Time charter revenues (note 10b)

Net pool revenues (note 10b)

Voyage charter revenues

Interest income from investment in term loans

 

 

 

Voyage expenses (note 10b)

Vessel operating expenses (note 10b)

Time-charter hire expenses

Depreciation and amortization (note 10b)

General and administrative

Net loss on sale of vessels

Goodwill impairment charge (note 9)

 

 

 

 

Interest expense (note 10b)

Interest income

Realized and unrealized loss on derivative instruments (note 6)

Other expenses

 

 

 

 

Per common share amounts:

• Basic and diluted (loss) earnings (note 11)

• Cash dividends declared

Weighted-average number of Class A and Class B common shares outstanding

• Basic and diluted (note 11)

Cash and cash equivalents

Pool receivables from affiliates, net (note 10c)

Accounts receivable

Interest receivable on investment in term loans

Due from affiliates (note 10c)

Prepaid expenses

Other current assets

 

 

 

 

Vessels and equipment

At cost, less accumulated depreciation of $236.2 million (2010 - $203.8 million)

Investment in term loans

Loan to joint venture (note 4)

Other non-current assets

Goodwill (note 9)

 

 

 

 

Accounts payable

Accrued liabilities ($2.4 million and $2.2 million from related parties) (note 10c)

Current portion of long-term debt (note 5)

Current portion of derivative instruments (note 6)

Deferred revenue

Due to affiliates (note 10c)

Other current liabilities

 

 

 

 

Long-term debt (note 5)

Derivative instruments (note 6)

Other long-term liabilities

 

 

 

 

Commitments and contingencies (note 4 and 6)

 

Common stock and additional paid-in capital (300 million shares authorized, 49.4 million Class A and 12.5 million Class B shares issued and outstanding as of September 30, 2011 and 39.5 million Class A and 12.5 million Class B shares issued and outstanding as of December 31, 2010) (note 8)

Accumulated deficit

 

 

 

 

 

Cash and cash equivalents provided by (used for)

 

Net (loss) income

Non-cash items:

Depreciation and amortization

Unrealized loss on derivative instruments

Goodwill impairment charge

Other

Change in non-cash working capital items related to operating activities

Expenditures for drydocking

 

 

 

 

Proceeds from long-term debt

Repayments of long-term debt

Prepayment of long-term debt

Proceeds from long-term debt of Dropdown Predecessor (note 2)

Prepayment from long-term debt of Dropdown Predecessor (note 2)

Acquisition of Helga Spirit LLC, Yamuna Spirit LLC, and Kaveri Spirit LLC from Teekay Corporation (note 2)

Contribution of capital from Teekay Corporation to Dropdown Predecessor

Net advances from affiliates

Proceeds from issuance of Class A common stock (note 8)

Share issuance and other financing costs

Cash dividends paid

 

 

 

 

Proceeds from the sale of vessels and equipment

Expenditures for vessels and equipment

Investment in term loans

 

 

 

 

Cash and cash equivalents, beginning of the period

 

 

 

 

 

Net loss

Proceeds from follow-on issuance of Class A common shares, net of offering costs of $4.9 million (note 8)

Dividends declared to Teekay Corporation

Dividends declared to other parties

 

 

The unaudited interim consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (or GAAP). These financial statements include the accounts of Teekay Tankers Ltd., its wholly owned subsidiaries and the Dropdown Predecessor, as defined in Note 2 (collectively the Company). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements filed on Form 20-F for the year ended December 31, 2010. In the opinion of management, these interim unaudited consolidated financial statements reflect all adjustments, consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period, as quantified in Note 9c.

