20-F 1 d1179342_20-f.htm d1179342_20-f.htm
                    UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549
 
 
                     FORM 20-F
(Mark One)
[    ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
OR
 
 
[ X ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
 
 
OR
 
 
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
 
 
OR
 
 
[    ]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report: N/A
 
 
 
Commission file number 001-33068
 
 
 
ULTRAPETROL (BAHAMAS) LIMITED
 
(Exact name of Registrant as specified in its charter)
 
 
 
COMMONWEALTH OF THE BAHAMAS
 
(Jurisdiction of incorporation or organization)
 
 
 
Ultrapetrol (Bahamas) Limited
 
H & J Corporate Services Ltd.
 
Ocean Centre, Montagu Foreshore
 
East Bay St.
 
Nassau, Bahamas
 
P.O. Box SS-19084
 
(Address of principal executive offices)
 
 
 
Leonard J. Hoskinson. Tel.: 1 (242) 364-4755. E-mail: lhoskinson@ultrapetrol.net. Address: Ocean Centre,
 
Montagu Foreshore, East Bay St.,
 
P.O. Box SS-19084, Nassau, Bahamas.
 
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 
1

 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Name of each exchange where registered
Common Shares, $0.01 par value
 
Nasdaq Global Market

 
Securities registered or to be registered pursuant to Section 12(g) of the Act:   None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:   9% First Preferred Ship Mortgage Notes due 2014
 
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Common Shares, $0.01 par value
29,943,653 Shares Outstanding

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 
 
Yes [_]
No [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 
 
Yes [_]
No  [X]

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
 
Yes  [ X]
No [_]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
 
Yes [_]
No [_]
 
 
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  [_]    Accelerated filer [X]        Non-accelerated filer [_]

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing.

 
[X] U.S. GAAP
 
[_]   International Financial Reporting Standards as issued by the International Accounting Standards Board
 
 
[_] Other
 
 
 
 
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17 [_]   Item 18 [X]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes [_]    No [X]

 
2

 
 
INDEX TO REPORT ON FORM 20-F
PART I
 
 
 
ITEM 1 – IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
1
 
ITEM 2 – OFFER STATISTICS AND EXPECTED TIMETABLE
1
 
ITEM 3 – KEY INFORMATION
1
 
ITEM 4  – INFORMATION ON THE COMPANY
28
 
ITEM 4A – UNRESOLVED STAFF COMMENTS
56
 
ITEM 5 – OPERATING AND FINANCIAL REVIEW AND PROSPECTS
56
 
ITEM 6. – DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
89
 
ITEM 7 – MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
93
 
ITEM 8 – FINANCIAL INFORMATION
96
 
ITEM 9 – THE OFFER AND LISTING
97
 
ITEM 10 – ADDITIONAL INFORMATION
98
 
ITEM 11 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
107
 
ITEM 12 – DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
108
 
 
 
PART II
 
 
 
ITEM 13 – DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
108
 
ITEM 14 – MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
108
 
ITEM 15 – CONTROLS AND PROCEDURES
108
 
ITEM 16A – AUDIT COMMITTEE FINANCIAL EXPERT
109
 
ITEM 16B – CODE OF ETHICS
109
 
ITEM 16C – PRINCIPAL ACCOUNTANT FEES AND SERVICES
109
 
ITEM 16D – EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
110
 
ITEM 16E – PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS
110
 
ITEM 16F – CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
110
 
ITEM 16G – CORPORATE GOVERNANCE
110
 
 
 
PART III
 
 
 
ITEM 17 – FINANCIAL STATEMENTS
111
 
ITEM 18 – FINANCIAL STATEMENTS
111
 
ITEM 19 – EXHIBITS
A-1
 
 
 
3

 
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
 
Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "will," "may," "should," and similar expressions are forward-looking statements. Although these statements are based upon assumptions we believe to be reasonable based upon available information, including projections of revenues, operating margins, earnings, cash flow, working capital, and capital expenditures, they are subject to risks and uncertainties that are described more fully in this report in the section titled "Risk Factors" in Item 3.D of this report. These forward-looking statements represent our estimates and assumptions only as of the date of this report and are not intended to give any assurance as to future results. As a result, you should not place undue reliance on any forward-looking statements. We assume no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors, except as required by applicable securities laws. Factors that might cause future results to differ include, but are not limited to, the following:
 
 
 
·
future operating or financial results;
 
 
·
pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking and insurance costs;
 
 
·
general market conditions and trends, including charter rates, vessel values, and factors affecting vessel supply and demand;
 
 
·
our ability to obtain additional financing;
 
 
·
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
 
 
·
our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or vessels' useful lives;
 
 
·
our dependence upon the abilities and efforts of our management team;
 
 
·
changes in governmental rules and regulations or actions taken by regulatory authorities;
 
 
·
adverse weather conditions that can affect production of some of the goods we transport and navigability of the river system on which we transport them;
 
 
·
the highly competitive nature of the ocean-going transportation industry;
 
 
·
the loss of one or more key customers;
 
 
·
fluctuations in foreign exchange rates;
 
 
·
adverse movements in commodity prices or demand for commodities may cause our customers to scale back their contract needs;
 
 
·
failure to pay resulting in default by one or more of our counterparts in derivative instruments;
 
 
·
potential liability from future litigation; and
 
 
·
other factors discussed in the section titled "Risk Factors" in Item 3.D of this report.
 
 
4

 

PART I
 
ITEM 1 – IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
Not Applicable.
 
ITEM 2 – OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not Applicable.
 
ITEM 3 – KEY INFORMATION
 
 A.           SELECTED FINANCIAL DATA
 
The following summary financial information set forth below for Ultrapetrol (Bahamas) Limited (the "Company") is for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 and has been derived from the Company's Financial Statements. Operations of our Passenger Business are presented as discontinued operations on a net of tax basis.
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
 
 
 
 
 
2010
 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
230,445
   
$
220,529
 
 
$
303,575
 
 
$
193,807
 
 
$
144,615
 
Operating expenses (1)
 
 
(150,922)
   
 
(140,607
)
 
 
(164,476
)
 
 
(104,507
)
 
 
(78,236
)
Depreciation and amortization
 
 
(34,371)
   
 
(41,752
)
 
 
(38,620
)
 
 
(30,268
)
 
 
(24,714
)
Loss on write- down of vessels
 
 
--
     
(25,000
)
 
 
--
 
 
 
--
 
 
 
--
 
Administrative and commercial expenses
 
 
(27,051)
   
 
(25,065
)
 
 
(24,396
)
 
 
(20,355
)
 
 
(14,416
)
Other operating income (expenses)
 
 
617
   
 
2,844
 
 
 
6,513
 
 
 
10,944
 
 
 
(198
 )
Operating profit (loss)
 
 
18,718
   
 
(9,051
)
 
 
82,596
 
 
 
49,621
 
 
 
27,051
 
 
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial expense and other financial expenses
 
 
(26,417)
   
 
(23,237
)
 
 
(30,542
)
 
 
(20,440
)
 
 
(18,921
)
Financial loss on extinguishment of debt
 
       
 
--
 
 
 
--
 
 
 
--
 
 
 
(1,411
 )
Financial income
 
 
399
   
 
340
 
 
 
1,156
 
 
 
2,916
 
 
 
733
 
Gains (losses) on derivatives, net|
 
 
10,474
   
 
241
 
 
 
8,816
 
 
 
(17,801
)
 
 
--
 
Investment in affiliates
 
 
(341)
   
 
(28
)
 
 
(442
)
 
 
(28
)
 
 
588
 
Other, net
 
 
(875)
   
 
(707
)
 
 
(558
)
 
 
(339
)
 
 
859
 
 
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) from continuing operations before income tax
 
 
1,958
   
 
(32,442
)
 
 
61,026
 
 
 
13,929
 
 
 
8,899
 
Income taxes (expenses) benefit
 
 
(6,363)
   
 
(5,355
)
 
 
4,173
 
 
 
(4,832
)
 
 
(2,101
)
 
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Loss) Income from continuing operations
 
$
(4,405)
   
$
(37,797
)
 
$
65,199
 
 
$
9,097
 
 
$
6,798
 
(Loss) Income from discontinued operations (2)
 
$
(515)
   
$
(2,131
)
 
$
(16,448
)
 
$
(3,917
)
 
$
5,647
 
Net (Loss) Income
 
$
(4,920)
   
$
(39,928
)
 
$
48,751
 
 
$
5,180
 
 
$
12,445
 
 
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (Loss) Income attributable to non-controlling interest
 
 
451
   
 
(90
)
 
 
1,228
 
 
 
739
 
 
 
1,919
 
 
5

 
 
 
 
 
Year Ended December 31,
 
 
 
 
2010
 
 
 
2009
 
 
 
2008
 
 
 
2007
 
 
 
2006
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (Loss) Income attributable to Ultrapetrol (Bahamas) Limited
 
 
(5,371)
     
(39,838
)
 
 
47,523
 
 
 
4,441
 
 
 
10,526
 
Amounts attributable to Ultrapetrol (Bahamas) Limited:
 
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Loss) Income from continuing operations
 
 
(4,856)
     
(37,707
)
 
 
63,971
 
 
 
8,358
 
 
 
4,879
 
(Loss) Income from discontinued operations
 
 
(515)
     
(2,131
)
 
 
(16,448
)
 
 
(3,917
)
 
 
5,647
 
Net (loss) income attributable to Ultrapetrol (Bahamas) Limited
 
 
(5,371)
     
(39,838
)
 
 
47,523
 
 
 
4,441
 
 
 
10,526
 
Basic (loss) income per share of Ultrapetrol (Bahamas) Limited:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From continuing operations
 
$
(0.16)
 
 
$
(1.28
)
 
$
1.99
 
 
$
0.26
 
 
$
0.27
 
From discontinued operations
 
$
(0.02)
 
 
$
(0.07
)
 
$
(0.51
)
 
$
(0.12
)
 
$
0.32
 
 
 
$
(0.18)
 
 
$
(1.35
)
 
$
1.48
 
 
$
0.14
 
 
$
0.59
 
Diluted (loss) income per share of Ultrapetrol (Bahamas) Limited
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From continuing operations
 
$
(0.16)
 
 
$
(1.28
)
 
$
1.99
 
 
$
0.26
 
 
$
0.27
 
From discontinued operations
 
$
(0.02)
 
 
$
(0.07
)
 
$
(0.51
)
 
$
(0.12
)
 
$
0.31
 
 
 
$
(0.18)
 
 
$
(1.35
)
 
$
1.48
 
 
$
0.14
 
 
$
0.58
 
Basic weighted average number of shares
 
 
29,525,025
 
 
 
29,426,429
 
 
 
32,114,199
 
 
 
31,596,346
 
 
 
17,965,753
 
Diluted weighted average number of shares
 
 
29,525,025
 
 
 
29,426,429
 
 
 
32,213,741
 
 
 
31,923,350
 
 
 
18,079,091
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (end of period):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
105,570
 
 
$
53,201
 
 
$
105,859
 
 
$
64,262
 
 
$
20,648
 
Restricted cash
 
 
1,661
 
 
 
1,658
 
 
 
2,478
 
 
 
--
 
 
 
--
 
Working capital (3)
 
 
98,318
 
 
 
68,352
 
 
 
135,746
 
 
 
64,768
 
 
 
31,999
 
Vessels and equipment, net
 
 
612,696
 
 
 
571,478
 
 
 
552,683
 
 
 
452,544
 
 
 
299,600
 
Total assets
 
 
823,797
 
 
 
732,934
 
 
 
825,059
 
 
 
622,160
 
 
 
426,379
 
Total debt (4)
 
 
501,657
 
 
 
407,539
 
 
 
415,507
 
 
 
334,514
 
 
 
220,685
 
Ultrapetrol (Bahamas) Limited stockholders' equity
 
 
263,463
 
 
 
283,703
 
 
 
371,889
 
 
 
253,142
 
 
 
179,429
 
Non-controlling interest
 
 
5,331
 
 
 
4,880
 
 
 
4,970
 
 
 
3,742
 
 
 
3,091
 
Total equity
 
 
268,794
 
 
 
288,583
 
 
 
376,859
 
 
 
256,884
 
 
 
182,520
 

Statement of Cash Flow Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total cash flows provided by operating activities
 
 
18,894
 
 
 
38,716
 
 
 
71,257
 
 
 
41,900
 
 
 
28,801
 
Total cash flows used in investing activities
 
 
(54,139)
 
 
 
(83,598
)
 
 
(87,991
)
 
 
(200,648
)
 
 
(104,029
)
Total cash flows provided by (used in) financing activities
 
 
87,614
 
 
 
(7,776
)
 
 
58,331
 
 
 
202,362
 
 
 
87,962
 
Consolidated EBITDA as defined in the Notes due 2014 (5)
 
$
39,296
 
 
$
56,445
 
 
$
116,859
 
 
$
64,968
 
 
$
62,417
 
Adjusted Consolidated EBITDA (5)
 
$
61,293
 
 
$
57,129
 
 
$
116,859
 
 
$
 64,968
 
 
$
62,417
 

 
6

 

(1)
Operating expenses are voyage expenses and running costs. Voyage expenses, which are incurred when a vessel is operating under a contract of affreightment (as well as any time when they are not operating under time or bareboat charter), comprise all costs relating to a given voyage, including port charges, canal dues and fuel (bunkers) costs, are paid by the vessel owner and are recorded as voyage expenses. Voyage expenses also include charter hire payments made by us to owners of vessels that we have chartered in. Running costs, or vessel operating expenses, include the cost of all vessel management, crewing, repairs and maintenance, spares and stores, insurance premiums and lubricants and certain drydocking costs.
 
 
(2)
Net of income tax effect.
 
 
(3)
Current assets less current liabilities.
 
 
(4)
Includes accrued interest.
 
