying from crude oil to clean and dirty petroleum products, acids and other
chemicals. The tanks are coated to prevent product contamination and hull
corrosion. The vessel may have equipment designed for the loading and unloading
of cargos with a high viscosity.
Protection and Indemnity or P&I insurance. Insurance obtained through a
mutual association formed by vessel owners to provide liability insurance
protection against large financial loss to one member by contribution to offset
that loss by all members.
PSV or platform supply vessel. A vessel ranging in size from approximately
150 feet to 275 feet in length that serves oil drilling and production
facilities by transporting supplies and equipment to offshore locations,
utilizing a large clear deck and under deck tanks.
Scrapping. The disposal of old vessel tonnage by way of sale as scrap
metal.
Special Survey. The inspection of a vessel while in drydock by a
classification society surveyor that takes place every four to five years.
Spot Market. The market for immediate chartering of a vessel, usually for
single voyages.
Suezmax. A tanker ranging in size from 120,000 dwt to 199,999 dwt. The
term is derived from the maximum length, breadth and draft of a vessel capable
of passing through the Suez Canal.
Tanker. A vessel designed for the carriage of liquid cargos in bulk with
cargo space consisting of segregated tanks. Tankers carry a variety of products
including crude oil, refined products, liquid chemicals and liquefied gas.
Time Charter. Charter under which the vessel owner is paid charterhire on
a per day basis for a certain period of time. The vessel owner is responsible
for providing the crew and paying vessel operating expenses while the charterer
is responsible for paying the voyage expenses. Any delays at port or during the
voyages are the responsibility of the charterer, save for certain specific
exceptions such as off hire.
ULCC or Ultra large crude carrier. A tanker that is 320,000 dwt or greater
in size.
Vessel operating expenses or running costs. The costs of operating a
vessel that are incurred during a charter, primarily consisting of crew wages
and associated costs, insurance premiums, lubricants and spare parts, and repair
and maintenance costs. Vessel operating expenses or running costs exclude fuel
costs and port fees, which are known as "voyage expenses." For a time charter,
the vessel owner pays vessel operating expenses. For a bareboat charter, the
charterer pays vessel operating expenses.
VLCC or Very large crude carrier. A tanker ranging in size from 200,000 to
319,999 dwt.
Voyage charter. Contract for hire of a vessel under which a vessel owner
is paid freight on the basis of moving cargo from a loading port to a discharge
port. The vessel owner is responsible for paying both vessel operating expenses
and voyage expenses. The charterer is typically responsible for any delay at the
loading or discharging ports. A voyage charter is also known as a contract of
affreightment or COA.
Voyage expenses. Expenses incurred due to a vessel traveling to a
destination, such as fuel cost and port fees.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
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.
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
Consolidated Financial Statements for the year ended December 31, 2005
with Report of Independent Registered Public Accounting Firm
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
CONTENTS PAGE
-------------------------------------------------------------------- -------
o Report of Independent Registered Public Accounting Firm -
o Financial statements
- Consolidated balance sheet at December 31, 2005 -1-
- Consolidated statement of operations for the year ended
December 31, 2005 -2-
- Consolidated statement of shareholders' equity for the
year ended December 31, 2005 -3-
- Consolidated statement of cash flows for the year ended
December 31, 2005 -4-
- Notes to consolidated financial statements for the year
ended December 31, 2005 -5-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of
UP OFFSHORE (BAHAMAS) LTD.:
We have audited the accompanying consolidated balance sheet of UP Offshore
(Bahamas) Ltd. and subsidiaries as of December 31, 2005, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit 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 audit provides 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 UP Offshore
(Bahamas) Ltd. and subsidiaries as of December 31, 2005, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Buenos Aires, Argentina
March 17, 2006
PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.
Member of Ernst & Young Global
EZEQUIEL A. CALCIATI
Partner
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2005
(stated in thousands of U.S. dollars, except share and per share data)
At December
31, 2005
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 88
Prepaid expenses 133
Other receivables 320
--------
Total current assets 541
--------
NONCURRENT ASSETS
Restricted cash 651
Commissions paid in advance 1,500
Vessels and equipment, net 89,296
Other assets 480
--------
Total noncurrent assets 91,927
--------
Total assets $ 92,468
========
LIABILITIES REDEEMABLE PREFERRED
SHARES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,796
Current portion of long-term debt 3,152
Other 32
--------
Total current liabilities 4,980
--------
NONCURRENT LIABILITIES
Due to related parties 13,726
Long-term debt 25,300
--------
Total noncurrent liabilities 39,026
--------
Total liabilities $ 44,006
--------
REDEEMABLE PREFERRED SHARES $ 3,355
--------
SHAREHOLDERS' EQUITY
Common stock, $ 0.01 par value,
60,000,000 authorized shares
45,000,000 issued and outstanding $ 450
Additional paid-in capital 44,196
Accumulated other comprensive income 707
Accumulated deficit (246)
--------
Total shareholders' equity $ 45,107
--------
Total liabilities, redeemable preferred
shares and shareholders' equity $ 92,468
========
The accompanying notes are an integral part of
these consolidated financial statements.