During 2010, the Company acquired five conventional tankers from Teekay Corporation (Teekay). In April 2010, the Company acquired from Teekay its subsidiaries Kaveri Spirit L.L.C and Yamuna Spirit L.L.C., which each own a Suezmax-class tanker, the Kaveri Spirit and Yamuna Spirit, respectively. The April 2010 acquisition included Teekay’s rights and obligations under a time-charter contract on the Yamuna Spirit. In May 2010, the Company acquired from Teekay a third subsidiary, Helga Spirit L.L.C. which owns an Aframax tanker, the Helga Spirit. Immediately preceding the sale of Helga Spirit L.L.C. to the Company, Teekay contributed its beneficial ownership in the time-charter contract on the Helga Spirit to Helga Spirit L.L.C. The May 2010 acquisition included Teekay’s rights and obligations under the charter on the Helga Spirit. In November 2010, the Company acquired from Teekay its subsidiaries Esther Spirit L.L.C and Iskmati Spirit L.L.C., which own an Aframax-class tanker and a Suezmax-class tanker, the Esther Spirit and Iskmati Spirit, respectively. Immediately preceding the sale of Esther Spirit L.L.C. to the Company, Teekay contributed its beneficial ownership in the time-charter contract on the Esther Spirit to Esther Spirit L.L.C. The November 2010 acquisition included Teekay’s rights and obligations under the charter on the Esther Spirit. All five transactions were accounted for as reorganizations between entities under common control. As a result, the Company’s consolidated statements of income and the consolidated statements of cash flows for 2010 comparative reflect the Iskmati Spirit, the Kaveri Spirit, and the Yamuna Spirit and their related operations as if the Company had acquired the three Suezmax vessels on August 1, 2007, and the Esther Spirit and the Helga Spirit and their related operations as if the Company had acquired the two Aframax vessels on July 1, 2004 and January 6, 2005, respectively, when they began operations under the ownership of Teekay. As a result, the Company’s financial statements prior to the date the interests in these vessels were actually acquired by the Company are adjusted to reflect these vessels and their related operations and cash flows (referred to herein collectively as the Dropdown Predecessor) during the periods under common control of Teekay.

The effect of adjusting the Company’s financial statements to account for these common control exchanges increased the Company’s revenue by $3.3 million and $21.8 million for the three and nine months ended September 30, 2010, respectively. Net income decreased by $0.4 million and increased by $1.5 million for the three and nine months ended September 30, 2010, respectively.

The accompanying consolidated financial statements include the financial position, results of operations and cash flows of the Dropdown Predecessor. In the preparation of these consolidated financial statements, general and administrative expenses and interest expense were not identifiable as relating solely to specific vessels. General and administrative expenses (consisting primarily of salaries, share-based compensation, and other employee-related costs, office rent, legal and professional fees, and travel and entertainment) were allocated based on the Dropdown Predecessor’s proportionate share of Teekay’s total ship-operating (calendar) days for the period presented. During the three and nine months ended September 30, 2010, $0.3 million and $2.1 million of interest expense and $0.6 million and $3.1 million of general and administrative expenses were attributable to the Dropdown Predecessor, respectively. Management believes these allocations reasonably present the interest expense and the general and administrative expenses of the Dropdown Predecessor. Estimates have been made when allocating expenses from Teekay to the Dropdown Predecessor and such estimates may not be reflective of actual results.

In January 2011, the Company adopted an amendment to Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) 605, Revenue Recognition, that provides for a new methodology for establishing the fair value for a deliverable in a multiple-element arrangement. When vendor specific objective or third-party evidence for deliverables in a multiple-element arrangement cannot be determined, the Company will be required to develop a best estimate of the selling price of separate deliverables and to allocate the arrangement consideration using the relative selling price method. The adoption of this amendment did not have an impact on the Company’s consolidated financial statements.

In September 2010, the Company entered into a joint venture arrangement (the Joint Venture) with Wah Kwong Maritime Transport Holdings Limited (or Wah Kwong), to have a Very Large Crude Carrier (or VLCC) newbuilding constructed, managed and chartered to third parties. The Company has a 50% economic interest in the Joint Venture, which is jointly controlled by the Company and Wah Kwong. The VLCC has an estimated purchase price of approximately $98 million (of which the Company’s 50% portion is $49 million), excluding capitalized interest and other miscellaneous construction costs. The vessel is expected to be delivered during the second quarter of 2013. As at September 30, 2011, the remaining payments required to be made under this newbuilding contract, including Wah Kwong’s 50% share, was nil in 2011, $39.2 million in 2012 and $39.2 million in 2013. As of September 30, 2011, the Joint Venture has received a firm commitment from a financial institution for a loan of approximately $68 million, which is subject to satisfactory completion of loan documentation. The Company and Wah Kwong have each agreed to finance 50% of the costs to acquire the VLCC that are not financed with commercial bank financing. The Company made its initial $9.8 million advance to the Joint Venture in October 2010. The advance is non-interest bearing and unsecured. A third party has agreed to time-charter the vessel following its delivery for a term of five years at a fixed daily rate and an additional amount if the daily rate of any sub-charter earned by the third party exceeds a certain threshold.