 
(5)
The following table reconciles our EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA to our cash flows from operating activities:


 
 

 
7

 

 
 
 
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities from continuing operations
 
$
20,844
 
 
$
38,679
 
 
$
79,902
 
 
$
40,451
 
 
$
22,030
 
Net cash (used in) provided by operating activities from discontinued operations
 
 
(1,950)
 
 
 
37
 
 
 
(8,645
)
 
 
1,449
 
 
 
6,771
 
Total cash flows from operating activities
 
 
18,894
 
 
 
38,716
 
 
 
71,257
 
 
 
41,900
 
 
 
28,801
 
    Plus
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Adjustments from continuing operations
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase / Decrease in operating assets and liabilities
 
 
(6,974)
 
 
 
(14,052
)
 
 
15,415
 
 
 
6,354
 
 
 
7,162
 
Expenditure for dry docking
 
 
8,204
 
 
 
5,242
 
 
 
3,105
 
 
 
2,724
 
 
 
4,678
 
Income tax expense (benefit)
 
 
6,363
 
 
 
5,355
 
 
 
(4,173
)
 
 
4,832
 
 
 
2,101
 
Financial expenses
 
 
25,925
 
 
 
24,248
 
 
 
25,128
 
 
 
20,440
 
 
 
18,921
 
Gains (losses) on derivatives, net
 
 
10,474
 
 
 
241
 
 
 
8,816
 
 
 
(17,801
)
 
 
--
 
Gain on disposal of assets
 
 
724
 
 
 
1,415
 
 
 
--
 
 
 
10,282
 
 
 
630
 
Adjustment attributable to UP Offshore declassification (1)
 
 
(21,997)
 
 
 
(684
)
 
 
--
 
 
 
--
 
 
 
--
 
Net loss (income) attributable to noncontrolling interest
 
 
(451)
 
 
 
90
 
 
 
(1,228
)
 
 
(739
)
 
 
(1,919
)
Other adjustments
 
 
(3,306)
 
 
 
(2,570
)
 
 
(3,419
)
 
 
(2,645
)
 
 
(663
)
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Adjustments from discontinued operations
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase / Decrease in operating assets and liabilities
 
 
1,435
 
 
 
(1,566
)
 
 
1,457
 
 
 
(2,114
)
 
 
2,344
 
Expenditure for dry docking
 
 
--
 
 
 
--
 
 
 
289
 
 
 
2,124
 
 
 
158
 
Income taxes
 
 
--
 
 
 
--
 
 
 
--
 
 
 
54
 
 
 
100
 
Financial expenses
 
 
5
 
 
 
10
 
 
 
212
 
 
 
(262
)
 
 
104
 
(Gain) on disposal of assets
 
 
--
 
 
 
--
 
 
 
--
 
 
 
(181
)
 
 
--
 
Other adjustments
 
 
--
 
 
 
--
 
 
 
--
 
 
 
--
 
 
 
--
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as defined in the Notes due 2014 from continuing operations
 
$
39,806
 
 
$
57,964
 
 
$
123,546
 
 
$
63,898
 
 
$
52,940
 
EBITDA as defined in the Notes due 2014 from discontinued operations
 
$
(510)
 
 
$
(1,519
)
 
$
(6,687
)
 
$
1,070
 
 
$
9,477
 
Consolidated EBITDA as defined in the Notes due 2014
 
$
39,296
 
 
$
56,445
 
 
$
116,859
 
 
$
64,968
 
 
$
62,417
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustment attributable to UP Offshore declassification (1)
 
$
21,997
 
 
$
684
 
 
$
  --
 
 
$
  --
 
 
$
  --
 
Adjusted Consolidated EBITDA
 
$
61,293
 
 
$
57,129
 
 
$
  116,859
 
 
$
  64,968
 
 
$
  62,417
 

(1)
As of September 30, 2009, our Board declassified UP Offshore Bahamas as a restricted subsidiary under the terms of the Indenture. Subsequently, on December 3, 2010, UP Offshore Bahamas was reclassified as a restricted subsidiary under the terms of the Indenture.
 
The use of the terms "EBITDA as defined in the Notes due 2014" and "Adjusted Consolidated EBITDA" in the current filing rather than EBITDA as has been used in previous filings, is responsive to the US Securities and Exchange Commission Release No. 34-47226 wherefrom if the measurement being used excludes "non-cash charges" or other similar concepts other than strictly interest, taxes, depreciation and amortization, or were otherwise to depart from the definition of EBITDA as included in the aforementioned release, it should be called "EBITDA as defined in the Notes due 2014" and "Adjusted Consolidated EBITDA" rather than EBITDA.
 
8

 
 
 EBITDA as defined in the Notes due 2014 consists of net income (loss) prior to deductions for interest expense and other financial gains and losses related to the financing of the Company, income taxes, depreciation of vessels and equipment and amortization of drydock expense, intangible assets, financial gain (loss) on extinguishment of debt, premium paid for redemption of preferred shares and certain non-cash charges (including for instance losses on write-downs of vessels). The calculation of EBITDA as defined in the Notes due 2014 excludes from all items those amounts corresponding to unrestricted subsidiaries under the Indenture governing the Company's 9% First Preferred Ship Mortgage Notes due 2014 (the "Indenture") from the time of designation as such. We have provided EBITDA as defined in the Notes due 2014 in this report because we use it to, and believe it provides useful information to investors to evaluate our ability to incur and service indebtedness and it is a required disclosure to comply with a covenant contained in such Indenture. Adjusted Consolidated EBITDA in this filing represents EBITDA as defined in the Notes due 2014 plus EBITDA corresponding to unrestricted subsidiaries designated as such under the terms of the Indenture. We do not intend for EBITDA as defined in the Notes due 2014 nor Adjusted Consolidated EBITDA to represent cash flows from operations, as defined by GAAP (on the date of calculation) and it should not be considered as an alternative to measure our liquidity. This definition of EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA may not be comparable to similarly titled measures disclosed by other companies. Generally, funds represented by EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA are available for management's discretionary use. Both EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported. These limitations include, among others, the following:
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments,
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not reflect changes in, or cash requirements for, our working capital needs,
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not include income taxes, which are a necessary and ongoing cost of our operations,
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts,
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not reflect the amortization of dry docking, or the cash requirements necessary to fund the required dry docks of our vessels,
 
 
·
Although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA do not, therefore, reflect any cash requirements for such replacements; and
 
 
·
EBITDA as defined in the Notes due 2014 and Adjusted Consolidated EBITDA can be affected by the lease rather than purchase of fixed assets.
 

 
9

 

 B.           CAPITALIZATION AND INDEBTEDNESS
 
Not Applicable.
 
C.           REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not Applicable.
 
D.           RISK FACTORS
 
Please note:  In this section, "we", "us" and "our" all refer to the Company and its subsidiaries.
 
Risks Relating to Our Industry

If the global shipping industry, which historically has been cyclical and volatile, should remain depressed on a continuous basis or declines further in the future, our earnings and available cash flow may be adversely affected.

The international shipping industry is both cyclical and volatile in terms of charter rates and profitability. Charter rates are still relatively low compared to the rates achieved in the years preceding the global financial crisis. These factors may adversely affect our ability to charter or recharter our vessels or to sell them on the expiration or termination of their charters, and any renewal or replacement charters that we enter into may not generate revenue sufficient to allow us to operate our vessels profitably.

After reaching highs during the summer of 2008, charter rates for product tankers fell thereafter. While the rates have improved somewhat, they remain significantly below those high levels. The decline in charter rates is due to various factors, including the significant fall in demand for petroleum products, the consequent rising inventories of petroleum products in the United States and in other industrialized nations and the corresponding reduction in oil refining. The recent global financial crisis and associated contraction in oil demand may adversely affect the rates payable in respect of our product tankers or our ability to sell a product tanker we own on the expiration or termination of its employment.

Fluctuations in charter rates and vessel values result from changes in the supply and demand for cargo capacity and changes in the supply and demand for petroleum and petroleum products, iron ore, coal, and grains as well as other cargo transported by vessels. The factors affecting the supply and demand for vessels are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.

The factors that influence demand for vessel capacity include:

 
·
supply and demand for petroleum and petroleum products, iron ore, coal, and grains as well as other cargo transported by vessels;

 
·
regional availability of refining capacity in the case of petroleum and petroleum products or crushing or manufacturing with respect to other cargo transported by other vessels;

 
·
global and regional economic and political conditions;

 
·
Actions taken by OPEC and major oil producers and refiners;
 
 
·
the distance cargo transported by vessels is to be moved by marine transportation;

 
·
changes in seaborne and other transportation patterns;

 
·
environmental and other legal and regulatory developments;

 
·
currency exchange rates;

 
·
weather and climate conditions;

 
·
competition from alternative sources of energy; and

 
·
international sanctions, embargoes, import and export restrictions, nationalizations and wars.

The factors that influence the supply of shipping capacity include:

 
10

 


 
·
current and expected new buildings for vessles;
 
 
·
the number of newbuilding deliveries;

 
·
the scrapping rate of older vessels;

 
·
the conversion of vessels to other uses;

 
·
the price of steel;

 
·
the number of vessels that are out of service; and

 
·
environmental concerns and regulations.

Historically, the shipping markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for vessel capacity. The recent global economic crisis may further reduce demand for transportation of cargo over longer distances and supply of vessels to carry cargo, which may materially affect our revenues, profitability and cash flows. If charter rates decline, we may be unable to achieve a level of charterhire sufficient for us to operate our vessels profitably.

Some of our vessels operate in services which cover areas that have a special tax status; the modification of that status could have an impact on the volume of cargo we carry and consequently could adversely affect our financial results.

Our River Business can be affected by factors beyond our control, particularly adverse weather conditions that can affect production of the goods we transport and navigability of the river system on which we operate.

We derive most of our River Business revenues from transporting soybeans and other agricultural and mineral products produced in the Hidrovia Region, as well as petroleum products consumed in the region. Droughts and other adverse weather conditions, such as floods, could result in a decline in production of agricultural products, which would likely result in a reduction in demand for our services. Drought conditions have affected the production of agricultural products during several years like 2005, 2006 and 2009. Further, most of the operations in our River Business occur on the Parana and Paraguay Rivers, and any changes adversely affecting navigability of either of these rivers, such as low water levels, could reduce or limit our ability to effectively transport cargo on the rivers, as was the case in the High Paraguay River during the fourth quarters of 2007, 2008, 2009 and 2010.

The rates we charge and the quantity of freight we transport in our River Business can also be affected by:
 
 
 
·
demand for the goods we ship on our barges;
 
 
·
adverse river conditions, such as flooding, that slow or stop river traffic or reduce the quantity of cargo that we can carry in each barge;
 
 
·
navigational accidents involving our equipment resulting in disruptions of our programs;

 
·
any accidents or operational disruptions to ports, terminals or bridges along the rivers on which we operate;
 
 
·
changes in the quantity of barges available for river transport through the entrance of new competitors or expansion of operations by existing competitors;
 
 
·
disruption in the production of iron ore at the mines or lack of transportation to ports of loading;
 
 
·
the availability of transfer stations and cargo terminals for loading of cargo on and off barges; and
 
 
·
the ability of buyers of commodities to open letters of credit and generally the ability of obtaining financing on reasonable terms or at all.
 
 
·
the ability of buyers of commodities to open letters of credit and generally the ability of obtaining financing on reasonable terms or at all.
 
  ·
the availability and price of alternative means of transporting goods out of the Hidrovia Region.

 
11

 
 
A prolonged drought or other series of events that is perceived by the market to have an impact on the region, the navigability of the Parana or Paraguay Rivers or our River Business in general may, in the short term, result in a reduction in the market value of the barges and pushboats that we operate in the region. These barges and pushboats are designed to operate in wide and relatively calm rivers, of which there are only a few in the world. If it becomes difficult or impossible to operate our barges and pushboats profitably in the Hidrovia Region and we are forced to sell them to a third party located outside of the region, there is a limited market in which we would be able to sell these vessels, and accordingly we may be forced to sell them at a substantial loss.
 
Changes in rules and regulations with respect to cabotage or their interpretation in the markets in which we operate may have an adverse effect on our results of operations.

In most of the markets in which we currently operate we engage in cabotage or regional trades that have restrictive rules and regulations on a region by region basis. Our operations currently benefit from these rules and regulations or their interpretation. For instance, preferential treatment is extended in Brazilian cabotage for Brazilian-flagged vessels, such as some of our PSVs. Changes in cabotage rules and regulations or in their interpretation may have an adverse effect on our cabotage operations, either by becoming more restrictive (which could result in limitations to the utilization of some of our vessels in those trades) or less restrictive (which could result in increased competition in these markets).

Demand for our PSVs depends on the level of activity in offshore oil and gas exploration, development and production.
 
The level of offshore oil and gas exploration, development and production activity has historically been volatile and is likely to continue to be so in the future. The following is a graph of the spot market levels of time charters for PSVs of 800+ m2 of deck in the North Sea for the past four years:

 
The level of activity is subject to large fluctuations in response to relatively minor changes in a variety of factors. A prolonged, material downturn in oil and natural gas prices is likely to cause a substantial decline in expenditures for exploration, development and production activity, which would likely result in a corresponding decline in the demand for PSVs and thus decrease the utilization and charter rates of our PSVs. An increase in the order book for new tonnage beyond the growth of demand could result in a decline of the charter rates paid for PSVs in the market. Such decreases in demand or increases in supply could have an adverse effect on our financial condition and results of operations. Moreover, increases in oil and natural gas prices and higher levels of expenditure by oil and gas companies may not result in increased demand for our PSVs. The factors affecting the supply and demand for PSVs are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. If the PSV market is in a period of weakness when our vessels' charters expire, or when new vessels are delivered, we may be forced to charter or re-charter our vessels at reduced rates or even possibly at a rate at which we would incur a loss on operation of our vessels.

 
12

 
 
Some of the factors that influence the supply and demand for our PSVs include:
 
 
·
worldwide demand for oil and natural gas;
 
 
·
prevailing oil and natural gas prices and expectations about future prices and price volatility;
 
 
·
the cost of offshore exploration for, and production and transportation of, oil and natural gas;
 
 
·
consolidation of oil and gas service companies operating offshore;
 
 
·
availability and rate of discovery of new oil and natural gas reserves in offshore areas;
 
 
·
local and international political and economic conditions and policies;
 
 
·
technological advances affecting energy production and consumption;
 
 
·
weather conditions;
 
 
·
environmental regulation;
 
 
·
volatility in oil and gas exploration, development and production activity;
 
 
·
the number of newbuilding deliveries; and
 
 
·
deployment of additional PSVs to areas in which we operate.
 
Changes in the petroleum products markets could result in decreased demand for our product tankers and related services.
 
    Demand for our product tankers and services in transporting petroleum products will depend upon world and regional petroleum products markets. Any decrease in shipments of petroleum products in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of petroleum products, including competition from alternative energy sources. In the long-term it is possible that petroleum products demand may be reduced by an increased reliance on alternative energy sources, by a drive for increased efficiency in the use of petroleum products as a result of environmental concerns, or by high oil prices. A recession affecting the U.S. and world economies may result in protracted reduced consumption of petroleum products and a decreased demand for our vessels and lower charter rates, which could have a material adverse effect on our business, results of operations, cash flows, and financial condition.

Our vessels and our reputation are at risk of being damaged due to operational hazards that may lead to unexpected consequences, which may adversely affect our earnings.
 
Our vessels and their cargos are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, structural failures, human error, war, terrorism, piracy and other circumstances or events. All of these hazards can also result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates or loss of insurance cover, damage to our customer relationships that could limit our ability to successfully compete for charters, delay or rerouting, each of which could adversely affect our business. Further, if one of our vessels were involved in an accident with the potential risk of environmental pollution, the resulting media coverage could adversely affect our business.
 
    If our vessels suffer damage, they may need to be repaired. The costs of repairs are unpredictable and can be substantial. We may have to pay repair costs that our insurance does not cover in full. The loss of revenue while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, available repair facilities are sometimes limited as we have geographical limitations due to the trading patterns of our fleet. The same situation applies to scheduled drydocks. We may be unable to find space at a suitable repair or drydock facility or we may be forced to travel to a repair or drydock facility that is not conveniently located near our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant docking facilities would decrease our earnings.
 
 Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.

    Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. In 2008, 2009 and 2010, the frequency of piracy incidents against commercial shipping vessels increased significantly, particularly in the Gulf of Aden off the coast of Somalia, with dry bulk vessels and tankers particularly vulnerable to such attacks. According to the International Maritime Bureau commercial shipping in the area was subjected to 445 individual pirate attacks of which 53 ships were actually hijacked resulting in the kidnapping of 1,181 crew members.

 
13

 

If these pirate attacks result in regions in which our vessels are deployed being characterized by insurers as "war risk" zones or as "war and strikes" listed areas by the Joint War Committee, premiums payable for insurance coverage could increase significantly and such coverage may be more difficult to obtain. In addition, crew costs, including costs in connection with employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents or similar incidents on board third party vessels managed by us, which could have a material adverse effect on us. In addition, any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under charters of the vessels we operate.

If our vessels call on ports located in countries that are subject to sanctions and embargos imposed by the U.S. or other governments, that could adversely affect our reputation and the market for our common stock.

From time to time on charterers' instructions, vessels managed by us may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the U.S. government as state sponsors of terrorism. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act ("CISADA"), which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to non-U.S. companies, such as our company, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our company. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

A renewed contraction or worsening of the global credit markets and the resulting volatility in the financial markets could have a material adverse effect on our business, results of operations and financial condition.

