TNK Teekay Tankers Ltd

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PART I – FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

TEEKAY TANKERS LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (notes 1 and 3)

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

 

		Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
		June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
		$			$			$			$
REVENUES
Net pool revenues (note 11a)		33,100			93,197			80,289			207,139
Time-charter revenues  (note 11a)		30,091			22,621			60,421			45,608
Voyage charter revenues		30,140			16,025			69,484			36,574
Other revenues (note 4 )		15,458			14,303			29,080			28,474
Total revenues		108,789			146,146			239,274			317,795
Voyage expenses (note 11a)		(19,430	)		(9,352	)		(43,185	)		(21,850	)
Vessel operating expenses  (note 11a)		(46,853	)		(46,389	)		(90,991	)		(91,462	)
Time-charter hire expense		(7,997	)		(15,913	)		(21,624	)		(36,629	)
Depreciation and amortization		(24,415	)		(25,621	)		(49,324	)		(52,688	)
General and administrative expenses (note 11a)		(8,365	)		(9,503	)		(17,253	)		(18,974	)
Loss on sale of vessels  (note 12)		(142	)		(6,420	)		(4,569	)		(6,420	)
Income from operations		1,587			32,948			12,328			89,772
Interest expense		(7,076	)		(7,341	)		(14,382	)		(15,612	)
Interest income		360			26			439			52
Realized and unrealized loss on derivative instruments (note 7)		(1,560	)		(3,750	)		(1,099	)		(11,531	)
Equity (loss) income  (note 5)		(28,027	)		3,615			(26,900	)		5,849
Other expense (note 8)		(2,761	)		(1,899	)		(4,150	)		(4,547	)
Net (loss) income		(37,477	)		23,599			(33,764	)		63,983
Per common share amounts (note 13)
- Basic (loss) earnings per share		(0.22	)		0.14			(0.21	)		0.39
- Diluted (loss) earnings per share		(0.22	)		0.14			(0.21	)		0.39
- Cash dividends declared		0.03			0.09			0.06			0.09
Weighted-average number of Class A and Class B common stock outstanding (note 13)
- Basic		169,963,717			156,208,917			167,173,392			156,146,287
- Diluted		169,963,717			156,446,895			167,173,392			156,469,816
Related party transactions  (note 11)

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TEEKAY TANKERS LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS (notes 1 and 3)

(in thousands of U.S. dollars)

 

		As at			As at
		June 30, 2017			December 31, 2016
		$			$
ASSETS
Current
Cash and cash equivalents		87,255			94,157
Restricted cash		1,380			750
Pool receivable from affiliates, net (note 11b)		9,084			24,598
Accounts receivable		18,187			33,789
Vessels held for sale (note 12)		—			33,802
Due from affiliates (note 11b)		46,306			48,712
Current portion of derivative assets (note 7)		116			875
Prepaid expenses		16,664			21,300
Total current assets		178,992			257,983
Vessels and equipment At cost, less accumulated depreciation of $500.3 million (2016 - $459.3 million)		1,554,055			1,605,372
Investment in and advances to equity accounted investments  (note 5)		43,201			70,651
Derivative asset s (note 7 )		2,920			4,538
Intangible assets At cost, less accumulated amortization of $6.5 million (2016 - $4.8 million)		16,044			17,658
Other non-current assets		155			107
Goodwill		8,059			8,059
Total assets		1,803,426			1,964,368
LIABILITIES AND EQUITY
Current
Accounts payable		9,253			14,406
Accrued liabilities		26,157			28,663
Current portion of long-term debt (note 6)		150,254			171,019
Current portion of derivative liabilities  (note 7)		265			1,108
Deferred revenue		6,174			4,455
Due to affiliates (note 11b)		31,993			36,297
Total current liabilities		224,096			255,948
Long-term debt (note 6)		671,532			761,997
Other long-term liabilities (note 8)		17,829			13,683
Total liabilities		913,457			1,031,628
Commitments and contingencies (notes 5, 6 and 7 )
Equity
Common stock and additional paid-in capital (300.0 million shares authorized, 142.2 million Class A and 37.0 million Class B shares issued and outstanding as of June 30, 2017 and 136.1 million Class A and 23.2 million Class B shares issued and outstanding as of December 31, 2016) (note 10)		1,143,353			1,103,304
Accumulated deficit		(253,384	)		(182,680	)
Entities under Common Control Equity  (note 3)		—			12,116
Total equity		889,969			932,740
Total liabilities and equity		1,803,426			1,964,368

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TEEKAY TANKERS LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (notes 1 and 3)

(in thousands of U.S. dollars)

 

		Six Months Ended			Six Months Ended
		June 30, 2017			June 30, 2016
		$			$
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net (loss) income		(33,764	)		63,983
Non-cash items:
Depreciation and amortization		49,324			52,688
Loss on sale of vessels (note 12)		4,569			6,420
Unrealized loss on derivative instruments		1,578			789
Equity loss (income)		26,900			(5,849	)
Other		6,554			6,796
Change in operating assets and liabilities		12,157			(12,046	)
Expenditures for dry docking		(3,417	)		(2,810	)
Net operating cash flow		63,901			109,971
FINANCING ACTIVITIES
Proceeds from long-term debt, net of issuance costs		14,300			849,728
Repayments of long-term debt		(57,894	)		(82,410	)
Prepayments of long-term debt		(69,216	)		(890,091	)
Return of capital to Teeka y Corporation (note 3)		—			(15,000	)
Cash dividends paid		(9,925	)		(32,782	)
Proceeds from issuance of Class A common stock		5,000			—
Proceeds from equity offerings, net of offering costs (note 10)		8,565			—
Other		(241	)		(746	)
Net financing cash flow		(109,411	)		(171,301	)
INVESTING ACTIVITIES
Proceeds from sale of vessels (note 12)		40,686			—
Expenditures for vessels and equipment		(2,628	)		(3,937	)
Loan repayments from equity accounted investment (note 5a)		550			2,500
Net investing cash flow		38,608			(1,437	)
Decrease in cash and cash equivalents		(6,902	)		(62,767	)
Cash and cash equivalents, beginning of the period		94,157			156,520
Cash and cash equivalents, end of the period		87,255			93,753

