Ole B. Hjertaker - Chief Executive Officer and Chief Executive Officer of Ship Finance Management AS Eirik Eide - Chief Financial Officer

Phyllis Camara Unknown Analyst Adam M. France - 1492 Capital Management, LLC Herman Hildan - RS Platou Markets AS, Research Division Justine Fisher - Goldman Sachs Group Inc., Research Division Martin Korsvold - Pareto Securities AS, Research Division

Good day, and welcome to the Ship Finance International Quarter 3 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ole Hjertaker. Please go ahead. Ole B. Hjertaker: Thank you, everyone, and welcome to the Ship Finance International Third Quarter Conference Call. My name is Ole Hjertaker, and I'm the CEO of the Ship Finance management, and with me here today -- I also have the CFO, Eirik Eide; and Vice President Magnus Valeberg. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission. The Board of Director has declared a cash dividend of $0.39 per share for the third quarter. This represents $1.56 per share on an annualized basis or 14.6% dividend yield based on closing price yesterday. This is, of course, after the dramatic market movement yesterday, so if we used the 30-day average of 14.185 instead, the dividend yield would be 11%. We have now declared dividends for 31 consecutive quarters and paid out more than $13 per share in total aggregate cash dividends per share. Adjusted net income for the quarter was $31.4 million or $0.40 per share. This is before a $2.4 million noncash mark-to-market of interest rate swaps and before a $1.6 million negative adjustments relating to the profit split in previous quarters. The fixed rate charter revenues in the quarter, including our 100% owned subsidiaries accounted for as investments in associate was more than $200 million, and the EBITDA equivalent cash flow in the quarter was approximately $170 million or $2.15 per share, which was in line with the previous quarter. We have now secured financing for all the newbuildings and also a container ship delivered in 2010. As we have paid significant installments to the shipyards already, there will actually be a significant positive cash contribution for the company in the fourth quarter from these financings. In August 2011, we took delivery of the 57,000 deadweight ton Supramax bulker SFL Kate, which is now on long-term charter to the Korean-based investment grade logistics company Hyundai Glovis. This was the fourth of a total of 5 vessels, and the last vessel is scheduled for delivery in December this year. We also took delivery of SFL Spey in August. This is the first of 4 34,000 deadweight ton Handysize vessels chartered to the China-based Hong Xiang Shipping, which is a part of the privately owned conglomerate, Beijing Jianlong Group, one of the largest steel producing companies in China. The time charter period is 5 years, and the second vessel, SFL Medway, was delivered in October. The third and fourth of the vessels are scheduled for delivery in the fourth quarter this year and first quarter next year, respectively. We have agreed to sell our remaining 3 non-double hull VLCCs to an unrelated third party for a total net sales price of approximately $72.7 million. Estimated delivery to the new owner will be in the first quarter of 2012, the fourth quarter of 2012 and the third quarter 2013 for Titan Orion, Titan Aries and Ticen Ocean, respectively. Net cash proceeds for Ship Finance after compensation payment to Frontline will be approximately $46.5 million or approximately $15.5 million per vessel on average. This is after compensation to Frontline of $26.2 million or approximately $8.7 million per vessel on average for the termination of the current charters. The company expects to record an average book gain of approximately $3.2 million per vessel at the time of delivery of the vessels. Also, in October, we sold a 1992 build combination carrier, Front Striver, and simultaneously terminated the charter to Frontline. This is the third OBO sold this year and net proceeds from the sale was approximately $18.7 million, including an $8.1 million compensation payment from Frontline. We expect to record a book gain of approximately $2.3 million in the fourth quarter in connection with the sale. We have a significant portfolio of long-term charters, which gives us a very transparent and predictable cash flow. Essentially all our vessels are chartered out on long-term basis, and we still have close to 11 years weighted average charter coverage. Full details on a vessel-by-vessel basis are available by contacting us at ir@shipfinance.no. We have around $6.7 billion of fixed rate order backlog or around $84 per share, and the EBITDA equivalent backlog is $5.4 billion or around $68 per share. These numbers are before profit share and do not include any rechartering at the end of the current charters. Looking at the segments where this cash flow will be generated, we see that offshore is still the largest with 43% or around $2.9 billion of the backlog, while tankers, where the company started, now represents approximately 33% of the backlog or around $2.2 billion. It is worth noting that this also include tankered charters -- tankers chartered to Sinochem and North China shipping. Containers are recently increased to 16% through the acquisitions earlier this year, while the dry bulk segment now stands at 8%. Over time we expect to balance these segments, but it's more important for us to do the right transactions than to focus on specific percentage per segment. We have recently added to both the container and