Since 2007, a number of major financial institutions have experienced serious financial difficulties and, in some cases, have entered into bankruptcy proceedings or are subject to regulatory enforcement actions. These difficulties have resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios. These difficulties have been compounded by a general decline in the willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. Although banks and financial institutions have since resumed extending credit, its availability remains significantly below its peak. As the shipping industry has been highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline. If we are unable to obtain additional credit or draw down upon borrowing capacity, it may negatively impact our ability to fund current and future obligations. These outcomes could have a material adverse impact on our business, results of operations, financial condition, ability to grow and cash flows, and could cause the market price of our common shares to decline.

If emergency governmental measures are implemented in response to any economic downturn, that could have a material adverse impact on our results of operations, financial condition and cash flows.

Since 2008, global financial markets have experienced extraordinary disruption and volatility following adverse changes in the global credit markets. The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and governments around the world have taken significant measures in response to such events, including the enactment of the Emergency Economic Stabilization Act of 2008 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the United States, and may implement other significant responses in the future. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The U.S. Securities and Exchange Commission, or the SEC, other regulators, self-regulatory organizations and exchanges have enacted temporary emergency regulations and may take other extraordinary actions in the event of market emergencies and may effect permanent changes in law or interpretations of existing laws. We cannot predict what, if any, such measures would be, but changes to securities, tax, environmental, or the laws of regulations, could have a material adverse effect on our results of operations, financial condition or cash flows.

 
14

 
Because the fair market value of vessels fluctuates significantly, we may incur losses when we sell vessels or as a consequence of their book value failing to meet an impairment test resulting in a non-cash write-off.
 
    Vessel values have historically been very volatile. The market value of our vessels may fluctuate significantly in the future, and we may incur losses when we sell vessels or as a consequence of their book value failing to meet an impairment test resulting in a non-cash write-off, which would adversely affect our earnings. Some of the factors that affect the fair market value of vessels, all of which are beyond our control, are:
 
 
·
general economic, political and market conditions affecting the shipping industry;
 
 
·
number of vessels of similar type and size currently on the market for sale;
 
 
·
the viability of other modes of transportation that compete with our vessels;
 
 
·
cost and number of newbuildings and vessels scrapped;
 
 
·
governmental or other regulations;
 
 
·
prevailing level of charter rates; and
 
 
·
technological advances that can render our vessels inferior or obsolete.
 
Compliance with safety, environmental, governmental and other requirements may be very costly and may adversely affect our business.
 
The shipping industry is subject to extensive and changing international conventions and treaties, national, state and local environmental and operational safety laws and regulations in force in international waters and the jurisdictional waters of the countries in which the vessels operate, as well as in the country or countries in which such vessels are registered. These requirements include, but are not limited to, (i) the U.S. Oil Pollution Act of 1990, as amended, or OPA, (ii) the International Maritime Organization, or IMO, International Convention on Civil Liability for Oil Pollution Damage of 1969, and its protocols of 1976, 1984, and 1992, or CLC, (iii) the IMO International Convention for the Prevention of Pollution from Ships, or MARPOL, (iv) the IMO International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, (v) the IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS, (vi) the International Convention on Load Lines of 1966, (vii) the U.S. Maritime Transportation Security Act of 2002 and (viii) the International Ship and Port Facility Security Code.  We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to the management and disposal of hazardous materials and wastes, the cleanup of oil spills and other contamination, air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. Furthermore, the 2010 explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other events, may result in further regulation of the drilling activity, offshore and shipping industry, and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, vessel classification societies also impose significant safety and other requirements on our vessels. Many of these environmental requirements are designed to reduce the risk of oil spills and other pollution, and our compliance with these requirements can be costly.

These requirements can affect the resale value or useful lives of our vessels, require a reduction in cargo-capacity or other operational or structural changes, lead to decreased availability of insurance coverage for environmental matters, or result in the denial of access to, or detention in, certain ports. Local, national and foreign laws, as well as international treaties and conventions, can subject us to material liabilities in the event that there is a release of petroleum or other hazardous substances from our vessels. We could also become subject to personal injury or property damage claims relating to exposure to hazardous materials associated with our current or historic operations. In addition, environmental laws require us to satisfy insurance and financial responsibility requirements to address oil spills and other pollution incidents, and subject us to rigorous inspections by governmental authorities. Violations of such requirements can result in substantial penalties, and in certain instances, seizure or detention of our vessels. Additional laws and regulations may also be adopted that could limit our ability to do business or increase the cost of our doing business and that could have a material adverse effect on our operations. Government regulation of vessels, particularly in the areas of safety and environmental impact, may change in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or to even scrap or sell certain vessels altogether. For example, beginning in 2003 we sold all of our single hull oceangoing tanker vessels in response to regulatory requirements in Europe and the United States. In addition, Annex VI of MARPOL Regulations for the Prevention of Air Pollution from ships, which became effective May, 2005, sets limits on sulphur oxide, nitrogen oxide and other emissions from vessel exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Through Resolution MEPC.176(58), IMO has revised MARPOL Annex VI. The revised MARPOL Annex VI entered into force on July 1, 2010,  and addresses the following main items: sulphur content in fuels, NOx limits for diesel engines and Volatile Organic Compounds (VOC) Management Plan. Future changes in laws and regulations may require us to undertake similar measures, and any such actions may be costly. We believe that regulation of the shipping industry will continue to become more stringent and more expensive for us and our competitors. For example, various jurisdictions are considering regulating the management of ballast water to prevent the introduction of non-indigenous species considered to be invasive, which could increase our costs relating to such matters.
 
 
 
15

 
All of our vessels are subject to Annex VI regulations. While we expect that our newbuilding vessels will meet relevant Annex VI requirements at the time of their delivery and that our existing fleet will comply with such requirements, subject to classification society surveys on behalf of the flag state, such compliance could require modifications to the engines or the addition of expensive emissions control systems, or both, as well as the use of low sulphur fuels. At present our vessels are complying with these requirements. It could happen that from time to time additional requirements may arise, but we do not expect them to have a material adverse effect on our operating costs.
 
MARPOL requirements impose phase-out dates for vessels that are not certified as double hull. Our Product Tankers (Miranda I, Alejandrina and Austral) and our Crude Oil Tanker Amadeo  are fully certified by class as double hull vessels. Our oceangoing barge Parana Petrol (formerly named Alianza G3),  although of double hull construction, does not meet the minimum height criteria in double bottoms and the minimum distance in double sides in correspondence with its slop tanks required by Rule 19 (formerly Rule 13). Nevertheless, this vessel is currently certified to operate in inland Argentine waters in her present state until the end of her useful life.
 
In the United States, OPA provides that owners, operators and bareboat charterers are strictly liable for the discharge of oil in U.S. waters, including the 200 nautical mile zone off the U.S. coasts. OPA provides for unlimited liability in some circumstances, such as a vessel operator's gross negligence or willful misconduct. Liability limits provided for under OPA may be updated from time to time. OPA also permits states to set their own penalty limits. Most states bordering navigable waterways impose unlimited liability for discharges of oil in their waters. The IMO has adopted a similar liability scheme that imposes strict liability for oil spills, subject to limits that do not apply if the release is caused by the vessel owner's intentional or reckless conduct. The IMO and the European Union, or EU, also have adopted separate phase-out schedules applicable to non-double hull tankers operating in international and EU waters. These regulatory programs may require us to introduce modifications or changes to tank configuration to meet the EU double hull standards for our vessels or otherwise remove them from operation.

Under OPA, with certain limited exceptions, all newly built or converted tankers operating in U.S. waters must be built with double hulls conforming to particular specifications. Tankers that do not have double hulls are subject to structural and operational measures to reduce oil spills and will be precluded from operating in U.S. waters in most cases by 2015 according to size, age, hull configuration and place of discharge unless retrofitted with double hulls. In addition, OPA specifies annual inspections, vessel manning, equipment and other construction requirements applicable to new and existing vessels that are in various stages of development by the U.S. Coast Guard, or USCG.

Recent changes in environmental and other governmental requirements may adversely affect our operations.

In December 2009, the U.S. Environmental Protection Agency, or the EPA, finalized new nitrogen oxide emissions control standards and reduced sulfur content fuel standards applicable to newly built large marine, Category 3 engines, which we expect could be applicable to certain of the newer vessels we acquire. Category 3 engines are diesel engines that typically range in size from 3,000 to 100,000 horsepower, and are used for propulsion power on certain vessels such as oil tankers, container ships, bulk carriers, and cruise ships. Since July 1, 2009, the State of California requires that both U.S. and foreign flagged vessels, subject to specified exceptions, use reduced sulfur content fuel of 1.5% for marine gas oil or 0.5% for diesel oil when operating within 24 nautical miles of California's coastline. As of January 1, 2012, these limits will both drop to 0.1% sulfur content. In addition, on January 1, 2010, the European Union, or EU, introduced a 0.1% maximum sulfur requirement for fuels used by vessels at berth in EU ports. Although we will take steps to ensure our vessels comply with these air emission regulations, enforcement of these industry-wide regulations by the U.S. Coast Guard, EPA or EU authorities and appropriate compliance measures could result in material operational restrictions in the use of our vessels, which could have a material adverse effect on our business, results of operations and financial condition.

Greenhouse gas restrictions may adversely impact our operations.

A number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. Compliance with such measures could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program, any of which could have a material adverse effect on our business, results of operations and financial condition.

The oceangoing cargo transportation industry is highly competitive, and we may not be able to compete successfully for charters with new entrants or established companies with greater resources or newer ships.
 
We employ our vessels in highly competitive markets. The oceangoing market is international in scope and we compete with many different companies, including other vessel owners and major oil companies, such as Transpetro, a subsidiary of Petrobras. In our Offshore Supply Business, we compete with companies that operate PSVs, such as GulfMark, Maersk, Seacor, Tidewater, Bram Offshore, CBO, Wilson Sons and Brasmar. Some of these competitors are significantly larger than we are and have significantly greater resources than we do. This may enable these competitors to offer their customers lower prices, higher quality service and greater name recognition than we do. Accordingly, we may be unable to retain our current customers or to attract new customers. Further, some of these competitors, such as Transpetro, are affiliated with or owned by the governments of certain countries, and may receive government aid or legally imposed preferences or other assistance, that are unavailable to us.
 
 
16

 
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.

International shipping is subject to various security and customs inspections and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of our vessels or their cargos, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.
 
Future changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition, results of operations and ability to pay dividends.
 
Compliance with safety and other vessel requirements imposed by classification societies or flag states may be very costly and may adversely affect our business.
 
The hull and machinery of our offshore supply fleet and ocean fleet and parts of our river fleet are classed by classification societies. The classification society certifies that a vessel is in class, and may also issue the vessel's safety certification in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Our classed vessels are currently enrolled with classification societies that are members of the International Association of Classification Societies.
 
A classed vessel must undergo Annual Surveys, Intermediate Surveys and Special Surveys. In lieu of a Special Survey, a vessel's machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are on Special Survey cycles for hull inspection and continuous survey cycles for machinery inspection. Generally, classed vessels are also required to be drydocked every two to three years for inspection of the underwater parts of such vessels. However, classed vessels must be drydocked for inspection at least twice every five years.
 
If a vessel does not maintain its class, that vessel will, in practical terms, be unable to trade and will be unemployable, which would negatively impact our revenues, and could cause us to be in violation of certain covenants in our loan agreements and/or our insurance policies.
 
If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

The operation of our vessels is affected by the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability or our existing insurance coverage may be invalidated or decreased for our affected vessels. Such failure may also result in a denial of access to, or detention in, certain ports.

Our vessels could be subject to seizure through maritime arrest or government requisition.
 
Crew members, suppliers of goods and services to a vessel, shippers of cargo, and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting the vessel or, under the "sister ship" theory of liability followed in some jurisdictions, arrest the vessel that is subject to the claimant's maritime lien on any other vessel owned or controlled by the same owner. In addition, a government could seize ownership of one of our vessels or take control of a vessel and effectively become her charterer at charter rates dictated by the government. Generally, such requisitions occur during a period of war or emergency. The maritime arrest, government requisition or any other seizure of one or more of our vessels could interrupt our operations, reducing related revenue and earnings.
 
The impact of terrorism and international conflict on the global or regional economy could lead to reduced demand for our services, which would adversely affect our revenues and earnings.
 
Terrorist attacks such as the attacks on the United States on September 11, 2001, and the continuing response of the world community to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world markets and may affect our business, results of operations and financial condition. The conflict in Iraq may lead to additional acts of terrorism, regional conflict and other armed conflict around the world, which may contribute to further instability in the global markets. In addition, future terrorist attacks could result in an economic recession affecting the United States or the entire world. The effects of terrorism on financial markets could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.
 
Terrorist attacks have, in the past, targeted shipping interests, including ports or vessels. For example in October 2002, there was a terrorist attack on the VLCC Limburg, a vessel not related to us. Any future attack in the markets we serve may negatively affect our operations or demand for our services, and such attacks may also directly impact our vessels or our customers. Further, insurance may not cover our loss or liability for terrorist attacks on our vessels or cargo either fully or at all. Any of these occurrences could have a material adverse impact on our operating results, revenue and costs.
 
 
17

 
Company Specific Risk Factors
 
We are an international company that is exposed to the risks of doing business in many different, and often less developed and emerging market countries.
 
We are an international company and conduct almost all of our operations outside of the United States, and we expect to continue doing so for the foreseeable future. Some of these operations occur in countries that are less developed and stable than the United States, such as Argentina, Brazil, Chile, Paraguay, and Uruguay. Some of the risks we are exposed to by operating in these countries include among others:
 
 
·
political and economic instability, changing economic policies and conditions, and war and civil disturbances;
 
 
·
recessions in economies of countries in which we have business operations;
 
 
·
adverse foreign exchange rates;
 
 
·
the imposition of additional withholding taxes or other taxes on our foreign income, tariffs or other restrictions on foreign trade or investment, including currency exchange controls and currency repatriation limitations;
 
 
·
the imposition of executive and judicial decisions upon our vessels by the different governmental authorities associated with some of these countries;
 
 
·
the imposition of or unexpected adverse changes in foreign laws or regulatory requirements or changes in local cabotage rules and regulations;
 
 
·
longer payment cycles in foreign countries and difficulties in collecting accounts receivable;
 
 
·
difficulties and costs of staffing and managing our foreign operations; and
 
 
·
acts of piracy or terrorism.
 
These risks may result in unforeseen harm to our business and financial condition. Also, some of our customers are headquartered in South America, and a general decline in the economies of South America, or the instability of certain countries and economies, could adversely affect that part of our business.
 
Our business in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success in international markets depends, in part, upon our ability to succeed in different legal, regulatory, economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies which will be effective in each location where we do business. Further, the occurrence of any of the foregoing factors may have a material adverse effect on our business and results of operations.
 
We may have to employ temporarily part of our fleet on spot charters and any prolonged continuation of current spot charter rates or further decreases in spot charter rates in the future may adversely affect our earnings.

We may employ our ocean and offshore vessels in the spot charter market, and we may acquire additional vessels in the future that we may employ in the spot charter market. As a result, we may be exposed to the cyclicality and volatility of the spot charter market. Charter rates for ocean and offshore vessels in the spot charter market are currently low, and ocean and offshore vessels traded in the spot charter market may experience substantial off-hire time.

The spot charter market for ocean and offshore vessels may fluctuate significantly, and any significant fluctuations in charter rates will result in significant fluctuations in the utilization of our ocean and offshore vessels and our profitability. The successful operation of our vessels in the highly competitive spot charter market, depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo.  The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels.  In the event we are unable to find suitable employment for a vessel at economically viable rates, management may opt to lay up the vessel until such time that rates become attractive again. During the period of lay up, such vessel will continue to incur expenditure such as insurance, reduced crew wages and maintenance costs.  If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or to pay dividends in the future.  Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

 
18

 
An increase in operating costs would decrease earnings and available cash.