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TEEKAY TANKERS LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (notes 1 and 3)

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

 

					Common Stock and Additional Paid-in Capital
		Equity of Entities under Common Control $			Thousands of Common Stock #			Class A $			Class B $			Accumulated Deficit $			Total $
Balance as at December 31, 2016		12,116			159,304			1,040,669			62,635			(182,680	)		932,740
Net income (loss)		1,304			—			—			—			(35,068	)		(33,764	)
Proceeds from issuance of Class A common stock (note 9)		—			5,955			13,521			—			—			13,521
Acquisition of TTOL  (note 3)		(13,420	)		13,775			—			25,897			(25,711	)		(13,234	)
Dividends declared		—			—			—			—			(9,925	)		(9,925	)
Equity-based compensation (note 10)		—			190			631			—			—			631
Balance as at June 30, 2017		—			179,224			1,054,821			88,532			(253,384	)		889,969

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1.	Basis of Presentation

2.	Accounting Pronouncements

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3.	Acquisition of Entities under Common Control

4.	Segment Reporting

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(1)	The ship-to-ship transfer segment provides lightering support services to the conventional tanker segment for full service lightering operations and the pricing for such services was based on actual costs incurred per voyage starting January 1, 2017 (2016 - based on estimated costs of approximately $25,000 per voyage).

(2)	Revenues, net of the inter-segment adjustment, earned from the ship-to-ship transfer segment are reflected in Other Revenues in the Company's consolidated statements of (loss) income.

(3)	Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

	As at			As at
	June 30, 2017			December 31, 2016
	$			$
Conventional Tanker Segment	1,675,224			1,828,548
Ship-to-Ship Transfer Segment	40,947			41,663
Cash and cash equivalents	87,255			94,157
Consolidated total assets	1,803,426			1,964,368

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5.	Investments in and Advances to Equity Accounted Investments

a.

The Company has a joint venture arrangement with Wah Kwong Maritime Transport Holdings Limited (or Wah Kwong ), whereby the Company has a 50% economic interest in the High-Q joint venture, which is jointly controlled by the Company and Wah Kwong. The High-Q joint venture owns one Very Large Crude Carrier (or VLCC ), which is trading on a fixed time charter-out contract expiring in 2018. Under this contract, the vessel earns a fixed daily rate and an additional amount if the daily rate of any sub-charter earned exceeds a certain threshold.

b.

In January 2014, the Company and Teekay Corporation (or Teekay ) formed Tanker Investments Ltd. (or TIL ), which owns and operates conventional tankers. In January 2014, the Company purchased 2.5 million shares of TIL common stock for $25.0 million and received a stock purchase warrant entitling it to purchase up to 750,000 additional shares of common stock of TIL (see note  7 ). The stock purchase warrant is a derivative asset which had an estimated fair value of $nil as at June 30, 2017 ( December 31, 2016 - $0.3 million ). The Company also received one preferred share which entitles the Company to elect one board member of TIL. The preferred share does not give the Company a right to any dividends or distributions of TIL. The Company accounts for its investment in TIL using the equity method.

c.	On May 31, 2017, the Company purchased from Teekay the remaining 50% interest in TTOL, which owns conventional tanker commercial management and technical management operations, including direct ownership in four commercially managed revenue sharing arrangements, for $39.0 million , which includes an additional $13.1 million for assumed working capital (see note 3).

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6.	Long-Term Debt

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7.	Derivative Instruments

	Interest Rate		Notional Amount				Fair Value / Carrying Amount of Asset				Remaining Term		Fixed Interest Rate
	Index		$				$				(years)		(%)  (1)
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps	LIBOR		161,985				513				3.5		1.46
U.S. Dollar-denominated interest rate swaps	LIBOR		150,000				1,159				3.5		1.55
U.S. Dollar-denominated interest rate swaps	LIBOR		50,000				1,072				3.5		1.16

(1)	Excludes the margin the Company pays on its variable-rate debt, which, as of June 30, 2017 , ranged from 0.30% to 2.00% .

