INFORMATION CONTAINED IN THIS FORM 6-K REPORT

 

 

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ULTRAPETROL (BAHAMAS) LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)

 

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 six months ended June 30, 2008 and 2007 included elsewhere in this report.

 

Our Company

 

We are an industrial shipping company serving the marine transportation needs of our clients in the markets on which we focus. We serve the shipping markets for grain, vegetable oils, 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.

 

Our River Business, with currently 591 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. Our River Business fleet has an aggregate capacity of approximately 1,020,000 dwt.

 

Our Offshore Supply Business owns and operates vessels that provide critical logistical and transportation services for offshore petroleum exploration and production companies in the North Sea and the coastal waters of Brazil. Our Offshore Supply Business fleet currently consists of technologically advanced Platform Supply Vessels, or PSVs, including five in operation, one under construction in Brazil to be delivered in the first quarter of 2009, four under construction in India and two under construction in China with deliveries commencing in 2009.

 

Our Ocean Business operates nine oceangoing vessels, including four Handysize / small product tankers, which we employ in the South American coastal trade where we have preferential rights and customer relationships, three versatile Suezmax / Oil-Bulk-Ore, or Suezmax OBOs, one Capesize vessel and one semi-integrated tug / barge unit.  Our Ocean Business fleet has an aggregate capacity of approximately 744,529 dwt.

 

Our Passenger Business owned and operated during the first half of 2008 a 575 passenger cruise vessel, the Blue Monarch, which we currently employ on 7-day and 14-day cruises in the Aegean Sea. (See “Recent developments”).

Our business strategy is to continue to operate as a diversified marine transportation company with an aim to maximize our growth and profitability while limiting our exposure to the cyclical behavior of individual sectors of the marine transportation industry.

Developments in three months ended June 30, 2008

Contract of Affreightment (COA)

 

•	We derive revenue from a rate based on tonnage shipped expressed in dollars per metric ton of cargo, which may be adjusted for increase in the price of fuel in accordance with a pre-agreed formula.
•	We pay for all voyage expenses, including fuel costs 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.

In our Passenger Business, our Blue Monarch is now employed on 7-day and 14-day cruises in the Aegean Sea. Under this arrangement we have no guaranteed minimum income and we have to organize and pay for port expenses and fuel in the itineraries we service. In this sense, the earnings of this vessel are similar in nature to a COA.

 

Time charter revenues accounted for 57% of the total revenues from our businesses for the first six months of 2008, while COA revenues accounted for 43%. With respect to COA revenues in the first half of 2008, 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. 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. Further, most of the operation in our River Business occurs in the Parana and Paraguay Rivers, and any changes adversely affecting either of these rivers, such as low water levels, could reduce or limit our ability to effectively transport cargo.

 

In our Ocean Business, we employed a significant part of our fleet on time charter to different customers during the six months ended June 30, 2008. During the first six months of 2008, the international dry bulk freight market was on average higher than it was in the first six months of 2007.

 

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, and 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.

 

 

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In addition to vessels’ operating expenses, our other primary sources of operating expenses in 2008 included general and administrative expenses.

 

In our River Business, our voyage expenses include port expenses, barge cleaning, fleeting and fuel as well as charter hire paid to third parties and other expenses that may be incurred in proportion to port calls incurred or cargos carried.

 

In our Offshore Supply Business, voyage expenses include commissions paid by us to third parties which provide brokerage services.

 

In our Passenger Business, operating expenses currently include all vessel management, crewing, stores, insurance, lubricants, repairs and maintenance, catering, housekeeping and entertainment staff costs. Voyage expenses include port expenses, bunkers and the cost of food for the passengers.

 

Through our River Business, we own a dry dock and a repair facility at Pueblo Esther, Argentina, land for the construction of two terminals and a shipyard under construction in Argentina, and 50% joint venture participations in two grain loading terminals in Paraguay. We also rent offices in Asuncion (Paraguay) and Buenos Aires (Argentina) and a repair and shipbuilding facility in Ramallo (Argentina).

 

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 limited by, among other things, restrictions under our credit facilities and applicable laws of the jurisdictions of their incorporation or organization.

As of June 30, 2008, we had aggregate indebtedness of $347.9 million, consisting of $180.0 million aggregate principal amount of our First Preferred Ship Mortgage Notes due 2014, or the Notes, consolidated indebtedness of our subsidiary UP Offshore (Bahamas) Limited of $89.2 million under three senior loan facilities with DVB, indebtedness of our subsidiary UP Offshore (Bahamas) Limited of $6.9 million under a senior loan facility with DVB / Natixis, indebtedness of our subsidiary Stanyan Shipping Inc. of $12.5 million under a senior loan facility with Natixis, indebtedness of our subsidiary Hallandale Commercial Corp. of $18.7 million under a senior loan facility with Nordea Bank, indebtedness of our subsidiary Lowrie Shipping LLC of $23.4 million under a senior loan facility with Banco BICE, indebtedness of the Company of $10.0 million under a revolving credit line with Banco BICE, indebtedness of our subsidiary Danube Maritime Inc. of $4.8 million under a credit facility with BNP Paribas of $9.0 million, and total accrued interest of $2.4 million.

At June 30, 2008, we had cash and cash equivalents on hand of $30.5 million. In addition, we had $6.6 million in non current restricted cash.

 

Operating Activities

 

In the six months ended June 30, 2008, we generated $13.6 million in cash flow from operations compared to $32.2 million in the same period of 2007. Cash flow from operations for the six months ended June 30, 2008 includes a $24.2 million cash settlement, which corresponds to the replacement of certain cleared FFAs with OTC FFAs and which would have been spread evenly between the third and fourth quarters of 2008 had the replacement not taken place. (Please see “Developments in three months ended June 30, 2008” and “Forward Freight Agreements (FFAs)” elsewhere in this report). We had a net income of $29.1 million for the first six months ended June 30, 2008, as compared to a net income of $2.9 million in the same period of 2007, an increase of $26.2 million. Included in the result for the first six months ended June 30, 2008 are $6.3 million in non-cash gains due to the mark-to-market under our FFAs and a non-cash loss of $2.4 million due to a deferred income tax charge from unrealized foreign currency exchange rate gains on U.S. Dollar-denominated debt of our Brazilian subsidiary in the Offshore Supply Business.

 

 

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Net cash provided by operating activities consists of our net income increased by non-cash expenses, such as depreciation and amortization of deferred charges, and adjusted by changes in working capital and expenditures for dry docking.

 

Investing Activities

 

During the six months ended June 30, 2008, we disbursed $8.0 million to enlarge and refurbish barges and pushboats, $4.3 million in the construction of a new pushboat, $29.2 million as part of the purchase of 45 Mississippi barges and three pushboats, and $7.0 million related to the civil engineering and machinery of our new barge building yard in our River Business; and $24.0 million to fund the advance on the two PSVs that are being constructed in India and China, and the installments on the PSVs being built in India and the UP Rubi, under construction in Brazil, in our Offshore Supply Business.

 

Financing Activities

 

Net cash provided by financing activities was $5.3 million during the six months ended June 30, 2008, compared to net cash provided by financing activities of $137.9 million during the same period of 2007. The decrease in cash provided by financing activities is mainly attributable to $44.0 million less of proceeds from long-term financial debt, the $6.5 million used in repurchasing shares as compared to none in the same period of 2007, $8.1 million used in principal repayments as compared to $3.3 million in the same period of 2007, and $91.1 million less of net proceeds from offering of common shares (no offerings in the six months ended June 30, 2008), partially offset by $25.0 million less in early repayments of financial debt in the six months ended June 30, 2008.