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
For the year
ended
December 31,
2005
------------
REVENUES
Revenues from related parties $ 3,977
-------
OPERATING EXPENSES
Running cost (1,331)
Depreciation of vessels and equipment (757)
Administrative expenses (1,270)
-------
Total operating expenses (3,358)
-------
Operating profit 619
OTHER INCOME 2
-------
Income before income tax 621
Income tax --
-------
Net income 621
Dividends on redeemable preferred shares (183)
-------
Net income available for common shares $ 438
=======
The accompanying notes are an integral part of
these consolidated financial statements.
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
Accumulated
Additional other
Common paid-in comprehensive Accumulated
Balance stock capital income deficit Total
---------------------------------------- -------- -------- -------- -------- --------
December 31, 2004 $ 450 $ 44,379 $ 721 $ (867) $ 44,683
Dividends on redeemable preferred shares -- (183) -- -- (183)
Comprehensive income:
- Unrealized loss on derivatives -- -- (14) -- (14)
- Net income -- -- -- 621 621
-------- -------- -------- -------- --------
Total comprehensive income -- -- (14) 621 607
-------- -------- -------- -------- --------
December 31, 2005 $ 450 $ 44,196 $ 707 $ (246) $ 45,107
======== ======== ======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
For the
year ended
December
31, 2005
--------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 621
Adjustment to reconcile net income to net cash
provided by (used in) operating activities
Depreciation of vessels and equipment 757
Changes in assets and liabilities, net:
Prepaid expenses (121)
Other receivables (318)
Commissions paid in advance (1,500)
Accounts payable and accrued expenses 1,362
Payable to related parties 741
Other (1,554)
--------
Net cash provided by (used in)
operating activities (12)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures of vessels under construction (39,625)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 1,250
Increase in restricted cash (651)
Payments of long-term debt (5,767)
Proceeds from loan from related parties 12,904
Proceeds from long-term debt 30,000
Other (270)
--------
Net cash provided by financing activities 37,466
--------
Net decrease in cash and cash equivalents (2,171)
Cash and cash equivalents at the beginning of year $ 2,259
--------
Cash and cash equivalents at the end of year $ 88
========
Interest paid 1,063
The accompanying notes are an integral part of
these consolidated financial statements.
UP OFFSHORE (BAHAMAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(stated in thousands of U.S. dollars, except otherwise indicated)
1. CORPORATE ORGANIZATION AND CONSOLIDATED COMPANIES
UP Offshore (Bahamas) Ltd. (the "Company") is a company organized and
registered as a Bahamanian Corporation. Its shareholders are Ultrapetrol
(Bahamas) Ltd. ("Ultrapetrol") 27.78%, AlG/GE Capital Latin Infraestructure
Fund XI Ltd. ("LAIF") 66.67% and Comintra Enterprise Ltd. ("Comintra")
5.55% (all together the "Common shareholders").
The Company's business, is focused on serving companies that are
involved in the complex and logistically demanding activities of deep water
oil production. The Company has ordered the construction of six Platform
Supply Vessels (PSV), two of which have been delivered during 2005 (when we
started our revenue stream), and the remaining four are expected to be
delivered during 2006 and 2007. In February 2006, the first of the
remaining four PSVs was delivered. The PSVs are designed to transport
supplies such as equipment, drill casings, 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.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation and principles of consolidation
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America ("US GAAP").
The consolidated financial statements include the accounts of the
Company and its subsidiaries both majority and wholly-owned.
Significant intercompany accounts and transactions have been
eliminated in consolidation.