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	Current portion of derivative assets			Derivative assets			Accrued liabilities			Current portion of derivative liabilities
	$			$			$			$
As at June 30, 2017
Interest rate swap agreements	89			2,920			(118	)		(265	)
Time-charter swap agreement	—			—			(21	)		—
Forward freight agreements	27			—			(10	)		—
	116			2,920			(149	)		(265	)
As at December 31, 2016
Interest rate swap agreements	—			4,251			(254	)		(1,108	)
Stock purchase warrant	—			287			—			—
Time-charter swap agreement	875			—			(667	)		—
	875			4,538			(921	)		(1,108	)

	Three Months Ended							Three Months Ended
	June 30, 2017							June 30, 2016
	Realized (losses) gains		Unrealized losses		Total			Realized (losses) gains		Unrealized (losses) gains		Total
	$		$		$			$		$		$
Interest rate swap agreements	(301	)	(1,101	)	(1,402	)		(1,276	)	(1,808	)	(3,084	)
Stock purchase warrant	—		(166	)	(166	)		—		(2,137	)	(2,137	)
Time-charter swap agreement	360		(402	)	(42	)		126		1,345		1,471
Forward freight agreements	80		(30	)	50			—		—		—
	139		(1,699	)	(1,560	)		(1,150	)	(2,600	)	(3,750	)
	Six Months Ended							Six Months Ended
	June 30, 2017							June 30, 2016
	Realized (losses) gains		Unrealized losses		Total			Realized (losses) gains		Unrealized gains (losses)		Total
Interest rate swap agreements	(740	)	(399	)	(1,139	)		(10,868)		2,114		(8,754)
Stock purchase warrant	—		(287	)	(287	)		—		(4,248	)	(4,248	)
Time-charter swap agreement	1,106		(875	)	231			126		1,345		1,471
Forward freight agreements	113		(17	)	96			—		—		—
	479		(1,578	)	(1,099	)		(10,742	)	(789	)	(11,531	)

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8.	Other Expense

	2017
	$
Balance of unrecognized tax benefits as at January 1	12,882
Increases for positions related to the current period	3,387
Changes for positions taken in prior periods	993
Decreases related to statute of limitations	(201	)
Balance of unrecognized tax benefits as at June 30	17,061

9.	Financial Instruments

a.	Fair Value Measurements

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(1)	The fair value of the Company’s interest rate swap agreements, time-charter swap agreement and forward freight agreements at June 30, 2017 excludes accrued interest expense which is recorded in accrued liabilities on the unaudited consolidated balance sheets.

(2)

The advances to equity accounted investments together with the Company’s investments in the equity accounted investments form the net aggregate carrying value of the Company’s interests in the equity accounted investments in these consolidated financial statements. The fair values of the individual components of such aggregate interests as at June 30, 2017 and December 31, 2016 were not determinable.

		Three Months Ended				Six Months Ended
		June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
		$						$
Fair value asset - beginning of the period		402		—		875		—
Settlements		(360)		(126)		(1,106)		(126)
Realized and unrealized (loss) gain in earnings		(42)		1,471		231		1,471
Fair value asset - at the end of the period		—		1,345		—		1,345

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b.	Financing Receivables

				June 30, 2017			December 31, 2016
Class of Financing Receivable	Credit Quality Indicator		Grade	$			$
Advances to equity accounted investments	Other internal metrics		Performing	9,930			10,480
Total				9,930			10,480

10.	Capital Stock and Stock-Based Compensation

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11.	Related Party Transactions

a.

Teekay, and its wholly-owned subsidiary and the Company's manager, Teekay Tankers Management Services Ltd. (or the Manager ), provide commercial, technical, strategic and administrative services to the Company pursuant to a long-term management agreement. In addition, the Manager has subcontracted with TTOL and its affiliates to provide certain commercial and technical services to the Company. Certain of the Company’s vessels participate in revenue sharing arrangements that are managed by TTOL (collectively the Pool Managers ). For additional information about these arrangements, please read “Item 7 – Major Shareholders and Related Party Transactions – Related Party Transactions” in our Annual Report on Form 20-F for the year ended December 31, 2016 . Amounts received and paid by the Company for such related party transactions for the periods indicated were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
	$		$		$		$
Time-charter revenues (i)	—		2,452		—		4,987
Pool management fees and commissions (ii)	(1,063	)	(2,750	)	(2,799	)	(5,886	)
Commercial management fees  (iii)	(480	)	(408	)	(1,187	)	(748	)
Vessel operating expenses - technical management fee  (iv)	(2,196	)	(2,276	)	(4,422	)	(4,587	)
Strategic and administrative service fees  (v)	(4,253	)	(2,775	)	(6,917	)	(4,990	)
Lay-up service revenues	—		116		6		116
LNG terminal services revenue (vi)	84		—		168		—
Technical management fee revenues  (vii)	1,220		—		1,220		—
Service revenues	277		—		277		—
Entities under Common Control (note 3):
Pool management fees and commissions	1,063		2,750		2,799		5,886
Commercial management fees	480		408		1,187		748
Strategic and administrative service fees  (v)	(2,891	)	(4,178	)	(7,026	)	(8,148	)
Technical management fee revenues (vii)	2,137		2,641		4,890		5,358
Service revenues	638		1,482		1,772		3,011

(i)	The Company chartered-out the Navigator Spirit to Teekay under a fixed-rate time-charter contract, which was scheduled to expire in July 2016. On May 18, 2016, the contract was transferred to the Americas Spirit , and subsequently expired on July 15, 2016.

(ii)	The Company’s share of the Pool Managers’ fees is reflected as a reduction to net pool revenues from affiliates on the Company’s consolidated statements of (loss) income. The Company acquired the Pool Managers on May 31, 2017 (notes 3 and 5(c)). Subsequent to the acquisition, the Company's share of the Pool Managers' fees has been eliminated.

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(iii)	The Manager’s commercial management fees for vessels on time charter-out contracts and spot-traded vessels not included in the pool, which are reflected in voyage expenses on the Company’s consolidated statements of (loss) income. Subsequent to the acquisition, the Company's share of the Manager's commercial management fees has been eliminated.

(iv)	The cost of ship management services provided by the Manager has been presented as vessel operating expenses on the Company's consolidated statements of (loss) income.