 

Future Capital Requirements

 

 

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Supplemental Information

 

The following table reconciles our EBITDA to our net income:

($000)

Six Months Ended June 30,

 

	2008	2007
Net Income	$29,053	$2,907
Plus
Financial expense	10,856	9,674
Income taxes	3,367	3,786
Depreciation and amortization	19,959	16,459
EBITDA (1)	$63,235	$32,826

The following tables reconcile our EBITDA to our segment operating profit (loss) for the six months ended June 30, 2008 and 2007, on a consolidated and a per segment basis:

($000)	Six Months Ended June 30, 2008
	River	Offshore Supply	Ocean	Passenger	TOTAL
Segment operating profit (loss)	$3,365	$7,352	$32,551	($5,736)	$37,532
Depreciation and amortization	6,165	2,378	9,713	1,703	19,959
Investment in affiliates / Minority interest	78	(425)	(127)	-	(474)
Other, net(2)	(327)	30	6	0	(291)
Net income on FFAs	-	-	5,862	-	5,862
Segment EBITDA	$9,281	$9,335	$48,005	($4,033)	$62,588
Items not included in segment EBITDA
Financial income					647
Consolidated EBITDA					$63,235

 

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($000)	Six Months Ended June 30, 2007
	River	Offshore Supply	Ocean	Passenger	TOTAL
Segment operating profit (loss)	$6,982	$8,534	$6,620	($3,684)	$18,452
Depreciation and amortization	4,610	1,994	7,292	2,563	16,459
Investment in affiliates / Minority interest	18	(339)	291	-	(30)
Other, net(2)	(284)	16	41	(28)	(255)
Net loss on FFAs	-	-	(3,073)	-	(3,073)
Segment EBITDA	$11,326	$10,205	$11,171	($1,149)	$31,553
Items not included in segment EBITDA
Financial income					1,273
Consolidated EBITDA					$32,826

(1) EBITDA consists of net income (loss) prior to deductions for interest expense and other financial gains and losses, income taxes, depreciation and amortization of dry dock expense and financial gain (loss) on extinguishment of debt. We believe that EBITDA is intended to exclude all items that affect results relating to financing activities. The gains and losses associated with extinguishment of debt are a direct financing item that affects our results, and therefore should not be included in EBITDA. We do not intend for EBITDA to represent cash flows from operations, as defined by GAAP (on the date of calculation), and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or to cash flows from operations as a measure of liquidity. This definition of EBITDA may not be comparable to similarly titled measures disclosed by other companies. We have provided EBITDA in this filing because we believe it provides useful information to investors to measure our performance and evaluate our ability to incur and service indebtedness.

 

 

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

Condensed Consolidated Financial Statements at June 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

TABLE OF CONTENTS TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS		PAGE
ŸFinancial statements
–Condensed consolidated balance sheets at June 30, 2008 (unaudited) and December 31, 2007		- F-1 -
–Condensed consolidated statements of income for the six-month periods ended June 30, 2008 and 2007 (unaudited)		- F-2 -
–Condensed consolidated statements of changes in shareholders’ equity for the six-month periods ended June 30, 2008 and 2007 (unaudited)		- F-3 -
–Condensed consolidated statements of cash flows for the six-month periods ended June 30, 2008 and 2007 (unaudited)		- F-4 -
–Notes to unaudited condensed consolidated financial statements		- F-5 -

 

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in thousands of U.S. dollars, except par value and share amounts)

		At June 30, 2008 (unaudited)				At December  31, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	30,457			$	64,262
Accounts receivable, net of allowance for doubtful accounts of $250 and $248 in 2008 and 2007, respectively			23,079				15,680
Receivables from related parties			3,122				2,804
Operating supplies			5,247				4,961
Prepaid expenses			7,418				3,198
Other receivables			17,328				14,336
Total current assets			86,651				105,241
NONCURRENT ASSETS
Other receivables			8,897				7,793
Receivables from related parties			2,280				2,280
Restricted cash			6,558				20,168
Vessels and equipment, net			520,677				462,292
Dry dock			4,127				4,428
Investment in affiliates			2,208				2,257
Intangible assets			2,568				2,961
Goodwill			5,015				5,015
Other assets			7,827				6,877
Deferred income tax assets			2,969				2,848
Total noncurrent assets			563,126				516,919
Total assets		$	649,777			$	622,160
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	22,118			$	16,813
Payable to related parties			763				718
Accrued interest			2,385				2,579
Current portion of long-term financial debt			34,166				17,795
Other payables			15,010				2,568
Total current liabilities			74,442				40,473
NONCURRENT LIABILITIES
Long-term financial debt			311,361				314,140
Deferred income tax liability			13,359				10,663
Other payables			6,015				-
Total noncurrent liabilities			330,735				324,803
Total liabilities			405,177				365,276
MINORITY INTEREST			4,167				3,742
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value:  100,000,000 authorized shares; 32,771,859 and 33,443,030 shares issued and outstanding in 2008 and 2007			327				334
Additional paid-in capital			267,536				266,647
Treasury stock 671,171 shares			(6,459	)			-
Accumulated earnings			38,725				9,672
Accumulated other comprehensive income (loss)			(59,696	)			(23,511	)
Total shareholders’ equity			240,433				253,142
Total liabilities, minority interest and shareholders’ equity		$	649,777			$	622,160

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

 

F-1

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Stated in thousands of U.S. dollars, except share and per share data)

		For the six-month periods ended June 30,
		2008				2007
REVENUES
Revenues from third parties		$	150,379			$	98,841
Revenues from related parties			-				2,011
Total revenues			150,379				100,852
OPERATING EXPENSES
Voyage expenses			(37,700	)			(23,091	)
Running costs			(46,313	)			(33,047	)
Amortization of dry docking			(1,973	)			(3,707	)
Depreciation of vessels and equipment			(17,593	)			(12,359	)
Amortization of intangible assets			(393	)			(393	)
Administrative and commercial expenses			(11,298	)			(9,868	)
Other operating income			2,423				65
			(112,847	)			(82,400	)
Operating profit			37,532				18,452
OTHER INCOME (EXPENSES)
Financial expense			(10,856	)			(9,674	)
Financial income			647				1,273
Net income (loss) on FFAs			5,862				(3,073	)
Investment in affiliates			(49	)			293
Other, net			(291	)			(255	)
Total other expenses			(4,687	)			(11,436	)
Income before income taxes and minority interest			32,845				7,016
Income taxes			(3,367	)			(3,786	)
Minority interest			(425	)			(323	)
Net income		$	29,053			$	2,907
Basic net income per share		$	0.88			$	0.10
Diluted net income per share		$	0.88			$	0.10
Basic weighted average number of shares			32,855,697				30,027,169
Diluted weighted average number of shares			33,012,155				30,376,471

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

 

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Stated in thousands of U.S. dollars, except share data)

Balance		Shares amount				Common stock				Additional paid-in capital				Treasury stock				Accumulated earnings				Accumulated other comprehensive income (loss)				Total
December 31, 2006			28,346,952			$	283			$	173,826			$	-			$	5,231			$	89			$	179,429
Issuance of common stock			5,096,078				51				96,774				-				-				-				96,825
Underwriting fees and issuance expenses			-				-				(5,731	)			-				-				-				(5,731	)
Compensation related to option and restricted stock granted			-				-				916				-				-				-				916
Comprehensive income:
–Net income			-				-				-				-				2,907				-				2,907
–Effect of derivative financial instruments			-				-				-				-				-				410				410
Total comprehensive income																											3,317
June 30, 2007			33,443,030			$	334			$	265,785			$	-			$	8,138			$	499			$	274,756
December 31, 2007			33,443,030			$	334			$	266,647			$	-			$	9,672			$	(23,511	)		$	253,142
Compensation related to options and restricted stock granted			-				-				889				-				-				-				889
Repurchase of treasury shares			(671,171	)			(7	)			-				(6,459	)			-				-				(6,466	)
Comprehensive (loss)
–Net income			-				-				-				-				29,053				-				29,053
–Effect of derivative financial instruments			-				-				-				-				-				(36,185	)			(36,185	)
Total comprehensive (loss)																											(7,132	)
June 30, 2008			32,771,859			$	327			$	267,536			$	(6,459	)		$	38,725			$	(59,696	)			240,433