At December 31, 2005, the consolidated financial statements
include the accounts of the Company and its subsidiaries described as
follows:
% of shares held at
Company Origin December 31, 2005
----------------------------------------------------------------------
UP Offshore (Panama) S.A. Panamanian 100.00
- Packet Maritime Inc. Panamanian 100.00
- Padow Shipping Inc. Panamanian 100.00
UP Offshore Apoio Maritima Ltda. Brazilian 99.99
b) Use of estimates
The preparation of financial statements in conformity with US
GAAP 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 year. Significant estimates have been made by management,
including useful lives 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. Since the PSV's were
delivered and the Company started operations, revenues were generated
from time charters recognized on a daily basis.
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. The commissions paid
in advance represent cash disbursed related to revenue to be generated
in future periods. 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 accompanying 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
At December 31, 2005, restricted cash includes fixed deposits of
an amount of $600 required under the loan agreement signed with the
DVB Bank America NV.
g) 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 (delivery expenses, interest and on-site
supervision costs incurred during the construction periods).
Maintenance is charged to expenses as incurred. 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.
Listed below are the estimated useful lives of vessels and
equipment:
Useful lives
(in years)
------------
PSVs 24
Furniture and equipment 5 to 10
h) 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.
i) Derivative Instruments
Financial Accounting Standards Board Statement No. 133,
Accounting for Derivative Financial Instruments and Hedging Activities
(Statement 133), requires companies to recognize all of its derivative
instruments as either assets or liabilities in the balance sheet at
fair value. The accounting for changes in the fair value (i.e., gains
or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and
further, on the type of hedging relationship.
For derivative instruments that are designated and qualify as a
cash flow hedges, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same line
item associated with the hedged transaction in the same period or
periods during which the hedged transaction affects earnings. The
remaining gain or loss on the derivative instrument in excess of the
cumulative change in the present value of future cash flows of the
hedged item, if any, is recognized in other income/expense in current
earnings during the period of change.
The Company entered in 2003 into a forward exchange contract
intended to fully hedge its foreign currency commitment. Under the
forward contract, the Company purchased EUROs at various rates from
November 2003 to October 2004 in conjunction with the progress payment
dates as required by our PSVs construction agreements. During 2004 all
forward contracts has been settled. Changes in fair value of the
forward contracts are recognized in other comprehensive income. The
Company reclassifies the realized gain on the forward contract into
earnings in the same periods and in the same pattern as it recognizes
depreciation expense on its vessels.
j) Income taxes
The Company will operate through its subsidiaries, which are
subject to the following 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 will be derived from
sources outside Panama and such earnings are not subject to
Panamanian taxes.
c) Brazil
UP Offshore Apoio Maritimo Ltda., a 99.99% owned subsidiary
is subject to Brazilian corporate income taxes.
The Company 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. Deferred 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.
There is no income tax provision for the current year.
Reconciliation of tax benefit to taxes calculated based on
the statutory tax rate is as follows:
Pre-tax income $ 621
Sources not subject to income tax (tax exempt income) (1,308)
-------
(687)
Statutory rate 34%
-------
(234)
Increase in valuation allowance 234
-------
Income tax provision $ --
=======
k) 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: the carrying amounts reported in
the balance sheet approximate fair value due to the
short-term nature of such instruments.
- Debt: the carrying amounts reported in the balance sheet
approximate fair value as the interest rates are adjusted
based on LIBOR.
l) 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. VESSELS AND EQUIPMENT, NET
Vessels and equipment were summarized below:
PSVs $ 32,911
Construction of vessels in progress 57,113
Furniture and equipment 48
--------
90,072
Less: accumulated depreciation (776)
--------
Vessels and equipment, net $ 89,296
========
In 2005, the Company and its subsidiaries incurred interest cost of
$1,635, which was capitalized on vessels.
PSVs construction
In June 2003, UP Offshore (Panama) S.A., signed a shipbuilding
contract with the Foreign Economic & Technical Cooperation Co. of Changjang
National Shipping Group for construction of two PSVs.
The two PSVs named, UP Esmeralda and UP Safira, with a combined cost
of $32,911, were delivered in May and June 2005, respectively.
In 2002 and 2005, UP Offshore (Panama) S.A., entered into a loan
agreements to finance the construction of the PSVs (see Note 4).
In June 2003, UP Offshore Apoio Maritimo Ltdo. signed shipbuilding
contracts for construction of four PSVs with EISA Estaleiro Ilha S/A
(EISA), a Brazilian corporation. During November 2005 UP Offshore Apoio
Maritimo Ltda. and EISA amended some conditions of the shipbuilding
contracts, including the purchase price and the delivery dates.
The four PSVs are to be built for EISA at a combined cost of $69,750.
