Commission File No. 333-8878
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of May, 2006
ULTRAPETROL (BAHAMAS) LIMITED
(Translation of registrant's name into English)
H & J Corporate Services Ltd.
Ocean Centre, Montague Foreshore
East Bay St.
Nassau, Bahamas
P.O. Box SS-19084
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein are a copy of the Company's report for the three months
ended March 31, 2006, containing certain unaudited financial information and a
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ULTRAPETROL (BAHAMAS) LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED FINANCIAL
CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
The following discussion and analysis should be read in conjunction with
the unaudited condensed consolidated financial statements of Ultrapetrol
(Bahamas) Limited ("the Company") and subsidiaries for the three months ended
March 31, 2006 and 2005 included elsewhere in this report.
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.
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 2006
In March 2006, we commenced preparation for an initial public offering of
the shares of our common stock to be registered in the United States of America.
The shares held directly by our existing shareholders prior to the initial
public offering will be entitled to seven votes per share and the shares held by
all other holders will be entitled to one vote per share. The special voting
rights of the existing shareholders will not be 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 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.A., independently valued at $4.5 million. Ravenscroft Shipping
(Bahamas) S.A. is a holding company that is the ultimate parent of our vessel
managers, Ravenscroft Ship Management Inc., which manages the vessels in our
Ocean Business and Offshore Supply Business, and Elysian Ship Management Inc.,
which manages the vessels in our Passenger Business. We have the option to cause
Crosstrade Maritime Inc., and Crosstrees Maritime Inc, to purchase from us all,
but not less than all, of the Ravenscroft shares purchased for the original
consideration at any time prior to September 30, 2006, but not later than the
closing of our initial public offering of common stock. The purchase price of
this acquisition was paid in the form of a non-interest bearing promissory note
secured by the pledged shares of Ravenscroft payable upon the earlier of (i) the
closing of our initial public offering of common stock or (ii) September 30,
2006. In compliance with the requirements of our indenture related to the 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.
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 XI Ltd., or LAIF, an affiliate of Solimar, one of our
shareholders, for a purchase price of $48.0 million on March 21, 2006. Following
this acquisition, we hold 94.45% of the issued and outstanding shares of UP
Offshore. We have the option to cause LAIF to purchase from us all, but not less
than all, of the UP Offshore shares purchased for the original consideration at
any time prior to September 30, 2006, but not later than the closing of our
initial public offering. The purchase price of this acquisition was paid in the
form of a non-interest bearing promissory note secured by a pledge of the
purchased shares of UP Offshore and payable upon the earlier of (i) the closing
of our initial public offering or (ii) September 30, 2006. In compliance with
the requirements of our indenture related to the Notes, we obtained a fairness
opinion from an internationally recognized accounting firm in connection with
this acquisition.
We 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, that we do not own for the price of $6.0 million plus interest
in case of execution after may 15th 2006. As part of this understanding, IFC
agreed to waive its option to convert its interest in UP River to shares in our
company and its right to participate in our initial public offering. This
understanding is subject to the successful completion of an initial public
offering and our obligation under this understanding will be paid from proceeds
of our initial public offering.
On March 20, 2006, Los Avellanos and Avemar Holdings (Bahamas) Ltd., or
Avemar, two of our shareholders, subject to the successful completion of an
initial pubic 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 an initial public offering. As a consequence, if we
effect an initial public offering, Solimar will own 63.36% of our shares and the
remaining 36.64% will be directly and indirectly owned by Los Avellanos.
On March 20, 2006, we exercised our option to repurchase from Los Avellanos
25,212 shares of our common stock for a total consideration of $894,999, and the
$894,999 note originally issued 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 unaudited condensed
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 first quarter of 2006, two PSVs 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 unaudited
condensed consolidated 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 48% of the total revenues from our
businesses for the first quarter 2006, and COA revenues accounted for 52%. With
respect to COA revenues in the first quarter 2006, 78% were in respect of
repetitive voyages for our regular customers and 22% 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 the first quarter of 2006 the
production of soya beans in Paraguay was negatively affected by drought as had
been the case in 2005.
In our Ocean Business, we employed a significant part of our ocean fleet on
time charter to different customers during the first quarter 2006.
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.
When a cost that is expensed for annual reporting purposes clearly benefits
two or more interim periods, each interim period is charged for an appropriate
portion of the annual cost by the use of deferrals.
In addition to the vessel operating expenses, our other primary operating
expenses in the first quarter 2006 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 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 $24,200 as of March 31, 2006) 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 $30,300 as of March 31, 2006) 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. Close to the end of 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.
Our operating expenses include the cost of all vessel management, crewing,
spares and stores, insurance, lubricants, repairs and maintenance. 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
to an office in Buenos Aires, Argentina.
Foreign Currency Transactions
During the first three months of 2006, 83% of our revenues were denominated
in U.S. dollars, 6% of our revenues were denominated and collected in Euros and
11% of our revenues were denominated and collected in British Pounds.
Furthermore, 15% 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 36% 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 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
contracts.
In the Offshore Supply and Passenger Businesses, the risk of variation of
fuel prices under the vessels' current employment is generally borne by the
charterers, since the charterers are generally responsible for the supply of
fuel.
In our Ocean Business, inflationary pressures on bunker 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 its revenues on a
quarterly basis. The high season for our River Business is generally between the
months of March and September, in connection with the South American harvest and
higher river levels. However, growth in the soy pellet manufacturing, minerals
and forest industries may help offset some of this seasonality. The Offshore
Supply Business operates year-round, particularly off the coast of Brazil,
although weather conditions in the North Sea may reduce activity from December
to February. In the Ocean Business, demand for oil tankers tends to be strongest
during the winter months in the Northern hemisphere. Demand for dry bulk
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, majorily from May through October of
each year.
Legal Proceedings
Ultrapetrol S.A. is involved in a customs dispute with the Brazilian
Customs Tax Authorities over the alleged infringement of customs regulations by
the Alianza G-3 and Alianza Campana (collectively, the "Alianza Campana") in
Brazil during 2004. As a result, the Brazilian Customs Tax Authorities commenced
an administrative proceeding and applied the penalty of apprehension 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 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. The 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. Tax
authorities in Fortaleza alleged that they would not be competent to analyze
such issue. Thus, the administrative proceeding records were sent to Rio de
Janeiro. Tax authorities of such State issued a report in which they affirmed
that the vessel could be imported under the REPETRO regime. Currently, the
administrative proceeding records are in Brasilia, waiting for a final decision
in relation to our request to the replacement of the confiscation penalty.
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 AlianzaG3 and Alianza Campana from The
Standard Club, the vessels 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.
After review of the entire case the Paraguayan Central Tax authorities who have
jurisdiction over the matter have confirmed the Company has no liability in
respect of two of the three matters at issue, while they held a dissenting view
on the third issue for which the Company's liability, if such interpretation was
upheld in court, would be $409,189. Simultaneously with above, the Central
Customs authorities issued a resolution confirming the original determination
made by the Customs Authorities at Ciudad del Este therefore committing the
matter to a resolution by the Court. The Company has entered a plea with the
respective court requesting a confirmation of the release of liability in the
two issues where such view was upheld by the Tax authorities and contending the
interpretation on the third where the Company claims to be equally non-liable.
We have been advised by UABL's counsel in the case that there is only a remote
possibility that a court would find UABL liable for any of these taxes or fines.