Revolving Credit Facility due 2017

Term Loan due through 2017

 

 

Less current portion

 

 

 

The Company and Teekay are parties to a revolving credit facility (or the Revolver). The Company is a borrower under Tranche A of the Revolver (or the Tranche A Revolver) and certain 100%-owned subsidiaries of Teekay are borrowers under Tranche B of the Revolver (or the Tranche B Revolver). If any borrower under the Tranche B Revolver is acquired by the Company, the borrowings and amount available under the Tranche B Revolver that are related to the acquired entity will be added to the Tranche A Revolver, upon certain conditions being met.

As of September 30, 2011, the Tranche A Revolver provided for borrowings of up to $616.5 million, of which $277.5 million was undrawn. The total amount available under the Tranche A Revolver as at September 30, 2011 remained unchanged from December 31, 2010, and the amount drawn under the Tranche A Revolver decreased as a result of a prepayment of $103.0 million made in February 2011 using the net proceeds from the Company’s February 2011 equity offering (see Note 8). The total amount available under the Tranche A Revolver reduces by a semi-annual amount of $33.9 million commencing in late 2012, and the Tranche A Revolver matures in 2017. The Tranche A Revolver may be prepaid at any time in amounts of not less than $5.0 million. Interest payments are based on LIBOR plus a margin of 0.60%. As at September 30, 2011, the weighted-average interest rate on the Tranche A Revolver was 0.85% (December 31, 2010 — 0.89%). The Tranche A Revolver is collateralized by first-priority mortgages granted on 14 of the Company’s vessels, together with other related security, and includes a guarantee from the Company for all outstanding amounts. The Tranche A Revolver requires that the Company and certain of its subsidiaries maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with more than six months to maturity) of $35.0 million and at least 5.0% of the Company’s total debt. As at September 30, 2011, the Company was in compliance with all its covenants on the Tranche A Revolver.

As at September 30, 2011, the Company had one term loan outstanding in the amount of $10.4 million. This term loan bears interest at a fixed rate of 4.06%, requires quarterly principal payments of $0.45 million, and is collateralized by a first-priority mortgage on one of the Company’s vessels, together with certain other related security. The term loan is guaranteed by Teekay. The term loan requires that the Company and certain of its subsidiaries maintain a minimum hull coverage ratio of 115% of the total outstanding balance for the facility period. As at September 30, 2011, the Company was in compliance with all its covenants on its term loan.

The aggregate annual long-term principal repayments required to be made by the Company under the Tranche A Revolver and term loan subsequent to September 30, 2011 are $0.45 million (remaining 2011), $1.8 million (2012), $1.8 million (2013), $1.8 million (2014), $1.8 million (2015) and $341.7 million (2016 and thereafter).

The weighted-average effective interest rate on the Company’s long-term debt as at September 30, 2011 was 0.95% (December 31, 2010 — 0.97%). This rate does not reflect the effect of the Company’s interest rate swap agreements (see Note 6).

The Company uses derivatives in accordance with its overall risk management policies. The Company enters into interest rate swap agreements which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company has not designated, for accounting purposes, its interest rate swaps as cash flow hedges of its U.S. Dollar LIBOR-denominated borrowings.

Realized and unrealized losses relating to the Company’s interest rate swaps have been reported in realized and unrealized losses on non-designated derivative instruments in the consolidated statements of income. During the three and nine months ended September 30, 2011, the Company recognized realized losses of $1.6 million and $4.6 million, respectively, and unrealized losses of $5.1 million and $6.0 million, respectively, relating to its interest rate swaps. During the three and nine months ended September 30, 2010, the Company recognized realized losses of $1.4 million and $4.0 million, respectively, and unrealized losses of $4.2 million and $10.9 million, respectively, relating to its interest rate swap.

The following summarizes the Company’s derivative positions as at September 30, 2011:

LIBOR-Based Debt:

U.S. Dollar-denominated interest rate swap

U.S. Dollar-denominated interest rate swap

U.S. Dollar-denominated interest rate swap

The Company is potentially exposed to credit loss in the event of non-performance by the counterparty to the interest rate swap agreements in the event that the fair value results in an asset being recorded. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time transactions are entered into.

