UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

  Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE

 

SECURITIES EXCHANGE ACT OF 1934

 

For the month of November 2008 

Commission File Number: 001-33068

 

ULTRAPETROL (BAHAMAS) LIMITED

 (Translation of registrant’s name into English)

 

Ocean Centre, Montagu Foreshore

East Bay St.

Nassau, Bahamas

P.O. Box SS-19084

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports

under cover of Form 20-F or Form 40-F.

 

Form 20-F [X] Form 40-F [ ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as

permitted by Regulation S-T Rule 101(b)(1): ___

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)7: ___

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

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]

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 

 

 

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ULTRAPETROL (BAHAMAS) LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 1,025,000 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 745,000 dwt.

 

Our Passenger Business owns and operates a passenger cruise vessel, the Blue Monarch, with 450 lower berths, which we employed on 7-day and 14-day cruises in the Aegean Sea during the 2008 European cruise season. This vessel is currently in lay-up after completing its 2008 cruising season and is in the market for sale or charter.

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 September 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 was 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 nine months of 2008, while COA revenues accounted for 43%. With respect to COA revenues in the first nine months of 2008, 77% were in respect of repetitive voyages for our regular customers and 23% 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 nine months ended September 30, 2008. During the first nine months of 2008, the international dry bulk freight market was on average higher than it was in the first nine months of 2007.

 

 

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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.

 

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 for using small port pushboats and other expenses that may be incurred in relation 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 suitable 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 September 30, 2008, we had aggregate indebtedness of $395.9 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 $86.9 million under three senior loan facilities with DVB, indebtedness of our subsidiary Ingatestone Holdings Inc. of $6.9 million under a senior loan facility with DVB / Natixis, indebtedness of our subsidiary Stanyan Shipping Inc. of $12.3 million under a senior loan facility with Natixis, indebtedness of our subsidiary Hallandale Commercial Corp. of $17.9 million under a senior loan facility with Nordea Bank, indebtedness of our subsidiary Lowrie Shipping LLC of $21.9 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 subsidiaries UABL Barges (Panama) Inc., Marine Financial Investment Corp., Eastham Barges Inc. and UABL Paraguay S.A. of $60.0 million in the aggregate under two senior loan facilities with International Finance Corporation, and total accrued interest of $6.4 million.

At September 30, 2008, we had cash and cash equivalents on hand of $106.7 million. In addition, we had $4.9 million in current and non current restricted cash.

 

Operating Activities

 

In the nine months ended September 30, 2008, we generated $40.3 million in cash flow from operations compared to $42.7 million in the same period of 2007. Cash flow from operations for the nine months ended September 30, 2008 includes ($12.6) million in net cash settlements on FFAs, which correspond to (i) the replacement of certain

 

15

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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, and to (ii) the remaining cash settlements of the cleared and OTC FFAs which occurred during the period. We had a net income of $44.1 million for the first nine months ended September 30, 2008, as compared to a net loss of ($1.8) million in the same period of 2007, an increase of $45.9 million. Included in the result for the first nine months ended September 30, 2008 are $5.9 million in non-cash gains due to the mark-to-market under our FFAs in the first quarter of 2008 and a non-cash gain of $1.6 million due to the net effect during the period of the provision for 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.

 

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 nine months ended September 30, 2008, we disbursed $16.0 million to enlarge and refurbish barges and pushboats, $9.7 million in new engines and the construction / modification of the pushboat that will receive them, $29.4 million as part of the purchase of 45 Mississippi barges and three pushboats, $12.2 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 China, 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 $55.7 million during the nine months ended September 30, 2008, compared to net cash provided by financing activities of $142.4 million during the same period of 2007. The decrease in cash provided by financing activities is mainly attributable to the $6.5 million used in repurchasing shares as compared to none in the same period of 2007, $13.0 million used in principal repayments as compared to $5.1 million in the same period of 2007, and $91.1 million less of net proceeds from offering of common shares (no new public offerings in the nine months ended September 30, 2008), partially offset by $25.3 million less in early repayments of financial debt in the nine months ended September 30, 2008 and $9.7 million more of proceeds from long-term financial debt.