Results of Operations
Three months ended March 31, 2006 compared to the three months ended March 31,
2005.
The following table sets forth certain unaudited historical income
statement data for the periods indicated derived from our unaudited condensed
consolidated statements of operations expressed in thousands of dollars.
Three Months Ended March 31,
----------------------------
2006 2005 Percent Change
---- ---- --------------
Revenues
Attributable to River Business $15,590 $12,533 25%
Attributable to Offshore Supply Business 3,441 - -
Attributable to Ocean Business 9,426 16,570 -43%
Attributable to Passenger Business 1,824 1,376 32%
-------- --------
Total 30,281 30,479 1%
-------- --------
Voyage expenses
Attributable to River Business (7,450) (5,903) 26%
Attributable to Offshore Supply Business (2,643) - -
Attributable to Ocean Business (319) (512) -38%
Attributable to Passenger Business (401) (335) 20%
-------- --------
Total (10,813) (6,750) 60%
-------- --------
Running cost
Attributable to River Business (3,977) (3,854) 3%
Attributable to Offshore Supply Business (757) - -
Attributable to Ocean Business (3,175) (3,161) 0%
Attributable to Passenger Business (1,236) (653) 89%
-------- --------
Total (9,145) (7,668) 19%
-------- --------
Amortization of dry docking expense (2,063) (1,771) 17%
Depreciation of vessels and equipment (3,417) (3,524) -3%
Management fees and administrative and
commercial expenses (2,277) (1,992) 14%
-------- --------
Operating profit 2,566 8,774 -71%
-------- --------
Financial expense $(4,849) $(4,613) 5%
Financial income 218 179 22%
Investment in affiliates 528 5 -
Other income 60 4 -
-------- --------
Total other expenses (4,043) (4,425) -9%
(Loss) Income before income taxes and
minority interest (1,477) 4,349 -
Income taxes (50) (172) -71%
Minority interest (86) (387) -78%
-------- --------
Net (Loss) Income for the period $(1,613) $3,790 -
-------- --------
Revenues. Total revenues from our River Business increased by 25% from
$12.5 million in the first quarter of 2005 to $15.6 million in 2006. This growth
is primarily attributable to the price (freight) per ton of cargo carried
increase in 2006 when compared to the equivalent freights in 2005.
Total revenues from our Offshore Supply Business increased from $0 in 2005
to $3.4 million in 2006. 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. in 2006. (The shares corresponding to 66,67% of UP Offshore were
purchased on March 21st therefore the revenues and expenses of our Offshore
business will be fully consolidated as from the 2nd quarter 2006).
Total revenues from our Ocean Business decreased from $16.6 million in 2005
to $9.4 million in 2006, or a decrease of 43%. This decrease is attributable to
the sale of the Cape Pampas in 2005 and the lower time charter rate of the
Suezmax fleet. These decreases were partially offset by the revenues generated
by our newly acquired vessel, Miranda I.
Total revenues from our Passenger Business increased from $1.4 million in
the first quarter of 2005 to $1.8 million in the same period of 2006. This
increase is attributable to the effect of higher revenues from the New Flamenco.
Voyage expenses. In the first three months of 2006, voyage expenses of our
River Business were $7.5 million, as compared to $5.9 million for 2005, an
increase of $1.6 million. The increase is primarily attributable to the increase
of the price of bunkers.
In the first quarter of 2006, voyage expenses of our Offshore Supply
Business were $2.6 million, as compared to $0 in 2005. The increase is
attributable to the bareboat charter paid for our new PSVs UP Esmeralda and UP
Safira during 2006. (The shares corresponding to 66,67% of UP Offshore were
purchased on March 21, 2006 therefore the revenues and expenses of our Offshore
business will be fully consolidated as from the 2nd quarter 2006)
In the first three months of 2006, voyage expenses of our Ocean Business
were $0.3 million, as compared to $0.5 million for 2005. The decrease is
primarily attributable to a decrease in brokerage commissions.
In the first quarter of 2006, voyage expenses of our Passenger Business
were $0.4 million as compared to $0.3 million in the same period of 2005. The
increase is primarily attributable to the effect of the higher voyage activity
of the New Flamenco.
Running costs. In the first three months of 2006, running costs of our
River Business were $4.0 million, as compared to $3.9 million in the same period
of 2005, an increase of $0.1 million. The increase is primarily attributable to
the effect of the additional river equipment acquired during 2005.
In 2006, running costs of our Offshore Supply Business were $0.8 million,
as compared to $0 in 2005. 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. (The shares corresponding to 66.67% of UP Offshore
were purchased on March 21, 2006 therefore the revenues and expenses of our
Offshore business will be fully consolidated as from the 2nd quarter 2006).
In the first quarter of 2006, running costs of our Ocean Business were $3.2
million, as compared to $3.2 million in 2005. The increase in running cost
relating to the operation of our newly acquired vessel Miranda I as well as
increased running costs on the rest of the fleet was offset by the decrease in
running cost attributable to the sale of the Cape Pampas in 2005.
In 2006, running costs of our Passenger Business were $1.2 million,
compared to $0.7 in 2005. This increase is attributable to the effect of the
running cost of our vessel New Flamenco during the full first quarter 2006 as
compared of only one month operations in 2005.
Amortization of drydocking. Amortization of drydocking and special survey
costs increased by $0.3 million, or 17%, to $2.1 million in the first quarter of
2006 as compared to $1.8 million in 2005. The increase is primarily attributable
to the amortization expenses of Princess Marina 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 Cape Pampas in 2005.
Depreciation of vessels and equipment. Depreciation decreased by $0.1
million, or 3%, to $3.4 million in the first quarter of 2006 as compared to $3.5
million in the same period of 2005. This decrease is primarily attributable to
the sale of Cape Pampas in 2005 which was partially offset the purchase of new
tugs and river barges and the vessel Miranda I.
Management fees and administrative expenses. Management fees and
administrative expenses were $2.3 million in the first quarter of 2006 as
compared to $2.0 million in the same period of 2005. This increase of $0.3
million is attributable mainly to an increase in the overhead expenses and the
management fees attributable to the passenger vessel.
Operating profit. Operating profit for the first quarter 2006 was $2.6
million, a decrease of $6.2 million from the same period in 2005. The difference
is mainly attributable to the effect of the lower charter rates obtained for our
Suezmax fleet and the sale of the vessel Cape Pampas partially offset by the
result of newly acquired Miranda I and a higher operating profit from our river
business in the first quarter of 2006 compared to the same period of 2005.
Financial expense. Financial expense increased by approximately $0.2
million or 4%, to $4.8 million in the first three months of 2006 as compared to
$4.6 million in the same period of 2005. This variation is mainly attributable
to an increase in the interest rate of our variable rate debt in our River
Business which was partially offset by lower level of financial debt.
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 March 31, 2006, we had total indebtedness of $258.1 million,
consisting of $180.0 million due under the Notes, the indebtedness of our
subsidiary UABL of $19.9 million under a senior loan facility with IFC and $9.2
million with other lenders and indebtedness of our new subsidiary UP Offshore of
$ 42.5 million under a senior loan facility with DVB NV , plus accrued interest
of $6.5 million.
At March 31, 2006, we had cash and cash equivalents on hand of $13.3
million. In addition, we had $ 3.7 million in current restricted cash.