(v)

The Manager's strategic and administrative service fees have been presented in general and administrative fees on the Company's consolidated statements of (loss) income. The Company's executive officers are employees of Teekay or subsidiaries thereof, and their compensation (other than any awards under the Company's long-term incentive plan described in note 10 ) is set and paid by Teekay or such other subsidiaries. The Company reimburses Teekay for time spent by its executive officers on the Company's management matters through the strategic portion of the management fee.

(vi)

In November 2016, the Company's ship-to-ship transfer business signed an operational and maintenance subcontract with Teekay LNG Bahrain Operations L.L.C., an entity wholly owned by Teekay LNG Partners L.P. (or TGP ) (which is controlled by Teekay), for the Bahrain LNG Import Terminal (or the Terminal ). The Terminal is owned by Bahrain LNG W.I.L., a joint venture for which Teekay LNG Operating L.L.C., an entity wholly owned by TGP, has a 30% interest.

(vii)	The Company receives reimbursements from Teekay who subcontracts technical management services from the Manager. These reimbursements have been presented in general and administrative expenses on the Company's consolidated statements of (loss) income.

b.

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 Company’s consolidated balance sheets in due from affiliates or due to affiliates, are without interest or stated terms of repayment. The amounts owing from the Revenue Sharing Arrangements (or RSAs ) for monthly distributions are reflected in the consolidated balance sheets as pool receivable from affiliates, are without interest and are repayable upon the terms contained within the applicable pool agreement. The Company had also advanced $31.5 million and $35.7 million as at June 30, 2017 and December 31, 2016 , respectively, to the RSAs for working capital purposes. These amounts, which are reflected in the consolidated balance sheets in due from affiliates, are without interest and are repayable when applicable vessels leave the pools.

12.	Sales of Vessels

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13.	(Loss) Earnings Per Share

14.	Liquidity

15.	Subsequent Events

a.

In July 2017, the Company completed a $153.0 million sale-leaseback financing transaction relating to four of its Suezmax tankers. The transaction is structured as a 12 -year bareboat charter at an average rate of approximately $11,100 per day with purchase options for all four vessels throughout the lease term beginning in July 2020. As a result of the transaction, the Company expects to recognize an accounting write-down in the third quarter of 2017 of approximately $20 million per vessel subject to the transaction.

b.	In September 2017, the Company completed the sale of one Aframax tanker, the Kanata Spirit . The Company expects to recognize a loss on sale of this vessel of approximately $4.2 million in the quarter ending September 30, 2017.

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		Owned Vessels (1)	Chartered-in Vessels	Total
	Fixed-rate:
	Suezmax Tankers	5	—	5
	Aframax Tankers	6	—	6
	LR2 Product Tanker  (2)	2	—	2
	VLCC Tanker (3)	1	—	1
	Total Fixed-Rate Fleet (4)	14	—	14
	Spot-rate:
	Suezmax Tankers	15	—	15
	Aframax Tankers (5)	7	3	10
	LR2 Product Tankers	5	—	5
	Total Spot Fleet  (6)	27	3	30
	STS Support Vessels	3	2	5
	Total Teekay Tankers Fleet	44	5	49

1.	Vessels owned by Tanker Investments Ltd. (or TIL ), in which we have a minority equity interest, are excluded from the fleet list.

2.	Long Range 2 (or LR2 ) product tankers.

3.	VLCC owned through a 50/50 joint venture.

4.	Three time-charter out contracts are scheduled to expire in 2017 , ten in 2018 and one in 2019.

5.	Three Aframax tankers are currently time-chartered in for initial periods ranging from 12 to 60 months, with two of these periods ending in 2017 and one in 2021; two of these contracts include options to extend at escalating rates.

6.

A total of 23 of our owned vessels and two of our in-chartered vessels operated in the spot market in revenue sharing arrangements, which are managed by Teekay Tanker Operations Ltd. (or TTOL, collectively the Pool Managers ). As at June 30, 2017 , the four-vessel class revenue sharing arrangements in which we participate were comprised of a total of 26 Suezmax tankers, 32 modern Aframax tankers, three Aframax tankers over 15-years-old, 11 LR2 tankers (of which 10 LR2 tankers are cross-trading in the Aframax revenue sharing arrangement). Each pooling arrangement we participate in also includes vessels owned by other revenue sharing members.

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•	a net decrease of $44.7 million primarily due to lower average realized spot TCE rates earned by our Suezmax, Aframax, LR2 product and MR product tankers, partially offset by higher average rates earned on our out-chartered Aframax tankers; and

•	a net decrease of $25.6 million primarily due to various vessel employment changes in response to changing tanker market rates;

•	a net decrease of $6.3 million primarily due to the sale of Ganges Spirit, Yamuna Spirit, Teesta Spirit, Hugli Spirit and Kyeema Spirit during the first half of 2017 and the second half of 2016; and

•	a net decrease of $5.5 million primarily due to the redeliveries of 12 in-chartered vessels during the first half of 2017 and the second half of 2016;

•	a net increase of $2.1 million primarily due to fewer off-hire days in the first half of 2017.