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

 

F-3

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Stated in thousands of U.S. dollars)

		For the six-month periods ended June 30,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	29,053			$	2,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of vessels and equipment			17,593				12,359
Amortization of dry docking			1,973				3,707
Expenditure for dry docking			(1,672	)			(4,025	)
Net (income) loss on FFAs			(5,862	)			3,073
Cash settlements on FFAs, net			(24,678	)			-
Amortization of intangible assets			393				393
Share-based compensation			889				916
Note issuance expenses amortization			851				536
Minority interest in equity of subsidiaries			425				323
Net loss (gain) from investment in affiliates			49				(293	)
Allowance for doubtful accounts			-				182
Changes in assets and liabilities net of effects from purchase of Otto Candies in 2007:
Decrease (increase) in assets:
Accounts receivable			(7,401	)			3,877
Receivable from related parties			(318	)			829
Operating supplies			(286	)			265
Prepaid expenses			(4,220	)			(3,197	)
Other receivables			(1,754	)			(617	)
Other			213				267
Increase (decrease) in liabilities:
Accounts payable			5,305				5,868
Payable to related parties			45				(420	)
Other			2,992				5,251
Net cash provided by operating activities			13,590				32,201
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment ($21,310 and $13,021 in 2008 and 2007 for vessels in construction)			(76,096	)			(64,863	)
Purchase of Otto Candies, net of cash acquired			-				(13,772	)
Net decrease (increase) in funding cash collateral of FFAs			28,784				(8,725	)
Cash settlements of FFAs			(5,408	)			-
Net cash (used in) investing activities			(52,720	)			(87,360	)
CASH FLOWS FROM FINANCING ACTIVITIES
Scheduled repayments of long-term financial debt			(8,116	)			(3,327	)
Early repayments of long-term financial debt			-				(25,300	)
Proceeds from long-term financial debt			31,900				75,947
Net decrease in short-term financial debt			(15,000	)			-
Proceeds from common shares public offering, net of issuance costs			-				91,094
Funds used in repurchase of treasury shares			(6,466	)			-
Other, net			3,007				(502	)
Net cash provided by financing activities			5,325				137,912
Net (decrease) increase in cash and cash equivalents			(33,805	)			82,753
Cash and cash equivalents at the beginning of year		$	64,262			$	20,648
Cash and cash equivalents at the end of period		$	30,457			$	103,401

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in thousands of U.S. dollars, except per share data and otherwise indicated)

(Information pertaining to the six-month periods ended June 30, 2008 and 2007 is unaudited)

1.	NATURE OF OPERATIONS AND CORPORATE ORGANIZATION

Nature of operations

Ultrapetrol (Bahamas) Limited (“Ultrapetrol Bahamas”, “Ultrapetrol”, “the Company”, “us” or “we”) is a company organized and registered as a Bahamas Corporation since December 1997.

We are a shipping transportation company serving the marine transportation needs of our clients in the markets on which we focus.  We serve the shipping markets for grain, forest products, minerals, crude oil, petroleum, and refined petroleum products, as well as the offshore oil platform supply market, and the leisure passenger cruise market through our operations in the following four segments of the marine transportation industry. In our River Business we are an owner and operator of river barges and pushboats in the Hidrovia region of South America, a region of navigable waters on the Parana, Paraguay and Uruguay Rivers and part of the River Plate, which flow through Brazil, Bolivia, Uruguay, Paraguay and Argentina. In our Offshore Supply Business we own and operate vessels that provide logistical and transportation services for offshore petroleum exploration and production companies, in the North Sea and the coastal waters of Brazil. 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 a cruise vessel that transports passengers primarily cruising the Aegean Sea.

2.	SIGNIFICANT ACCOUNTING POLICIES

a)

Basis of presentation and principles of consolidation

The 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, 2007, has been derived from the audited financial statement at that date. The unaudited condensed consolidated financial statements 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. 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 unaudited 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.

 

F-5

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

b)

Earnings per share:

In accordance with Statement of Financial Accounting Standards No. 128, Earnings per share (“SFAS 128”) basic net income per share is computed by dividing the net income by the weighted average number of common shares outstanding during the relevant periods net of shares held in treasury.  Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common shares result in the issuance of such shares. In determining dilutive shares for this purpose the Company assumes, through the application of the treasury stock method, all restricted stock grants have vested, all common shares have been issued pursuant to the exercise of all outstanding stock options and all common shares have been issued pursuant to the issuance of all outstanding warrants.

Antidilutive instruments are excluded from net income per share calculations in all periods for which they are antidilutive.

The following table sets forth the computation of basic and diluted net income per share:

		For the six-month periods ended June 30,
		2008				2007
Net income		$	29,053			$	2,907
Basic weighted average number of shares			32,855,697				30,027,169
Effect on dilutive shares:
Options and restricted stock			86,853				255,522
Warrants issued			69,605				93,780
Diluted weighted average number of shares			33,012,155				30,376,471
Basic net income per share		$	0.88			$	0.10
Diluted net income per share		$	0.88			$	0.10

c)

Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130 Reporting Comprehensive Income (“SFAS 130”), establishes standard for reporting comprehensive income (loss), which is defined as the change in equity arising from non-owner sources. Comprehensive income (loss) is reflected in the consolidated statement of shareholders’ equity.

The components of accumulated other comprehensive income (loss) in the unaudited condensed consolidated balance sheets were as follows:

		At June 30, 2008				At December 31, 2007
Unrealized (losses) on forward freight agreements (FFAs)			(59,874	)			(23,800	)
Unrealized gain on EURO hedge			178				182
Unrealized gain on forward fuel purchases			-				107
Unrealized (losses) on derivative financial instruments			(59,696	)			(23,511	)

 

F-6

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

The components of the change in the accumulated unrealized (losses) on derivative financial instruments were as follows:

		For the six-months period ended June 30,
		2008				2007
Reclassification adjustments for amounts included in net income:
-Revenues			17,925				-
-Voyage expenses			(379	)			(45	)
-Depreciation of vessels and equipment			(4	)			(4	)
Change in unrealized impact on:
-FFAs			(53,999	)			177
-Forward fuel purchases			272				282
			(36,185	)			410

d)

Fair value measurements

On September 16, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards N° 157, Fair Value Measurements (“FAS 157”). SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.  The Company adopted SFAS 157 effective January 1, 2008, with no material impact on the Company’s consolidated financial position or its results of operations.

The fair value of an asset or liability, as defined by SFAS 157, is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value.  Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data.  Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair vale of the assets or liabilities.

The Company’s assets and liabilities as of June 30, 2008 that are measured at fair value on a recurring basis are summarized below:

    

	Level 2
Assets
Forward freight agreements	2,560
Liabilities
Forward freight agreements	38,207

e)

Change in accounting estimate

Considering the years of service, the condition and performance of its three Suezmax Oil/Bulk/Ore (OBO) vessels, effective October 1, 2007 management reviewed and extended their estimated useful lives from 24 to 27 years. The impact of this change in estimate on the six-month period ended June 30, 2008 increased net income, basic net income per share and diluted net income per share in the amount of $1,380, $0.04 and $0.04 per share, respectively.