Operating Activities
In the first three months of 2006, we generated $ 2.6 million in cash flow
from operations compared to $12.1 million in the same period of 2005. We had a
net loss of $1.6 million for the first three months ended March 31, 2006, as
compared to a net income of $3.8 million in the same period 2005, a decrease of
$5.4 million.
Net cash provided by operating activities consists of our net income (loss)
increased by non-cash expenses, such as depreciation and amortization of
deferred charges, and adjusted by changes in working capital and expenditures
for dry docking.
Investing Activities
During the first quarter of 2006, we disbursed $ 6.4 million in the
refurbishment of the New Flamenco and the recertification of the Grand Victoria
and $ 1.7 million in the purchase of additional river equipments. Also we
received net proceeds of $11.4 million from our related party UP Offshore
Bahamas.
Financing Activities
Net cash disbursed into financing activities was $0.9 million during the
year 2006, compared to net cash provided by financing activities of $16.8
million during 2005. 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 2006.
Future Capital Requirements
Our near-term cash requirements are primarily related to funding
operations. We cannot assure you that our actual cash requirements will not be
greater that we currently expect. If we cannot generate sufficient cash flow
from operations, we may obtain additional funding through capital market
transactions, although it is possible these sources will not be available to us.
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS PAGE
-------- ----
o Financial statements
- Condensed Consolidated Balance Sheets at March 31, 2006
(unaudited) and December 31, 2005
- Condensed Consolidated Statements of Operations for the
three-month periods ended March 31, 2006 and 2005
(unaudited)
- Condensed Consolidated Statements of Changes in
Shareholders' Equity for the three-month periods ended March
31, 2006 and 2005 (unaudited)
- Condensed Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2006 and 2005
(unaudited)
- Notes to Condensed Consolidated Financial Statements
ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Stated in thousands of U.S. dollars, except par value and share amounts)
March 31, December 31,
2006 2005
--------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,267 $ 7,914
Restricted cash 3,684 3,638
Accounts receivable, net of allowance
for doubtful accounts of $ 384 and
$ 324 in 2006 and 2005, respectively 12,840 9,017
Receivables from related parties 2,741 17,944
Marine and river operating supplies 3,567 3,547
Prepaid expenses 5,529 3,239
Other receivables 6,694 4,997
---------- -----------
Total current assets 48,322 50,296
---------- -----------
NONCURRENT ASSETS
Other receivables 8,116 7,330
Receivables from related parties 1,995 1,995
Restricted cash 667 68
Vessels and equipment, net 302,382 182,069
Dry dock 11,063 12,743
Investment in affiliates 2,225 15,698
Intangible assets 4,338 -
Goodwill 3,800 -
Other assets 8,060 7,548
---------- -----------
Total noncurrent assets 342,646 227,451
---------- -----------
Total assets $ 390,968 $ 277,747
========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 15,542 $ 12,696
Payables to related parties 59,500 2,008
Current portion of long-term
financial debt 17,322 8,322
Other payables 686 917
---------- -----------
Total current liabilities 93,050 23,943
---------- -----------
NONCURRENT LIABILITIES
Long-term debt 180,000 180,000
Financial debt, net of current portion 60,772 22,953
Other payables 1,900 -
---------- -----------
Total noncurrent liabilities 242,672 202,953
---------- -----------
Total liabilities 335,722 226,896
---------- -----------
MINORITY INTEREST 5,059 2,479
---------- -----------
MINORITY INTEREST SUBJECT TO PUT RIGHTS 4,928 4,898
---------- -----------
REDEEMABLE PREFERED SHARES 3,400 -
---------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value:
authorized shares 2,109,240, issued
and outstanding: 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 194 196
Accumulated deficit (6,908) (5,295)
---------- -----------
Total shareholders' equity 41,859 43,474
---------- -----------
Total liabilities, minority interests,
redeemable preferred shares and
shareholders' equity $ 390,968 $ 277,747
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Stated in thousands of U.S. dollars, except share and per share data)
Three-month periods ended
March 31,
----------------------------------
2006 2005
------------ ----------------
REVENUES
Revenues from third parties $ 30,051 $ 29,862
Revenues from related parties 230 617
------------ ----------------
Total revenues 30,281 30,479
------------ ----------------
OPERATING EXPENSES
Voyage expenses (10,813) (6,750)
Running costs (9,145) (7,668)
Amortization of dry docking (2,063) (1,771)
Depreciation of vessels and equipment (3,417) (3,524)
Management fees to related parties (511) (426)
Administrative and commercial expenses (1,766) (1,566)
------------ ----------------
(27,715) (21,705)
------------ ----------------
Operating profit 2,566 8,774
------------ ----------------
OTHER INCOME (EXPENSES)
Financial expense (4,849) (4,613)
Financial income 218 179
Investment in affiliates 528 5
Other income 60 4
------------ ----------------
Total other expenses (4,043) (4,425)
------------ ----------------
(Loss) Income before income taxes and
minority interest (1,477) 4,349
Income taxes (50) (172)
Minority interest (86) (387)
------------ ----------------
Net (loss) income for the period $ (1,613) $ 3,790
============ ================
Net (loss) income per share, basic and
diluted $ (1.03) $ 2.41
Weighted average number of shares, basic
and diluted 1,572,096 1,572,096
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Stated in thousands of U.S. dollars)
Additional Accumulated other
Common paid-in Treasury comprehensive Accumulated
Balance stock capital stock income deficit Total
---------------------------- ----------- ------------- -------------- ----------------- ------------ -------------
December 31, 2004 $ 21 $ 68,884 $ (20,332) $ 200 $ (19,863) $ 28,910
Net income and comprehensive
income - - - - 3,790 3,790
----------- ------------- -------------- ----------------- ------------ -------------
arch 31, 2005 21 68,884 (20,332) 200 (16,073) 32,700
=========== ============= ============== ================= ============ =============
December 31, 2005 21 68,884 (20,332) 196 (5,295) 43,474
Comprehensive loss:
- Change in value of
derivatives - - - (2) - (2)
- Net loss for the period - - - - (1,613) (1,613)
----------- ------------- -------------- ----------------- ------------ -------------
Total comprehensive loss - - - (2) (1,613) (1,615)
----------- ------------- -------------- ----------------- ------------ -------------
March 31, 2006 $ 21 $ 68,884 $ (20,332) $ 194 $ (6,908) $ 41,859
=========== ============= ============== ================= ============ =============
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in thousands of U.S. dollars)
Three-month periods ended
March 31,
-----------------------------
2006 2005
-------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income for the period $ (1,613) $ 3,790
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation of vessels and equipment 3,417 3,524
Amortization of dry docking 2,063 1,771
Expenditures for dry docking (383) (1,659)
Note issuance expenses amortization 263 166
Minority interest in equity of subsidiaries 86 387
Net gain from investment in affiliates (528) (5)
Allowance for doubtful account 60 60
Changes in assets and liabilities, net of
effects from purchase of UP Offshore
(Bahamas) and Ravenscroft companies:
(Increase) decrease in assets:
Accounts receivable (3,258) (2,484)
Receivable from related parties 935 939
Marine and river operating supplies (20) (502)
Prepaid expenses (1,499) (1,496)
Other receivables (369) 1,098
Other (254) 100
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (45) 2,433
Payable to related parties (770) (247)
Other 4,543 4,225
-------------- -----------
Net cash provided by operating
activities 2,628 12,100
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment (8,085) (19,606)
Decrease (Increase) in loan to related parties 11,391 (1,693)
Other 346 (5)
-------------- -----------
Net cash provided by (used in)
investing activities 3,652 (21,304)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term financial debt (636) (966)
Decrease (Increase) in restricted cash - 10,373
Proceeds from long-term financial debt - 7,500
Other (291) (60)
-------------- -----------
Net cash (used in) provided by
financing activities (927) 16,847
-------------- -----------
Net increase in cash and cash
equivalents 5,353 7,643
Cash and cash equivalents at the
beginning of year $ 7,914 $ 11,602
-------------- -----------
Cash and cash equivalents at the end
of period $ 13,267 $ 19,245
-------------- -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except otherwise indicated)
(Information pertaining to the three-month periods
ended March 31, 2006 and 2005 is unaudited)
1. CORPORATE BUSINESS
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 owner and
operator of river barges and push boats in the Hidrovia region of South
America, a region of navigable waters on the Parana, Paraguay and Uruguay
Rivers and part of the River Plate, which flow through Brazil, Bolivia,
Uruguay, Paraguay and Argentina. In addition in our Offshore Supply
Business we are an owner and operator of Platform Supply Vessels (PSVs)
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.