 

Future Capital Requirements

 

 

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Supplemental Information

 

The following table reconciles our EBITDA to our net income (loss):

$(000)				Nine Months Ended September 30,
				2008				2007
Net Income (loss)				$	44,118			$	(1,830	)
Plus
Financial expense					19,027				14,639
Income taxes					296				5,032
Depreciation and amortization					30,383				25,430
EBITDA (1)				$	93,824			$	43,271

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

 

$(000)				Nine Months Ended September 30, 2008
				River				Offshore Supply				Ocean				Passenger				TOTAL
Segment operating profit (loss)				$	5,073			$	12,401			$	48,007			$	(7,205	)		$	58,276
Depreciation and amortization					9,544				3,628				14,584				2,627				30,383
Investment in affiliates / Minority interest					(118	)			(864	)			(131	)			-				(1,113	)
Other, net(2)					(451	)			26				6				-				(419	)
Net income on FFAs					-				-				5,862				-				5,862
Segment EBITDA				$	14,048			$	15,191			$	68,328			$	(4,578	)		$	92,989
Items not included in segment EBITDA
Financial income																					835
Consolidated EBITDA																				$	93,824

 

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$(000)				Nine Months Ended September 30, 2007
				River				Offshore Supply				Ocean				Passenger				TOTAL
Segment operating profit (loss)				$	9,262			$	13,076			$	11,040			$	(1,149	)		$	32,229
Depreciation and amortization					7,134				3,175				10,968				4,153				25,430
Investment in affiliates / Minority interest					(72	)			(520	)			543				-				(49	)
Other, net(2)					(415	)			17				26				(28	)			(400	)
Net loss on FFAs					-				-				(16,235	)			-				(16,235	)
Segment EBITDA				$	15,909			$	15,748			$	6,342			$	2,976			$	40,975
Items not included in segment EBITDA
Financial income																					2,296
Consolidated EBITDA																				$	43,271

(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 September 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 September 30, 2008 (unaudited) and December 31, 2007		- F-1 -
–Condensed consolidated statements of operations for the nine-month periods ended September 30, 2008 and 2007 (unaudited)		- F-2 -
–Condensed consolidated statements of changes in shareholders’ equity for the nine-month periods ended September 30, 2008 and 2007 (unaudited)		- F-3 -
–Condensed consolidated statements of cash flows for the nine-month periods ended September 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 September 30, 2008 (unaudited)				At December 31, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	106,721			$	64,262
Restricted cash			2,075				-
Accounts receivable, net of allowance for doubtful accounts of $288 and $248          in 2008 and 2007, respectively			31,529				15,680
Receivables from related parties			2,917				2,804
Operating supplies			6,530				4,961
Prepaid expenses			7,694				3,198
Other receivables			59,413				14,336
Total current assets			216,879				105,241
NONCURRENT ASSETS
Other receivables			36,563				7,793
Receivables from related parties			2,280				2,280
Restricted cash			2,846				20,168
Vessels and equipment, net			532,908				462,292
Dry dock			4,032				4,428
Investment in affiliates			2,007				2,257
Intangible assets			2,372				2,961
Goodwill			5,015				5,015
Other assets			7,599				6,877
Deferred income tax assets			2,693				2,848
Total noncurrent assets			598,315				516,919
Total assets		$	815,194			$	622,160
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	19,079			$	16,813
Payable to related parties			19				718
Accrued interest			6,400				2,579
Current portion of long-term financial debt			29,358				17,795
Other payables			2,562				2,568
Total current liabilities			57,418				40,473
NONCURRENT LIABILITIES
Long-term financial debt			366,521				314,140
Deferred income tax liability			9,570				10,663
Total noncurrent liabilities			376,091				324,803
Total liabilities			433,509				365,276
MINORITY INTEREST			4,605				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			267,981				266,647
Treasury stock 671,171 shares			(6,459	)			-
Accumulated earnings			53,790				9,672
Accumulated other comprehensive income (loss)			61,441				(23,511	)
Total shareholders’ equity			377,080				253,142
Total liabilities, minority interest and shareholders’ equity		$	815,194			$	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 OPERATIONS (UNAUDITED)

 

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

 