 

F-7

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

f)

Newly issued accounting standards

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133” (“SFAS 161”).  SFAS 161 requires qualitative disclosures about an entity’s objectives and strategies for using derivatives and quantitative disclosures about how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  SFAS 161 is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008, with early application allowed. SFAS 161 allows but does not require comparative disclosures for earlier periods at initial adoption.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS No. 162 will result in a change in current practice and as such will have no impact on its consolidated financial position or its results of operations.

3.	VESSELS AND EQUIPMENT, NET

The capitalized cost of the vessels and equipment, and the related accumulated depreciation at June 30, 2008 and December 31, 2007 were as follows:

		At June 30, 2008				At December 31, 2007
Ocean-going vessels		$	230,424			$	228,090
River barges and pushboats			209,092				172,041
PSVs			113,891				113,862
Construction of PSVs in progress			21,949				19,609
Advance for PSVs construction			39,536				18,226
Passenger vessels			15,724				14,344
Furniture and equipment			6,954				6,784
Building, land and operating base			11,787				11,327
Yard construction in progress			13,061				5,770
Advances to vendors			10,467				6,941
Total original book value			672,885				596,994
Accumulated depreciation			(152,208	)			(134,702	)
Net book value		$	520,677			$	462,292

As of June 30, 2008, the net book value of the assets pledged as a guarantee of our long term financial debt described in note 4 was $304,000.

 

F-8

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

-

River Business

On September 26, 2007 and February 5 and 21, 2008, we entered into purchase agreements to acquire 30 Mississippi barges and a 7,200 HP push-boat, the M/V Harry Waddington, for an aggregate consideration of $8,094.

The Company has also incurred $5,530 in additional direct costs relating to this acquisition and on April 1, 2008 these equipments were positioned in the Hidrovia Region.

On March 27 and 28, 2008, we entered into purchase agreements to acquire 27 Mississippi barges and two push boats, (M/V Joey C and M/V Bob Blocker) for an aggregate consideration of $10,415.

The Company has also incurred $6,163 in additional direct costs relating to this acquisition.

The 30 Mississippi barges and one push boat and 27 Mississippi barges and two push boats were positioned in the Hidrovia Region in April and May 2008, respectively.

-

Offshore Supply Business

On December 21, 2007, UP Offshore (Bahamas) Ltd. signed two contracts with a shipyard in China to construct two PSVs, with deliveries commencing by the end of 2009 and an option for two more PSVs. The price for each new PSV to be constructed in China is $26,400, to be paid in five installments of 20% of the contract price each, prior to delivery. As of June 30, 2008, UP Offshore (Bahamas) Ltd. had paid the first installment of $10,520, which is recorded under Advance for PSVs construction.

The Company did not exercise the option to construct two additional PSVs.

On February 21 and June 13, 2007, UP Offshore (Bahamas) Ltd. signed shipbuilding contracts with a shipyard in India for construction of four PSVs with a combined cost of $88,052, with delivery in June and October 2009 and March and July 2010. The purchase price will be paid in five installments of 20% of the purchase price each, prior to delivery.

As of June 30, 2008, UP Offshore (Bahamas) Ltd. had paid the first and second installment of the two first PSVs under construction in India and the first installment of the two last PSVs under construction in India totaling $26,415, which is recorded under Advance for PSVs construction account.

As of June 30, 2008, the Company had remaining commitments of $108,678 on non-cancelable contracts for the construction of seven PSVs (four in India, two in China and one in Brazil) scheduled for delivery between March 2009 and July 2010.

 

F-9

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

4.	LONG-TERM FINANCIAL DEBT

Balances of long-term financial debt at June 30, 2008 and December 31, 2007:

		Financial institution /				Nominal value
		Other		Due-year		Current		Noncurrent		Total		Interest rate
Ultrapetrol (Bahamas) Ltd.		Private Investors (Notes)		2014		$     -		$180,000		$180,000		9.000%
UP Offshore Apoio		DVB AG		Through 2016		1,344		10,000		11,344		Libor + 1.200%
UP Offshore (Bahamas) Ltd.		DVB AG		Through 2016		4,856		49,500		54,356		Libor + 1.200%
UP Offshore (Bahamas) Ltd.		DVB AG		Through 2017		3,000		20,500		23,500		Libor + 1.500%
Stanyan Shipping Inc.		Natixis		Through 2017		908		11,573		12,481		6.380%
Lowrie Shipping LLC		BICE		Through 2012		6,250		17,188		23,438		Libor + 2.950%
Ultrapetrol (Bahamas) Ltd.		BICE		2008		10,000		-		10,000		Libor + 1.625%
Hallandale Commercial Corp.		Nordea		Through 2014		3,000		15,700		18,700		Libor + 1.250%
Ingatestone Holdings Inc.		DVB AG and Natixis		Through 2019		-		6,900		6,900		Libor + 1.500%
Danube Maritime Inc.		BNP Paribas		Through 2009		4,808		-		4,808		Libor + 0.750%
At June 30, 2008						$34,166		$311,361		$345,527
At December 31, 2007						$17,795		$314,140		$331,935

Loan with DVB Bank AG (DVB AG) and Natixis

On June 24, 2008 Ingatestone Holdings Inc., as Borrower, and Ultrapetrol (Bahamas) Limited, UP Offshore (Bahamas) Ltd., Bayshore Shipping Inc., Gracebay Shipping Inc., Springwater Shipping Inc. and Woodrow Shipping Inc. (all of these our subsidiaries in the Offshore Supply Business), as joint and several Guarantors, entered into a senior secured term loan facility of up to $93,600 with DVB AG and Natixis, as co-lender, to finance the construction and delivery of our PSVs being constructed at Bharati Shipyard Ltd. in India.

This loan is divided into two tranches:

-

Tranche A, amounting to $60,000, to be made available for each ship in the amount of up to $15,000 in multiple advances for the payment of installments of the contract price due under the applicable shipbuilding contract. This tranche accrues interest at LIBO rate plus a margin of 1.5% and shall be repaid by (i) 40 quarterly installments of $250 per ship and (ii) a balloon repayment of $5,000 together with the last installment. The first quarterly repayment shall commence on the date falling three months after the delivery date of such ship.

During the pre-delivery period, advances of Tranche A in respect of each ship shall not exceed $3,450 per advance and in the aggregate for each ship the lesser of (i) 60% of the relevant construction cost and (ii) $13,800.

-

Tranche B, amounting to $33,600, to be made available for each ship in the amount of up to $8,400 in a single advance on the delivery date of such ship. This tranche accrues interest at LIBO rate plus a margin of 1.75% per annum and shall be repaid by 20 quarterly installments of $420 per ship. The first quarterly repayment shall commence on the date falling three months after the delivery date of such ship.

The loan contains customary covenants which are similar to the stipulated covenants in previous loans entered with DVB AG.  The agreements governing the facility also contain customary events of default. If an event of default occurs and is continuing, DVB AG and Natixis may require the entire amount of the loans be immediately repaid in full.

On June 27, 2008, we drew down $6,900 as first advance of the Tranche A applicable to our two first PSVs under construction.

 

F-10

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

Four-year term $25,000 secured loan agreement with Banco BICE

On January 25, 2008, Lowrie Shipping LLC (our wholly owned subsidiary in the Ocean Business and the owner of the Princess Marisol), as Borrower, Ultrapetrol (Bahamas) Limited and Angus Shipping LLC, as Guarantors, and Tuebrook Holdings Inc., as Pledgor entered into a four-year term, $25,000 secured loan agreement with Banco BICE for the purpose of repaying the $25,000 we have borrowed from Banco BICE under the revolving credit facility.

On January 29, 2008 we drew down $25,000 under the secured loan agreement.

The loan shall be repaid by 16 consecutive quarterly installment of $1,562 each beginning in April 2008.  The loan accrues interest at LIBOR plus 2.95% per annum.