Vessel operating costs include the costs of crew, provisions, deck and engine stores, lubricants, insurance and maintenance and repairs, which depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance enhanced security measures implemented after September 11, 2001, have been increasing. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydocking repairs are unpredictable and can be substantial. Increases in any of these vessel operating expenses would decrease earnings and available cash.
 
In addition, unlike under time charters where we are responsible only for vessel operating expenses but not voyage costs, under spot charter agreements, we are responsible for both voyage costs and vessel operating costs. Voyage costs include the costs of bunkers, port expenses and brokerage commissions paid by us to third parties. An increase in such voyage costs, or an increased reliance on spot charters which thereby increase our exposure to voyage costs, would adversely affect our earnings and available cash.
 
We may not be able to grow our business or effectively manage our growth.
 
    A principal focus of our strategy is to continue to grow, in part by increasing the number of vessels in our fleet. The rate and success of any future growth will depend upon factors which may be beyond our control, including our ability to:
 
 
·
identify attractive businesses for acquisitions or joint ventures;
 
 
·
identify vessels for acquisitions;
 
 
·
integrate any acquired businesses or vessels successfully with our existing operations;
 
 
·
hire, train and retain qualified personnel to manage and operate our growing business and fleet;
 
 
·
identify new markets;
 
 
·
expand our customer base;
 
 
·
improve our operating and financial systems and controls; and
 
 
·
obtain required financing for our existing and new operations.
 
We may not be successful in executing our growth plans and could incur significant expenses and losses in connection therewith.
 
We may discontinue one or more lines of business for commercial or strategic reasons.  The redeployment of the capital invested in any discontinued line of business may take time, resulting in reduced earnings during such period and/or delay to our overall growth.
 
We may start a new line of business or a new activity within an existing line of business, and may incur losses to start up the new service.
 
Furthermore, because the volume of cargo we ship in our River Business during a normal crop year is at or near the capacity of our barges during the peak season, our ability to increase volumes shipped in our River Business is limited by our ability to increase our barge fleet's carrying capacity, either through purchasing additional barges, providing faster transit times, or increasing the size of our existing barges.
 
Our subsidiaries' credit facilities and the indenture governing our 9% First Preferred Ship Mortgage Notes due 2014, or the 2014 Notes, impose significant operating and financial restrictions on us that may limit our ability to successfully operate our business.
 
Our subsidiaries' credit facilities and the indenture governing the 2014 Notes impose significant operating and financial restrictions on us, including those that limit our ability to engage in actions that may be in our long term interests. These restrictions limit our ability to, among other things:
 
 
·
incur additional debt;
 
 
·
pay dividends or make other restricted payments;
 
 
·
create or permit certain liens;
 
 
·
make investments;
 
 
·
engage in sale and leaseback transactions;
 
 
·
sell vessels or other assets;
 
 
·
create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us;

 
19

 
 
·
engage in transactions with affiliates; and
 
 
·
consolidate or merge with or into other companies or sell all or substantially all of our assets.
 
In addition, some of our subsidiaries' credit facilities require that our subsidiaries maintain specified financial ratios and satisfy financial covenants and debt-to-asset and similar ratios. We may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet these ratios and satisfy these covenants and ratios. Events beyond our control, including changes in the economic and business conditions in the markets in which our subsidiaries operate, may affect their ability to comply with these covenants. We cannot assure you that our subsidiaries will meet these ratios or satisfy these covenants or that our subsidiaries' lenders will waive any failure to do so. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our subsidiaries' credit facilities would prevent our subsidiaries from borrowing additional money under the facilities and could result in a default under them.

If a default occurs under our credit facilities or those of our subsidiaries, the lenders could elect to declare such debt, together with accrued interest and other fees and expenses, to be immediately due and payable and proceed against the collateral securing that debt. Moreover, if the lenders under a credit facility or other agreement in default were to accelerate the debt outstanding under that facility, it could result in a cross default under other debt. If all or part of our debt were to be accelerated, we may not have or be able to obtain sufficient funds to repay it upon acceleration.
 
We recently expanded into the feeder container vessel and river container trade sectors and in the future may enter into other sectors where we have limited experience.

We recently expanded our Ocean Business segment through the addition, in May 2010 and November 2010, of two vessels in the feeder container sector. In the fourth quarter of 2010, we entered the river container trade in the Hidrovia Region. The operation of container services has certain unique risks involving, among other things, the loading or unloading of containers with highly varied cargoes and industry specific inspection procedures. Our ability to establish container industry relationships and a reputation for customer service and safety, as well as to renew or maintain our existing connecting carrier agreements with the shipping lines that constitute our container service clients, will depend on a number of factors, including our ability to man our vessels with experienced feeder container crews and the ability to manage such risks. There is no assurance that we will be able to address the variety of vessel management risks in the feeder container vessel sector, which could adversely affect our container business and results of operations. In the future, we may enter other sectors or lines of business where we have limited experience, which could adversely affect our business and results of operations.

We are involved in, and may expand further into, the building of dry bulk and tank barges for the river trade as well as construction of vessels either by subcontracting with several parties the various tasks necessary to complete the construction or by carrying them out ourselves.

We have inaugurated a purpose built barge building facility at Punta Alvear in December 2009. We have similarly subcontracted and may subcontract in the future with different parties the building of the steel hull, the supply and assembly of engines, pipes, electrical conducts and other equipment and materials necessary to build vessels. Our production is dependent on a local labor force, local generation of electrical power, on the availability of steel and other materials, as well as suitable subcontractors. Any delay or interruption in the availability of these materials could cause delay in our production schedule. Also, registration of vessels following construction may take time due to the requirement in some jurisdictions of import licences or individual authorisations by governmental authorities and/or by classification societies.

This ship or barge building activity could be disrupted or become delayed by circumstances beyond our control such as timely lack of supply of materials or worksmanship to build, quality or design problems, strikes or other labor disputes or the construction executed by us could be deficient because of problems concerning design, workmanship or because of defective materials or equipment. These deficiencies, disruptions or delays may result in failure of timely delivery of the vessels that we are building or that we are committed to build for ourselves or for third parties with the consequent negative impact in our financial results through loss of earnings and/or penalties and/or cancellation of contracts and/or responsabilites under guarantees for construction contracts.

The failure of Petrobras to successfully implement its business plan for 2010-2014 could adversely affect our business.

During 2010, Petrobras announced its business plan for 2010-2014, which includes a projected capital expenditure budget of $22.0 billion between 2010 and 2014 and provides for an increase in drilling rigs, and in connection therewith forecasts a growth in the demand for supply and specialty vessels from 254 in December 2009 to 465 by 2013. In addition, Petrobras has entered into the Assignment Agreement with the Brazilian federal government to conduct operations in specified pre-salt areas, which will require additional capital expenditures by Petrobras to explore and develop the areas covered by the Assignment Agreement. The Assignment Agreement as well as other agreements and Brazilian regulations require that Petrobras acquire a minimum level of goods and services from Brazilian providers. In addition, Brazilian law provides a preference for the utilization of Brazilian-flagged vessels in its cabotage trade.

 
20

 
We believe that Petrobras' capital expenditure plans and the Assignment Agreement will provide significant opportunities within the Brazilian PSV market, particularly for companies that own or are constructing Brazilian-built vessels, and we intend to actively pursue the further expansion of our PSV operations in Brazil, including seeking chartering opportunities for our PSVs under construction, evaluating the construction of additional PSVs within Brazil and identifying opportunities to utilize the preferential rights provided by our current Brazilian-built PSVs and any future PSVs we may construct. However, in the event Petrobras does not successfully implement its business plan for 2010-2014 or does not otherwise capitalize on the growth opportunities presented by the Assignment Agreement and favorable Brazilian regulations, there will be fewer opportunities to employ PSVs in Brazil than we expected. Consequently, we may not be able to expand our PSV operations in Brazil, which may adversely affect our Offshore Supply Business and results of operations.

Changes in governmental policies in South America could adversely affect our business, results of operations, financial condition and prospects.

We engage in business activities throughout South America. For the year ended December 31, 2010, 87% of our revenues were derived from charterers domiciled in Argentina, Bolivia, Brazil, Paraguay, and Uruguay. As a result, our business is and will continue to be subject to the risks generally associated with doing business in South America.

Governments throughout South America have exercised, and continue to exercise, significant influence over the economies of their respective countries. Accordingly, the governmental actions, political developments, regulatory and legal changes or administrative practices in these countries concerning the economy in general and the transportation industry in particular could have a significant impact on us. We cannot assure you that changes in the governmental policies of these countries will not adversely affect our business, results of operations, financial condition and prospects.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
 
Our ability to make payments on and to refinance our indebtedness, including the 2014 Notes, the Convertible Senior Notes, or the Convertible Senior Notes,  and any amounts borrowed under any of our subsidiaries' credit facilities, and to fund our operations, will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated business opportunities will be realized on schedule or at all, or that future borrowings will be available to us in amounts sufficient to enable us to service our indebtedness, including the 2014 Notes, the Convertible Senior Notes and any amounts borrowed under our subsidiaries' credit facilities, or to fund our other liquidity needs.
 
If we cannot service our debt, we will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We cannot assure you that any of these remedies could, if necessary, be done on commercially reasonable terms, or at all. In addition, the indentures governing the 2014 Notes and the Convertibles Senior Notes and the credit agreements governing our subsidiaries' various credit facilities may restrict us from adopting any of these alternatives. If we are not successful in, or are prohibited from, pursuing any of these remedies and cannot service our debt, our secured creditors may foreclose on our assets over which they have been granted a security interest.

Our 2017 Notes are convertible into shares and have a reset clause which, if executed, may expose the conversion rate to variations.
 
Our ability to carry out our expansion plans as scheduled depends upon our ability to generate sufficient funds.

We expect to fund our capital expenditures with our cash on hand, plus cash generated from our operations, plus funds borrowed under existing or new loan facilities, net of debt service and taxes payable. If we do not have sufficient available cash from these sources to meet our capital expenditures, we may not be able to carry out our expansion plans as scheduled, if at all.

We may be unable to obtain financing for our growth or to fund our future capital expenditures, which could negatively impact our results of operations and financial condition.
 
In order to follow our current strategy for growth, we will need to fund future vessel acquisitions, barge building, increased working capital levels and increased capital expenditures. In the future, we will also need to make capital expenditures required to maintain our current fleet and infrastructure. Cash generated from our earnings may not be sufficient to fund all of these measures. Accordingly, we may need to raise capital through borrowings or the sale of debt or equity securities. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. If we fail to obtain the funds necessary for capital expenditures required to maintain our fleet and infrastructure, we may be forced to take vessels out of service or curtail operations, which would harm our revenue and profitability. If we fail to obtain the funds that might be necessary to acquire new vessels, or increase our working capital or capital expenditures, we might not be able to grow our business and our earnings could suffer. Furthermore, any issuance of additional equity securities could dilute your interest in us and the debt service required for any debt financing would limit cash available for working capital and the payment of dividends, if any.
 
 
21

 
The volatility in LIBOR could affect our profitability, earnings and cash flow.
 
If the London market for dollar loans between banks were to become volatile the spread between published LIBOR and the lending rates actually charged to banks in the London interbank market would widen. Interest in most loan agreements in our industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
 
As of December 31, 2010, the Company had $75.0 million of variable rate borrowings, based on LIBOR, under its credit facilities with IFC and OFID. During the year ended December 31, 2010, the Company entered into an interest rate collar agreement, designated as cash flow hedge, to fix the interest rate on these borrowings, which is subject to a floor of 1.69% and a cap of 5.00%. Additionally, as of December 31, 2010, the Company had other variable rate debt (due 2011 through 2019) totaling $131.1 million. These debts call for the Company to pay interest based on LIBOR plus a 120-340 basis point margin. The interest rates reset either monthly or quarterly. As of December 31, 2010, the average interest rate on these borrowings was 2.33%.

A 1% increase in LIBOR would translate to a $1.3 million increase in our interest expense per year, which would adversely affect our earnings.
 
 Our planned investments in our River Business are subject to significant uncertainty.
 
We intend to continue investing in the building of new barges and the installation of new engines that burn less expensive fuel in some of our line pushboats. It is possible that these initiatives will fail to result in increased revenues and lower fuel costs, fail to result in cost-effective barge construction, or that they will lead to other complications that would adversely affect our business.
 
The increased capacity created by building new barges may not be utilized by the local transportation market at prevailing prices or at all. Our expansion activities may also be subject to delays in construction or registration, which may result in cost overruns or lost revenues. Any of these developments would adversely affect our revenue and earnings.
 
While we expect the heavier fuel that our new engines burn to continue to be available at a discount to the price of the fuel that we currently use, the heavier fuel may not be available at such a large discount or at any discount at all. In addition, operating our new engines will require specially trained personnel, and such personnel may not be readily available. Higher fuel or personnel costs would adversely affect our profitability.
 
The operation of these new engines may also result in other complications that cannot easily be foreseen and that may adversely affect the quantity of cargo we carry or lead to additional costs, which could adversely affect our revenue and earnings.
 
We believe that our initiatives will result in improvements in efficiency allowing us to move more cargo per barge and / or per unit of pushing capacity. If we do not fully achieve these efficiencies, or do not achieve them as quickly as we planned, we will need to incur higher repair expenses to maintain fleet size by maintaining older barges or invest new capital as we replace aging / obsolete capacity. Either of these options would adversely affect our results of operations.
 
We may not be able to charter our new PSVs at attractive rates.
 
We have contracted with a shipyard in India to construct four new PSVs and with another shipyard in China to construct one new PSV, with scheduled deliveries commencing in the second quarter of 2011 (although the delivery of these PSVs has been delayed from their original delivery dates and may be further delayed). Although we intend to charter these vessels by the time they are delivered, we may be unable to do so. Even if we do obtain charters for these vessels, they may be at rates lower than those that currently prevail or those that we anticipated at the time we ordered the vessels. If we fail to obtain charters or if we enter into charters with low charter rates, our financial condition and results of operations could suffer.
 
We may face delays in delivery under our newbuilding contracts for PSVs which could adversely affect our financial condition and results of operations.
 
The five PSVs currently under construction and additional newbuildings for which we may enter into contracts may be subject to further delays in their respective deliveries or even non-delivery from the shipyards. The delivery of our PSVs, and/or additional newbuildings for which we may enter into contracts, could be further delayed, canceled, become more expensive or otherwise not completed because of, among other things:
 
 
·
quality or engineering problems;
 
 
·
changes in governmental regulations or maritime self-regulatory organization standards;
 
 
·
work stoppages or other labor disturbances at the shipyard;
 
 
·
bankruptcy or other financial crises of the shipyard;

 
22

 

 
·
economic factors affecting the yard's ability to continue building the vessels as originally contracted;
 
 
·
a backlog of orders at the shipyard;
 
 
·
weather interference or a catastrophic event, such as a major earthquake or fire or any other force majeure;
 
 
·
our requests for changes to the original vessel specifications;

 
·
shortages of or delays in the receipt of necessary construction materials, such as steel or machinery, engines and critical components such as dynamic positioning equipment;
 
 
·
our inability to obtain requisite permits or approvals or to receive the required classifications for the vessels from authorized classification societies;
 
 
·
a shipbuilder's failure to otherwise meet the scheduled delivery dates for the vessels or failure to deliver the vessels at all; or
 
 
·
inability or unwillingness by the shipyard to extend the refund guarantees required to be up to date according to the building contracts.