In March 2006, 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 will be
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.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America ("US GAAP") for interim
financial information. The consolidated balance sheet at December 31,
2005, has been derived from the audited financial statement at that
date. The unaudited condensed consolidated financial statements and
the consolidated balance sheet do not include all of the information
and footnotes required by US GAAP for complete financial statements.
All adjustments which, in the opinion of the management of the
Company, are considered necessary for a fair presentation of the
results of operations for the periods shown are of a normal, recurring
nature and have been reflected in the unaudited condensed consolidated
financial statements. When a cost that is expensed for annual
reporting purposes clearly benefits two or more interim periods, each
interim period is charged for an appropriate portion of the annual
cost by the use of deferrals. The results of operations for the
periods presented are not necessarily indicative of the results
expected for the full fiscal year or for any future period.
The condensed consolidated financial statements include the accounts
of the Company and its subsidiaries, both majority and wholly owned.
Significant intercompany accounts and transactions have been
eliminated in this consolidation. Investments in 50% or less owned
affiliates, in which the Company exercises significant influence, are
accounted for by the equity method.
The condensed financial statements for 2005 have been reclassified to
conform with the 2006 presentation of certain items.
b) Identifiable intangible assets
As a result of the Ravenscroft acquisition (see Note 3), the Company
recorded identifiable intangible assets of $4,338 including a safety
management system, software, existing customer contracts among others
which are being amortized over useful lives ranging from three to
eight years.
c) Goodwill
Goodwill is accounted for under the provisions of Statement of
Financial Accounting Standards No.142, Goodwill and Other Intangible
Assets ("SFAS 142"). Goodwill is recorded when the purchase price paid
for an acquisition exceeds the estimated fair value of net identified
tangible and intangible assets acquired. In accordance with SFAS 142,
the Company will perform an annual impairment test of goodwill and
further periodic tests to the extent indicators of impairment develop
between annual impairment tests. The Company's impairment review
process compares the fair value of the reporting unit to its carrying
value, including the goodwill related to the reporting unit. To
determine the fair value of the reporting unit, the Company uses a
discounted future cash flow approach that uses estimates for revenue,
estimated costs and appropriate discount rates, among others. These
various estimates will be reviewed each time the Company tests
goodwill for impairment and many are developed as part of the
Company's routine business planning and forecasting process. The
Company believes its estimates and assumptions are reasonable;
however, variations from those estimates could produce materially
different results.
3. BUSINESS ACQUISITIONS
a) Acquisition of 100% of Ravenscroft
On March 20, 2006, we purchase, 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 results of the Ravenscroft acquisition are consolidated in the
condensed consolidated financial statements since the date of
acquisition.
The Company expects with this acquisition to open new business
opportunities and to eliminate the management fees paid to related
parties, while bringing the costs of ship management in-house.
The purchase price of this acquisition was paid 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.
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. This purchase price allocation is preliminary
and is subject to refinement.
Current assets $ 1,459
Buildings and equipment 4,644
Identifiable intangible assets 4,338
Goodwill 3,800
-----------------------
Total assets acquired 14,241
-----------------------
Current liabilities 1,582
Noncurrent liabilities 1,159
-----------------------
Total liabilities assumed 2,741
-----------------------
Total purchase price $ 11,500
=======================
Due to immateriality, the Company has not prepared pro forma
information respective to this business combination.
b) Acquisition of an additional 66.67% of UP Offshore (Bahamas)
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., from LAIF XI Ltd. (LAIF), an affiliate of Solimar Holdings Ltd,
one of our shareholders. Following the acquisition of the shares of UP
Offshore (Bahamas) from LAIF, we hold 94.45% of the issued and
outstanding shares of UP Offshore (Bahamas).
The results of UP Offshore (Bahamas) acquisition are consolidated in
the condensed consolidated financial statements since the date of
acquisition.
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 following table summarizes the estimated fair values of the assets
acquired and liabilities assumed and allocation of purchase price at
the date of acquisition. This purchase price allocation is preliminary
and is subject to refinement.
Current assets $ 1,547
Vessels and equipment 79,227
Other noncurrent assets 1,517
Total assets acquired 82,291
Current liabilities 6,070
Noncurrent liabilities 25,955
Total liabilities assumed 32,025
Redeemable preferred shares assumed 2,266
Total purchase price $ 48,000
====================
If the transaction had been consummated on January 1, 2005, the
Company's pro forma revenues and net (loss) income for the three month
periods ended March 31, 2006 and 2005, would have been as shown below.
However, such pro forma information is not necessarily indicative of
what actually would have occurred had the transaction occurred on such
date.
For the three-month periods March 31,
--------------------------------------
2006 2005
---------------- -----------------
Revenues $ 30,608 $ 30,479
Net income (loss) $ (811) $ 3,652
Basic and diluted earnings
(loss) per share $ (0.52) $ 2.32
c) UP River (Holdings) Ltd.
On June 2003, the Company sold to International Finance Corporation
(IFC) a 7.14% interest in UP River (Holdings) Ltd.
The Company also agreed to pay to IFC 7.14% of the amount of the
respective Charter Party Payments pursuant to the Charter Party
Agreements between Ultrapetrol and UABL.
In full consideration for (a) the sale of the shares, and (b) the
right to receive a portion of the Charter Party Payments, IFC paid to
the Company $5,000.
During the period beginning on December 31, 2009 and ending on
December 31, 2010 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 basis 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.
We have reached an understanding with the IFC, to purchase from the
IFC the 7.14% of UP River (Holdings) Ltd., which we do not own for the
price of $6,000. 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.
At March 31, 2006 and December 31, 2005, the Company presents $4,928
and $4,898, 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.
d) Other
In March 2006 we hired the administrative personnel and purchased the
administrative related assets of Oceanmarine (See Note 8 - Management
fee).