The total remaining commitment at December 31, 2005 for the four PSVs cost
is $16,439. In February 2006, the first of the four PSVs, named UP Agua
Marinha was delivered.
In 2002 and 2006, UP Offshore Apoio Maritimo Ltda. entered into a loan
agreements to finance the construction of the vessels (see Note 4).
4. LONG-TERM DEBT
a) Loan with the International Finance Corporation of up to $18,400
On November 15, 2002, UP Offshore (Panama) SA entered into a loan
agreement with International Finance Corporation ("IFC") for an
aggregate principal amount of up to $18,400, consisting of two loans
for the purpose of financing the building of two new PSVs: one of up
to $13,100 and the other of up to $5,300.
The first loan was payable in 15 equal semiannually installments
from June 2005 through June 2012 and accrued interest at LIBOR plus a
margin of 2.75 % per year, payable semiannually.
The second loan was payable in 13 equal semiannually installments
from June 2005 through June 2011 and accrued interest at LIBOR plus a
margin of 2.50 % per year, payable semiannually.
In 2004 UP Offshore (Panama) SA received advances for this loan
for $4,200. During 2005 this amount was fully prepaid for with the
funds obtained from the DVB NV loan (see Note 4.c).
b) Loan with the International Finance Corporation of up to $41,600
On December 3, 2002, UP Offshore Apoio Maritimo Ltda. entered
into a loan agreement with IFC for an aggregate principal amount of up
to $41,600, consisting of two loans for the purpose of financing the
building of four new PSVs: one of up to $11,600 and the other of up to
$30,000.
The first loan of $11,600 is divided into five tranches each, the
first one to the fourth one are in the amount of $2,595 and the fifth
tranche is in the amount of $1,220. The loan is payable in 100 monthly
installments from January 2005 through April 2013 and accrues interest
at LIBOR plus a margin of 4.75% per year, payable semiannually.
The second loan of $30,000 is divided into five tranches each,
the first one to the fourth one are in the amount of $6,710 and the
fifth tranche is in the amount of $3,160. The loan is payable in 88
monthly installments from January 2005 through April 2012 and accrues
interest at LIBOR plus a margin of 4.50% per year, payable
semiannually.
At December 31, 2005 there have been no advances on these loans.
c) Loan with the DVB Bank America NV (DVB NV) of up to $30,000:
On April 27, 2005 UP Offshore (Panama) S.A. as Borrower, Packet
Maritime Inc. and Padow Shipping Inc. as Guarantors and UP Offshore
(Bahamas) Ltd. as Holding Company entered into a $30,000 loan
agreement with DVB NV for the purpose of providing post delivery
financing of two PSVs named UP Esmeralda and UP Safira, which were
delivered in May and June 2005, and repaying existing financing and
shareholder loans.
This loan is divided into two tranches:
- Tranche A, amounting to $26,000, shall be repaid by (i) 40
consecutive quarterly installments of $450 each beginning in
September 2005 and (ii) a balloon repayment of $8,000
together with the 40 installment and accrues interest at
LIBOR rate plus 1.625% per annum, and
- Tranche B, amounting to $4,000, shall be repaid by 12
consecutive quarterly installments of $333 each beginning in
September 2005 and accrues interest at LIBOR rate plus 2%
per annum.
The loan is secured by a mortgage on the UP Safira and UP
Esmeralda and is jointly and severally irrevocable and unconditionally
guaranteed by Packet Maritime Inc. and Padow Shipping Inc. The loan
also contains customary covenants that limit, among other things, the
Borrower and the Guarantors ability to incur additional indebtedness,
grant liens over its assets, sell assets, pay dividends, repay
indebtedness, merge or consolidate, change its lines of business and
amend the terms of subordinated debt. The agreement governing the
facility also contains customary events of default. If an event of
default occurs and is continuing, DVB NV may require the entire amount
of the loan be immediately repaid in full. Further, the loan agreement
requires until June 2008 that the PSVs pledged as security have an
aggregate market value of at least 85% of the value of the loan amount
and at all times thereafter an aggregate market value of at least 75%
of the value of the loan.
At December 31, 2005 the outstanding principal balance under the
loan agreement was $28,433 and the aggregate net book value of the
assets pledged was $32,145.
d) Loan with DVB Bank AG (DVB AG) of up to $15,000
On January 17, 2006 UP Offshore Apoio Maritimo Ltda. as Borrower,
Packet Maritime Inc. and Padow Shipping Inc. as Guarantors and UP
Offshore (Bahamas) Ltd. as Holding Company entered into a $15,000 loan
agreement with DVB AG for the purposes of providing post delivery
financing of one PSV named UP Agua Marinha delivered in February 2006.