If the delivery of any PSV, and/or additional newbuildings for which we may enter into contracts, is materially delayed or canceled, especially if we have committed that vessel to a charter for which we become responsible for substantial liquidated damages to the customer as a result of the delay or cancellation, our business, financial condition and results of operations could be adversely affected. Although the building contracts typically incorporate penalties for late delivery, we cannot assure you that the vessels will be delivered on time or that we will be able to collect the late delivery payment from the shipyards or that in the case we collect those late delivery penalties, they are sufficient to compensate for losses suffered.
 
We cannot assure you that we will be able to repossess the vessels under construction or their parts in case of a default of the shipyards and, in those cases where we may have refund guarantees, we cannot assure that we will always be able to collect or that it will be in our interest to collect under these guarantees.
 
A significant delay in the delivery of one or more ships may render unavailable the pre-delivery financing arranged for that vessel(s) forcing us either to refinance at more expensive terms or to have to cancel one or more newbuildings.
 
In the event one of the shipyards building our PSVs does not perform under its agreements with us and we are unable to enforce certain refund guarantees, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.

Currently, we have outstanding newbuilding contracts with a shipyard in China and a shipyard in India for the construction of a total of five new PSVs. According to the Shipyards, these PSVs are scheduled to be delivered commencing in 2011 (although the delivery of the vessels has been delayed from their original delivery dates and may be further delayed) starting with our UP Jasper in the second quarter of 2011. As of December 31, 2010, we have made total yard payments to these yards in the amount of $69.6 million and we have remaining yard payments in the amount of $44.9 million before we take possession of the PSVs. In the event that a shipyard does not perform under its agreements with us and we are unable to enforce certain refund guarantees due to an outbreak of war, bankruptcy or otherwise, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.

We are a holding company, and depend almost entirely on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial and other obligations.
 
We are a holding company, and as such we have no significant assets other than the equity interests of our subsidiaries. Our subsidiaries conduct all of our operations and own all of our operating assets. As a result, our ability to pay dividends and service our indebtedness depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, restrictions under our credit facilities and applicable laws of the jurisdictions of their incorporation or organization. For example, some of our subsidiaries' existing credit agreements contain significant restrictions on the ability of our subsidiaries to pay dividends or make other transfers of funds to us. Further, some countries in which our subsidiaries are incorporated require our subsidiaries to receive central bank approval before transferring funds out of that country. In addition, under limited circumstances, the indenture governing the 2014 Notes permits our subsidiaries to enter into additional agreements that can limit our ability to receive distributions from such subsidiaries. If we are unable to obtain funds from our subsidiaries, we will not be able to service our debt or pay dividends, should we decide to do so, unless we obtain funds from other sources, which may not be possible.
 
 
 
23

 
We depend on a few significant customers for a large part of our revenues, and the loss of one or more of these customers could adversely affect our revenues.
 
On a consolidated basis, in 2010, our three largest customers were Petrobras, Cargill and Petropar.  In aggregate terms, our three largest customers accounted for 60% of our total revenues. In each of our business segments, we derive a significant part of our revenues from a small number of customers. Additionally, some of these customers, including many of our most significant ones, operate vessels and or barges of their own. These customers may decide to cease or reduce the use of our services for any number of reasons, including employing their own vessels. The loss of any one or a number of our significant customers, whether to our competitors or otherwise, could adversely affect our revenues and earnings.
 
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations that could harm our reported revenue and costs and consequently the results of our operations.
 
We are an international company and, while our financial statements are reported in U.S. dollars, some of our operations are conducted in foreign currencies. Changes in currency exchange rates could adversely affect our reported revenues and could require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. Further, we incur costs in multiple currencies that are different than, or in a proportion different to, the currencies in which we receive our revenues. Accordingly, if the currencies in which we incur a large portion of our costs appreciate in value against the currencies in which we receive a large portion of our revenue, our margins could be adversely affected. We have from time to time hedged our exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated losses. This operation may be performed again in the future.

Rising fuel prices may adversely affect our profits.
 
Fuel is the largest operating expense in our River Business where most of our contracts are contracts of affreightment under which we are paid per ton of cargo shipped. Currently, most of these agreements permit the adjustment of freight rates based on changes in the price of fuel. We may be unable to include this provision in these contracts when they are renewed or in future contracts with new customers. In our Offshore Supply Business, the risk of variation of fuel prices under the vessels' current employment is generally borne by the charterers, since it is them who are generally responsible, at their expense, for the cost and supply of fuel; however, such cost may affect the charter rates we are able to negotiate for our Offshore Supply Business vessels. In addition, we may become responsible for the positioning and depositioning supply of fuel to such vessels, in which case variations in the price of fuel could affect our earnings. In our Ocean Business, while fuel price and supply are the charterers responsibility for those vessels during their time charter, fuel is a significant, if not the largest, expense in our shipping operations or for those employed in our liner service. We are responsible for the supply of fuel to such vessels, and variations in the price of fuel could have a significant impact on our earnings to the extent they are different (higher than) those employed when estimating the expected result of such voyages and fixing the corresponding freight. We may not be able to increase our liner freights to compensate for the fuel adjustment. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
 
To the extent our contracts do not pass-through changes in fuel prices to our clients, we will be forced to bear the cost of fuel price increases. We may hedge in the futures market all or part of our exposure to fuel price variations. We cannot assure you that we will be successful in hedging our exposure. In the event of a default by our charterers or other circumstance affecting the performance of a contract of affreightment, we are subject to exposure under, and may incur losses in connection with, our hedging instruments. Even in case we were able to hedge (partially or totally) our exposure to fuel price variations, we may have to post collateral (i.e. margin calls) under those hedges. Such posting of collateral may require substantial amounts of cash and in case we may not be able to post such cash to the margin accounts, the hedges may be unilaterally cancelled by our counterparts, negatively affecting our results.
 
In certain jurisdictions, the price of fuel is affected by high local taxes and may become more expensive than prevailing international prices. We may not be able to pass onto our customers the additional cost of such taxes and may suffer losses as a consequence of such inability.
 
Our success depends upon our management team and other employees, and if we are unable to attract and retain key management personnel and other employees, our results of operations may be negatively impacted.
 
Our success depends to a significant extent upon the abilities and efforts of our management team and our ability to retain them. In particular, many members of our senior management team, including our CEO and Executive Vice President, have extensive experience in the shipping industry and have held their roles with us since our inception. If we were to lose their services for any reason, it is not clear whether any available replacements would be able to manage our operations as effectively. The loss of any of the members of our management team could adversely affect our business prospects and results of operations and could lead to a decrease in the price of our common stock. We do not maintain "key man" insurance on any of our officers. Further, the efficient and safe operation of our vessels requires skilled and experienced crew members. Difficulty in hiring and retaining such crew members could adversely affect the operation of our vessels, and in turn, adversely affect our results of operations.
 
 
24

 
Secondhand vessels are more expensive to operate and repair than newbuildings and may have a higher likelihood of accidents which could adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.

    We purchased all of our oceangoing vessels, and substantially all of our other vessels with the exception of our PSVs, secondhand and our current business strategy generally includes growth through the acquisition of additional secondhand vessels. While we inspect secondhand vessels prior to their purchase, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Consequently, we may not discover defects or other problems with such vessels prior to purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which we are liable to third parties. If we purchase and operate additional secondhand vessels, we will be exposed to increased operating costs which could adversely affect our earnings.

In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently built vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
 
New vessels may experience initial operational difficulties.
 
New vessels, during their initial period of operation, have the possibility of encountering structural, mechanical and electrical problems. Normally, we will receive a warranty from the shipyard but we cannot assure you that it will always be effective to resolve the problem without additional costs to us.
 
As our fleet ages, the risks and costs associated with older vessels increase.
 
The costs to operate and maintain a vessel in operation increase with the age of the vessel. Charterers may prefer newer vessels which carry lower cargo insurance rates and are more fuel-efficient than older vessels. Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which these vessels may engage. As our vessels age, market conditions may not justify the expenditures necessary for us to continue operation of our vessels, and charterers may no longer charter our vessels at attractive rates or at all. Either development could adversely affect our earnings.
 
Spare parts or other key elements needed for the operation of our vessels may not be available off-the-shelf and we may face substantial delays which could result in loss of revenues while waiting for those spare parts to be produced and delivered to us.
 
Our vessels may need spare parts to be provided in order to replace old or damaged parts in the normal course of their operations. Given the increased activity in the maritime industry and the industry that supplies it, the manufacturers of key elements of our vessels (such as engine makers, propulsion systems makers, control systems makers and others) may not have the spare parts needed available immediately (or off-the-shelf) and may have to produce them when required. If this was the case, our vessels may be unable to operate while waiting for such spare parts to be produced, delivered, installed and tested, resulting in substantial loss of revenues for us.
 
We may not have adequate insurance to compensate us if our vessels or property are damaged or lost or if we harm third parties or their property or the environment.
 
We insure against tort claims and some contractual claims (including claims related to environmental damage and pollution) through memberships in protection and indemnity, or P&I, associations, or clubs. We also procure hull and machinery insurance and war risk insurance for our fleet. In some instances, we procure loss of hire and strike insurance, which covers business interruptions that result in the loss of use of a vessel. We cannot assure you that such insurance will continue to be available on a commercially reasonable basis.
 
In addition to the P&I entry that we hold for all our fleet, the PSVs currently maintain third party liability insurance covering contractual claims that may not be covered by our P&I entry in the amount of $50.0 million. If claims affecting such policy exceed the above amount, it could have a material adverse effect on our business and the results of operations.
 
All insurance policies that we carry include deductibles (and some include limitations on partial loss) and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Further, our insurance may not be sufficient to fully compensate us against losses that we incur, whether resulting from damage to or loss of our vessels, liability to a third party, harm to the environment, or other catastrophic claims. For example, our protection and indemnity insurance has a coverage limit of $1.0 billion for oil spills and related harm to the environment, $2.0 billion for passenger claims and $3.0 billion for passenger and seamen claims. Although the coverage amounts are significant, the amounts may be insufficient to fully compensate us, and, thus, any uninsured losses that we incur may be substantial and may have a very significant effect on our financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime self-regulatory organizations or lack of payment of premiums.
 
 
25

 
We cannot assure you that we will be able to renew our existing insurance policies on the same or commercially reasonable terms, or at all, in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in lack of availability of, protection and indemnity insurance against risks of environmental damage or pollution. Each of our policies is also subject to limitations and exclusions, and our insurance policies may not cover all types of losses that we could incur. Any uninsured or under-insured loss could harm our business, financial condition and operating results. Furthermore, we cannot assure you that the P&I clubs to which we belong will remain viable. We may also become subject to funding calls due to our membership in the P&I clubs which could adversely affect our profitability. Also, certain claims may be covered by our P&I insurance, but subject to the review and at the discretion of the board of the P&I club. We can not assure you that the board will exercise its discretion to vote to approve the claim.
 
Labor disruptions in the shipping industry could adversely affect our business.
 
As of December 31, 2010, we employed 225 land-based employees, 197 shipyard workers and approximately 797 seafarers as crew on our vessels. Most of these seafarers are covered by industry-wide collective bargaining agreements that set basic standards applicable to all companies who hire such individuals as crew. Because most of our employees are covered by these industry-wide collective bargaining agreements, failure of industry groups to renew these agreements may disrupt our operations and adversely affect our earnings. In addition, we cannot assure you that these agreements will prevent labor interruptions or that they may not result in increased costs. Any labor interruptions could disrupt our operations and harm our financial performance.

On our River Business, current different degrees of unionization of our employees and crew onboard may lead to a change or leveling of such unionization, which could result in higher costs for us, thus affecting our results of operations.
 
Certain conflicts of interest may adversely affect us.
 
Certain of our directors and officers hold similar positions with other related companies. Felipe Menendez R., who is our President, Chief Executive Officer, and a Director, is a Director of Oceanmarine, a related company that previously provided administrative services to us and has entered into joint ventures with us in salvage operations. Oceanmarine also operates slot charter container services between Argentina and Brazil, an activity in which we do not engage at the present time. Ricardo Menendez R., who is our Executive Vice President and one of our Directors, is the President of Oceanmarine, and is also the Chairman of The Standard Steamship Owners' Protection and Indemnity Association (Bermuda) Limited, or Standard, a P&I club with which some of our vessels are entered. For the years 2008, 2009, and 2010, we paid to Standard $3.5 million, $4.3 million and $3.9 million respectively in insurance premiums. Both Mr. Ricardo Menendez R. and Mr. Felipe Menendez R. are Directors of Maritima SIPSA, a company owned 49% by us and 51% by SIPSA S.A. (a related company) and Directors of Shipping Services Argentina S.A. (formerly I. Shipping Services), a company that provides vessel agency services for third parties in Argentina and occasionally for our vessels calling at Buenos Aires, Ushuaia and other Argentinean ports. We are not engaged in the vessel agency business for third parties and the consideration we paid for the services provided by Shipping Services Argentina S.A. and Navalia to us amounted to $0.1 million in 2008, $0.2 million in 2009 and $0.4 in 2010. Although these directors and officers attempt to perform their duties within each company independently, in light of their positions with such entities, these directors and officers may face conflicts of interest in selecting between our interests and those of Oceanmarine, Shipping Services Argentina S.A. and Navalia and Standard. In addition, Shipping Services Argentina S.A. and Oceanmarine are indirectly controlled by the Menendez family, including Felipe Menendez R. and Ricardo Menendez R. These conflicts may limit our fleet's earnings and adversely affect our operations.  Although we cannot ascertain the exact amount of time allocated by these officers and directors to our business, generally such officers and directors dedicate a substantial portion of their average working week to our business and in any event in an amount sufficient to fulfill their obligations to us in their role as officer or director.
 
We may not be able to fulfill our obligations in the event we suffer a change of control or a fundamental change.
 
If we suffer a change of control, we will be required to make an offer to repurchase the 2014 Notes at a price of 101% of their principal amount plus accrued and unpaid interest within a period of 30 to 60 days. In addition, if a fundamental change occurs, as defined in the indenture governing the Convertible Senior Notes, we may be required to make an offer to repurchase the Convertible Senior Notes. A change of control or fundamental change may also result in the banks that have other financings in place with us deciding to cross-default and/or accelerate the repayment of our loans. Under certain circumstances, a change of control of our company or fundamental change may also constitute a default under our credit facilities resulting in our lenders' right to accelerate their loans. We may not be able to satisfy our obligations if a change of control or fundamental change occurs.
 
If we are unable to fund our capital expenditures, we may not be able to continue to operate some of our vessels, which would have a material adverse effect on our business and financial condition or our ability to pay dividends.
 
In order to fund our capital expenditures, we may be required to incur borrowings or raise capital through the sale of debt or equity securities. Our ability to obtain credit facilities and access the capital markets through future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds necessary for future capital expenditures would limit our ability to continue to operate some of our vessels and could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends. Even if we are successful in obtaining such funds through financings, the terms of such financings could further limit our ability to pay dividends.

 
26

 
Because we are a non-U.S. corporation, you may not have the same rights that a creditor of a U.S. corporation may have.
 
We are incorporated under the laws of the Commonwealth of the Bahamas. Our organizational documents and the International Business Companies Act, 1989 govern our affairs. Investors may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction.

U.S. tax authorities could treat us as a "passive foreign investment company", which could have adverse U.S. federal income tax consequences to U.S. holders.
 
    A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income."  For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business.  For purposes of these tests, income derived from the performance of services does not constitute "passive income."  U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
 
We should not be a PFIC with respect to any taxable year.  Based upon our operations as described herein, our income from time charters should not be treated as passive income for purposes of determining whether we are a PFIC.  Accordingly, our income from our time chartering activities should not constitute "passive income," and the assets that we own and operate in connection with the production of that income should not constitute passive assets.
 