4. VESSELS AND EQUIPMENT, NET
The capitalized cost of the vessels and equipment, and the related
accumulated depreciation at March 31, 2006 and December 31, 2005 is as
follows:
March 31, December 31,
2006 2005
---------------- ------------------
Original book value
-------------------------------------
Ocean-going vessels $ 126,776 $ 126,776
River barges and push boats 116,170 116,054
PSV 65,489 -
Construction of PSV in progress 47,061 -
Passenger vessels 34,486 28,105
Buildings 4,500 -
Furniture and equipment 6,758 6,173
Land and operating base 7,406 6,525
---------------- ------------------
Total original book value 408,646 283,633
Accumulated depreciation (106,264) (101,564)
---------------- ------------------
Net book value $ 302,382 $ 182,069
================ ==================
At March 31, 2006, the net book value of the assets pledged as a guarantee
of the debt was approximately $231,974.
PSVs Construction
In June 2003, UP Offshore Apoio Maritimo Ltdo. (our wholly owned subsidiary
in the Offshore Supply Business) signed shipbuilding contracts for
construction of four PSVs with EISA Estaleiro Ilha S/A (EISA), a Brazilian
corporation. During November 2005 UP Offshore Apoio Maritimo Ltda. and EISA
amended some conditions of the shipbuilding contracts, including the
purchase price and the delivery dates. The four PSVs are to be built by
EISA at a combined cost of $69,750. In February 2006, the first of the four
PSVs, named UP Agua Marinha was delivered. The total remaining commitment
at March 31, 2006 for the three PSVs cost is $24 million, which includes
the minimum contractual obligation with the shipyard and the remaining
necessary expenditure to commission the three PSVs in service.
5. LONG-TERM DEBT AND OTHER FINANCIAL DEBT
Balances of financial debt at March 31, 2006 and December 31, 2005:
Financial Nominal value
institution/ -------------------- Accrued
Other Due-year Current Noncurrent interest Total Average rate
------------------------- ------------ -------- ---------- ---------- ---------- --------------
Ultrapetrol (Bahamas) Ltd Private Investors (Notes) 2014 $ - $ 180,000 $ 5,670 $ 185,670 9.000%
UP Offshore Panama DVB Tranche A Through 2015 1,800 22,850 18 24,668 Libor + 1.875%
UP Offshore Panama DVB Tranche B Through 2008 1,333 1,667 2 3,002 Libor + 2.250%
UP Offshore Apoio DVB Tranche A Through 2016 900 12,025 75 13,000 Libor + 2.250%
UP Offshore Apoio DVB Tranche B Through 2009 667 1,278 12 1,957 Libor + 2.875%
UABL Barges IFC Tranche A Through 2011 2,143 10,714 322 13,179 Libor + 3.750%
UABL Barges IFC Tranche B Through 2009 1,000 3,000 97 4,097 Libor + 3.500%
UABL Barges KFW Through 2009 2,000 6,000 194 8,194 Libor + 3.500%
UABL Paraguay IFC Through 2009 750 2,250 88 3,088 Libor + 5.000%
UABL Paraguay Citibank NA Through 2010 - 988 - 988 Libor + 2.750%
UABL Limited Transamerica Leasing Inc. Through 2006 251 - - 251 8.000%
------- --------- --------- ----------
March 31, 2006 $10,844 $ 240,772 $ 6,478 $ 258,094
======= ========= ========= ==========
December 31, 2005 $ 6,599 $ 202,953 $ 1,723 $ 211,275
======= ========= ========= ==========
a) Loan with the DVB Bank America NV (DVB NV) of up to $30,000:
On April 27, 2005 UP Offshore (Panama) S.A. (a wholly owned subsidiary
of UP Offshore) 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 if the Holding Company Guaranty has been issued
or 1.875% per annum if the Holding Company Guaranty has not been
issued, 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 if the
Holding Company Guaranty has been issued or 2.25% per annum if
the Holding Company Guaranty has not been issued.
At March 31, 2006, the Holding Company Guaranty has not been issued.
The loan is secured by a mortgage on the UP Safira and UP Esmeralda
and is jointly and severally irrevocable and unconditionally
guaranteed by Packet Maritime Inc. and Padow Shipping Inc. The loan
also contains customary covenants that limit, among other things, the
Borrower's and the Guarantors' ability to incur additional
indebtedness, grant liens over their assets, sell assets, pay
dividends, repay indebtedness, merge or consolidate, change lines of
business and amend the terms of subordinated debt. The agreement
governing the facility also contains customary events of default. If
an event of default occurs and is continuing, DVB NV may require the
entire amount of the loan be immediately repaid in full. Further, the
loan agreement requires until June 2008 that the PSVs pledged as
security have an aggregate market value of at least 85% of the value
of the loan amount and at all times thereafter an aggregate market
value of at least 75% of the value of the loan.
At March 31, 2006 the outstanding principal balance under the loan
agreement was $27,650 and the aggregate net book value of the assets
pledged was $41,520.
b) Loan with DVB Bank AG (DVB AG) of up to $15,000
On January 17, 2006, UP Offshore Apoio Maritimo Ltda. (a wholly owned
subsidiary of UP Offshore) as Borrower, Packet Maritime Inc. and Padow
Shipping Inc. as Guarantors and UP Offshore 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
installments which accrue 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 guaranteed by
Packet Maritime Inc. and Padow Shipping Inc. The loan also contains
customary covenants that limit, among other things, the Borrower's and
the Guarantors' ability to incur additional indebtedness, grant liens
over their assets, sell assets, pay dividends, repay indebtedness,
merge or consolidate, change lines of business and amend the terms of
subordinated debt. The agreement governing the facility also contains
customary events of default. If an event of default occurs and is
continuing, DVB AG may require the entire amount of the loan be
immediately repaid in full. Further, the loan agreement requires until
February 2009 that the PSV pledged as security has an aggregate market
value of at least 117.6% of the value of the loan amount and at all
times thereafter an aggregate market value of at least 133.3% of the
value of the loan.
At March 31, 2006 the outstanding principal balance under the loan
agreement was $14,870 and the aggregate net book value of the assets
pledged was $22,443.
6. 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.
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 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 $4,560.
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. Tax authorities in Fortaleza alleged
that they would not be competent to analyze such issue. Thus, the
administrative proceeding records were sent to Rio de Janeiro. Tax
authorities of such State issued a report in which they affirmed that the
vessel could be imported under the REPETRO regime. Currently, the
administrative proceeding records are in Brasilia, waiting for a final
decision in relation to our request to the replacement of the confiscation
penalty.
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 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 $2,200, together with a fine for non-payment of
the taxes in the same amount, in respect of certain operations of our River
Business for the prior three-year period. This matter was referred to the
Central Customs Authority of Paraguay (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.
After review of the entire case the Paraguayan Central Tax authorities who
have jurisdiction over the matter have confirmed the Company has no
liability in respect of two of the three matters at issue, while they held
a dissenting view on the third issue for which the Company's liability, if
such interpretation was upheld in court, would be $409. Simultaneously with
above, the Central Customs authorities issued a resolution confirming the
original determination made by the Customs Authorities at Ciudad del Este
therefore committing the matter to a resolution by the Court. The Company
has entered a plea with the respective court requesting a confirmation of
the release of liability in the two issues where such view was upheld by
the Tax authorities and contending the interpretation on the third where
the Company claims to be equally non-liable.
We have been advised by UABL's counsel in the case that they believe that
there is only a remote possibility that a court would find UABL liable for
any of these taxes or fines.