The loan is secured by a mortgage on the Princess Marisol and is jointly and severally irrevocable and unconditionally guaranteed by Ultrapetrol (Bahamas) Limited and Angus Shipping LLC.  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 loan contains various restrictive covenants including interest coverage, financial debt to shareholders’ equity and financial debt to EBITDA ratios, as well as customary events of default.

Revolving non-secured credit facility with Banco BICE

On October 12, 2007, we entered into a three-year, $10,000, revolving non-secured credit facility with Banco BICE.  Our obligations under this credit facility are guaranteed by three of our subsidiaries.  This loan bears interest at LIBOR plus 1.625% per annum.

On April 9, 2008, we drew down the $10,000 available under this revolving non-secured credit facility, and on July 30, 2008 we renewed this credit facility until October 13, 2008.

5.	COMMITMENTS AND CONTINGENCIES

The Company is subject to legal proceedings, claims and contingencies arising in the ordinary course of business. When such amounts can be estimated and the contingency is probable, management accrues the corresponding liability.  While the ultimate outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not believe the costs of such actions will have a material effect on the Company’s consolidated financial position or results of operations.

a)

Paraguayan Customs Dispute

On September 21, 2005 the local Customs Authority of Ciudad del Este, Paraguay issued a finding that certain UABL entities owe taxes to that authority in the amount of $2,200, together with a fine for non-payment of the taxes in the same amount, in respect of certain operations of our River Business for the prior three-year period. This matter was referred to the Central Customs Authority of Paraguay. We believe that this finding is erroneous and UABL has formally replied to the Paraguayan Customs Authority contesting all of the allegations upon which the finding was based.

After review of the entire case the Paraguayan Central Tax Authorities who have jurisdiction over the matter have confirmed the Company has no liability in respect of two of the three matters at issue, while they held a dissenting view on the third issue.  Through a Resolution which was notified to UABL on October 13, 2006 the Paraguayan Undersecretary for Taxation has confirmed that, in his opinion, the Company is liable for a total of $731 and has applied a fine of 100% of this amount. On November 24, 2006, the court confirmed that UABL is not liable for the first two issues.  The Company has entered a plea with the respective court contending the interpretation on the third issue where the Company claims to be equally non-liable.

 

F-11

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

We have been advised by UABL’s counsel in the case that they believe that there is only a remote possibility that a court would find UABL liable for any of these taxes or fines.

b)

Tax claim in Bolivia

On November 3, 2006 and April 25, 2007, the Bolivian Tax Authority (Departamento de Inteligencia Fiscal de la Gerencia Nacional de Fiscalización) issued a notice informing that UABL International S.A. (a Panamanian subsidiary of the Company in the River Business) would owe taxes to that authority in the amount of $4,928 (including interest and fines).  On June 18, 2007 our legal counsel in Bolivia submitted points of defense to the Bolivian tax authorities.

On August 27, 2007 the Bolivian tax authorities gave notice of a resolution determining the taxes that UABL International S.A. would owe to them in the amount of approximately $4.9 million (including interest and fines). On October 1, 2007, our legal counsel in Bolivia gave notice to the Bolivian tax authorities of the lawsuit commenced by UABL International S.A. to refute the resolution above mentioned.

We have learned (but have not been legally notified) that on October 20, 2007, the Bolivian Tax Authority replied to UABL's lawsuit, with the corresponding judge participating in the suit stopping the process. On June 26, 2008, a Bolivian court ordered a preemptive embargo against all barges owned by UABL International S.A. that may be registered in the International Bolivian Registry of Ships ("RIBB" for its Spanish acronym).

According to Company's local counsel this preemptive embargo under Bolivian law has no effect over the Company's right to use its assets nor does it have any implication over the final decision of the court, the substance of the matter and in this case it is ineffective since UABL International S.A. does not have any assets owned by it registered in the RIBB.

We have been advised by our local counsel that there is only a remote possibility that UABL International S.A. would finally be found liable for any of these taxes or fines and / or that these proceedings will have financial material adverse impact on the financial position or results of the Company.

c)

Brazilian customs dispute

Our Brazilian subsidiary UP Offshore Apoio Maritimo Ltda. (“UP Apoio”) is involved in a customs dispute with the Brazilian Customs Tax Authorities over the alleged infringement of customs regulations by our PSV UP Diamante in October 2007.  The Customs Authority claims that when the UP Diamante docked alongside the CSO Deep Blue (a vessel not owned by us) to transfer certain equipment as part of its employment instructions under its charter with Petróleo Brasileiro S.A. (“Petrobras”), the UP Diamante allegedly did not comply with certain regulations applicable to the docking of vessels when one of them is destined for a foreign country.  As a result, the Brazilian Customs Tax Authority commenced an administrative proceeding of which UP Apoio was notified in November 24, 2007, and seeks to impose the maximum customs penalty, which corresponds to the confiscation (“perdimento”) of the vessel UP Diamante in favor of the Brazilian Federal Government.

 

F-12

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

On December 21, 2007 UP Apoio filed an administrative defense stating that: (i) the legal position taken by Customs Authority is not applicable to the UP Diamante since the “perdimento” is only applicable to vessels coming from or going to abroad, and not to vessels engaged in cabotage voyages as was the UP Diamante; (ii) UP Diamante did not violate the Customs Regulation Code because (a) there is no provision related to the transfer of equipment when one of the vessels is going abroad but the other is not and (b) none of the vessels involved was coming from or going abroad; (iii) confiscation could not be imposed on a vessel owned by UP Apoio because at the time of the alleged infringement the UP Diamante was on hire and under charter to Petrobras and consequently under the control of Petrobras and not of UP Apoio; (iv) the imposition of confiscation violates the principles of proportionality, reasonability and non-confiscation; and (v) confiscation is not applicable because under Brazilian Tax Code, when in case of doubt, the applicable law should be interpreted in favor of the taxpayer, and in this case the report issued by the Brazilian Customs Authorities recognizes the existence of doubt concerning the applicability of the corresponding section of the Customs Regulation.

Based on the foregoing, our Brazilian counsel has considered that the defense presented by UP Apoio is likely to succeed and therefore classified the potential liability as remote.

6.	FORWARD FREIGHT AGREEMENTS (“FFAs”)

FFAs with LCH Clearnet (“LCH”)

During the second quarter of 2007 the Company entered into Forward Freight Agreements (“FFAs”) with an objective to utilize them as either:  (i) an economic hedging instruments that reduce its exposure to changes in the spot market rates earned by certain of its vessels in the normal course of its Ocean Business, the Suezmax fleet or (ii) for trading purposes to take advantage of short term fluctuations in the market. These FFAs involve a contract to provide a fixed number of theoretical days of voyages at fixed rates. These contracts are net settled each month with the Company receiving a fixed rate per day and paying a floating amount based on the average of the 4 Capesize Time Charter Routes (“C4TC Index”).  We have contracted our Suezmax fleet for most 2008 under time charters that are based on the C4TC Index.  The FFAs are hedging fluctuation in the revenues of the Suezmax fleet which may be based on either the C4TC Index or spot rates.

We entered into FFAs via BNP Paribas Commodity Futures Limited ("BNP Paribas") to LCH Clearnet ("LCH"), a London clearing house.

At June 30, 2008 the outstanding FFAs entered by the Company were as follows:

Days		Fixed rate received ($/Day)		Floating rate paid		Nominal amount (in thousands)		Fair value Asset (Liability) (in thousands)		Settlement date
90 (1)		77,250		C4TC		$     6,953		$ (7,145)		July to December 2008
180 (1)		51,000		C4TC		9,180		(13,231)		January to December 2009
						$   16,133		$(20,376)

(1) Corresponds to 15 days per each month.