There is substantial legal authority supporting this position consisting of case law and U.S. Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes.  However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.  Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.  Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations were to change.
 
If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. federal income tax consequences and certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the U.S. Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Tax Considerations – U.S. Federal Income Taxation – U.S. Federal Income Taxation of U.S. Holders"), such shareholders would be liable to pay U.S. federal income tax at the then-prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of their shares of our common stock, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of their shares of our common stock.  See "Tax Considerations – U.S. Federal Income Taxation – U.S. Federal Income Taxation of U.S. Holders" for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
 
We may have to pay tax on U.S. source income, which would reduce our earnings and cash flows.
 
Under the Code, 50% of the gross shipping income of our vessel owning or chartering for non-U.S. subsidiaries attributable to transportation that begins or ends, but that does not both begin and end, in the U.S. will be characterized as U.S. source shipping income. Such income will be subject to a 4% U.S. federal income tax without allowance for deduction, unless our subsidiaries qualify for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.
 
We believe that any U.S.-source shipping income of our non-U.S. subsidiaries will qualify for the exemption from tax under Section 883 on the basis that our stock is primarily and regularly traded on the Nasdaq Global Market. However, we cannot assure you that our non-U.S. subsidiaries will qualify for that exemption. In addition, changes in the Code, the Treasury Regulations or the interpretation thereof by the IRS or the courts could adversely affect the ability of our non-U.S. subsidiaries to qualify for such exemption. If our non-U.S. subsidiaries are not entitled to that exemption, they would be subject to a 4% U.S. federal income tax on their U.S.-source shipping income. The imposition of this tax could have a negative effect on our business and would result in decreased earnings.
 
It should be noted that for the calendar years 2008, 2009 and 2010, our non-U.S. subsidiaries did not derive any U.S.-source shipping income. Therefore our non-U.S. subsidiaries should not be subject to any U.S. federal income tax for 2008, 2009 or 2010, regardless of their qualification for exemption under Section 883.
 
 
27

 
Changes in tax laws or the interpretation thereof and other tax matters related to our UK tonnage tax election may adversely affect our future results.
 
We elected the application of the UK tonnage tax instead of the corporate tax on income for the qualifying shipping activities of our PSVs in the North Sea. Changes in tax laws or the interpretation thereof and other tax matters related to our UK tax election may adversely affect our future results as a tax on the income from qualifying shipping activities likely will be higher than the UK tonnage tax to which are currently subject.

ITEM 4– INFORMATION ON THE COMPANY
 
A.           HISTORY AND DEVELOPMENT OF THE COMPANY
 
In this annual report, unless the context otherwise indicates, the terms "we", "us" and "our" (and similar terms) refer to Ultrapetrol (Bahamas) Limited and its subsidiaries and joint ventures.
 
We were originally formed, in conjunction with others, by members of the Menendez family with a single ocean going vessel in 1992, and were incorporated in our current form as a Bahamas corporation on December 23, 1997. Our registered offices are in Ocean Centre, Montagu Foreshore, East Bay St., Nassau, Bahamas. (P.O. Box SS-19084). Our agent in the Bahamas is H&J Corporate Services Ltd. Our telephone number is +1 242 364 4755.
 
Our Ocean Business has grown through the investment of capital from the operation of our fleet along with other sources of capital to acquire additional vessels. In 1998, we issued $135.0 million of 10 1/2% First Preferred Ship Mortgage Notes due 2008, or the Prior Notes. By 2001, our fleet reached 13 oceangoing vessels with a total carrying capacity of 1.1 million dwt. During 2003, in an effort to remain ahead of changing environmental protection regulations, we began to sell our entire single hull Panamax and Aframax fleets (five vessels in total), a process that we completed in early 2004. Since then, we initially focused in developing two different ocean fleets: a Capesize / OBO fleet, and a Product Tanker fleet. However, in December, 2009, taking into account the order book for the Capesize vessels in the near future, the Company made the strategic decision to sell this asset class. The process started with the sale of our Princess Susana on December 10, 2009, and finalized with the sale of our fourth Capesize vessel, Princess Katherine, on September 15, 2010.
 
 We began our River Business in its current format in 1993. In October 2000, we formed a joint venture, UABL Ltd., or UABL, with American Commercial Barge Lines Ltd., or ACL. From 2000 to 2004, we built UABL (our brand name in the River Business) into the leading river barge company in the Hidrovia Region of South America. We purchased from ACL their 50% equity interest in UABL and started a process of growth that included several load outs (imports) of barges and pushboats from the United States of America and acquisitions of smaller companies already present in the Hidrovia, such as Otto Candies.
 
During 2000, we received a $50.0 million equity investment from an affiliate of Solimar Holdings, Ltd., or Solimar, a wholly-owned subsidiary of the AIG-GE Capital Latin American Infrastructure Fund, or the Fund. The Fund was established at the end of 1996 to make equity investments in South America, Mexico, Central America and the Caribbean countries. The Fund was also a coinvestor with the Company in other shipping ventures.
 
We initiated our Offshore Supply Business in its current format during 2003 through a joint venture with a wholly-owned subsidiary of the Fund, and Comintra Enterprises Ltd. Our partners and us capitalized the business with $45 million of common equity and $70 million of debt and preferred equity from IFC to construct our initial fleet of six PSVs. On March 21, 2006, we purchased 66.67% of the issued and outstanding capital stock of UP Offshore (Bahamas) Ltd., or UP Offshore, a company through which we operate our Offshore Supply Business, from an affiliate of Solimar for a purchase price of $48.0 million. Following this acquisition, we hold 94.45% of the issued and outstanding shares of UP Offshore.
 
In November 2004, we issued $180.0 million of 9% First Preferred Ship Mortgage Notes due 2014, or the 2014 Notes.
 
In March 2006, we also acquired Ravenscroft Shipping (Bahamas) S.A., or Ravenscroft, the entity through which we manage the vessels in our Offshore Supply and Ocean Businesses, from other related companies.
 
On October 18, 2006, we completed the initial public offering of 12,500,000 shares of our common stock (our IPO), which generated gross proceeds to us of $137.5 million.
 
On April 19, 2007, we successfully completed a follow-on offering of 11,000,000 shares of our common stock, which generated gross proceeds to us of $96.8 million and gross proceeds to the selling shareholders of $112.2 million. Additionally, the Underwriters of our follow-on exercised their over-allotment option to purchase from the selling shareholders in our follow-on an additional 1,650,000 shares of our common stock. We did not receive any of the proceeds from the sale of shares by these shareholders in the over-allotment option.
 
Between June and November 2008, we entered into three loan agreements to finance up to $168.6 million through three loan facilities with DVB / Natixis (as co-lenders), IFC and OFID, that allow us to partially fund our expansion capital expenditure programs in the Offshore Supply Business and the River Business. As of December 31, 2010, we had drawn $99.2 million, out of the $168.6 million committed.

On July 15, 2010, Solimar Holdings Ltd. ("Solimar"), a Named Shareholder, sold all of its remaining shareholder interest in the Company to Hazels (Bahamas) Investments Inc. ("Hazels") also a Named Shareholder. Accordingly Hazels acquired 2,977,690 additional ordinary shares in the Company which entitled Hazels to hold seven votes for each additional share so acquired in this transaction.

 
28

 

On December 9, 2010, we entered into a loan agreement with DVB Bank SE and Banco Security to finance up to $40.0 million of the acquisition of two PSVs constructed for us, UP Turquoise and UP Jasper. This facility will be drawn in two advances, each in the approximate amount of $20.0 million, upon the delivery of each of the respective PSVs. On December 16, 2010, we drew the first advance of $20.0 million in connection with the delivery of UP Turquoise.

On December 23, 2010 we issued $80.0 million of 7.25% Convertible Senior Notes due 2017.
 
B.           BUSINESS OVERVIEW
 
Our Company
 
We are an industrial shipping company serving the marine transportation needs of clients in the geographic 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 through our operations in the following three segments of the marine transportation industry.
 
 
·
Our River Business, with 602 barges and 33 pushboats, is the largest owner and operator of river barges and pushboats that transport dry bulk and liquid cargos through the Hidrovia Region of South America, a large region with growing agricultural, forest and mineral related exports. This region is crossed by navigable rivers that flow through Argentina, Brazil, Bolivia, Paraguay and Uruguay to ports serviced by ocean export vessels. These countries are estimated to account for approximately 50% of world soybean production in 2011, as compared to 32% in 1995. We have also initiated a barge building facility at Punta Alvear, which is the most modern of its kind in South America.
 
 
·
Our Offshore Supply Business owns and operates vessels that provide critical logistical and transportation services for offshore petroleum exploration and production companies, in the coastal waters of Brazil and the North Sea. Our Offshore Supply Business fleet consists of seven PSVs currently in operation and five under construction. Four of those under construction were contracted with a shipyard in India with deliveries commencing in 2011, while the one remaining was contracted to a shipyard in China with expected delivery during the second quarter of 2011.
 
 
·
Our Ocean Business operates eight ocean-going vessels (including four Product Tankers) that we employ in the South American coastal trade where we have preferential rights and customer relationships, one Oceangoing Pushboat; one inland tank barge and two container feeder vessels. Our Ocean Business fleet has an aggregate carrying capacity of approximately 110,000 deadweight tons.
 
We are focused on growing our businesses with an efficient and versatile fleet that will allow us to provide an array of transportation services to customers in several different industries. Our business strategy is to leverage our expertise and strong customer relationships to increase volume, efficiency, and market share in a targeted manner. For example, we have been increasing the cargo capacity of our existing river barges to help increase our efficiency and market share. In addition, we have commenced a program to replace the current engines in eleven of our river pushboats, and increase the pushing capacity of some of them, with new engines that will allow us to operate using less expensive heavy fuel and maximize the size of our convoys thus reducing costs per ton transported. We expect that the PSV orders placed in India and China will allow us to further capitalize on the attractive offshore petroleum services market. We are also pursuing the expansion of our ocean fleet through acquisitions or bareboat charters of specific types of vessels, such as the purchase of a 2003-built container vessel, the Frisian Commander, renamed M.V. Asturiano, with a carrying capacity of 1,118 Twenty-foot Equivalent Units ("TEUS"), as well as a 2002-built container vessel, the Sinar Bontang, renamed M.V. Argentino, with a carrying capacity of 1,050 TEUS to participate in identified market segments. We are and will be also inspecting vessels to replace those that will require substitution in the near future in our business segments. Finally we are examining the possibility of building or converting ships to participate, within the same business segments that we presently operate, in sectors or sizes not covered by our present fleet. We believe that the versatility of our fleet and the diversity of industries that we serve reduce our dependency on any particular sector of the shipping industry and offer numerous growth opportunities.
 
Each of our businesses has seasonal aspects, which affect their revenues on a quarterly basis. The high season for our River Business is generally between the months of March and September, in connection with the South American harvest and higher river levels. However, growth in the soy pellet manufacturing, minerals and forest industries may help offset some of this seasonality. The Offshore Supply Business operates year-round, particularly off the coast of Brazil, although weather conditions in the North Sea may reduce activity from December to February. In the Ocean Business, demand for drybulk transportation tends to be fairly stable throughout the year, with the exceptions of the Chinese New Year in our first quarter and the European summer holiday season in our third quarter, which generally show lower charter rates.
 
We have a diverse customer base including large and well-known petroleum, agricultural and mining companies. Some of our significant customers in the last three years include affiliates of Apache, Archer Daniels Midland, Bunge, Cargill, MMX, Noble,  Petrobras (the national oil company of Brazil), Petropar (the national oil company of Paraguay), Swissmarine, Vale and Vicentin.
 
 
 
29

 
Our Lines of Business
 
Revenues
 
2010
 
     Attributable to River Business
 
$
120,024
 
 
 
52
%
     Attributable to Offshore Supply Business
 
 
54,283
 
 
 
24
%
     Attributable to Ocean Business
 
 
56,138
 
 
 
24
%
Total
 
$
230,445
 
 
 
100
%

River Business. We have developed our River Business from a single river convoy comprising one pushboat and four barges in 1993 to the leading integrated river transportation company in the Hidrovia Region today. Our River Business, which we operate through our subsidiary UABL, has 602 barges with approximately 1,060,340 dwt capacity and 33 pushboats. We currently own 533 dry barges that can transport agricultural and forestry products, iron ore and other cargos and 69 tank barges that can carry petroleum products, vegetable oils and other liquids. We believe that we have more than twice the number of barges and dwt capacity than our nearest competitor in this river system. In addition, we use one 35,000 dwt barge, the Alianza G2, as a geared transfer station to provide storage and transshipment services of dry cargo from river barges to ocean export vessels. We operate our pushboats and barges on the navigable waters of the Parana, Paraguay and Uruguay Rivers and part of the River Plate in South America, also known as the Hidrovia Region. At over 2,200 miles in length, the Hidrovia Region is comparable in length to the Mississippi River in the United States and produces and exports a significant and growing amount of agricultural products. In addition to agricultural products, companies in the Hidrovia Region are expanding and initiating the production of other goods, including forest products, iron ore, and pig iron.
 
We have purchased 25 new engines from MAN Diesel in connection to our engine replacement program set to re-motorize eleven of our line pushboats and additionally increase the pushing capacity of some of them. The new engines will consume heavier grades of fuel which have been, from 2001 to 2010, 29.2% cheaper on average than the diesel fuel our pushboats currently consume. We have expanded almost fifty barges to date, we have built one new pushboat, the Zonda I, which entered into operation in May 2010.
 
Through joint ventures, we own and operate terminals at certain key locations to provide integral transportation services to our customers from origin to destination. We also own a drydock and repair facility to carry out fleet maintenance and have a long-term lease on our Ramallo facility where we conducted part of the barge enlargement program and our bottom replacement program. We utilize night-running technology, which partially allows for night navigation of our convoys and improves asset utilization. In order to maintain our existing fleet and expand our capacity, we have doubled the capacity of our Ramallo facility in Argentina and have finalized the construction of our new shipyard at Punta Alvear for building barges and other vessels which is already in operation. As of December 31, 2010, sixteen jumbo tank barges had been built in Punta Alvear, seven of which had commenced their operation. We believe this new yard will put us in a cost-advantageous position to be able to increase our capacity for both dry and tank barges and also to replace obsolete barges efficiently in the future.
 
As increasing agricultural production is expected to maintain its trend over the next few years, the resulting significant additional cargo volumes and the need for renewing a significant portion of the existing fleet in the Hidrovia, require an efficient solution to create the capacity necessary for river transport.
 
We constructed our own shipyard, the most modern of its kind in South America, which has proven to be capable of producing barges in a timely and cost efficient manner when running at normal scale.

Offshore Supply Business. Our Offshore Supply Business, which we operate through UP Offshore, is focused on serving companies that are involved in the complex and logistically demanding activities of deepwater oil exploration and production. In 2003 we ordered the construction of six technologically advanced PSVs. We took delivery of  two of these vessels in 2005, two in 2006, one in 2007 and the last one in August 2009. During 2007 we also placed orders to build an additional four PSVs in India and two in China. In December 2010, we took delivery of the first Chinese vessel, UP Turquoise, which commenced its time charter with Petrobras on  March 12, 2011. The deliveries of the remaining five vessels under construction are expected to commence as of the second quarter of 2011. Our PSVs are designed to transport supplies, equipment, drill casings and pipes on deck, along with fuel, water, drilling fluids and bulk cement in under-deck tanks and a variety of other supplies to drilling rigs and offshore platforms. Our seven existing vessels are currently employed under long term time charter contracts in the coastal waters of Brazil with Petrobras. Upon delivery of each of the five PSVs we currently have under construction, we intend to employ them in Brazil, the North Sea, and other international markets in accordance with prevailing market conditions. Through one of our Brazilian subsidiaries, we have the competitive advantage of being able to operate a number of our PSVs in the Brazilian market with cabotage trading privileges, enabling those PSVs to obtain employment in preference to other non-Brazilian flagged vessels.
 