		For the nine-month periods ended September 30,
		2008				2007
REVENUES
Revenues from third parties		$	241,683			$	160,990
Revenues from related parties			-				2,952
Total revenues			241,683				163,942
OPERATING EXPENSES
Voyage expenses			(65,090	)			(38,857	)
Running costs			(74,015	)			(53,579	)
Amortization of dry docking			(2,813	)			(5,450	)
Depreciation of vessels and equipment			(26,981	)			(19,391	)
Amortization of intangible assets			(589	)			(589	)
Administrative and commercial expenses			(17,684	)			(14,425	)
Other operating income			3,765				578
			(183,407	)			(131,713	)
Operating profit			58,276				32,229
OTHER INCOME (EXPENSES)
Financial expense			(19,027	)			(14,639	)
Financial income			835				2,296
Net income (loss) on FFAs			5,862				(16,235	)
Investment in affiliates			(250	)			454
Other, net			(419	)			(400	)
Total other expenses			(12,999	)			(28,524	)
Income before income taxes and minority interest			45,277				3,705
Income taxes			(296	)			(5,032	)
Minority interest			(863	)			(503	)
Net income (loss)		$	44,118			$	(1,830	)
Basic net income (loss) per share		$	1.35			$	(0.06	)
Diluted net income (loss) per share		$	1.34			$	(0.06	)
Basic weighted average number of shares			32,749,884				31,061,380
Diluted weighted average number of shares			32,897,548				31,061,380

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

 

F-2

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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			-				-				1,374				-				-				-				1,374
Comprehensive income:
–Net loss			-				-				-				-				(1,830	)			-				(1,830	)
–Effect of derivative financial      instruments			-				-				-				-				-				(19,086	)			(19,086	)
Total comprehensive loss																											(20,916	)
September 30, 2007			33,443,030			$	334			$	266,243			$	-			$	3,401			$	(18,997	)		$	250,981
December 31, 2007			33,443,030			$	334			$	266,647			$	-			$	9,672			$	(23,511	)		$	253,142
Compensation related to      options and restricted      stock granted			-				-				1,334				-				-				-				1,334
Repurchase of common shares			(671,171	)			(7	)			-				(6,459	)			-				-				(6,466	)
Comprehensive income
–Net income			-				-				-				-				44,118				-				44,118
–Effect of derivative financial      instruments			-				-				-				-				-				84,952				84,952
Total comprehensive income																											129,070
September 30, 2008			32,771,859			$	327			$	267,981			$	(6,459	)		$	53,790			$	61,441				377,080

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 nine-month periods ended September 30,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	44,118			$	(1,830	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of vessels and equipment			26,981				19,391
Amortization of dry docking			2,813				5,450
Expenditure for dry docking			(2,417	)			(4,740	)
Net (income) loss on FFAs			(5,862	)			16,235
Cash settlements on FFAs, net			(12,562	)			-
Amortization of intangible assets			589				589
Share-based compensation			1,334				1,374
Note issuance expenses amortization			1,100				750
Minority interest in equity of subsidiaries			863				503
Net loss (gain) from investment in affiliates			250				(454	)
Allowance for doubtful accounts			40				142
Changes in assets and liabilities net of effects from purchase of Otto Candies in 2007:
Decrease (increase) in assets:
Restricted cash			(1,085	)			-
Accounts receivable			(15,889	)			1,219
Receivable from related parties			(113	)			(457	)
Operating supplies			(1,569	)			(95	)
Prepaid expenses			(4,496	)			(2,438	)
Other receivables			(409	)			(1,293	)
Other			2,391				466
Increase (decrease) in liabilities:
Accounts payable			2,266				2,144
Payable to related parties			(699	)			(420	)
Other			2,613				6,136
Net cash provided by operating activities			40,257				42,672
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vessels and equipment ($21,712 and $16,277 in 2008 and 2007 for vessels in construction)			(99,899	)			(89,879	)
Purchase of Otto Candies, net of cash acquired			-				(13,772	)
Net decrease (increase) in funding cash collateral of FFAs			51,851				(41,992	)
Cash settlements of FFAs			(5,408	)			(935	)
Net cash (used in) investing activities			(53,456	)			(146,578	)
CASH FLOWS FROM FINANCING ACTIVITIES
Scheduled repayments of long-term financial debt			(12,954	)			(5,104	)
Early repayments of long-term financial debt			-				(25,300	)
Proceeds from long-term financial debt			91,900				82,244
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 common shares			(6,466	)			-
Other, net			(1,822	)			(532	)
Net cash provided by financing activities			55,658				142,402
Net increase in cash and cash equivalents			42,459				38,496
Cash and cash equivalents at the beginning of year		$	64,262			$	20,648
Cash and cash equivalents at the end of period		$	106,721			$	59,144

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

 

F-4

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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 nine-month periods ended September 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 transport 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.