7. INCOME TAXES
The Company operates through its subsidiaries, which are subject to several
tax jurisdictions, as follows:
a) Bahamas
The earnings from shipping operations were derived form sources
outside Bahamas and such earnings were not subject to Bahamanian
taxes.
b) Panama
The earnings from shipping operations were derived from sources
outside Panama and such earnings were not subject to Panamanian taxes.
c) Paraguay
Two of our Ocean Business subsidiaries, Parfina S.A. and Oceanpar S.A.
and four of our river subsidiaries, UABL Paraguay, Parabal S.A.,
Yataiti and Riverpar are subject to Paraguayan corporate income taxes.
d) Argentina
Ultrapetrol S.A., one of our Ocean Business and two of our River
Business subsidiaries, 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) Brazil
Our subsidiaries in the Offshore Supply Business, UP Offshore Apoio
Maritimo Ltda. and Agriex Importadora e Exportadora de Generos
Alimenticios Ltda. are subject to Brazilian corporate income taxes.
f) Chile
Corporacion de Navegacion Mundial S.A. is subject to Chilean corporate
income taxes.
g) 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 three month periods ended March 31, 2006 and 2005 the Company
and its subsidiaries have not earned any U.S. source shipping income.
8. RELATED PARTY TRANSACTIONS
At March 31, 2006 and December 31, 2005, the balances of receivables from
related parties were as follows:
March 31, December 31,
2006 2005
------------ -------------
Current:
Receivables from related parties
- Maritima Sipsa S.A. $ 25 $ 16
- Puertos del Sur S.A. and O.T.S. 2,265 1,612
- Ravenscroft Shipping Inc. - 2,574
- UP Offshore and its subsidiaries (1) - 13,726
- Other 451 16
------------ -------------
$ 2,741 $ 17,944
============ =============
(1) This loan accrued interest at a nominal rate of 9.50% per year. The
principal and the interest accrued have been repaid in full in
February, 2006.
March 31, December 31,
2006 2005
------------ -------------
Noncurrent:
Loans receivable from related parties
- Puerto del Sur S.A. (1) $ 1,995 $ 1,995
============ =============
(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. The current portion is
included in current receivables from related parties.
At March 31, 2006 and December 31, 2005 the balance of payables to related
parties were as follows:
March 31, December 31,
2006 2005
------------ -------------
Payables to related parties
- LAIF XI Ltd. (Note 3.b) $ 48,000 -
- Crosstrade Maritime Inc. and
Crosstrees Maritime Inc. (Note 3.a) 11,500 -
- Ravenscroft Shipping Inc - 2,008
------------ -------------
$ 59,500 $ 2,008
============ =============
For the three-month periods ended March 31, 2006 and 2005, the revenues
derived from related parties were as follows:
For the three-month periods
ended March 31
-----------------------------
2006 2005
------------ -------------
Maritima Sipsa S.A. $ 230 $ 617
============ =============
Sale and repurchase of vessel Princess Marina
In 2003, the Company entered into certain transactions to sell, and
repurchase in 2006, to and from Maritima Sipsa S.A., a 49% owned company,
the vessel Princess Marina. The combined effect of the sale at $15,100,
repurchase at $7,700 and a loan granted to Maritima Sipsa S.A. for $7,400
resulted in no cash flow on 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 $ 230 and $ 617 for the three-month periods ended March 31, 2006 and
2005, respectively, while the vessel remains presented in the accompanying
balance sheets as an asset.
Bareboat charter paid to related parties
Since the second quarter of 2005, through our subsidiary, Corporacion de
Navegacion Mundial S.A., the Company entered into a bareboat charter with
UP Offshore (Panama) S.A., a wholly owned subsidiary of UP Offshore for the
rental of the two PSVs named UP Safira and UP Esmeralda for a daily lease
amount for each one. Since March 21, 2006, the date of UP Offshore
additional acquisition, our financial statements included the operations of
UP Offshore (Panama) S.A., a wholly owned subsidiary of UP Offshore, on a
consolidated basis. Therefore, these transactions have been eliminated in
the consolidated financial statements since that date. Prior to
acquisition, the equity method was used.
For the three month period ended March 31, 2006 the charters amounted to
$2,640.
Management fee
For the three-month periods ended March 31, 2006 and 2005, management fees
were expensed with the following related parties to:
For the three-month periods
ended March 31
-----------------------------
2006 2005
------------ -------------
Oceanmarine (1) $ 150 $ 150
Ravenscroft Shipping Inc. (2) 361 276
------------ -------------
Total $ 511 $ 426
============ =============
(1) The Company through certain of its subsidiaries has contracted with
Oceanmarine, a company under the same control group as Inversiones Los
Avellanos S.A., 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 $24.2 at March 31, 2006)
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 $30.3 at March 31, 2006) administrative
and operational fee per month for all operational functions as well as
administering the subcontractors, concessions and credit
card/collection system onboard.
We purchased Ravenscroft (see Note 3) and hired the administrative
personnel and purchased the administration related assets of Oceanmarine in
March 2006; accordingly, after those acquisitions, we do not expect to pay
fees to these related parties, but will directly incur in-house all costs
of ship management and administration.
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 $319 and $511 respectively, for the three-month
periods ended March 31, 2006 and 2005, respectively.
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 the year 2013. The parties agreed
that Ultrapetrol professional fees under this agreement shall be the 2% of
UP Offshore annual EBITDA as defined in the agreement. For the three-month
period ended March 31, 2006 the professional fee amounted $40. For the
three-month period ended March 31, 2005, no fees were recognized because UP
Offshore had no EBITDA.
Commercial agreement with Comintra
On June 25, 2003, UP Offshore signed a commercial agreement with Comintra.
Under this agreement Comintra agrees to assist UP Offshore regarding the
commercial activities of UP Offshore's fleet of six PSVs with the Brazilian
offshore oil industry. Comintra's responsibilities, among others, include
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 2% of the gross time charters revenues from Brazilian charters
collected by UP Offshore on a monthly basis.
Comintra's services in connection with this agreement began on June 25,
2003, and, unless earlier terminated end on June 25, 2013.
UP Offshore may terminate this agreement (a) at any time upon 30 days
notice if (i) PSVs representing more than 50% of the gross time charter
revenues of UP Offshore arising from contracts in Brazil are sold or (ii)
Ultrapetrol and LAIF cease owning, jointly or separately, more than 50% of
UP Offshore's outstanding voting stock; (b) Comintra breaches any material
term of this agreement; (c) in the event of gross negligence or material
failure to perform the services by Comintra, or (d) upon mutual agreement.
In the event of termination under subsections (a) or (d) above, such
termination shall not be effective unless and until UP Offshore shall have
also paid to Comintra $2,500 (less any fees already paid to Comintra
through the termination date). Other than the figures mentioned above no
further indemnification will be due by UP Offshore to Comintra.
During 2005 UP Offshore paid in advance to Comintra fees under this
agreement in the amount of $1,500.
For the three-month period ended March 31, 2006, the fees amounted to $8.
None of such fees has been expensed in the three-month period ended March
31, 2005, because UP Offshore had no revenues from Brazilian charters.
9. SHARE CAPITAL
At March 31, 2006, the share capital consists of 2,109,240 shares, par
value 0.01 each authorized, issued and outstanding.
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. 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.
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
$894 and the $894 Note issued in connection with the option was cancelled.