The trend for offshore petroleum exploration, particularly in Brazil, has been to move toward deeper, larger and more complex projects, such as the Tupi and Jupiter fields in Brazil, which we believe will result in increased demand for more sophisticated and technologically advanced PSVs to handle the more challenging environments and greater distances. Our PSVs are of a larger dwt and equipped with dynamic positioning capabilities, with greater cargo capacity and deck space than other PSVs serving shallow water offshore rigs, all of which provide us with a competitive advantage in efficiently serving our customers' needs.
 
Ocean Business. In our Ocean Business, we operate eight oceangoing vessels. Our four Product Tankers, one of which is on bareboat charter to us from non- related third partiy, are currently employed in the South American cabotage trade of petroleum and petroleum products. Our inland tank barge Parana Petrol is finalizing its repairs and outfitting in advance to starting a time charter as a floating storage. Our current ocean fleet has an aggregate cargo carrying capacity of near 110,000 dwt and an average age of approximately 13 years. Additionally, we own a large oceangoing tug, the Argos I, and two container vessels, the M.V. Asturiano and the M.V. Argentino.

 
30

 

We are also pursuing the expansion of our ocean fleet by participating in new market segments, such as the container feeder service. Through the acquisition of two container vessels, M.V. Asturiano and M.V. Argentino, during 2010, we have begun operating in such market. The first vessel to commence service was the M.V. Asturiano, on May 21, 2010, while the M.V. Argentino commenced its operation in Argentina in February 2011.
 
Our four Product Tankers, Miranda I, Alejandrina, Austral and Amadeo are currently employed under time charters with major oil companies serving regional trades in Argentina and Brazil.
 
Ultrapetrol Fleet Summary(1)
 
River Fleet
 
Number of
Vessels
 
Capacity
 
Description
Alianza G2
 
1
 
35,000 tons
 
Storage and Transshipment Station
Pushboat Fleet
 
33
 
122,989 BHP
 
Various Sizes and Horse Power
Tank Barges
 
69
 
159,570 m3
 
Carry Liquid Cargo (Petroleum Products, Vegetable Oil)
Dry Barges
 
533
 
900,770 tons
 
Carry Dry Cargo (Soy, Iron Ore)
Total (1)
 
602
 
N/A
 
 

Offshore Supply Fleet
 
Year Built
 
Capacity
(DWT)
 
Deck Area
(m2)
 
 
 
 
 
 
 
 
 
In Operation
 
 
 
 
 
 
 
UP Esmeralda
 
2005
 
4,200
 
840
 
UP Safira
 
2005
 
4,200
 
840
 
UP Agua-Marinha
 
2006
 
4,200
 
840
 
UP Topazio
 
2006
 
4,200
 
840
 
UP Diamante
 
2007
 
4,200
 
840
 
UP Rubi
 
2009
 
4,200
 
840
 
UP Turquoise (S-111)
 
2010
 
4,900
 
1,020
 

 Offshore Supply Fleet
 
Delivery Date
 
Capacity
(DWT)
 
Deck Area
(m2)
 
 
 
 
 
 
 
 
 
Under Construction
 
 
 
 
 
 
 
UP Jade (India, V-381)
 
2011 (2)
 
4,200
 
840
 
 
UP Amber (India,V-382)
 
2011 (2)
 
4,200
 
840
 
 
UP Pearl (India, V-386)
 
2012 (2)
 
4,200
 
840
 
 
UP Onyx (India, V-387)
 
2012 (2)
 
4,200
 
840
 
 
UP Jasper (China, S-112)
 
2011 (2)
 
4,900
 
1,020
 
 
Total
 
 
 
51,800
 
 
 
 

Ocean Fleet
 
Year Built
 
DWT
 
Description
 
Parana Petrol (Ex-Al.G3)
 
1993 (3)
 
43,164
 
Inland Tank Barge
 
Miranda I (5)
 
1995
 
6,575
 
Product / Chemical Tanker
 
Amadeo (5)
 
1996
 
39,530
 
Oil / Product Tanker
 
Alejandrina
 
2006
 
9,219
 
Product Tanker
 
Austral (6)
 
2006
 
11,299
 
Product / Chemical Tanker
 
Argos I (Ex -Al. Campana)
 
1975
 
N/A
 
Oceangoing Tug
 
M.V. Asturiano
 
2003
 
1,118 (4)
 
Container Feeder Vessel
 
M.V. Argentino
 
2002
 
1,050 (4)
 
Container Feeder Vessel
 
Total
 
 
 
110,000
 
 
 

 
(1) As of March 14, 2011;
(2) Expected build or delivery date, as applicable, as advised by the shipyard;
(3) Originally built in 1982, converted in 1993 to product tank barge;
(4) Twenty Foot-Equivalent Units, or TEUs.
(5) Our Miranda I and Amadeo were both converted to double hull in 2007.
(6) Bareboat chartered
 
 
 
31

 
Chartering Strategy
 
We continually monitor developments in the shipping industry and make charter-related decisions based on an individual vessel and segment basis, as well as on our view of overall market conditions.
 
In our River Business, we have contracted a substantial portion of our fleet's barge capacity on a one - to five-year basis to major clients. These contracts provide for fixed pricing, minimum volume requirements and fuel price adjustment formulas, and we intend to develop new customers and cargos as we grow our fleet capacity.
 
In our Offshore Supply Business, we plan to continue chartering our PSV fleet in Brazil for medium-term charters or long-term employment (up to four years). Currently there is no significant spot market in Brazil for PSVs. In the future, we may also decide to employ our Chinese and Indian built PSVs in the North Sea spot market (short duration, one day or more) combined with longer-term charters or in Brazil, either with cabotage privileges or as a foreign flagged vessel.
 
We have historically operated our cabotage Ocean Business vessels under period charters.
 
The future minimum revenues, before deduction for brokerage commissions, expected to be received on time charter agreements of our seven PSVs in our Offshore Supply Business in South America, which terms are longer than one year were as follows:

Year ending December 31,
 
(Dollars in thousands)
 
2011
 
$
68,640
 
2012
 
 
62,728
 
2013
 
 
19,204
 
2014
 
 
10,698
 
2015
   
1,715
 
Total
 
$
162,985
 

The future minimum revenues, before deduction for brokerage commissions of four of our handy size-small product tanker vessels (one of them leased) and our tanker barge in our Ocean Business in South America, expected to be received on time charter agreements, which terms are longer than one year were as follows:
 
 

Year ending December 31,
 
(Dollars in thousands)
 
2011
 
$
27,836
 
2012
 
 
14,278
 
2013
 
 
5,870
 
Total
 
$
47,984
 

Revenues from a time charter are generally not received when a vessel is off-hire, which includes time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off-hire in the future. The scheduled future minimum revenues should not be construed to reflect total shipping revenues for any of the periods.
 
Our Fleet Management
 
We conduct the day-to-day management and administration of our operations in-house.
 
Our subsidiary, Ravenscroft, operating from its office in Coral Gables, Florida, has 28 employees and will continue to undertake all technical and marine related management for our offshore and ocean vessels including dry docks, repairs and maintenance, the purchasing of supplies, spare parts and husbandry items, crewing, superintendence and preparation and payment of all related accounts on our behalf. Ravenscroft is a self-contained full service ship management company, which includes commercial and accounting divisions as well as technical, purchasing, and crewing departments within the ship management division and is certified for ISM and is also ISO 9001:2000 certified. It holds Documents of Compliance for the management and operation of tankers, PSVs, general cargo vessels and container ships.
 
 
 
32

 
 
Ravenscroft seeks to manage vessels for and on behalf of vessel owners who are not related to us and will actively pursue new business opportunities through Ship Management and Commercial Services Ltd., or SMS, which is our subsidiary dealing with third party ship management.
 
In the case of our River Business, our commercial and technical management is also performed in-house directly through our subsidiary UABL Ltd., or UABL and its subsidiaries.
 
Competition
 
River Business
 
We maintain a leading market share in our River Business. We own the largest fleet of pushboats and barges in the Hidrovia Region. We believe that we have more than twice the number of barges and dwt capacity than our nearest competitor. We compete based on reliability, efficiency and price. Key competitors include Navios South American Logistics, and Fluviomar. In addition, some of our customers, including Archer Daniels Midland, Cargill, Louis Dreyfus and Vale have some of their own dedicated barge capacity, which they can use to transport cargo in lieu of hiring a third party. Our River Business also indirectly competes with other forms of land-based transportation such as truck and rail.
 
Offshore Supply Business
 
In our Offshore Supply Business, our main competitors in Brazil are the local offshore companies that own and operate modern PSVs. The largest of these companies are CBO, Wilson Sons and Chouest who currently own a substantial number of modern PSVs and are in the process of building additional units. Also, some of the international offshore companies that own and operate PSVs, such as Tidewater and Maersk have built Brazilian-flagged PSVs. In the North Sea market, where three of our PSVs operated during 2008 and 2009, we actively competed with other large, well established owners and operators such as Gulfmark Offshore, Bourbon or DOF Farstad.
 
Ocean Business
 
We face competition in the transportation of crude oil and petroleum products as well as other bulk commodities from other independent ship owners and from vessel operators who primarily charter-in vessels to meet their cargo carrying needs. The charter markets in which our vessels operate are highly competitive. Competition is primarily based on prevailing market charter rates, vessel location and the vessel manager's reputation. Our competitor in crude oil and petroleum products transportation within Argentina, and between Argentina and other South American countries, are Antares Naviera S.A. and its affiliated companies. The other major participant in the Argentina / Brazil trade is Transpetro. Transpetro is a subsidiary of Petrobras, our primary customer in Brazil. Navios South American Logistics, who is a competitor in our River operation, also competes in the Argentinean Coastal Tanker market. In other South American trades our main competitors are Naviera Sur Petrolera S.A., Naviera Elcano (through their various subsidiaries) and Sonacol S.A. These companies and other smaller entities are regular competitors of ours in our primary tanker trading areas.

We operate two container vessels in the Argentinean market to supply the domestic trade between different ports and operate as a feeder service for mainline carriers such as Maersk Line, Evergreen, MOL, MSC, Hamburg Sud, CMA-CGM, PIL and Login for import and export cargoes. Our main competitor in this sector is a local company called Maruba which currently operates chartered vessels of similar characteristic as ours that offer the same service in the market. Our Container Business also indirectly competes with other forms of land-based transportation such as truck.

Seasonality
 
Each of our businesses has seasonal aspects, which affect their revenues on a quarterly basis. The high season for our River Business is generally between the months of March and September, in connection with the South American harvest and higher river levels. However, growth in the soy pellet manufacturing, minerals and forest industries may help offset some of this seasonality. The Offshore Supply Business operates year-round, particularly off the coast of Brazil, although weather conditions in the North Sea may reduce activity from December to February. In the Ocean Business, demand for oil tankers tends to be strongest during the winter months in the Northern hemisphere.
 
Industry Conditions
 
River Industry

Key factors driving cargo movements in the Hidrovia Region are agricultural production and exports, particularly soybeans, from Argentina, Brazil and Paraguay, exports of Brazilian iron ore, regional demand and Paraguayan imports of petroleum products. A significant portion of the cargos transported in the Hidrovia Region are export or import-related cargoes and the applicable freights are paid in US Dollars.

The Parana / Paraguay, the High Parana and the Uruguay rivers consist of over 2,200 miles of a single natural interconnected navigable river system serving five countries namely Argentina, Bolivia, Brazil, Paraguay and Uruguay. The size of this river system is comparable to the Mississippi river in the United States.

 
33

 
Dry Bulk Cargo

Soybeans. Argentina, Bolivia, Brazil, Paraguay and Uruguay produced about 41.5 million tons, or mt, of soybeans in 1995 and an estimated 134.2 mt in 2010, a compound annual growth rate, or CAGR, of 8.1% from 1995. These countries account for an estimated 52% of world soybean production in 2010, up from only 30% in 1995.
 
According to industry sources, within the five countries of the Hidrovia Region, area harvested in soybeans has increased from approximately 18.9 Mha (million hectares, 1 hectare = 2.47 acres) in 1995 to an estimated 46.5 Mha in 2010, a CAGR of 6.2%. Further, with advances in technology, productivity of farmland has also improved.
 
The growth in soybean production has not occurred at the expense of other key cereal grains. Production of corn (maize) in Argentina, Bolivia, Brazil, Paraguay and Uruguay combined grew from 50.3 mt in 1995 to 81.8 mt in 2010, a CAGR of 3.3%. Production of wheat in these countries grew from 14.4 mt in 1995 to 19.3 mt in 2010, a CAGR of 1.9%.
 
Iron Ore. In the Corumbá area in Brazil near the High Paraguay River, there are three large iron ore mines out of which two are owned by the international mining company Vale (following the 2009 acquisition of Rio Tinto's assets) and the third one is owned by MMX Mineração & Metálicos S.A. (MMX). Their combined production of iron ore, which is entirely transported by barge, has grown from about 1.1 million mt (mmt) since 1999 to a 2009 estimate of about 4.1 mmt, a CAGR of 14.2%. Estimated production for 2010 is 5.9 mmt, (based on reported 2010 Vale production and nine months MMX production annualized pro rata) which would provide an annual increase of 45%.  Iron ore prices had more than doubled since the first six months of 2009 in 2010 and have reached pre-slowdown 2008 levels by February 2011.    Continued high iron ore prices during 2011 and 2012 would support continued growth in production of iron ore.
 
Oil transportation

Paraguay has no indigenous sources of petroleum. Barges using the rivers in the Hidrovia Region are currently the preferred method of supplying Paraguay with crude and petroleum products, according to industry sources totaling between 1.1 million cubic meters to 1.3 million cubic meters per year in the last 7 years.
 
    All the petroleum products travel north to destinations in Northern Argentina, Paraguay and Bolivia, creating synergies with dry cargo volumes that mostly travel south.
 
Mode Comparison
 
Along with growth in production of commodities transported by barge in the Hidrovia Region, cost, safety and environmental incentives exist to shift commodity transport to barges.
 
Container Market in the Hidrovia
 
There is a growing container market in the Hidrovia consisting of import cargo to Paraguay that is transshipped via Argentinean or Uruguayan ports into river feeder services calling at Asuncion and other Paraguayan ports.

In 2006, a total of about 20,700 containers were imported in Paraguay.   Paraguayan imports grew to about 25,800 containers in 2007 and 28,500 containers in 2008.  In the first nine months of 2009, about 16,600 containers were imported.  Statistics for forth quarter 2009 and 2010 have not yet been published, but industry sources confirm that the total for 2010 will most probably exceed 35,000 containers imported.
 
Inland barge transportation is generally the most cost efficient, safest and cleanest means of transporting bulk commodities as compared with railroads and trucks.
 
According to a 2007 Texas Transport Institute study commissioned by the U.S. government, one Mississippi River-type barge (1,500 dwt) has the carrying capacity of about 15 railcars or 58 tractor-trailer trucks, and is able to move 576 ton-miles per gallon of fuel compared to 413 ton-miles per gallon of fuel for rail transportation or 155 ton-miles per gallon of fuel for tractor-trailer transportation. In the case of Jumbo barges (2,500 dwt) as many of UABL existing barges or the ones Ultrapetrol builds in its yard, these efficiencies are even larger. The study also shows barge transportation is the safest mode of cargo transportation, based on the percentage of fatalities or injuries and the number of hazardous materials incidents. Inland barge transportation predominantly operates away from population centers, which generally reduces both the number and impact of waterway incidents. According to industry sources, in terms of unit transportation cost for most dry bulk cargos, barge is cheapest, rail is second cheapest, and truck is third cheapest. There are clear and significant incentives to build port infrastructure and switch from truck to barge to reduce cost.