 

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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 (loss) per share:

			For the nine-month periods ended September 30,
			2008				2007
	Net income (loss)		$	44,118			$	(1,830	)
	Basic weighted average number of shares			32,749,884				31,061,380
	Effect on dilutive shares:
	Options and restricted stock			84,876				-
	Warrants issued			62,788				-
	Diluted weighted average number of shares			32,897,548				31,061,380
	Basic net income (loss)  per share		$	1.35			$	(0.06	)
	Diluted net income gain (loss) per share		$	1.34			$	(0.06	)

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 September 30, 2008				At December 31, 2007
	Unrealized gain (losses) on forward freight agreements (FFAs)			61,265				(23,800	)
	Unrealized gain on EURO hedge			176				182
	Unrealized gain on forward fuel purchases			-				107
	Unrealized gain (losses) on derivative financial instruments			61,441				(23,511	)

 

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

			For the nine-months period ended September 30,
			2008				2007
	Reclassification adjustments for amounts included in net income (loss):
	-- Revenues			25,343				-
	-- Voyage expenses			(379	)			98
	-- Depreciation of vessels and equipment			(6	)			(6	)
	Change in unrealized impact on:
	-- FFAs			59,722				(19,178	)
	-- Forward fuel purchases			272				-
				84,952				(19,086	)

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 (“SFAS 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 value of the assets or liabilities.

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

			Level 2
	Assets
	Forward freight agreements			73,379

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 nine-month period ended September 30, 2008 increased net income, basic net income per share and diluted net income per share in the amount of $2,070, $0.06 and $0.06 per share, respectively.

 

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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 September 30, 2008 and December 31, 2007 were as follows:

		At September 30, 2008				At December 31, 2007
Ocean-going vessels		$	236,217			$	228,090
River barges and pushboats			229,035				172,041
PSVs			113,891				113,862
Construction of PSVs in progress			22,847				19,609
Advance for PSVs construction			39,938				18,226
Passenger vessels			15,650				14,344
Furniture and equipment			7,010				6,784
Building, land and operating base			11,868				11,327
Yard construction in progress			18,025				5,770
Advances to vendors			-				6,941
Total original book value			694,481				596,994
Accumulated depreciation			(161,573	)			(134,702	)
Net book value		$	532,908			$	462,292

As of September 30, 2008, the net book value of the assets pledged as a guarantee of our long term financial debt described in note 4 was $354,000.

 

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-

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 27 Mississippi barges and two push boats were positioned in the Hidrovia Region in May 2008.

-

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 in 2009 and 2010. 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 September 30, 2008, UP Offshore (Bahamas) Ltd. had paid the first installment of $10,520, which is recorded under Advance for PSVs construction.

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 September 30, 2008, UP Offshore (Bahamas) Ltd. had paid installments of its PSVs under construction in India totalling $26,415, which is recorded under Advance for PSVs construction account.

As of September 30, 2008, the Company had remaining commitments of $107,678 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.

-

Passenger Business

On June 30, 2008, the Company entered into a Memorandum of Agreement (“MOA”), subsequently modified by two addendums signed on July 24 and August 6, 2008, whereby it agreed to sell the passenger vessel, Blue Monarch. Under the terms of the agreement, the buyers were supposed to deposit the purchase price prior to August 25, 2008 in a joint escrow account, while the delivery of the vessel would have taken place at the end of the 2008 cruising season in the Aegean. This transaction was not materialized because the buyer failed to make the deposit accordingly.

 

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4.	LONG-TERM FINANCIAL DEBT

Balances of long-term financial debt at September 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			1,178				9,775				10,953			Libor + 1.200%
UP Offshore (Bahamas) Ltd.	DVB AG	Through 2016			5,022				48,175				53,197			Libor + 1.200%
UP Offshore (Bahamas) Ltd.	DVB AG	Through 2017			3,000				19,750				22,750			Libor + 1.500%
Stanyan Shipping Inc.	Natixis	Through 2017			908				11,346				12,254				6.380%
Lowrie Shipping LLC	BICE	Through 2012			6,250				15,625				21,875			Libor + 2.950%
Ultrapetrol (Bahamas) Ltd.	BICE	2008			10,000				-				10,000			Libor + 1.625%
Hallandale Commercial Corp.	Nordea	Through 2014			3,000				14,950				17,950			Libor + 1.250%
Ingatestone Holdings Inc.	DVB AG and Natixis	Through 2019			-				6,900				6,900			Libor + 1.500%
UABL Paraguay S.A.	IFC	Through 2018			-				25,000				25,000			Libor + 3.000%
UABL Barges and others	IFC	Through 2018			-				35,000				35,000			Libor + 3.000%
At September 30, 2008				$	29,358			$	366,521			$	395,879
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.