Fair Value Measurements

For a description on how fair value is estimated and how the Company categorizes its fair value estimates using a fair value hierarchy based on the inputs used to measure fair value, refer to Note 9 in the Company’s audited consolidated financial statements in the Company’s Form 20-F for the year ended December 31, 2010. The estimated fair value of the Company’s financial instruments and categorization using the fair value hierarchy for those assets and liabilities that are measured at fair value on a recurring basis is as follows:

Cash and cash equivalents

Investment in term loans and interest receivable

Due from affiliates

Loan to joint venture

Due to affiliates

Long-term debt, including current portion

Derivative instruments

Interest rate swap agreements

Financing Receivables

The following table contains a summary of the Company’s financing receivables by type and the method by which the Company monitors the credit quality of its financing receivables on a quarterly basis.

Investment in term loans and interest receivable

Loan to joint venture

 

 

 

In April 2010, the Company completed a public offering of 8.8 million Class A common shares (including 1.1 million common shares issued upon the partial exercise of the underwriter’s over-allotment option) at a price of $12.25 per share, for gross proceeds of $107.5 million. Concurrent with the public offering, the Company issued 2.6 million unregistered shares of Class A common stock to Teekay at a price of $12.25 per share for gross proceeds of $32.0 million. Total net proceeds from the offering, the shares privately placed to Teekay plus a drawdown of the debt under its revolving credit facility, were used to acquire the Kaveri Spirit, the Yamuna Spirit and the Helga Spirit from Teekay for a total purchase price of $168.7 million (see Note 2).

In October 2010, the Company completed a public offering of 8.6 million Class A common shares (including 0.4 million common shares issued upon the partial exercise of the underwriter’s over-allotment option) at a price of $12.15 per share, for gross proceeds of $104.4 million. The Company used the net offering proceeds to pay down outstanding debt under its revolving credit facility.

In February 2011, the Company completed a public offering of 9.9 million shares of its Class A common stock (including 1.3 million common shares issued upon the full exercise of the underwriter’s over-allotment option) at a price of $11.33 per share, for gross proceeds of $112.1 million. The Company used the net offering proceeds to repay a portion of its outstanding debt under its revolving credit facility (see Note 5).

During the three months ended September 30, 2011, the Company concluded that indicators of impairment were present for the conventional tanker fleet and consequently, the Company performed an interim vessel and goodwill impairment analysis as at September 30, 2011 on the conventional tanker fleet. Based on the results of this analysis, the Company concluded that there was no impairment to the vessel values. However, the Company concluded that the carrying value of the goodwill, all relating to the Suezmax reporting unit, exceeded its fair value. As a result, a goodwill impairment charge of $13.3 million was recognized in the Company’s consolidated statements of (loss) income for the three and nine months ended September 30, 2011. The fair value of this reporting unit was determined using the present value of the expected future cash flows discounted at a rate equivalent to a market participant’s weighted-average cost of capital. The estimates and assumptions regarding expected future cash flows and the appropriate discount rates are in part based upon existing contracts, future tanker market rates, historical experience, financial forecasts and industry trends and conditions. The recognition of the goodwill impairment charge was driven by the continuing weak tanker market, which continues to experience an oversupply of vessels relative to tanker demand.

In April 2010, the Company acquired from Teekay its subsidiaries Kaveri Spirit L.L.C. and Yamuna Spirit L.L.C., which each own a Suezmax tanker, the Kaveri Spirit and the Yamuna Spirit, respectively for a total of $124.2 million. In May 2010, the Company acquired from Teekay its subsidiary Helga Spirit L.L.C, which owns an Aframax tanker, the Helga Spirit, for $44.5 million. These acquisitions were financed with net proceeds of $102.9 million from the offering of 8.8 million Class A common shares to the public and through the issuance to Teekay of 2.6 million Class A common shares. The issuance of the 2.6 million Class A common shares to Teekay had a value of $32.0 million (see Note 8). The excess of the historical book value over the purchase price of these vessels was $35.4 million and is reflected as a contribution of capital from Teekay on the date of acquisition. In addition, a net $183.9 million prepayment of long term debt of the Dropdown Predecessor was made by Teekay on the date of acquisition. In November 2010, the Company acquired from Teekay its subsidiaries Esther Spirit L.L.C., which owns an Aframax tanker, the Esther Spirit, and Iskmati Spirit L.L.C., which owns a Suezmax tanker, the Iskmati Spirit, for a total of $107.5 million. The acquisition was financed with funds from the Revolver. The excess of the historical book value over the purchase price of these vessels was $6.1 million and is reflected as a contribution of capital from Teekay on the date of acquisition. In addition, a $77.9 million prepayment of long term debt of the Dropdown Predecessor was made by Teekay on the date of acquisition.