 
34

 
Offshore Supply Industry
 
The market for offshore supply vessels, or OSVs, both on a worldwide basis and within Brazil, is driven by a variety of factors. On the demand side, the driver is the growth in offshore oil development / production activity, which in the long term is driven by the price of oil and the cost of developing the particular offshore reserves. Demand for OSVs is further driven by the location of the reserves, with fields located further offshore and in deeper waters requiring more vessels per field and larger, more technologically sophisticated vessels. The supply side is driven by the availability of the vessel type needed (i.e., appropriate size and technology), which in turn is driven by historical newbuilding patterns and scrapping rates as well as the current employment of vessels in the worldwide fleet (i.e., whether under long-term charter) and the rollover schedule for those charters. Technological developments also play an important role on the supply side, with technology such as dynamic positioning better able to meet certain support requirements.
 
Both demand for and supply of OSVs are heavily influenced by cabotage laws (such as the U.S. Jones Act). Since most offshore supply activities occur within the jurisdiction of a country, they fall within that country's cabotage laws. This distinguishes the OSV sector from most other types of shipping. Cabotage laws may restrict the supply of tonnage, give special preferences to locally flagged ships or require that any vessel working in that country's waters be flagged, crewed, and in some cases, constructed in that country.
 
OSVs generally support oil exploration, production, construction and maintenance activities on the continental shelf and have a high degree of cargo capacity and flexibility relative to other offshore vessel types. They utilize space above and below deck to transport dry and liquid cargo, including heavy equipment, pipe, drilling fluids, provisions, fuel, dry bulk cement and drilling mud.
 
The OSV sector includes conventional supply vessels, or SVs, and platform supply vessels, or PSVs.  PSVs are large and often sophisticated vessels constructed to allow for economic operation in environments requiring some combination of deepwater operations, long distance support, economies of scale, and demanding operating conditions. PSVs serve drilling and production facilities and support offshore construction and maintenance work for clusters of offshore locations and/or relatively distant deepwater locations. They have larger deck space and larger and more varied cargo handling capabilities relative to other offshore support vessels to provide more economic service to distant installations or several locations. Some vessels have dynamic positioning, which allows close station keeping while underway. PSVs can be designed with certain characteristics required for specific offshore trades such as the North Sea or deepwater Brazilian service.
 
Brazilian Offshore Industry
 
Driven by Brazil's policy of becoming energy self-sufficient as well as by oil price and cost considerations, offshore exploration, development and production activities within Brazil have grown.   Brazil is becoming a major exporter of oil.  Since most Brazilian reserves are located far offshore in deep waters, where large, technologically-sophisticated vessels are needed, today, Brazil is a world leader in deep drilling technology.
 
The primary customer for PSVs in Brazil is Petrobras, the Brazilian national oil company. The Brazilian government has also allowed foreign companies to participate in offshore oil and gas exploration and production since 1999. Other companies active in Brazil in offshore oil and gas exploration and production industry include Total, Shell, BP, OGX, Repsol YPF and ChevronTexaco. The deepwater Campos Basin, an area located about 80 miles offshore, has been the leading area for offshore activity. Activities have been extended to the deepwater Santos and Espirito Santo Basins much more distant from the coast as well with activities now taking place in pre salt areas of water depths of over 9,000 ft. During 2008, 2009 and 2010, several significant discoveries have been made, which could easily double Brazilian oil reserves when confirmed.
 
Petrobras has announced that it will increase the use of supply and special vessels from the current 254 vessels to 465 vessels by 2013.  The Brazilian market has seen an increasing demand for PSVs since 2006 (prior to 2006 large PSVs in excess of 4000 DWT were unusual in Brazilian waters), and now according to Petrobras, the demand for this type of vessel will grow significantly in the next three years.
 
Deepwater service favors large modern vessels that can provide a full range of flexible services including dynamic positioning systems while providing economies of scale to installations distant from shore. Cabotage laws favor employment of Brazilian flag vessels. However, according to industry sources, many of the Brazilian flag PSVs and supply vessels are old, with approximately 28% of the national fleet at least 20 years of age. Temporary authority is granted for foreign vessels to operate only if no Brazilian flag vessels are available.
 
The North Sea Market
 
The North Sea is a similarly demanding offshore market due to difficult weather and sea conditions, significant water depths, long distances to be traveled and sophisticated technical requirements.
 
In 2000 and 2001, increases in oil prices led to increased North Sea exploration activity and higher OSV demand. Oil prices fell in early 2002, leading to questions regarding the sustainability of the higher oil prices and reduced exploration and development activity. Even with recovery in the West Texas Intermediate ("WTI") price to an average of about $31 per barrel in 2003, North Sea exploration and development activity remained low. Low oil prices and availability of more attractive opportunities elsewhere resulted in a shift of activities by oil majors towards other regions. Oil prices continued their increase, with average WTI crude prices of about $42 per barrel in 2004, $57 per barrel in 2005, $66 per barrel in 2006, $72 per barrel in 2007 and $100 in 2008. Exploration and development activities increased. Major oil companies returned to the North Sea while the independents remained and increased their activities. WTI crude oil prices decreased from an average of $77 per barrel in October 2008 to an average of $45 during January-April 2009, then recovered to an average $70 per barrel for the remainder of 2009 and reached an average $79 per barrel in 2010 and $89 per barrel in January 2011. After a decrease in 2009 exploration and development activities decreased versus 2008, activity increased in 2010 leading to improved vessel earnings during the summer, with weaker earnings later in 2010 as the winter season approached and continuing through February 2011.
 
35

 

Ocean Industry
 
Regional Cabotage Trades
 
Voyages between two Argentine ports are regulated by the Argentine government as "cabotage" and require the use of an Argentine flag vessel or vessels operated under special permit by Argentine companies. Cabotage is used to mean both voyages between two national ports and laws that reserve such voyages for nationally operated vessels. Argentine registry requires that vessels be built in an Argentine shipyard or that import duty be paid, which increases the cost of new vessels versus foreign construction.   The special permit described above allows younger foreign-built vessels to enter cabotage trades while retaining the Argentine nationality requirement for operations.

Access to the Argentine coastal cabotage market is thus controlled by legal requirements which limit access to companies with a legitimate operating presence in Argentina and vessels registered or holding a special permit in Argentina.

Regional tanker and container shipping market factors, including local demand factors and vessel supply information, are described below, reflecting market conditions in the primary area of employment for the vessels.

The Regional Tanker Market
 
Regional Oil Demand
 
Argentina's oil demand was estimated at about 594,000 barrels per day ("bpd") in 2008, up from about 511,000 bpd in 2000, resulting in a 2000-2008 CAGR of 1.9%.

Argentina's refining capacity is largely located in the Plate River estuary near Buenos Aires.   Crude oil from oil fields in southern Argentina is shipped to refineries near Buenos Aires by tankers.   Coastal cities in Southern Argentina receive petroleum products by tankers from these refineries.    Cabotage tankers are also used for lightering of international tankers (discharge of cargo to reduce draft) and for short voyages within the Plate Estuary and Parana River.   Vessels with IMO chemical classification (see below) are also used for Argentine or other regional voyages carrying petroleum products and chemicals such as styrene monomer.

The Regional Patagonian Container Shipping Trades
 
Regional Container Shipping Demand
 
Coastal container shipping provides important north-south links between Buenos Aires and coastal ports in southern Argentina.    Buenos Aires city and province have about 46% of Argentina's population and are the centre of much economic activity.   However, Argentine economic development programs encourage manufacturing in the southern Argentine region of Tierra del Fuego.  Finished goods from the manufacturing are transported north from the port of Ushuaia to Buenos Aires for distribution.    Most of the cargo in this service is containers transported by the major international lines containing components for manufacturing that are carried from China and other foreign ports of origin to Buenos Aires with transhipment to Ushuaia under feeder agreements with the major international lines.   Cargo is also carried to and from other southern Argentine ports, such as Puerto Madryn, as demand requires.

 Environmental and Government Regulation
 
Government regulations significantly affect our operations, including the ownership and operation of our vessels. Our operations are subject to international conventions, national, state and local laws, and regulations in force in international waters and the jurisdictional waters of the countries in which our vessels may operate or are registered, including OPA, the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, the U.S. Port and Tanker Safety Act, the IMO International Convention for the Prevention of Pollution from Ships, or MARPOL, other regulations adopted by the IMO and the European Union, various volatile organic compound emission requirements, the IMO / U.S. Coast Guard pollution regulations and various SOLAS amendments, as well as other regulations. Compliance with these requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
 
A variety of governmental and private entities, each of which may have unique requirements, subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (U.S. Coast Guard, harbour master or equivalent), port state controls, classification societies, flag state administration (country of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates or approvals for the operation of our vessels. Failure to maintain necessary permits, licenses, certificates or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.
 
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers will lead to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels for operational safety, quality maintenance, continuous training of our officers and crews, and compliance with U.S. and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations. However, such laws and regulations may change and impose stricter requirements, such as in response to the 2010 Deepwater Horizon oil spill or future serious marine incidents. Future requirements may limit our ability to do business, increase our operating costs, force the early retirement of our vessels, and / or affect their resale value, all of which could have a material adverse effect on our financial condition and results of operations.

 
36

 
Environmental Regulation – IMO
 
           The IMO has enacted international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. For example, MARPOL imposes environmental standards on the shipping industry relating to oil spills, management of garbage, the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage and air emissions. In particular, MARPOL requirements impose phase-out dates for vessels that are not certified as double hull. Annex III of MARPOL regulates the transportation of marine pollutants, including standards on packing, marking, labeling, documentation, stowage, quality limitations and pollution prevention. These requirements have been expanded by the International Maritime Dangerous Goods Code, which imposes additional standards for all aspects of the transportation of dangerous goods and marine pollutants by sea.  In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Annex VI has been ratified by some, but not all IMO member states. In October 2008, the Marine Environment Protection Committee, or MEPC, of the IMO approved amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments entered into force in July 2010. They seek to reduce air pollution from vessels by establishing a series of progressive standards to further limit the sulfur content in fuel oil, which would be phased in by 2020, and by establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. The United States ratified the Annex VI amendments in October 2008, and the U.S. Environmental Protection Agency, or EPA, promulgated equivalent emissions standards in late 2009.

IMO has designated some special areas as SECA / ECA ( Sulfur emission control areas / Emission Control Areas) where additional emissions limits apply. For areas designated as  SECA / ECA, the cap on fuel sulfur content is 1% as of July 1, 2010, and 0.1% as of January 1, 2015. The European Union has additional cap on fuel sulfur content which is more stringent than the MARPOL Annex VI requirements. The above regulations require vessels trading in European waters to have segregated bunker tanks and special grade cylinder lubricants suitable for low sulfur fuels. Diesel engines operating for prolonged periods with fuels with sulfur below 0.1%  also face possibility of damage to the fuel injection systems due to inherent low lubricity and viscosity of the low sulfur fuels. To prevent damage due to low lubricity of fuels vessels may be required to fit fuel chilling systems (to increase viscosity / lubricity) or use of special fuel additives to enhance lubricity.

The United States and Canada with agreement from France (as a French territory is also involved) had requested IMO to designate the area extending 200 nautical miles from the Atlantic/Gulf and Pacific coasts of the U.S. and Canada and the Hawaiian Islands as ECA under the MARPOL Annex VI amendments. Application was considered by MEPC 60 and accepted. As of August 1, 2012, vessels operating in ECA area will be required to follow NOx limits as defined in MARPOL Annex VI, Reg 13 for diesel engines and fuel sulfur limit of 1% with fuel sulfur limit of 0.1% as of January 1, 2015. The above ruling will subject ocean-going vessels in these areas to stringent emissions controls and could cause additional costs to be incurred.
 
The operation of our vessels is also affected by the requirements set forth in the IMO International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code. The ISM Code requires vessel owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. No vessel can obtain a certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports. Currently, each of the vessels in our fleet is ISM code-certified. However, there can be no assurance that such certification will be maintained indefinitely.
 
Environmental Regulations – OPA
 
 
OPA established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States territorial sea and the 200 nautical mile exclusive economic zone around the United States.
 
Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are liable without regard to fault (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (vessel fuel).
 
 
37

 
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088 million for any double-hull tanker that is over 3,000 gross tons and to the greater of $1,000 per gross ton or $854,400 for non-tank vessels (subject to possible adjustment for inflation). The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel. These OPA and CERCLA limits of liability do not apply if an incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or by a responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
 
We currently maintain, for each of our vessels, pollution liability coverage insurance in the amount of $1 billion per incident. If the damages from a catastrophic spill exceeded our insurance coverage, it could have a material adverse effect on our business and the results of operations.
 
OPA and the U.S. Coast Guard also require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential liability under OPA and CERCLA.  Under the regulations, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance, or guaranty and are required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA.
 
OPA also requires that tankers over 5,000 gross tons calling at U.S. ports have double hulls if contracted (for building) after June 30, 1990 or delivered after January 1, 1994. Furthermore, under OPA, oil tankers without double hulls will not be permitted to come to U.S. ports or trade in U.S. waters by 2015. Based on current OPA requirements, vessels without double hull will not be eligible to carry oil as cargo within the 200 nautical mile United States exclusive economic zone starting in 2014, except that these tankers may trade in U.S. waters until 2015 if their operations are limited to discharging their cargos at the Louisiana Offshore Oil Port or off-loading by lightering within authorized lightering zones more than 60 miles offshore. Lightering is the process by which vessels at sea off-load their cargo to smaller vessels for ultimate delivery to the discharge port.
 
We believe we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call or are likely to call.
 
The U.S. Clean Water Act
 
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
 
The United States Environmental Protection Agency, or EPA, has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP. To be covered by the VGP, owners of certain vessels must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United States waters. Compliance with the VGP could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other disposal arrangements, and/or otherwise restrict our vessels from entering United States waters. In addition, certain states have enacted more stringent discharge standards as conditions to their required certification of the VGP. We have submitted NOIs for our vessels where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.
 
The U.S. Clean Air Act
 
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment.
 
 
38

 
Environmental Regulation – Other Environmental Initiatives
 
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
 
IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatory nations to such conventions. For example, many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, or the CLC, although the United States is not a party. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable, subject to certain affirmative defenses, for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil. The limits on liability outlined in the 1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. The right to limit liability is forfeited under the CLC where the spill is caused by the ship owner's actual fault and under the 1992 Protocol where the spill is caused by the ship owner's intentional or reckless conduct. Vessels trading with states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the CLC.

As of January 1, 2007, vessels operating in coastal waters of the state of California state have to comply with State of California Ocean-Going Vessel Auxiliary Diesel Engine regulation. This regulation imposes emission limits on vessels operating in 24nautical miles coastal area from the California baseline. The regulations are governed by the California Code of Regulations (CCR), Title 13, 2299.1 and CCR Title 17, 93118.  The regulation requires certain emission requirements compliance based on the fleet size and frequency of port calls and alternatively requires use of shore power or payment of fees for non compliance.
 
In addition, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments in February 2004, or the BWM Convention. The Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. The Convention has not yet entered into force because a sufficient number of states have failed to adopt it.  However, the IMO's Marine Environment Protection Committee passed a resolution in March 2010 encouraging the ratification of the Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems. If mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do not believe that the co