 

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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.

As of September 30, 2008, we drew down $10,000 available under this revolving non-secured credit facility which due on January 13, 2009.

Loan with International Finance Corporation (“IFC”)

a)

Loan facility up to $25,000

On September 15, 2008 UABL Paraguay S.A., as Borrower, and IFC entered into a loan agreement to partially finance: (i) the replacement of existing pushboat engines and conversion of pushboats to install such engines, (ii) the enlargement and re-bottoming of existing barges, (iii) the construction and acquisition of additional pushboats and barges and (iv) supplies and related equipment for the foregoing.

The loan shall be repaid by 17 consecutive sixth-monthly installment of $1,087 for the first 9 payments and 1,902 for the last 8 payments, beginning in June 2012.  The loan accrues interest at LIBOR plus 3% for the first payment due on December 2008.  The next interest installments will be calculated considering LIBOR plus a percentage ranging between 1.875% to 3.250% obtained from the Guarantor Prospective Debt Service Coverage ratio as indicated in the agreement.

The loan is secured by a mortgage on part of our River Business fleet.  The loan contains various restrictive covenants, among others, that limit the Borrower’s ability to declare or pay any dividend, incur capital expenditures, leases, enter into any derivative transaction, except hedging arrangements for fuel.

On September 30, 2008 we drew down $25,000 under the loan agreement.

 

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b)

Loan facility up to $35,000

On September 15, 2008 UABL Barges (Panama) Inc., UABL Towing Services S.A., Marine Financial Investment Corp. and Eastham Barges Inc. (all our subsidiaries in the River Business), as Borrowers, and IFC entered into a loan agreement to partially finance: (i) the replacement of existing pushboat engines and conversion of pushboats to install such engines, (ii) the enlargement and re-bottoming of existing barges, (iii) the construction and acquisition of additional pushboats and barges and (iv) supplies and related equipment for the foregoing.

The loan shall be repaid by 16 consecutive sixth-monthly installment of $1,522 for the first 9 payments and 2,663 for the last 8 payments, beginning in June 2012.  The loan accrues interest at LIBOR plus 3% for the first payment due on December 2008.  The next interest installments will be calculated considering LIBOR plus a percentage ranging between 1.875% to 3.250% obtained from the Guarantor Prospective Debt Service Coverage ratio as indicated in the agreement.

The loan is secured by a mortgage on part of our River Business fleet.  The loan contains various restrictive covenants, among others, that limit the each Borrower’s ability to declare or pay any dividend, incur capital expenditures, leases, enter into any derivative transaction, except hedging arrangements for fuel.

On September 30, 2008 we drew down $35,000 under the loan agreement.

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.

 

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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”) was 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 claimed 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 sought to impose the maximum customs penalty, which corresponded to the confiscation (“perdimento”) of the vessel UP Diamante in favor of the Brazilian Federal Government.

 

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On December 21, 2007 UP Apoio filed an administrative defense stating that: (i) the legal position taken by Customs Authority was not applicable to the UP Diamante since the “perdimento” was 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 was 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 violated the principles of proportionality, reasonability and non-confiscation; and (v) confiscation was 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.

On September 25, 2008 the Customs proceedings, in which Brazilian Customs Tax Authorities were imposing a confiscation penalty ("perdimento") of the UP Diamante, were successfully concluded when a final decision was issued by local Tax Authorities determining the cancellation of the tax assessment brought up against UP Apoio. Therefore, the tax assessment was extinguished with no liability to UP Apoio, and the UP Diamante is released of any kind of legal or Customs restrictions.

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) a 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 OBO fleet or (ii) before March 2008 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 the average rate of the 4 Capesize Time Charter Routes (“C4TC Index”).  We have contracted our Suezmax OBO fleet in 2008 under time charters that are based on the C4TC Index.  The FFAs are hedging the fluctuation in the revenues of the Suezmax OBO fleet which are based on the C4TC Index.

We entered into FFAs contracted with BNP Paribas Commodity Futures Limited ("BNP Paribas") as a clearing member of LCH Clearnet ("LCH"), a London clearing house.

At September 30, 2008 the outstanding FFAs with LCH Clearnet 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
	45	(1)			77,250		C4TC		$	3,476			$	1,537		October to December 2008
	180	(1)			51,000		C4TC			9,180				1,576		January to December 2009
									$	12,656			$	3,113

(1)  Corresponds to 15 days per each month.