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	Three Months Ended June 30,									Six Months Ended June 30,
(in thousands of U.S. dollars)	2017			2016			% Change			2017			2016			% Change
Revenues (1)	96,841			135,617			(28.6	)%		217,396			297,881			(27.0	)%
Less: Voyage expenses (1)	(22,079	)		(10,088	)		118.9	%		(48,792	)		(23,021	)		111.9	%
Net revenues	74,762			125,529			(40.4	)%		168,604			274,860			(38.7	)%
Vessel operating expenses	(34,278	)		(37,278	)		(8.0	)%		(68,359	)		(74,786	)		(8.6	)%
Time-charter hire expense	(6,935	)		(15,456	)		(55.1	)%		(19,069	)		(35,886	)		(46.9	)%
Depreciation and amortization	(23,157	)		(24,320	)		(4.8	)%		(46,786	)		(50,274	)		(6.9	)%
General and administrative expenses	(7,513	)		(8,367	)		(10.2	)%		(15,435	)		(17,176	)		(10.1	)%
Loss on sale of vessels	(150	)		(6,420	)		(97.7	)%		(4,577	)		(6,420	)		(28.7	)%
Income from operations	2,729			33,688			(91.9	)%		14,378			90,318			(84.1	)%
Equity (loss) income	(28,027	)		3,615			(875.3	)%		(26,900	)		5,849			(559.9	)%

(1)

Includes $2.6 million and $5.6 million of voyage expenses for the three and six months ended June 30, 2017 , respectively, and $0.5 million and $1.2 million of voyage expenses for the three and six months ended June 30, 2016 , respectively, relating to lightering support services which the ship-to-ship transfer segment provided to the conventional tanker segment for full service lightering operations.

Fleet and TCE Rates

As at June 30, 2017 , we owned 40 double-hulled conventional oil and product tankers and we time-chartered in three Aframax vessels from third parties. We also owned a 50% interest in one VLCC for which results are included in equity (loss) income.

22

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	Conventional Tanker Segment
	Three Months Ended June 30, 2017
	Revenues  (1)			Voyage Expenses (2)			Adjustments (3)			Net Revenues			Revenue Days		Average TCE per Revenue Day (3)
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Voyage-charter contracts - Suezmax		$22,869			($2,539	)		($84	)		$20,246		1,222			$16,567
Voyage-charter contracts - Aframax (4)		$34,182			($19,021	)		$201			$15,362		1,058			$14,523
Voyage-charter contracts - LR2		$6,191			($29	)		$237			$6,399		451			$14,180
Time-charter out contracts - Suezmax		$14,120			($260	)		$8			$13,868		540			$25,694
Time-charter out contracts - Aframax		$12,451			($169	)		$34			$12,316		544			$22,621
Time-charter out contracts - LR2	$	3,520			($61	)		$8			$3,467		200			$17,371
Total  (1)		$93,333			($22,079	)		$404			$71,658		4,015			$17,848

(1)	Excludes $2.7 million of commissions and management fees earned from TTOL, which we acquired during the second quarter of 2017, from the management of external vessels trading in the revenue sharing arrangements (or RSAs ), $0.6 million of bunker rebates and $0.2 million of revenue earned from a profit-sharing agreement for the three months ended June 30, 2017.

(2)	Includes $2.6 million of inter-segment voyage expenses relating to lightering support services provided by the STS transfer segment for the three months ended June 30, 2017.

(3)	Average TCE per Revenue Day excludes $0.4 million in off-hire bunker and other expenses included as part of the adjustments.

(4)	Includes $20.6 million of revenues and $15.0 million of voyage expenses related to the full service lightering business, which include $2.6 million inter-segment voyage expenses referenced in note 2 above relating to the full service lightering business by the STS transfer segment for the three months ended June 30, 2017.

	Three Months Ended June 30, 2016
	Revenues  (1)			Voyage Expenses (2)			Adjustments (3)			Net Revenues			Revenue Days		Average TCE per Revenue Day (3)
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Voyage-charter contracts - Suezmax		$53,663			($1,667	)		$624			$52,620		1,695			$31,040
Voyage-charter contracts - Aframax (4)		$37,294			($8,155	)		$37			$29,176		1,271			$22,949
Voyage-charter contracts - LR2		$15,299			($6	)		$6			$15,299		728			$21,015
Voyage-charter contracts - MR		$2,967			($4	)		$150			$3,113		182			$17,106
Time-charter out contracts - Suezmax		$5,998			($100	)	—				$5,898		182			$32,404
Time-charter out contracts - Aframax		$14,214			($68	)		$20			$14,166		586			$24,174
Time-charter out contracts - LR2		$2,409			($88	)	—				$2,321		91			$25,500
Total (1)		$131,844			($10,088	)		$837			$122,593		4,735			$25,887

(1)	Excludes $2.9 million of commissions and management fees earned from the management of external vessels trading in the RSAs which we acquired during Q2-17 and $0.9 million of bunker rebates for the three months ended June 30, 2016.

(2)	Includes $0.5 million of inter-segment voyage expenses relating to lightering support services provided by the STS transfer segment for the three months ended June 30, 2016.

(3)	Average TCE per Revenue Day excludes $0.8 million in off-hire bunker and other expenses included as part of the adjustments.

(4)	Includes $8.4 million of revenues and $6.2 million of voyage expenses related to the full service lightering business, which include $0.5 million inter-segment voyage expenses referenced in note 2 above relating to the full service lightering business by the STS transfer segment for the three months ended June 30, 2016.