 

F-13

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

At June 30, 2008 the fair market value of all FFAs resulted in a liability to the Company of $20,376, which was offset against the cash collateral amounting to $25,236 and was recorded in the non-current restricted cash on the unaudited condensed consolidated balance sheet.

FFAs representing positions from July 2008 to December 2009 have been designated as cash flow hedges for accounting purposes with the change in fair value being recorded in other comprehensive income (loss) as an unrealized loss amounting to $20,376 at June 30, 2008.  Any gain or loss will be realized in future earnings contemporaneously with the related revenue generated for our Suezmax fleet in the Ocean Business.

In connection with the outstanding FFAs, at June 30, 2008, we had transferred $25,236 to cover the margin requirements for these transactions. We have a credit facility for a total amount of $9,000 with BNP Paribas to cover initial and variation margin requirements. We will pay interest at LIBOR plus 0.75% per annum if amounts are withdrawn under this facility.  At June 30, 2008, the outstanding balance of the credit facility was $4,808.

Although the use of a clearing house reduces the Company’s exposure to counterparty credit risk, the Company is exposed to credit loss in the event of non-performance by the counterparty to the FFAs; however, the Company does not currently expect non-performance by the counterparty.

These FFAs are valued using actively quoted prices and quotes obtained from reputable unaffiliated financial institutions.

During the six-month periods ended June 30, 2008 and 2007, the Company recorded an aggregate net realized income of $5,862 and an aggregate net unrealized loss of $3,073, respectively for FFAs that were not designated as cash flow hedges for accounting purposes and for the ineffective portion of FFAs designated as cash flow hedges for accounting purposes, which is reflected on the Company´s unaudited condensed consolidated statement of income as Other income (expenses) – Net income (loss) on FFAs. During the six-month period ended June 30, 2008, we realized cash settlements in an amount of $5,408 for our January to March 2008 FFAs positions and $11,256 for April and May 2008 FFAs positions.

Terminated FFAs with LCH

On May 16 and 19, 2008, the Company terminated FFAs positions entered via BNP Paribas to LCH from June 2008 to December 2008 as follows:

Days		Fixed rate paid ($/day)		Fixed rate received ($/day)		Total settlement (in thousands)		Unrealized loss in other comprehensive income (loss) as of June 30, 2008		Period
15		194,500		80,000		$ 1,718		$     -		June 2008
15		194,500		79,500		1,725		-		June 2008
30		193,500		77,250		3,487		-		June 2008
90 (1)		170,000		80,000		8,100		(8,100)		July to December 2008
90 (1)		166,000		79,500		7,785		(7,785)		July to December 2008
94 (2)		166,000		77,250		8,342		(8,342)		July to December 2008
						$31,157		$(24,227)

(1)

Corresponds to 15 days per month.

(2)

Corresponds to 15 days in each of September and November, and 16 days in each of July, August, October and December.

 

F-14

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

During the six-month period ended June 30, 2008 the Company realized cash settlements totaled $31,157. $24,227 out of this amount correspond of cash settlements for contracts maturing from July 2008 to December 2008. This amount has been recorded in other comprehensive income (loss) at June 30, 2008 and shall be reclassified into revenues during the second half of 2008, when the revenues of the Suezmax fleet occurs.

FFAs on OTC

During 2008 the Company entered into FFAs with an objective to utilize them as an economic hedging instruments to reduce its exposure to changes in the spot market rates earned by certain of its vessels in the normal course of its Ocean Business, the Capesize OBOs fleet.  These FFAs involve a contract to provide a fixed number of theoretical days of voyages at fixed rates.  These contracts are net settled each month with the Company receiving a fixed rate per day and paying a floating amount based on the average of the C4TC Index.  The FFAs are hedging fluctuation in the revenues of the Capesize OBOs fleet which may be based on either the C4TC Index or spot rates.

At June 30, 2008 the outstanding FFAs entered by the Company were as follows:

Days		Fixed rate received ($/Day)		Floating  rate paid		Nominal  amount (in thousands)		Fair value Asset (Liability)  (in thousands)		Settlement date
182.5           (1)		90,000		C4TC		$16,425		$ (6,278)		January to December 2009
182.5           (1)		90,500		C4TC		16,516		(6,187)		January to December 2009
182.5           (1)		95,000		C4TC		17,338		(5,366)		January to December 2009
90                (2)		168,000		C4TC		15,120		1,022		July to December 2008
184              (3)		165,000		C4TC		30,360		1,538		July to December 2008
						$95,759		$(15,271)

(1)

Corresponds to 50% days of every calendar month.

(2)

Corresponds to 15 days per month.

(3)

Corresponds to each calendar month.

At June 30, 2008 the fair market value of all FFAs resulted in receivables of $2,560 recorded in the current receivables, payables of $11,816 recorded in the current other payables, and payables of $6,015 recorded in the non-current other payables on the unaudited condensed consolidated balance sheet.

These FFAs have been designated as cash flow hedges for accounting purposes with the change in fair value being recorded in other comprehensive income (loss) as an unrealized loss amounting to $15,271 at June 30, 2008.  Any gain or loss will be realized in future earnings contemporaneously with the related revenue generated for our Capesize OBOs fleet in the Ocean Business.

These FFAs are valued using actively quoted prices and quotes obtained from reputable financial institutions.

During the six-month period ended June 30, 2008 the Company realized cash settlements for its June 2008 FFAs positions totaled $189.

These FFAs are Over the Counter Contracts (OTC) and as such they are not agreed through a clearing house, they have no margin account requirements and bears a higher counterparty risk than a cleared FFA, however the Company does not currently expect non-performance by the counterparties.  Our counterparties are subsidiaries of major international grain houses.

 

F-15

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

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 from sources outside the Bahamas and such earnings were not subject to Bahamian taxes.

b)

Panama

The earnings from shipping operations were derived from sources outside Panama and such earnings were not subject to Panamanian taxes.

c)

Paraguay

Our subsidiaries in Paraguay are subject to Paraguayan corporate income taxes.

d)

Argentina

Our subsidiaries in Argentina 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 companies’ tax obligation in any given year will be the higher of these two tax amounts.  However, if in any given tax year TOMPI exceeds income tax, such excess may be computed as payment on account of any excess of income tax over TOMPI that may arise in any of the ten following years.

e)

Brazil

Our subsidiaries in Brazil are subject to Brazilian corporate income taxes.

UP Offshore Apoio Maritimo Ltda., has foreign currency exchange gains recognized for tax purposes only in the period the debt (including intercompany transactions) is extinguished.  A deferred income tax liability is recognized in the period the foreign currency exchange rate changes equal to the future taxable income at the applicable tax rate.

f)

Chile

Our subsidiary in the Ocean Business, Corporación de Navegación Mundial S.A. (Cor.Na.Mu.S.A.) is subject to Chilean corporate income taxes.

g)

US federal income tax

Under the US Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of our vessel owning or chartering subsidiaries attributable to transportation that begins or ends, but that does not both begin and end, in the U.S. are characterized as U.S. source shipping income.  Such income is subject to 4% U.S. federal income tax without allowance for deduction, unless our subsidiaries qualify for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.

 

F-16

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

For the six-month periods ended June 30, 2008 and 2007 our subsidiaries did not derive any U.S. source shipping income.  Therefore our subsidiaries are not subject to any U.S. federal income taxes, except our ship management services provided by Ravenscroft.

h)

United Kingdom (UK)

Our subsidiary in the Offshore Supply Business, UP Offshore (UK) Limited, is not subject to corporate income tax in the United Kingdom, rather, it qualifies under UK tonnage tax rules and pays a flat rate based on the net tonnage of qualifying PSVs.