Teekay and its wholly owned subsidiary and the Company’s manager, Teekay Tankers Management Services Ltd. (the Manager), provide commercial, technical, strategic and administrative services to the Company. In addition, certain of the Company’s vessels participate in pooling arrangements that are managed by wholly owned subsidiaries of Teekay (collectively the Pool Managers). Such related party transactions were as follows:

Time charter revenues ⁽ⁱ⁾

Pool management fees and commissions ⁽ⁱⁱ⁾

Commercial management fees ⁽ⁱⁱⁱ⁾

Vessel operating expenses — crew training

Vessel operating expenses — crewing and manning ^(iv)

General and administrative ^(v)

General and administrative — Dropdown Predecessor (note 2)

Interest expense — Dropdown Predecessor (note 2)

The Manager and other subsidiaries of Teekay collect revenues and remit payments for expenses incurred by the Company’s vessels. Such amounts, which are presented on the consolidated balance sheets in due from affiliates or due to affiliates, are without interest or stated terms of repayment. In addition, $2.4 million and $2.2 million were payable to the Manager as at September 30, 2011 and December 31, 2010, respectively, for reimbursement of the Manager’s crewing and manning costs to operate the Company’s vessels and such amounts are included in accrued liabilities on the consolidated balance sheets. The amounts owing from the Pool Managers, which are reflected in the consolidated balance sheets as pool receivables from affiliates, are without interest and are repayable upon the terms contained within the applicable pool agreement. In addition, the Company had advanced $3.4 million and $2.9 million as at September 30, 2011 and December 31, 2010, respectively, to the Pool Managers for working capital purposes. These activities, which are reflected in the consolidated balance sheets as due from affiliates, are without interest or stated terms of repayment. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. The non-current amounts due from affiliates balance of $2.9 million as at December 31, 2010 was reclassified to due from affiliates as part of current assets in the consolidated balance sheet.

The net (loss) income available for common stockholders and earnings per common share presented in the table below excludes the results of operations of the Dropdown Predecessor (see Note 2).

Net (loss) income

Less: Net loss (income) attributable to the Dropdown Predecessor

 

Net (loss) income available for common stockholders

 

 

Weighted-average number of common shares

 

Common shares and common share equivalents outstanding at the end of period

 

 

(Loss) earnings per common share:

- Basic and diluted

In May 2011, the FASB issued amendments to FASB ASC 820, Fair Value Measurement, which clarify or change the application of existing fair value measurements, including that the highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. These amendments are effective for the Company on January 1, 2012. The Company is currently assessing the potential impacts, if any, of these amendments on its consolidated financial statements.

 

Revenues

Interest income from investment in term loans

Less: Voyage expenses

 

Net revenues

 

Vessel operating expenses

Time-charter hire expenses

Depreciation and amortization

General and administrative

Gain on sale of vessels

Goodwill impairment charge

 

(Loss) income from operations

 

 

Interest expense

Interest income

Realized and unrealized loss on derivative instruments

Other expenses

 

Net (loss) income

 

Voyage-charter contracts — Aframax

Voyage-charter contracts — Suezmax

Time-charter contracts — Aframax

Time-charter contracts — Suezmax

 

Total

 

Voyage-charter contracts — Aframax

Voyage-charter contracts — Suezmax

Time-charter contracts — Aframax

Time-charter contracts — Suezmax

 