This loan is divided into two tranches:
- Tranche A, amounting to $13,000, shall be repaid by (i) 120
consecutive monthly installments of $75 each beginning in
March 2006 and (ii) a balloon repayment of $4,000 together
with the 120 installment which accrues interest at LIBOR
rate plus 2.25% per annum for so long as the PSV is
registered under Brazilian flag or 1.875% per annum for so
long as PSV is registered under an approved flag other than
Brazilian flag, and
- Tranche B, amounting to $2,000, shall be repaid by 35
consecutive installments of $56 each beginning in March 2006
which accrues interest at LIBOR rate plus 2.875% per annum
for so long as the PSV is registered under Brazilian flag or
1.875% per annum for so long as PSV is registered under an
approved flag other than Brazilian flag.
The loan is secured by a mortgage on the UP Agua Marinha and is
jointly and severally irrevocable and unconditionally guarantee by
Packet Maritime Inc. and Padow Shipping Inc. The loan also contains
customary covenants that limit, among other things, the Borrower and
the Guarantors ability to incur additional indebtedness, grant liens
over its assets, sell assets, pay dividends, repay indebtedness, merge
or consolidate, change its lines of business and amend the terms of
subordinated debt. The agreement governing the facility also contains
customary events of default. If an event of default occurs and is
continuing, DVB AG may require the entire amount of the loan be
immediately repaid in full. Further, the loan agreement requires until
February 2009 that the PSV pledged as security has an aggregate market
value of at least 117.6% of the value of the loan amount and at all
times thereafter an aggregate market value of at least 133.3% of the
value of the loan.
On February 3, 2006 the Company drew down an amount of $15,000 of
the loan to refinance the loan granted from Ultrapetrol due on the
delivery of the PSV, Agua Marinha, described in Note 3.
Upon receipt of the drawdown the Company funded a fixed deposit
of an amount of $300 regarding the requirements of the loan
agreements.
e) The aggregate annual future payments due on the long-term debt are as
follows:
Years ending December 31
------------------------
2006 $ 3,152
2007 3,133
2008 2,467
2009 1,800
2010 1,800
Thereafter 16,100
---------
$ 28,452
=========
5. SHARE CAPITAL
Pursuant to the articles of incorporation of the Company, the share
capital consist of 80,000,000 shares, par value 0.01 each, of which (a)
60,000,000 shares were named common shares, (the "common shares")
45,000,000 of which are issued, authorized and outstanding at December 31,
2005 and (b) 20,000,000 of which were named Series A 6% non-voting
redeemable preferred shares (the "preferred shares"), 3,000,000 of which
are issued and outstanding at December 31, 2005. The Subscription amount of
the preferred shares was $3,000.
The preferred shares shall accrue cumulative preferred dividends
(whether or not declared, whether or not the Company has earnings or
profits, and whether or not there are funds legally available for the
payment of such dividends) at the annual rate of 6% of the purchase price
of such shares.
Any holder of preferred shares may elect, on or after December 15,
2010, to have the Company redeem all, but not less than all, of the Series
A preferred shares at an amount in cash equal to the amount paid for the
Series A preferred shares (Subscription amount) plus an amount equal to the
product of (i) the EBITDA for the fiscal year ending immediately prior to
the fiscal year on which such redemption occurs, multiplied by (ii) (x) if
the EBITDA is greater than $30,000,000, 0,03, or (y) if the EBITDA is equal
to or less than $30,000,000, 0.04, multiplied by (iii) a fraction, the
numerator of which is the Subscription amount at such time and the
denominator of which is $10,000,000.
The Company may, in any time, redeem all, but not less than all, of
the Series A preferred shares. If the Company exercises this right prior to
December 15, 2010, the redemption price shall be an amount equal to the
amount necessary to cause the holder to realize an internal rate of return
between 14% and 18% per annum on the subscription amount of such shares. If
the Company elects to redeem the Series A preference shares after December
15, 2010 the redemption price shall be the same as if the holder of the
Series A preference shares decides the redemption.
At December 31, 2005 the redemption of the preferred shares is not
probable to occur and there are not future cash obligations attached to
these shares for the next five-years.