8.	RELATED PARTY TRANSACTIONS

At June 30, 2008 and December 31, 2007, the balances of receivables from related parties, were as follows:

		At June 30, 2008				At December 31, 2007
Current:
Receivable from related parties
−Puertos del Sur S.A. and O.T.S.		$	2,746			$	2,582
−Maritima Sipsa S.A.			64				156
−Other			312				66
		$	3,122			$	2,804
Noncurrent:
Receivable from related parties - Puertos del Sur S.A.		$	2,280			$	2,280

At June 30, 2008 and December 31, 2007, the balance of payable to related parties were as follows:

		At June 30, 2008				At December 31, 2007
Payable to related parties --
Maritima Sipsa S.A.		$	763			$	718

 

F-17

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

Revenues from related parties

For the six-month periods ended June 30, 2008 and 2007, the revenues derived from related parties were as follows:

		For the six-month periods ended June 30,
		2008				2007
Maritima Sipsa S.A. (1)		$	-			$	1,886
Maritima Sipsa S.A.			-				125
		$	-			$	2,011

(1)

Sale and repurchase of vessel Princess Marina

In 2003, the Company entered into certain transactions to sell, and repurchase, to and from Marítima Sipsa S.A., a 49% owned company, the vessel Princess Marina.  The transaction was recognized in the Company’s statements of income as a lease.  On September 28, 2007 Marítima Sipsa S.A. delivered the vessel Princess Marina to us and we sold to a third party in October 2007.

9.	SHARE CAPITAL

Common shares and shareholders

On September 21, 2006, Inversiones Los Avellanos S.A., Hazels (Bahamas) Investments Inc. and Solimar Holdings Ltd. (collectively the “Original Shareholders”) signed a second amended and restated shareholders agreement.  The shares held directly by our Original Shareholders expressly entitle to seven votes per share and all other holders of our common stock entitle to one vote per share.  The special voting rights of the Original Shareholders are not transferable.

On March 17, 2008 Ultrapetrol (Bahamas) Limited’s Board of Directors has approved a share repurchase program, effective March 17, 2008, for up to a total of $50,000 of the Company’s common stock through September 30, 2008.  The expiration date and/or amount of the share repurchase program will be extended or amended at the discretion of the Board of Directors.  Share repurchases will be made from time to time for cash in open market transactions at prevailing market prices or in privately negotiated transactions.

At June 30, 2008, the Company repurchased a total of 671,171 common shares, acquired for treasury at an aggregate cost of $6,466.

At June 30, 2008, the issued and outstanding shares are 32,771,859 par value $.01 per share.

At June 30, 2008 our shareholders Solimar Holdings Ltd., Inversiones Los Avellanos S.A. and Hazels (Bahamas) Investments Inc. (a wholly owned subsidiary of Inversiones Los Avellanos S.A.) hold 2,977,690, 4,735,517 and 150,878 shares, respectively, which represent 9.04%, 14.44% and 0.46%, respectively.  The joint voting power for these shares represents approximately 68.5% of the total voting power.

10.	BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION

The Company organizes its business and evaluates performance by its operating segments, River, Offshore Supply, Ocean and Passenger Business.  The accounting policies of the reportable segments are the same as those for the unaudited condensed consolidated financial statements. The Company does not have significant intersegment transactions.  These segments and their respective operations are as follows:

 

F-18

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

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 pushboats and barges on the navigable waters of Parana, Paraguay and Uruguay Rivers and part of the River Plate in South America, also known as the Hidrovia region.

Offshore Supply Business:  We operate our Offshore Supply Business, using PSVs owned by UP Offshore (Bahamas), three are employed in the North Sea and two in the Brazilian market.  PSVs are designed to transport supplies such as containerized equipment, drill casing, pipes and heavy loads on deck, along with fuel, water, drilling fluids and bulk cement in under deck tanks and a variety of other supplies to drilling rigs and platforms.

Ocean Business:  In our Ocean Business, we operate nine oceangoing vessels and semi-integrated oceangoing tug barge units (eight of these owned and one leased) under the trade name Ultrapetrol. Our Suezmax, Capesize and Handysize/small product tankers 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.

Passenger Business:  We owned and operated two vessels during 2007, which were purchased in 2005. In November 2007, we sold our largest passenger vessel New Flamenco. The business is concentrated in the Mediterranean and Aegean 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 six-month periods ended June 30,
		2008				2007
Revenues (1)
−South America		$	73,786			$	51,460
−Europe			75,582				45,093
−Asia			-				3,388
−Other			1,011				911
		$	150,379			$	100,852
(1)Classified by country of domicile of charterers.

Revenue by segment consists only of services provided to external customers, as reported in the unaudited condensed consolidated statement of income.  Resources are allocated based on segment profit or loss from operation, before interest and taxes.

Identifiable assets represent those assets used in the operations of each segment.

 

F-19

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

The following schedule presents segment information about the Company’s operations for the six-month period ended June 30, 2008:

		River Business				Offshore Supply Business				Ocean Business				Passenger Business				Total
Revenues		$	62,011			$	20,161			$	65,323			$	2,884			$	150,379
Running and voyage expenses			48,442				9,277				19,576				6,718				84,013
Depreciation and amortization			6,165				2,378				9,713				1,703				19,959
Segment operating profit (loss)			3,365				7,352				32,551				(5,736	)			37,532
Segment assets			231,260				185,389				176,888				13,201				606,738
Investment in affiliates			1,875				-				333				-				2,208
Income (loss) from investment in affiliates			78				-				(127	)			-				(49	)
Additions to long-lived assets		$	49,511			$	23,689			$	1,516			$	1,380			$	76,096

Reconciliation of total assets of the segments to amount included in the unaudited condensed consolidated balance sheet as follow:

		At June 30, 2008
Total assets for reportable segments		$	606,738
Other assets			12,582
Corporate cash and cash equivalents			30,457
Consolidated total assets		$	649,777

The following schedule presents segment information about the Company’s operations for the six-month period ended June 30, 2007:

		River Business				Offshore Supply Business				Ocean Business				Passenger Business				Total
Revenues		$	45,025			$	19,070			$	25,513			$	11,244			$	100,852
Running and voyage expenses			29,951				6,430				7,889				11,868				56,138
Depreciation and amortization			4,610				1,994				7,292				2,563				16,459
Segment operating profit (loss)			6,982				8,534				6,620				(3,684	)			18,452
Income from investment in affiliates			18				-				275				-				293
Additions to long-lived assets		$	36,214	(1)		$	14,595			$	25,271			$	2,462			$	78,542

a.

Includes the 12 river barges and a push boat acquired in the Otto Candies acquisition valued at $13,679.

11.	SUPPLEMENTAL GUARANTOR INFORMATION

On November 24, 2004, the Company issued $180,000 9% First Preferred Ship Mortgage Notes due 2014.

The 2014 Senior Notes are fully and unconditionally guaranteed on a joint and several senior basis by the majority of the Company’s subsidiaries directly involved in our Ocean and River Business.

 

F-20

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

The Indenture provides that the 2014 Senior Notes and each of the guarantees granted by the Company’s subsidiaries, other than the mortgage, are governed by, and construed in accordance with, the laws of the state of New York.  Each of the mortgaged vessels is registered under either the Panamanian flag, or another jurisdiction with similar procedures. All of the subsidiary guarantors are located outside of the United States.

Supplemental condensed combining financial information for the guarantor subsidiaries for the 2014 Senior Notes is presented below.  This information is prepared in accordance with the Company’s accounting policies.  This supplemental financial disclosure should be read in conjunction with the unaudited condensed consolidated financial statements.