Total

 

decreases of $2.8 million and $10.2 million for the three and nine months ended September 30, 2011, respectively, from lower average TCE rates earned by our Suezmax vessels operating on spot-market-based voyage charters, resulting from the relatively weaker spot markets during the three and nine months ended September 30, 2011 compared to the same periods in 2010;

net decreases of $2.4 million and $7.6 million for the three and nine months ended September 30, 2011, respectively, resulting from the decrease in average TCE rates earned by our vessels employed on time-charter contracts in 2011 compared to the same periods in 2010 as a result of new and renewed time-charter contracts at lower average TCE rates;

a decrease of $2.1 million for the nine months ended September 30, 2011, from lower average TCE rates earned by our Aframax vessels operating on spot-market-based voyage charters, resulting from the relatively weaker spot markets during the nine months ended September 30, 2011 compared to the same period in 2010;

decreases of $0.8 million and $4.5 million for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010 as a result of fewer revenue days from the sales of the Falster Spirit and Sotra Spirit in April and August 2010, respectively; and

decreases of $0.1 million and $0.4 million for the three and nine months ended September 30, 2011, respectively, relating to lower profit-sharing amounts earned by the three applicable Suezmax tankers compared to the same periods in 2010, resulting from weaker average spot market rates in 2011;

partially offset by

an increase of $1.1 million for the three and nine months ended September 30, 2011 resulting from two additional vessels earning revenue as we entered into agreements to time-charter in two Aframaxes from third parties, compared to the same periods in 2010;

increases of $0.4 million and $6.0 million for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010, resulting from interest income from an investment in term loans which earns an annual yield of approximately 10%; and

increases of $0.3 million and $1.1 million for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010 as a result of more revenue days and lower offhire expenses from having no scheduled drydockings in the three and nine months ended September 30, 2011 compared to one and three drydockings in the same periods in 2010.

increases of $0.8 million and $0.7 million in operating expenses relating to higher crew and manning costs and higher repairs and maintenance expenses during the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010;

partially offset by

decreases of $0.4 million and $2.4 million for the three and nine months ended September 30, 2011, relating to the Falster Spirit and the Sotra Spirit, which were sold in April and August 2010, respectively.

decreases of $0.6 million and $3.1 million in general and administrative expense attributable to the Dropdown Predecessor during the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010; and

a decrease of $0.1 million in corporate expenses incurred during the three months ended September 30, 2011, respectively, compared to the same period in 2010;

partially offset by

increases of $0.3 million and $1.7 million in technical, strategic and administrative service fees during the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010, primarily due to an increase in the technical service fees and a one-time $0.5 million fee associated with the portion of stock-based compensation grants of our former Chief Executive Officer that had not vested prior to the date of his retirement on March 31, 2011; and

an increase of $0.3 million in corporate expenses incurred during the nine months ended September 30, 2011, compared to the same period in 2010.

decreases of $0.5 million and $0.4 million due to lower average debt balances outstanding for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010;

a decrease of $0.4 million relating to amortization of capitalized loan costs for the three and nine months ended September 30, 2011 compared to the same periods in 2010; and

decreases of $0.3 million and $2.1 million in interest expense attributable to the Dropdown Predecessor during the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010.

Net cash flow from operating activities

Net cash flow used in financing activities

Net cash flow used in investing activities

U.S. Dollar-Denominated Obligations

Long-term debt ⁽¹⁾

Chartered-in vessels (operating leases) ⁽²⁾

Technical vessel management and administrative fees

Newbuilding installments ⁽³⁾

 

Total

 

our future growth prospects and opportunities, including future vessel acquisitions;

tanker market fundamentals, including the balance of supply and demand in the tanker market and spot tanker charter rates and oil demand;

the effectiveness of our chartering strategy in capturing upside opportunities and reducing downside risks;

the sufficiency of working capital for short-term liquidity requirements;

crewing costs for vessels;

the duration of drydockings;

potential newbuilding order cancellations;

construction and delivery delays in the tanker industry generally;

future capital expenditure commitments and the financing requirements for such commitments;

our compliance with, and the effect on our business and operating results of, covenants under our credit facilities;

our hedging activities relating to foreign exchange, interest rate and spot market risks

our ability to secure new fixed-rate time-charter agreements; and

the ability of the counterparties to our derivative contracts to fulfill their contractual obligations.

Long-term debt:

Variable rate

Fixed rate

 

Interest Rate Swaps:

U.S. Dollar-denominated interest rate swap ⁽²⁾

U.S. Dollar-denominated interest rate swap ⁽²⁾

U.S. Dollar-denominated interest rate swap ⁽²⁾

In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information—Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2010, which could materially affect our business, financial condition or results of operations. There have been no material changes in our risk factors from those disclosed in our 2010 Annual Report on Form 20-F.

None

None

None

None