Also, the preferred shares may be redeemed if a change of control of
the Company occurs, but become mandatory redeemable once notification from
the holder is received.
Therefore, the Series A preferred shares were disclosed under the
caption "Redeemable preferred shares" in the balance sheet at December 31,
2005.
6. RELATED PARTY TRANSACTIONS
At December 31, 2005, the balances with related parties were as
follows:
Due to related parties
- Ultrapetrol (Bahamas) Ltd. (1) $ 13,726
========
(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 14, 2006 with the funds obtained from the DVB AG loan (see
Note 4.d). The amount of this debt has been excluded from current
liabilities because the Company refinanced this debt with the
long-term debt incurred with the DVB AG (see Note 4.d).
Revenues from related parties
Since the dates, our two PSVs UP Esmeralda and UP Safira were put into
service, May and June, 2005, respectively, they have been operated by
Corporacion Naviera Mundial S.A., a wholly owned subsidiary of Ultrapetrol
(Bahamas) Ltd. for a six-month period for a daily charter amount for each
one. The revenues in 2005 amounted $3,977.
Administration agreement with Ultrapetrol
On June 25, 2003 the Company signed an administration agreement with
Ultrapetrol.
Under this agreement Ultrapetrol agrees to assist the Company by
providing management services required by the Company in its start-up
phase, including providing the services of the Chief Executive Officer to
the Company (subject to appointment by the Company's Board of Directors)
and to provide ongoing management and commercial advisory services
thereafter.
The parties agreed that Ultrapetrol professional fees under this
agreement shall be the 2% of the Company's annual EBITDA. In 2005 such fees
amounted $28.
Ultrapetrol's services in connection with the agreement began on June
25, 2003, and, unless earlier terminated in accordance with subsections (a)
or (b) below, end on December 31, 2013.
The Company may terminate this agreement at (a) any time upon 30 days
notice if (i) PSVs representing more than 50% of the gross time charter
revenues of the Company arising from contracts in Brazil are sold or (ii)
if Ultrapetrol and LAIF cease owning, jointly or separately, more than 50%
of the Company's outstanding voting stock; provided however, such
termination shall not be effective unless the Company shall have paid to
Ultrapetrol, if such termination occurs (1) from the date of this agreement
through December 31, 2006, the sum of $800, (2) from January 1, 2007
through December 31, 2009, the sum in US dollars equal to two times the
professional fees due to Ultrapetrol during the previous calendar year and
(3) from January 1, 2010 through December 31, 2013, one times the
professional fees payable to Ultrapetrol during the previous calendar year
or (b) immediately and without notice (i) if Ultrapetrol breaches any term
of this agreement or (ii) in the event of gross negligence or failure to
perform the services by Ultrapetrol.
Ultrapetrol may terminate this agreement at any time upon 180 days
prior notice to the Company and the parties may immediately terminate this
agreement upon mutual agreement. If neither party elects to terminate this
agreement prior to March 1, 2013, then this agreement shall automatically
be extended from year-to-year unless and until one of the parties gives 180
days notice to the other of its desire to terminate the agreement.
In case of termination no further indemnification will be due to the
Company to Ultrapetrol other than as provided above.
Commercial agreement with Comintra
On June 25, 2003 the Company signed a commercial agreement with
Comintra.
Under this agreement Comintra agrees to assist the Company regarding
the commercial activities of the Company's fleet of 6 PSVs with the
Brazilian offshore oil industry. Comintra responsibilities, among others,
includes marketing the PSVs in the Brazilian market, negotiating the time
charters or other revenues contracts with prospective charterers of the
PSVs.
The parties agreed that Comintra's professional fees under this
agreement shall be the 2% of the gross time charters revenues from
Brazilian charters collected by the Company on a monthly basis.
Comintra's services in connection with this agreement began on June
25, 2003, and, unless earlier terminated in accordance with subsections
(b), (c), (d) and (e) below, end on June 25, 2013.
The Company may terminate this agreement at (a) any time upon 30 days
notice if (i) PSVs representing more than 50% of the gross time charter
revenues of the Company arising from contracts in Brazil are sold or (ii)
if Ultrapetrol and LAIF cease owning, jointly or separately, more than 50%
of the Company's outstanding voting stock; (b) if either Comintra breaches
any material term of this agreement or (ii) in the event of gross
negligence or material failure to perform the services by Comintra, or (c)
upon mutual agreement.