 

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At September 30, 2008 the fair market value of all FFAs with LCH Clearnet resulted in an asset to the Company of $3,113 recorded in other non-current receivables.  The cash collateral amounts to $2,169 and was recorded in the non-current restricted cash on the unaudited condensed consolidated balance sheet.

FFAs representing positions from October 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 income amounting to $3,113 at September 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 September 30, 2008, we had transferred $2,169 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 September 30, 2008, the outstanding balance of the credit facility was nil.

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 independent sources.

During the nine-month period ended September 30, 2008 and 2007, the Company recorded an aggregate net realized income of $5,862 and during the nine-month period ended September 30, 2007, the Company recorded an aggregate net unrealized loss of $14,315 and an aggregate net realized loss of $1,920 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 operations as Other income (expenses) – Net income (loss) on FFAs. During the nine-month period ended September 30, 2008, we paid cash settlements in an amount of $5,408 for our January to March 2008 FFAs positions and paid a net cash settlements of $13,089 for April to September 2008 FFAs positions.

Terminated FFAs with LCH

On May 16 and 19, 2008, the Company terminated FFAs positions contracted with 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 September 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				(4,050	)	July to December 2008
	90	(1)			166,000				79,500				7,785				(3,893	)	July to December 2008
	94	(2)			166,000				77,250				8,342				(4,171	)	July to December 2008
												$	31,157			$	(12,114	)

(1)

Corresponds to 15 days per month.

(2)

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

 

F-15

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

During the nine-month period ended September 30, 2008 the Company paid cash settlements totaled $31,157.  $12,114 out of this amount correspond of cash settlements for contracts maturing from October 2008 to December 2008. This amount has been recorded in other comprehensive income (loss) at September 30, 2008 and shall be reclassified into revenues during the last quarter 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 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 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 the average rate of the C4TC Index.  The FFAs are hedging the fluctuation in the revenues of the Capesize OBO fleet which are based on the C4TC Index.

At September 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			$	8,327		January to December 2009
	182.5	(1)			90,500		C4TC			16,516				8,650		January to December 2009
	182.5	(1)			95,000		C4TC			17,338				9,457		January to December 2009
	365	(3)			83,000		C4TC			30,295				17,696		January to December 2010
	45	(1)			53,500		C4TC			2,408				419		January to March 2009
	45	(2)			168,000		C4TC			7,560				5,568		October to December 2008
	92	(3)			165,000		C4TC			15,180				11,110		October to December 2008
	45	(2)			150,000		C4TC			6,750				4,793		October to December 2008
	45	(2)			157,000		C4TC			7,065				5,077		October to December 2008
									$	119,537			$	71,097

(1)

Corresponds to 50% days of every calendar month.

(2)

Corresponds to 15 days per month.

(3)

Corresponds to each calendar month.

At September 30, 2008 the fair market value of all FFAs resulted in receivables of $46,751 recorded in the current other receivables and receivables of $24,346 recorded in the non-current other receivables 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 income amounting to $71,097 at September 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 independent sources.

During the nine-month period ended September 30, 2008 the Company received net cash settlements for its 2008 FFAs positions totaled $6,340.

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 mostly subsidiaries of major international grain houses.

 

F-16

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

During the third quarter 2008, the Company entered into a OTC FFA to receiving the average rate of the C4TC Index for a total of 18 days in October 2008 in exchange for paying fixed rate of $88,000.  At September 30, 2008, the fair market value of this transaction resulted in a liability of $831.

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.

 

F-17

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

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.

For the nine-month periods ended September 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 September 30, 2008 and December 31, 2007, the balances of receivables from related parties, were as follows:

		At September 30, 2008				At December 31, 2007
Current:
Receivable from related parties
−Puertos del Sur S.A. and O.T.S.		$	2,766			$	2,582
−Maritima Sipsa S.A.			-				156
−Other			151				66
		$	2,917			$	2,804
Noncurrent:
Receivable from related parties - Puertos del Sur S.A.		$	2,280			$	2,280

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

		At September 30, 2008				At December 31, 2007
Payable to related parties --
Maritima Sipsa S.A.		$	19			$	718

 

F-18

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

Revenues from related parties

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

 

		For the nine-month periods ended September 30,
		2008				2007
Maritima Sipsa S.A. (1)		$	-			$	2,764
Maritima Sipsa S.A.			-				188
		$	-			$	2,952

(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 her 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’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 September 30, 2008, the Company repurchased a total of 671,171 common shares, at a total cost of $6,466.