The shares were also cancelled.
On October 12, 2000 the Company through a wholly owned subsidiary, Avemar
Holdings (Bahamas) Limited ("Avemar"), purchased 537,144 shares of the
Company.
At March 31, 2006, and December 31, 2005, the Company presents $20,332 in
the "Treasury stock" account, $20,000 of which relates to the amount paid
for the shares and $332 relates to direct cost of acquisition.
On March 20, 2006, Inversiones Los Avellanos S.A. and Avemar, subject to
the successful completion of the initial public 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 successful completion of the initial public offering.
At March 31, 2006 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, our wholly owned subsidiary of the Company, 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 March 31, 2006, 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.
10. PREFERRED SHARES OF UP OFFSHORE (BAHAMAS) LTD.
In January 2004, UP Offshore issued 3,000,000 of its Series A 6% non-voting
redeemable preferred shares for a subscription price of $3,000.
The preferred shares shall accrue cumulative preferred dividends (whether
or not declared, whether or not UP Offshore 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 UP Offshore 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.
UP Offshore may, in any time, redeem all, but not less than all, of the
Series A preferred shares. If UP Offshore 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
UP Offshore elects to redeem the Series A preferred shares after December
15, 2010 the redemption price shall be the same as if the holder of the
Series A preferred shares decides the redemption.
Also, the preferred shares may be redeemed if a change of control of UP
Offshore occurs.
The shares shall become mandatory redeemable once notification from the
holder is received.
At March 31, 2006 and December 31, 2005, the Series A preferred shares were
disclosed under the caption "Redeemable preferred shares" in the balance
sheets.
11. 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 condensed consolidated financial
statements. The Company does not have significant intersegment
transactions. These segments and their respective operations are as
follows:
Ocean Business: In our Ocean Business, we own and operate five oceangoing
vessels and semi-integrated oceangoing tug barge units under the trade name
Ultrapetrol. Our Suezmax and Aframax vessels transport dry and liquid bulk
goods on major trade routes around the globe. Major products carried
include liquid cargo such as petroleum and petroleum derivatives, as well
as dry cargo such as iron ore, coal and other bulk cargoes.
River Business: In our River Business, we own and operate several dry and
tanker barges, and push boats. In addition, we use one barge from our ocean
fleet, the Alianza G2, as a transfer station. The dry barges transport
basically agricultural and forestry products, iron ore and other cargoes,
while the tanker barges carry petroleum products, vegetable oils and other
liquids.
We operate our push boats and barges on the navigable waters of Parana,
Paraguay and Uruguay Rivers and part of the River Plate in South America,
also known as the Hidrovia region.
Offshore Supply Business: We operate our Offshore Supply Business, using
PSVs of UP Offshore (Bahamas), which are employed in the spot market in the
North Sea which are temporarily operated by our subsidiary Corporacion de
Navegacion Mundial S.A. 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 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 the three-month periods
ended March 31
-----------------------------
2006 2005
------------ -------------
Revenues (1)
- South America $ 15,841 $ 12,800
- Europe 14,222 13,498
- Asia 49 4,023
- Central America 169 158
$ 30,281 $ 30,479
============ =============
(1) Classified by country of domicile of charterers.
Revenue by segment consists only of services provided to external
customers, as reported in the condensed 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 three-month period ended March 31, 2006:
Offshore
Ocean River Passenger Supply Other
Business Business Business Business business Total
--------- ---------- --------- --------- -------- ---------
Revenues $ 9,426 $ 15,590 $ 1,824 $ 3,441 $ - $ 30,281
Running and voyage expenses 3,494 11,427 1,637 3,400 - 19,958
Depreciation and
amortization 3,489 1,929 62 - - 5,480
Segment operating profit
(loss) 1,137 1,436 (48) 41 - 2,566
Segment assets 106,697 127,329 29,286 114,547 13,109 390,968
Investments in affiliates 207 2,018 - - - 2,225
Loss from investment in
affiliates 242 (43) - 329 - 528
Additions to long-lived
assets $ - $ 1,703 $ 6,382 $ - $ - $ 8,085
The following schedule presents segment information about the Company's
operations for the three-month period ended March 31, 2005:
Offshore
Ocean River Passenger Supply
Business Business Business Business Total
-------- -------- --------- -------- ---------
Revenues $ 16,570 $ 12,533 $ 1,376 $ - $ 30,479
Running and voyage
expenses 3,673 9,757 988 - 14,418
Depreciation and
amortization 3,637 1,549 109 - 5,295
Segment operating profit 8,105 494 175 - 8,774
Additions to long-lived
assets $ 63 $ 6,043 $ 13,500 $ - $ 19,606
12. SUPPLEMENTAL GUARANTOR INFORMATION
On November 24, 2004, the Company issued $180 million 9% First Preferred
Ship Mortgage Notes due 2014.
The 2014 Senior Notes are fully and unconditionally guaranteed on a joint
and several basis by the majority of the Company's subsidiaries directly
involved in our Ocean and Passenger Business.
The Indenture provides that the 2014 Senior Notes and each of the
guarantees granted by Subsidiaries, other than the Mortgage, are governed
by, and construed in accordance with, the laws of the state of New York -
United States of America. Each of the mortgaged vessels are registered
under either the Panamanian flag, or another jurisdiction with similar
procedures. All of the Subsidiary Guarantors are outside of the United
States of America.