In the event of termination under subsections (a) or (c) above, such
termination shall not be effective unless and until the Company shall have
also paid to Comintra $2,500 (less any fees already paid to Comintra
through the termination date). Other than the figures mentioned above no
further indemnification will be due by the Company to Comintra.
During 2005 the Company paid in advance to Comintra fees under this
agreement in the amount of $1,500.
None of such fees has been expensed in 2005 because the Company had no
revenues from Brazilian charters. At December 31, 2005, such amount was
recorded in "Commissions paid in advance" in the noncurrent assets.
7. SUBSEQUENT EVENTS (UNAUDITED)
On March 21, 2006, Ultrapetrol acquired a 66.67% equity interest of the
Company from LAIF. Following of this acquisition, Ultrapetrol owned
directly a 94.45% of the Company's outstanding common stock and the voting
power associated with the Company's voting stock.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers.
The articles of association of the Registrant and the International
Business Companies Act, 2000 of the Commonwealth of The Bahamas, or the IBCA,
provide for indemnification of every director and officer of the Registrant out
of the funds of the Registrant. The indemnification provisions of the articles
of associations provide as follows:
(1) Actions by Others. The Registrant (a) will indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant) by
reason of the fact that he is or was a director or an officer of the Registrant
and (b) except as otherwise required by paragraph (3) below, may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant) by reason of the fact that he is or was an employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee, agent of or participant in another person,
against expenses (including attorneys' fees), judgments, fines and amounts
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if he acted honestly and in good faith with a view to the
best interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, will not, of
itself, create a presumption that the person did not act honestly and in good
faith with a view to the best interests of the Registrant, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(2) Actions by or in the Right of the Registrant. The Registrant will
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Registrant to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee, agent
of or participant in another person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if he acted honestly and in good faith with
a view to the best interests of the Registrant and except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the Registrant unless and only to the extent
that the court in which such action or suit was brought will determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court will deem proper.
(3) Successful Defense. To the extent that a person who is or was a
director, officer, employee or agent of the Registrant has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in paragraph (1) or paragraph (2) above, or in defense of any claim, issue or
matter therein, such person will be indemnified through the use of Registrant
funds against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(4) Specific Authorization. Any indemnification under paragraph (1) or
paragraph (2) above (unless ordered by a court) will be made by the Registrant
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said paragraph (1) and (2) above. Such determination will be made (a)
by the board of directors by a majority vote of a quorum consisting of the
directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the shareholders of the Registrant.
(5) Advance of Expenses. Expenses incurred by any person who may have a
right of indemnification under the articles of association of the Registrant in
defending a civil or criminal action, suit or proceeding may be paid by the
Registrant in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it will ultimately be determined that he is
entitled to be indemnified by the Registrant pursuant to the indemnification
provisions of the articles of association.
(5) Right of Indemnity not Exclusive. The indemnification provided by the
indemnification provisions of the articles of association is not deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any provision of the articles of association, agreement, vote of
shareholders or disinterested directors of the Registrant or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and will continue as to a person who has ceased to be a
director, officer, employee or agent and will inure to the benefit of the heirs,
executors and administrators of such a person.
(6) Insurance. The Registrant may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of or participant in another person against any
liability asserted against him and incurred by him in any such capacity, or
arising out of such person's status as such, whether or not the Registrant would
have the power to indemnify him against such liability under the indemnification
provisions of the articles of association.
Section 57 of the IBCA provides as follows:
Indemnification
(1) Subject to subsection (2) and any limitations in its memorandum or
articles of association in any unanimous shareholder agreement, a company
incorporated under the IBCA may indemnify against all expenses, including legal
fees, and against all judgments, fines and amounts paid in settlement and
reasonably incurred in connection with legal or administrative proceedings any
person who:
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil or
administrative by reason of the fact that the person is or was a director,
an officer or a liquidator of the company; or
(b) is or was, at the request of the company, serving as a director,
officer or liquidator, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or other enterprise.
(2) Subsection (1) only applies to a person to in that subsection if the
person acted honestly and in good faith with a view to the best interests of the
company.
Section 58 of the IBCA allows for directors' and officers' insurance to be
purchased by the Registrant and provides as follows:
Insurance
A company incorporated under IBCA may purchase and maintain insurance in
relation to any person who is or was a director, a registered agent, an officer
or a liquidator of the company, or who at the request of the company is or was
serving as a director, a registered agent, an officer or a liquidator of, or in
any other capacity is or was acting for, another company or a partnership, joint
venture, trust or other enterprise, against any liability asserted against the
person and incurred by the person in that capacity, whether or not the company
has or would have had the power to indemnify the person against the liability
under subsection (1) of Section 57 of the IBCA, described above.