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	Six Months Ended June 30, 2017
	Revenues  (1)			Voyage Expenses (2)			Adjustments (3)			Net Revenues			Revenue Days		Average TCE per Revenue Day (3)
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Voyage-charter contracts - Suezmax		$53,867			($5,147	)		$60			$48,780		2,527			$19,305
Voyage-charter contracts - Aframax (4)		$81,422			($42,555	)		$350			$39,217		2,322			$16,891
Voyage-charter contracts - LR2		$14,469			($76	)		$260			$14,653		901			$16,263
Time-charter out contracts - Suezmax		$26,752			($496	)		$9			$26,265		1,025			$25,634
Time-charter out contracts - Aframax		$24,657			($320	)		$111			$24,448		1,075			$22,735
Time-charter out contracts - LR2		$9,012			($198	)	—				$8,814		470			$18,773
Total (1)		$210,179			($48,792	)		$790			$162,177		8,320			$19,495

(1)	Excludes $5.5 million of commissions and management fees earned from the management of external vessels trading in the RSAs which we acquired during Q2-17, $1.4 million of bunker rebates and $0.3 million of revenue earned from a profit-sharing agreement for the six months ended June 30, 2017.

(2)	Includes $5.6 million of inter-segment voyage expenses relating to lightering support services provided by the STS transfer segment for the six months ended June 30, 2017.

(3)	Average TCE per Revenue Day excludes $0.8 million in off-hire bunker and other expenses included as part of the adjustments.

(4)	Includes $47.8 million of revenues and $35.4 million of voyage expenses related to the full service lightering business, which include $5.6 million inter-segment voyage expenses referenced in note 2 relating to the full service lightering business by the STS transfer segment for the six months ended June 30, 2017.

	Six Months Ended June 30, 2016
	Revenues  (1)			Voyage Expenses (2)			Adjustments (3)			Net Revenues			Revenue Days		Average TCE per Revenue Day (3)
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Voyage-charter contracts - Suezmax		$116,124			($2,498	)		$289			$113,915		3,391			$33,593
Voyage-charter contracts - Aframax (4)		$89,978			($20,067	)		$267			$70,179		2,793			$25,123
Voyage-charter contracts - LR2		$31,373			$22			($4	)		$31,391		1,407			$22,304
Voyage-charter contracts - MR		$6,237			($8	)		$271			$6,500		364			$17,858
Time-charter out contracts - Suezmax		$12,155			($178	)		$3			$11,980		371			$32,252
Time-charter out contracts - Aframax		$28,698			($133	)		$10			$28,576		1,219			$23,444
Time-charter out contracts - LR2		$4,773			($159	)		($17	)		$4,630		182			$25,444
Time-charter out contracts - MR		($18	)	—				$18		—			—		—
Total (1)		$289,320			($23,021	)		$837			$267,171		9,727			$27,464

(1)	Excludes $5.9 million of commissions and management fees earned from the management of external vessels trading in the RSAs which we acquired during Q2-17, $1.4 million of bunker rebates and $1.2 million of in-process revenue contract for the six months ended June 30, 2016.

(2)	Includes $1.2 million of inter-segment voyage expenses relating to lightering support services provided by the STS transfer segment for the six months ended June 30, 2016.

(3)	Average TCE per Revenue Day excludes $0.8 million in off-hire bunker and other expenses included as part of the adjustments.

(4)	Includes $20.1 million of revenues and $15.2 million of voyage expenses related to the full service lightering business, which include $1.2 million inter-segment voyage expenses referenced in note 2 above relating to the full service lightering business by the STS transfer segment for the six months ended June 30, 2016.

•	decreases of $24.6 million and $45.6 million for the three and six months ended June 30, 2017 , respectively, due to lower average realized rates earned by our Suezmax, Aframax, and LR2 tankers;

•	net decreases of $18.9 million and $41.9 million for the three and six months ended June 30, 2017 , respectively, primarily due to the redeliveries of various in-charters to their owners at various times during 2016 and 2017 and the sale of two Suezmax product tankers,

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•	net decreases of $11.7 million and $26.9 million for the three and six months ended June 30, 2017 due to various vessel employment changes in response to changing tanker market rates;

•	a decrease of $1.2 million for the six months ended June 30, 2017 due to in-process revenue contract amortization that we recognized in revenue in the first quarter of 2016; and

•	a decrease of $0.9 million for the six months ended June 30, 2017 due to one additional calendar day in the first quarter of 2016 as 2016 was a leap year;

•	increases of $3.5 million and $7.6 million for the three and six months ended June 30, 2017, respectively, due to increases in the number of voyages related to our full service lightering operations;

•	net increases o f $1.0 million and $2.1 million for the three and six months ended June 30, 2017 , respectively, due to fewer off-hire days in the three and six months ended June 30, 2017 compared to the same periods in the prior year; and

•	an increase of $0.8 million for the six months ended June 30, 2017 due to higher average rates earned on our out-chartered Aframax tankers.

•	decreases of $3.2 million and $5.5 million for the three and six months ended June 30, 2017 , respectively, primarily due to the sales of two MR tankers in the second half of 2016, two Suezmax tankers in the first quarter of 2017 and one Aframax tanker in the second quarter of 2017; and

•	decreases of $0.9 million and $1.4 million for the three and six months ended June 30, 2017 , respectively, due to higher transition costs incurred in 2016 compared to 2017 directly relating to 12 Suezmax tankers which were acquired in the latter part of 2015;

•	increases of $1.1 million and $0.8 million for the three and six months ended June 30, 2017 , respectively, due to the timing and scope of repairs and planned maintenance activities in 2017 as compared to 2016.