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

At September 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 9.09%, 14.45% 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-19

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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 nine-month periods ended September 30,
		2008				2007
Revenues (1)
−South America		$	119,950			$	85,535
−Europe			119,857				74,021
−Asia			-				3,388
−Other			1,876				998
		$	241,683			$	163,942

 

(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-20

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

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

		River Business				Offshore Supply Business				Ocean Business				Passenger Business				Total
Revenues		$	100,675			$	33,180			$	98,288			$	9,540			$	241,683
Running and voyage expenses			79,980				14,223				30,980				13,922				139,105
Depreciation and amortization			9,544				3,628				14,584				2,627				30,383
Segment operating profit (loss)			5,073				12,401				48,007				(7,205	)			58,276
Segment assets			249,050				184,705				244,147				13,506				691,408
Investment in affiliates			1,679				-				328				-				2,007
Income (loss) from investment in affiliates			(118	)			-				(132	)			-				(250	)
Additions to long-lived assets		$	70,620			$	25,090			$	2,882			$	1,307			$	99,899

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

		At September 30, 2008
Total assets for reportable segments		$	691,408
Other assets			17,065
Corporate cash and cash equivalents			106,721
Consolidated total assets		$	815,194

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

		River Business					Offshore Supply Business				Ocean Business				Passenger Business				Total
Revenues		$	69,665				$	30,153			$	39,237			$	24,887			$	163,942
Running and voyage expenses			48,444					10,644				12,231				21,117				92,436
Depreciation and amortization			7,134					3,175				10,968				4,153				25,430
Segment operating profit (loss)			9,262					13,076				11,040				(1,149	)			32,229
Segment assets			169,123					148,578				132,221				39,158				489,080
Investments in affiliates			1,864					-				875				-				2,739
Income (loss) from investment in affiliates			(72		)			-				526				-				454
Additions to long-lived assets		$	(1)	38,075			$	16,277			$	32,721			$	2,806			$	89,879

(1) Does not include the 12 river barges and 1 pushboat acquired in the Otto Candies acquisition valued at $13,679.

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

		At September 30, 2007
Total assets for reportable segments		$	489,080
Other assets			12,755
Corporate cash and cash equivalents			59,144
Consolidated total assets		$	560,979

 

F-21

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ULTRAPETROL (BAHAMAS) LIMITED AND SUBSIDIARIES

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.

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-22

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SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

AT SEPTEMBER 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		$	212,100			$	46,046			$	28,884			$	(284,113	)		$	2,917
Other current assets			71,390				84,941				57,631				-				213,962
Total current assets			283,490				130,987				86,515				(284,113	)			216,879
Noncurrent assets
Vessels and equipment, net			-				165,412				368,630				(1,134	)			532,908
Investment in affiliates			274,583				-				2,007				(274,583	)			2,007
Other noncurrent assets			5,960				34,258				23,182				-				63,400
Total noncurrent assets			280,543				199,670				393,819				(275,717	)			598,315
Total assets		$	564,033			$	330,657			$	480,334			$	(559,830	)		$	815,194
Current liabilities
Payable to related parties		$	-			$	150,282			$	133,850			$	(284,113	)		$	19
Current portion of long-term financial debt			-				-				29,358				-				29,358
Other current liabilities			6,953				7,051				14,037				-				28,041
Total current liabilities			6,953				157,333				177,245				(284,113	)			57,418
Noncurrent liabilities
Long-term financial debt		$	180,000			$	25,000			$	161,521				-				366,521
Other noncurrent liabilities			-				565				9,005				-				9,570
Total noncurrent liabilities			180,000				25,565				170,526				-				376,091
Total liabilities			186,953				182,898				347,771				(284,113	)			433,509
Minority interest			-				-				-				4,605				4,605
Shareholders’ equity			377,080				147,759				132,563				(280,322	)			377,080
Total liabilities, minority interest and shareholders’ equity		$	564,033			$	330,657			$	480,334			$	(559,830	)		$	815,194

 

F-23

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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
Current portion of long-term 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-24