Item 7. Recent Sales of Unregistered Securities.
Not applicable.
Item 8. Exhibits and Financial Statement Schedules.
(3) Exhibits
Exhibit
Number Description
------ -----------
1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Articles of Association of
the Company*
3.2 Form of Amended and Restated Memorandum of Association the
Company*
4 Form of Share Certificate
5 Form of Opinion of Higgs & Johnson, Bahamas Counsel to the
Company, as to the validity of the Shares
8 Form of Opinion of Seward & Kissel LLP, United States
counsel to the Company, with respect to certain tax
matters
10.1 Form of Registration Rights Agreement*
10.2 Equity Incentive Plan*
10.3 Stock Purchase Agreement dated March 21, 2006 between
Ultrapetrol (Bahamas) Limited and LAIF XI, LTD
10.4 Stock Purchase Agreement dated March 20, 2006 between
Ultrapetrol (Bahamas) Limited, Crosstrade Maritime Inc.
and Crosstrees Maritime Inc.
21 Subsidiaries of the Company
23.1 Consent of Seward & Kissel LLP
23.2 Consent of Pistrelli, Henry Martin y Asociados S.R.L., an
independent registered public accounting firm and a member
of Ernst & Young Global, independent registered public
accounting firm
23.3 Consent of Doll Shipping Consultancy
24 Powers of Attorney**
----------
* To be filed by amendment.
** Contained on the signature page hereto.
Item 9. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement share certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) That for purposes of determining any liability under the Securities
Act of 1933, as amended, or the Act, the information omitted from the
form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in the form of prospectus filed
by the Registrant pursuant to Rule 424(b)(1) or 497(h) under the Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(3) That for purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(4) That insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-l and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on March 30, 2006.
ULTRAPETROL (BAHAMAS) LIMITED
By: /s/ Felipe Menendez R.
------------------------------------
Name: Felipe Menendez R.
Title: President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Lawrence Rutkowski and Robert E.
Lustrin his or her true and lawful attorney-in-fact and agent, with full powers
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on
March 30, 2006 in the capacities indicated.
Signature Title
--------- -----
/s/ Felipe Menendez R. Chief Executive Officer, President and Director
----------------------------- (Principal Executive Officer)
Felipe Menendez R.
/s/ Ricardo Menendez R. Executive Vice President and Director
----------------------------
Ricardo Menendez R.
/s/ Leonard J. Hoskinson Chief Financial Officer, Secretary and Director
----------------------------- (Principal Financial Officer and Principal
Leonard J. Hoskinson Accounting Officer)
/s/ Katherine Downs Director
----------------------------
Katherine Downs
/s/ James Martin Director
----------------------------
James Martin
Authorized Representative
Pursuant to the requirement of the Securities Act of 1933, the undersigned, the
duly undersigned representative in the United States of America, has signed this
registration statement in the City of Coral Gables, Florida, on March ,2006.
RAVENSCROFT SHIPPING (BAHAMAS) S.A.
By: /s/ Leonard J. Hoskinson
--------------------------
Name: Leonard J. Hoskinson
Authorized Representative in the United States
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Articles of Association of the Company*
3.2 Form of Amended and Restated Memorandum of Association the Company*
4 Form of Share Certificate
5 Form of Opinion of Higgs & Johnson, Bahamian Counsel to the Company,
as to the validity of the Shares
8 Form of Opinion of Seward & Kissel LLP, United States counsel to the
Company, with respect to certain tax matters
10.1 Form of Registration Rights Agreement*
10.2 Equity Incentive Plan*
10.3 Stock Purchase Agreement dated March 21, 2006 between Ultrapetrol
(Bahamas) Limited and LAIF XI, LTD
10.4 Stock Purchase Agreement dated March 20, 2006 between Ultrapetrol
(Bahamas) Limited, Crosstrade Maritime Inc. and Crosstrees
Maritime Inc.
21 Subsidiaries of the Company
23.1 Consent of Seward & Kissel LLP
23.2 Consent of Pistrelli, Henry Martin y Asociados S.R.L., an
independent registered public accounting firm and a member of Ernst
& Young Global, independent registered public accounting firm
23.3 Consent of Doll Shipping Consultancy
24 Powers of Attorney**
----------
* To be filed by amendment.
** Contained on the signature page hereto.