•	a net decrease of $1.2 million for the six months ended June 30, 2017 due to lower corporate expenses incurred during the first half of 2017, primarily as a result of lower legal expenses relating to financing activities and the STX arbitration; and

•	net decreases of $1.5 million and $0.8 million for the three and six months ended June 30, 2017, respectively, primarily due to higher staffing and office facility costs that were incurred in 2016 relating to TTOL's business;

•	net increases of $0.4 million and $0.7 million for the three and six months ended June 30, 2017, respectively, primarily due to higher administrative, strategic management, and other fees incurred.

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Equity (Loss) Income.

 

		Three Months Ended						Six Months Ended
		June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
(in thousands of U.S. dollars)		$			$			$			$
High-Q Joint Venture		756			2,202			1,549			2,531
Tanker Investments Ltd.		(28,777	)		1,426			(28,444	)		3,506
Gemini Tankers L.L.C.		(6	)		(13	)		(5	)		(188	)
Total equity (loss) income		(28,027	)		3,615			(26,900	)		5,849

•	a decrease of $30.2 million and $32.0 million for the three and six months ended June 30, 2017, respectively, primarily due to a $28.1 million write-down of our investment in TIL to its fair market value and lower equity earnings resulting from lower average realized spot rates earned; and

•	a decrease of $1.4 million and $1.0 million for the three and six months ended June 30, 2017, respectively, from our High-Q joint venture primarily resulting from a profit share recognized in the second quarter of 2016 as VLCC rates averaged above certain thresholds, triggering a profit sharing with the customer.

Ship-to-ship Transfer Segment

Our STS transfer segment consists of our lightering support services (including those services provided to our conventional tanker segment as part of full service lightering operations), consultancy, and LNG terminal management and other related services.

	Three Months Ended June 30,									Six Months Ended June 30,
(in thousands of U.S. dollars)	2017			2016			% Change			2017			2016			% Change
Revenues (1)(2)	14,597			10,999			32.7	%		27,485			21,085			30.4	%
Less: Voyage expenses	—			266			(100.0	)%		—			—			—	%
Net revenues	14,597			11,265			29.6	%		27,485			21,085			30.4	%
Vessel operating expenses	(12,575	)		(9,111	)		38.0	%		(22,632	)		(16,676	)		35.7	%
Time-charter hire expense	(1,062	)		(457	)		132.4	%		(2,555	)		(743	)		243.9	%
Depreciation and amortization	(1,258	)		(1,301	)		(3.3	)%		(2,538	)		(2,414	)		5.1	%
General and administrative expenses	(852	)		(1,136	)		(25.0	)%		(1,818	)		(1,798	)		1.1	%
Gain on sale of vessel	8			—			100.0	%		8			—			100.0	%
Loss from operations	(1,142	)		(740	)		54.3	%		(2,050	)		(546	)		275.5	%

(1)	Includes $2.6 million and $5.6 million of revenues for the three and six months ended June 30, 2017 , respectively, relating to lightering support services which the STS transfer segment provided to the conventional tanker segment for full service lightering operations.

(2)	Includes $0.5 million and $1.2 million of revenues for the three and six months ended June 30, 2016 , respectively, relating to lightering support services which the STS transfer segment provided to the conventional tanker segment for full service lightering operations.

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Other Operating Results

The following table compares our other operating results for the three and six months ended June 30, 2017 and 2016 :

		Three Months Ended						Six Months Ended
		June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
(in thousands of U.S. dollars)		$			$			$			$
Interest expense		(7,076	)		(7,341	)		(14,382	)		(15,612	)
Interest income		360			26			439			52
Realized and unrealized loss on derivative instruments		(1,560	)		(3,750	)		(1,099	)		(11,531	)
Other expense		(2,761	)		(1,899	)		(4,150	)		(4,547	)

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Cash Flows

The following table summarizes our sources and uses of cash for the periods presented:

 

		Six Months Ended
		June 30, 2017			June 30, 2016
(in thousands of U.S. dollars)		$			$
Net cash flow provided by operating activities		63,901			109,971
Net cash flow used for financing activities		(109,411	)		(171,301	)
Net cash flow provided by (used for) investing activities		38,608			(1,437	)

•	a net decrease of $69.7 million in operating earnings, primarily as a result of lower realized spot rates earned and a decrease in our fleet size due to the sales of two MR tankers, two Suezmax tankers and one Aframax tanker; and

•	a $0.6 million decrease in operating cash outflows relating higher dry-docking costs incurred in the six months ended June 30, 2017 , compared to the same period in 2016 ;

•	a $24.2 million increase in operating cash inflows primarily due to the timing of the settlement of operating assets and liabilities.

•	a decrease in cash outflows of $22.9 million due to lower cash dividends paid during the six months ended June 30, 2017 , as a result lower earnings as our dividend policy is based on adjusted net income, partially offset by the increase in the number of our shares of outstanding Class A and B common stock from issuances of our shares in 2016 and the first half of 2017;

•	a decrease of $15.0 million in cash outflows, related to the return of capital in 2016 by the Entities under Common Control to Teekay;

•	an increase of $13.6 million in cash inflows from proceeds received from our continuous offering program (or COP ) which we relaunched in November 2016 and proceeds from an issuance of 2.2 million shares of Class A common stock to Teekay; and

•	a net decrease in cash outflows of $10.0 million due to the repayments and prepayments on our current term loans and revolving credit facilities, partially offset by the 2016 refinancing of our long-term debt facilities.