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SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2008 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	138,144			$	105,233			$	(1,694	)		$	241,683
Operating expenses			(7,654	)			(89,504	)			(87,899	)			1,650				(183,407	)
Operating profit (loss)			(7,654	)			48,640				17,334				(44	)			58,276
Investment in affiliates			55,482				-				(250	)			(55,482	)			(250	)
Other income (expenses)			(3,710	)			(8,979	)			(60	)			-				(12,749	)
Income before income taxes and minority interest			44,118				39,661				17,024				(55,526	)			45,277
Income taxes			-				(287	)			(9	)			-				(296	)
Minority interest			-				-				-				(863	)			(863	)
Net income		$	44,118			$	39,374			$	17,015			$	(56,389	)		$	44,118

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 (UNAUDITED)

(stated in thousands of U.S. dollars)

		Parent				Combined subsidiary guarantors				Combined subsidiary non guarantors				Consolidating adjustments				Total consolidated amounts
Revenues		$	-			$	63,546			$	104,711			$	(4,315	)		$	163,942
Operating expenses			(5,582	)			(49,095	)			(81,307	)			4,271				(131,713	)
Operating profit (loss)			(5,582	)			14,451				23,404				(44	)			32,229
Investment in affiliates			2,687				-				454				(2,687	)			454
Other income (expenses)			1,065				(28,498	)			(1,545	)			-				(28,978	)
Income (loss) before income taxes and minority interest			(1,830	)			(14,047	)			22,313				(2,731	)			3,705
Income taxes			-				366				(5,398	)			-				(5,032	)
Minority interest			-				-				-				(503	)			(503	)
Net income (loss)		$	(1,830	)		$	(13,681	)		$	16,915			$	(3,234	)		$	(1,830	)

 

F-25

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SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 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		$	44,118			$	39,374			$	17,015			$	(56,389	)		$	44,118
Adjustments to reconcile net income to net cash provided by operating activities			(49,464	)			(7,289	)			(3,497	)			56,389				(3,861	)
Net cash (used in) provided by operating activities			(5,346	)			32,085				13,518				-				40,257
Intercompany sources			5,829				(72,420	)			1,097				65,494				-
Non-subsidiary sources			-				19,916				(73,372	)			-				(53,456	)
Net cash (used in) provided by investing activities			5,829				(52,504	)			(72,275	)			65,494				(53,456	)
Intercompany sources			71,323				-				(5,829	)			(65,494	)			-
Non-subsidiary sources			(31,763	)			25,000				62,421				-				55,658
Net cash (used in) provided by financing activities			39,560				25,000				56,592				(65,494	)			55,658
Net (decrease) increase in cash and cash equivalents		$	40,043			$	4,581			$	(2,165	)		$	-			$	42,459

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 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)		$	(1,830	)		$	(13,681	)		$	16,915			$	(3,234	)		$	(1,830	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities			1,271				(2,030	)			42,027				3,234				44,502
Net cash (used in) provided by operating activities			(559	)			(15,711	)			58,942				-				42,672
Intercompany sources			(62,559	)			-				-				62,559				-
Non-subsidiary sources			-				(61,887	)			(84,691	)			-				(146,578	)
Net cash (used in) provided by investing activities			(62,559	)			(61,887	)			(84,691	)			62,559				(146,578	)
Intercompany sources			-				75,290				(12,731	)			(62,559	)			-
Non-subsidiary sources			91,006				7,322				44,074				-				142,402
Net cash provided by (used in) financing activities			91,006				82,612				31,343				(62,559	)			142,402
Net increase in cash and cash equivalents		$	27,888			$	5,014			$	5,594			$	-			$	38,496

 

F-26

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12.	SUBSEQUENT EVENTS

Share repurchase program

On October 2, 2008, the Board of Directors of Ultrapetrol approved the extension of the share repurchase program to December 31, 2008 retaining the original cumulative dollar limit of $50,000.

Since October 1, 2008 to November 12, 2008, the Company repurchased 2,531,108 common shares at a total cost of $11,104.

Since approval of the share repurchase program on March 17, 2008, Ultrapetrol has repurchased 3,202,279 common shares, or 9.58% of total shares outstanding at a total cost of $17,570.

As of November 12, 2008 Ultrapetrol had 30,240,751 common shares outstanding.

 

Cleared FFAs for November and December 2008

On November 3, 2008, the Company entered into a cleared FFA contract whereby a subsidiary of Ultrapetrol Bahamas contracted with BNP Paribas Commodity Futures Ltd. (as a clearing member of LCH Clearnet) to receiving the average rate of the C4TC Index for a total of 15 days per month in November and December 2008 in exchange for paying fixed rate of $9,000 per day.

 

F-27

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

SK 02351 0010 937620