Supplemental condensed combining financial information for the Guarantor
Subsidiaries for the 2014 Senior Notes is presented below. This information
is prepared in accordance with the Company's accounting policies. This
supplemental financial disclosure has been prepared on the same basis as
the condensed consolidated financial statements and should be read in
conjunction with the condensed consolidated financial statements.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
AT MARCH 31, 2006 (UNAUDITED)
(stated in thousands of U.S. dollars)
Combined Combined Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors non-guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Current assets
Receivables from related parties $ 147,827 $ 4,847 $ 6,200 $ (156,133) $ 2,741
Other current assets 8,561 12,148 24,872 - 45,581
------------ ------------ -------------- ------------- --------------
Total current assets 156,388 16,995 31,072 (156,133) 48,322
------------ ------------ -------------- ------------- --------------
Noncurrent assets
Vessels and equipment, net - 133,471 170,723 (1,812) 302,382
Investment in affiliates 127,877 - 2,225 (127,877) 2,225
Other noncurrent assets 6,044 13,199 18,796 - 38,039
------------ ------------ -------------- ------------- --------------
Total noncurrent assets 133,921 146,670 191,744 (129,689) 342,646
------------ ------------ -------------- ------------- --------------
Total assets $ 290,309 $ 163,665 $ 222,816 $ (285,822) $ 390,968
============ ============ ============== ============= ==============
Current liabilities
Payables to related parties $ 62,597 $ 128,492 $ 24,544 $ (156,133) $ 59,500
Current portion of long term
financial debt 5,670 - 11,652 - 17,322
Other current liabilities 183 5,324 10,721 - 16,228
------------ ------------ -------------- ------------- --------------
Total current liabilities 68,450 133,816 46,917 (156,133) 93,050
------------ ------------ -------------- ------------- --------------
Noncurrent liabilities
Long-term notes 180,000 - - - 180,000
Financial debt, net of current
portion - - 60,772 - 60,772
Other payables - - 1,900 - 1,900
------------ ------------ -------------- ------------- --------------
180,000 - 62,672 - 242,672
------------ ------------ -------------- ------------- --------------
Total liabilities 248,450 133,816 109,589 (156,133) 335,722
Minority interests - - - 5,059 5,059
Minority interest subject to put right - - - 4,928 4,928
Redeemable preferred shares - - 3,400 - 3,400
Shareholders' equity $ 41,859 $ 29,849 $ 109,827 $ (139,676) $ 41,859
------------ ------------ -------------- ------------- --------------
Total liabilities, minority
interests, redeemable preferred
shares and shareholders' equity $ 290,309 $ 163,665 $ 222,816 $ (285,822) $ 390,968
============ ============ ============== ============= ==============
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET
AT DECEMBER 31, 2005
(stated in thousands of U.S. dollars)
Combined Combined Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors non-guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Current assets
Receivables from related parties $ 150,558 $ 4,147 $ 5,580 $ (142,341) $ 17,944
Other current assets 3,207 11,200 17,945 - 32,352
------------ ------------ -------------- ------------- --------------
Total current assets 153,765 15,347 23,525 (142,341) 50,296
------------ ------------ -------------- ------------- --------------
Noncurrent assets
Vessels and equipment, net - 128,589 54,696 (1,216) 182,069
Investment in affiliates 68,150 - 15,698 (68,150) 15,698
Other noncurrent assets 6,260 14,128 9,296 - 29,684
------------ ------------ -------------- ------------- --------------
Total noncurrent assets, 74,410 142,717 79,690 (69,366) 227,451
------------ ------------ -------------- ------------- --------------
Total assets $ 228,175 $ 158,064 $ 103,215 $ (211,707) $ 277,747
============ ============ ============== ============= ==============
Current liabilities
Payables to related parties $ 3,056 $ 119,972 $ 21,321 $ (142,341) $ 2,008
Current portion of long term
financial debt 1,620 - 6,702 - 8,322
Other current liabilities 25 6,433 7,155 - 13,613
------------ ------------ -------------- ------------- --------------
Total current liabilities 4,701 126,405 35,178 (142,341) 23,943
------------ ------------ -------------- ------------- --------------
Noncurrent liabilities
Long-term notes 180,000 - - - 180,000
Financial debt, net of current portion - - 22,953 - 22,953
Other payables - - - - -
------------ ------------ -------------- ------------- --------------
Total noncurrent liabilities 180,000 - 22,953 - 202,953
------------ ------------ -------------- ------------- --------------
Total liabilities 184,701 126,405 58,131 (142,341) 226,896
Minority interests - - - 2,479 2,479
Minority interest subject to put right - - - 4,898 4,898
Shareholders' equity $ 43,474 $ 31,659 $ 45,084 $ (76,743) $ 43,474
------------ ------------ -------------- ------------- --------------
Total liabilities, minority interests
and shareholders' equity $ 228,175 $ 158,064 $ 103,215 $ (211,707) $ 277,747
============ ============ ============== ============= ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006 (UNAUDITED)
(stated in thousands of U.S. dollars)
Combined Combined non- Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Revenues $ - $ 16,373 $ 15,615 $ (1,707) $ 30,281
Operating expenses (54) (14,412) (14,942) 1,693 (27,715)
------------ ------------ -------------- ------------- --------------
Operating profit (loss) (54) 1,961 673 (14) 2,566
Investment in affiliate (1,571) - 528 1,571 528
Other income (expenses) 12 (3,759) (824) - (4,571)
------------ ------------ -------------- ------------- --------------
Income before income tax and (1,613) (1,798) 377 1,557 (1,477)
minority interest
Income taxes - (12) (38) - (50)
Minority interest - - - (86) (86)
------------ ------------ -------------- ------------- --------------
Net income $ (1,613) $ (1,810) $ 339 $ 1,471 $ (1,613)
---------- ============ ============ ============== ============= ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005 (UNAUDITED)
(stated in thousands of U.S. dollars)
Combined Combined non- Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Revenues $ - $ 17,528 $ 14,600 $ (1,649) $ 30,479
Operating expenses (368) (9,096) (13,890) 1,649 (21,705)
------------ ------------ -------------- ------------- --------------
Operating profit (loss) (368) 8,432 710 - 8,774
Investments in affiliates 3,876 - 5 (3,876) 5
Other income (expenses) 282 (4,035) (677) - (4,430)
------------ ------------ -------------- ------------- --------------
Income before income tax and
minority interest 3,790 4,397 38 (3,876) 4,349
Income taxes - (13) (159) - (172)
Minority interest - - - (387) (387)
------------ ------------ -------------- ------------- --------------
Net income $ 3,790 $ 4,384 $ (121) $ (4,263) $ 3,790
============ ============ ============== ============= ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006 (UNAUDITED)
(stated in thousands of U.S. dollars)
Combined Combined non- Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Net income (loss) for the period $ (1,613) $ (1,810) $ 339 $ 1,471 $ (1,613)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities 2,712 2,404 596 (1,471) 4,241
------------ ------------ -------------- ------------- --------------
Net cash (used in) provided by
operating activities 1,099 594 935 - 2,628
Intercompany sources (7,160) - - 7,160 -
Non-subsidiary sources 11,391 (8,042) 303 - 3,652
------------ ------------ -------------- ------------- --------------
Net cash provided by (used in)
investing activities 4,231 (8,042) 303 7,160 3,652
Intercompany sources - 5,160 2,000 (7,160) -
Non-subsidiary sources 2 ( 247) (682) - (927)
------------ ------------ -------------- ------------- --------------
Net cash provided by (used in)
financing activities 2 4,913 1,318 (7,160) (927)
------------ ------------ -------------- ------------- --------------
Net increase (decrease) in cash and
cash equivalents $ 5,332 $ (2,535) $ 2,556 $ - $ 5,353
============ ============ ============== ============= ==============
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOW
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005 (UNAUDITED)
(stated in thousands of U.S. dollars)
Combined Combined non- Total
subsidiary subsidiary Consolidating consolidated
Parent guarantors guarantors adjustments amounts
------------ ------------ -------------- ------------- --------------
Net income (loss) for the period $ 3,790 $ 4,305 $ (121) $ (4,184) $ 3,790
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities (3,657) 2,998 4,785 4,184 8,310
------------ ------------ -------------- ------------- --------------
Net cash (used in) provided by
operating activities 133 7,303 4,664 - 12,100
Intercompany sources (8,293) - (289) 8,582 -
Non-subsidiary sources - (14,840) (6,464) - (21,304)
------------ ------------ -------------- ------------- --------------
Net cash (used in) provided by
investing activities (8,293) (14,840) (6,753) 8,582 (21,304)
Intercompany sources - 5,693 2,889 (8,582) -
Non-subsidiary sources 12,016 - 4,831 - 16,847
------------ ------------ -------------- ------------- --------------
Net cash provided by financing
activities 12,016 5,693 7,720 (8,582) 16,847
------------ ------------ -------------- ------------- --------------
Net (decrease) increase in cash and
cash equivalents $ 3,856 $ (1,844) $ 5,631 $ - $ 7,643
============ ============ ============== ============= ==============
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ULTRAPETROL (BAHAMAS) LIMITED
(registrant)
Dated: May 16, 2006 By: /s/ Felipe Menendez R.
----------------------
Felipe Menendez R.
President