•	an increase of $40.7 million in cash inflows related to the sales of two Suezmax tankers, one Aframax tanker and one lightering support vessel in the first half of 2017; and

•	a net decrease of $1.3 million in cash outflows due to fewer capital expenditures for the fleet during the six months ended June 30, 2017, compared to the same period in 2016;

•	a decrease of $2.0 million in cash inflows related to the 2016 repayment of a loan to us from our High-Q joint venture.

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(1)

Excludes expected interest payments of $12.0 million (remaining in 2017 ), $20.9 million ( 2018 ), $17.1 million ( 2019 ), $13.8 million ( 2020 ) and $6.1 million ( 2021 ). Expected interest payments are based on the existing interest rates for variable-rate loans at LIBOR plus margins that range from 0.30% to 2.00% at June 30, 2017 . The expected interest payments do not reflect the effect of related interest rate swaps that we have used to hedge certain of our floating-rate debt.

(2)	Excludes payments required if we execute all options to extend the terms of in-chartered leases signed as of June 30, 2017 . If we exercise all options to extend the terms of signed in-chartered leases, we would expect total payments of $13.1 million (remaining in 2017 ), $16.6 million ( 2018 ), $8.3 million ( 2019 ), $8.3 million ( 2020 ) and $1.4 million ( 2021 ).

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•	the timing and certainty of our future growth prospects and opportunities, including any future vessel acquisitions;

•	our financial position and ability to take advantage of growth opportunities in the global conventional tanker market;

•	the crude oil and refined product tanker market fundamentals, including the balance of supply and demand in the tanker market, estimated growth in the world tanker fleet, estimated growth in global oil demand and crude oil tanker demand, and changes in spot tanker rates;

•	the expected delivery dates for our tankers in-chartered, out-chartered, and pending sale;

•	expected contract commencement and termination dates;

•	future oil prices and production;

•	tanker fleet utilization, including our ability to secure new fixed-rate time charter-out agreements;

•	our ability to obtain the required approvals for and complete the merger with TIL by the fourth quarter of 2017;

•	our ability to successfully integrate TIL and realize the expected benefits and synergies from the combined company;

•	our ability to realize the expected benefits and synergies from the acquisition of TTOL;

•	the effectiveness of our chartering strategy in capturing upside opportunities and reducing downside risks, including our ability to take advantage of a tanker market recovery;

•	our ability to generate surplus cash flow and pay dividends from our existing vessel fleet or from any potential vessel acquisitions;

•	the expected range of our quarterly adjusted net income to be paid as quarterly dividends;

•	meeting our going concern requirements and our liquidity needs, including anticipated funds and sources of financing for liquidity and capital expenditure needs and the sufficiency of cash flows, and our expectation that we will have sufficient liquidity for at least a one-year period;

•	our ability to refinance existing debt obligations, to raise additional debt and capital to fund capital expenditures and negotiate extensions or redeployments of existing assets;

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

•	our expectations regarding payments made on behalf of our co-obligors in connection with the loan arrangements in which certain other subsidiaries of Teekay are also borrowers;

•	continued material variations in the period-to-period fair value of our derivative instruments;

•	our expectations regarding uncertain tax positions;

•	the outcome of legal action against STX; and

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

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		Expected Maturity Date
		Remainder of 2017	2018		2019		2020		2021		Total		Fair Value Asset/(Liability)		Rate (1)
		(in millions of U.S. dollars, except percentages)
Long-Term Debt:
	Variable rate	57.6	174.5		108.9		108.9		379.0		828.9		(810.2	)	2.9%
Interest Rate Swaps
	U.S. Dollar-denominated interest rate swaps (2)	23.1	46.3		46.3		46.3		—		162.0		0.5		1.5%
	U.S. Dollar-denominated interest rate swaps (2)	—	—		—		—		150.0		150.0		1.2		1.6%
	U.S. Dollar-denominated interest rate swaps (2)	—	—		—		—		50.0		50.0		1.1		1.2%

(1)	Rate refers to the weighted-average effective interest rate for our long-term debt, including the margin we pay on our variable-rate.

(2)	Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. The average variable rate paid to us under our interest rate swaps is set quarterly at the six-month and three-month LIBOR, respectively.

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Terms of Expiring 2018		Votes For		Votes Withheld		Votes Against		Broker Non-Votes
Arthur Bensler		157,263,044		34,244,170		N/A		N/A
Bjorn Moller		157,028,175		34,479,039		N/A		N/A
Richard T. du Moulin		183,494,589		8,012,625		N/A		N/A
Richard J. F. Bronks		182,030,461		9,476,753		N/A		N/A
William Lawes		181,958,500		9,548,714		N/A		N/A
Kenneth Hvid		157,046,252		34,460,962		N/A		N/A

Item 6 – Exhibits

The following exhibits are filed as part of this Report:

10.1	Agreement and Plan of Merger, dated as of May 31, 2017, by and among Teekay Tankers Ltd., Royal 2017 Ltd. and Tanker Investments Ltd.*

10.2	Voting and Support Agreement, dated as of May 31, 2017, between Teekay Corporation, Teekay Holdings Limited, Teekay Finance Limited, Tanker Investments Ltd. and Teekay Tankers Ltd.*

10.2	Purchase Agreement, dated as of May 31, 2017, between Teekay Tankers Ltd. and Teekay Holdings Limited*

100	The following materials for the Registrant’s Report on Form 6-K formatted in XBRL:

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				TEEKAY TANKERS LTD.
Date:	September 12, 2017			By:	/s/ Vincent Lok
					Vincent Lok Chief Financial Officer (Principal Financial and Accounting Officer)

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