 

F-21

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

AT JUNE 30, 2008 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Current assets
Receivables from related parties		$	278,368			$	159,459			$	23,400			$	(458,105	)		$	3,122
Other current assets			5,741				31,245				46,543				-				83,529
Total current assets			284,109				190,704				69,943				(458,105	)			86,651
Noncurrent assets
Vessels and equipment, net			-				142,628				379,197				(1,148	)			520,677
Investment in affiliates			132,698				-				2,208				(132,698	)			2,208
Other noncurrent assets			6,164				9,877				24,200				-				40,241
Total noncurrent assets			138,862				152,505				405,605				(133,846	)			563,126
Total assets		$	422,971			$	343,209			$	475,548			$	(591,951	)		$	649,777
Current liabilities
Payable to related parties		$	-			$	296,254			$	162,614			$	(458,105	)		$	763
Other financial debt			-				4,808				29,358				-				34,166
Other current liabilities			2,538				21,718				15,257				-				39,513
Total current liabilities			2,538				322,780				207,229				(458,105	)			74,442
Noncurrent liabilities
Long-term financial debt			180,000				-				131,361				-				311,361
Other noncurrent liabilities			-				6,561				12,813				-				19,374
Total noncurrent liabilities			180,000				6,561				144,174				-				330,735
Total liabilities			182,538				329,341				351,403				(458,105	)			405,177
Minority interest			-				-				-				4,167				4,167
Shareholders’ equity			240,433				13,868				124,145				(138,013	)			240,433
Total liabilities, minority interest and shareholders’ equity		$	422,971			$	343,209			$	475,548			$	(591,951	)		$	649,777

 

F-22

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

AT DECEMBER 31, 2007

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Current assets
Receivables from related parties		$	290,349			$	116,818			$	14,166			$	(418,529	)		$	2,804
Other current assets			30,714				24,251				47,472				-				102,437
Total current assets			321,063				141,069				61,638				(418,529	)			105,241
Noncurrent assets
Vessels and equipment, net			-				139,938				323,532				(1,178	)			462,292
Investment in affiliates			134,061				-				2,257				(134,061	)			2,257
Other noncurrent assets			6,638				25,402				20,330				-				52,370
Total noncurrent assets			140,699				165,340				346,119				(135,239	)			516,919
Total assets		$	461,762			$	306,409			$	407,757			$	(553,768	)		$	622,160
Current liabilities
Payable to related parties		$	1,097			$	270,215			$	147,935			$	(418,529	)		$	718
Other financial debt			4,688				-				13,107				-				17,795
Other current liabilities			2,522				8,264				11,174				-				21,960
Total current liabilities			8,307				278,479				172,216				(418,529	)			40,473
Noncurrent liabilities
Long-term financial debt			200,313				-				113,827				-				314,140
Other noncurrent liabilities			-				562				10,101				-				10,663
Total noncurrent liabilities			200,313				562				123,928				-				324,803
Total liabilities			208,620				279,041				296,144				(418,529	)			365,276
Minority interest			-				-				-				3,742				3,742
Shareholders’ equity			253,142				27,368				111,613				(138,981	)			253,142
Total liabilities, minority interest and shareholders’ equity		$	461,762			$	306,409			$	407,757			$	(553,768	)		$	622,160

 

F-23

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	89,493			$	62,781			$	(1,895	)		$	150,379
Operating expenses			(4,097	)			(58,149	)			(52,467	)			1,866				(112,847	)
Operating profit (loss)			(4,097	)			31,344				10,314				(29	)			37,532
Investment in affiliates			34,763				-				(49	)			(34,763	)			(49	)
Other income (expenses)			(1,613	)			(4,656	)			1,631				-				(4,638	)
Income before income taxes and minority interest			29,053				26,688				11,896				(34,792	)			32,845
Income taxes			-				(66	)			(3,301	)			-				(3,367	)
Minority interest			-				-				-				(425	)			(425	)
Net income		$	29,053			$	26,622			$	8,595			$	(35,217	)		$	29,053

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	37,538			$	66,516			$	(3,202	)		$	100,852
Operating expenses			(4,300	)			(30,412	)			(50,861	)			3,173				(82,400	)
Operating profit (loss)			(4,300	)			7,126				15,655				(29	)			18,452
Investment in affiliates			6,068				-				293				(6,068	)			293
Other income (expenses)			1,139				(11,955	)			(913	)			-				(11,729	)
Income (loss) before income taxes and minority interest			2,907				(4,829	)			15,035				(6,097	)			7,016
Income taxes			-				(189	)			(3,597	)			-				(3,786	)
Minority interest			-				-				-				(323	)			(323	)
Net income (loss)		$	2,907			$	(5,018	)		$	11,438			$	(6,420	)		$	2,907

 

F-24

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Net income		$	29,053			$	26,622			$	8,595			$	(35,217	)		$	29,053
Adjustments to reconcile net income to net cash provided by operating activities			(34,950	)			(15,127	)			(603	)			35,217				(15,463	)
Net cash (used in) provided by operating activities			(5,897	)			11,495				7,992				-				13,590
Intercompany sources			(18,619	)			(31,638	)			1,097				49,160				-
Non-subsidiary sources			-				13,695				(66,415	)			-				(52,720	)
Net cash (used in) provided by investing activities			(18,619	)			(17,943	)			(65,318	)			49,160				(52,720	)
Intercompany sources			20,541				-				28,619				(49,160	)			-
Non-subsidiary sources			(21,766	)			4,808				22,283				-				5,325
Net cash (used in) provided by financing activities			(1,225	)			4,808				50,902				(49,160	)			5,325
Net (decrease) increase in cash and cash equivalents		$	(25,741	)		$	(1,640	)		$	(6,424	)		$	-			$	(33,805	)

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Net income (loss)		$	2,907			$	(5,018	)		$	11,438			$	(6,420	)		$	2,907
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities			(7,414	)			(2,220	)			32,508				6,420				29,294
Net cash (used in) provided by operating activities			(4,507	)			(7,238	)			43,946				-				32,201
Intercompany sources			(18,709	)			-				-				18,709				-
Non-subsidiary sources			-				(20,781	)			(66,579	)			-				(87,360	)
Net cash (used in) provided by investing activities			(18,709	)			(20,781	)			(66,579	)			18,709				(87,360	)
Intercompany sources			-				33,701				(14,992	)			(18,709	)			-
Non-subsidiary sources			91,005				1,025				45,882				-				137,912
Net cash provided by (used in) financing activities			91,005				34,726				30,890				(18,709	)			137,912
Net increase in cash and cash equivalents		$	67,789			$	6,707			$	8,257			$	-			$	82,753

 

F-25

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

12.	SUBSEQUENT EVENTS

Sale of Blue Monarch

On June 30, 2008, we entered into a Memorandum of Agreement (MOA) subsequently modified by two addendums signed on July 24 and August 6, 2008, whereby we have agreed to sell our passenger vessel Blue Monarch. The net proceeds of this sale to the company shall be $8,300. Under the terms of the agreement the buyers must deposit the purchase price prior to August 25, 2008 in a joint escrow account, while the delivery of the vessel will take place at the end of the current cruising season in the Aegean. If the purchase price is not deposited in accordance with the MOA by August 25, 2008, this transaction may not materialize as agreed.

OTC FFA for fourth quarter 2008

On August 12, 2008, we entered into an OTC FFA contract to pay the average time charter rate for the C4TC for a total of 45 days (15 days per month from October to December 2008 both inclusive) in exchange for a fixed rate of $150,000 (one hundred and fifty thousand U.S. Dollars) per day. This FFA is an OTC contract, has no margin requirements and bears a higher counterparty risk.

 

F-26

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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:  August 12, 2008	By:	/s/ Felipe Menendez R.
		Felipe Menendez R.
		Chief Executive Officer

SK 02351 0010 910166

 

 

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