offshore sectors, and there could be opportunities for growth -- future growth across all 4 segments in light of recent market developments. We have a total of 14 customers, and all are current on their charter payments to us. 41% of the portfolio is with companies with a market capitalization in excess of $5 billion and if we include all listed companies, the percentage is 84%. In addition, a majority of the backlog in the private segment is with companies with a public rating. This gives us and our investors and other stakeholders a very good access to information and also ability to monitor the quality of our backlog and to assess the counterparty risks. And of course if we look at the counterparty risk, it's worth noting that we own all of these assets and they all have an alternative market. So the effective counterparty risk, in theory, should be limited to the excess charter hire, if any, above current market for the corresponding charter period. The rest will be covered by this deal. And if we look at the average weighted charter tender as indicated on the right side, it is quite unique with more than 70% of the portfolio in excess of 10 years and only 3% or around -- sorry, around 4% shorter than 5 years. Our 2 largest counterparties are Seadrill and Frontline. Seadrill represents more than 40% of our backlog, and the assets are state-of-the-art, ultra-deepwater drilling rigs. There are 12 years remaining charters, and we have already paid down more than $200 million per rig or $600 million in aggregate on the financing of these assets after only 2.5 years of operation. Due to the conservative structure of the transactions with front loading of charter hire, which have of course quickly have taken down our exposure to the assets, the offloading of interest rate risk and also residual value risk, we have to account for these wholly owned assets as investment in associates under U.S. GAAP. In 2004, Frontline was our only client, and all the assets were employed in the tanker segment. There was a mutual dependency as we effectively owned all the asset they operated and that was all the vessels we owned. While we have it diversified across segments and with multiple counterparties, we have not done any new transactions with Frontline for more than 6 years. In the meantime, we have enjoyed significant cash flows from the charters and more than $500 million of profit split. But equally important, we have used a significant part of this cash flow to pay down on financing relating to the assets and also diversified in other segments. Frontline, from their side, have also grown significantly and based on information from the third quarter reporting, they now have effectively as many vessels owned and chartered in from others as they have chartered in from us. They announced yesterday that there is significant risk that Frontline will need a financial restructuring if the weak tanker market seen in the third quarter continues. This is due to their significant capital expenditures relating to newbuildings, combined with negative cash flow relating to the chartered in vessels, including our vessels. This is still at an early stage and while there have been some preliminary discussions with older stakeholders, including Ship Finance, it is too early to speculate on what the potential outcome could be. If we look at our position, we have 28 vessels on charter to them with an average of 10 years remaining. As security, we have a $2 million cash deposit per vessel or $56 million in total, effectively pledged in favor of us. With our steep loan amortization, we have already reduced the loans to less than 50% of the initial amounts going back from 2005, 2006. And if we continue with the scheduled amortization, we would be down to effectively scrap values in less than 3 years. Five of these vessels are employed in the dry bulk segment at rates significantly above the base rate and we also have a fixed-rate operating cost agreement, which we believe is very attractive for us in the long term. In the third quarter, the EBITDA contribution from the Frontline vessels was approximately 25%. To the extent a specific request will be made by Frontline, the board will of course consider this with the objective of looking after the long-term interest of our shareholders and other stakeholders. And that is all we can comment on relating to the Frontline situation at this stage, and we will, of course, make appropriate disclosure to the market if there is any material development. If we look at normalized contributions from projects and this of course includes vessels accounted for as investment in associates, the EBITDA, which includes charter hire, profit share and subtract OpEx in general and administrative expenses, stood at $677 million for the last 12 months. This is more than $8.50 per share, and this is essentially without any profit split revenues in the period. The net interest was $155 million or around $2 million per share but more importantly, our normalized ordinary debt installments relating to the company's projects was more than $400 million or approximately $5 per share. We now have approximately $3.4 billion of net interest-bearing debt, and we continue our scheduled steep loan amortization. This amortization represents around 8-year profile to 0, and this compares to our weighted average age of the vessels of less than 5 years. So if we continue at this rate, we will then effectively be debt free when the vessels are, on average, just over 13 years old, while estimated commercial life is 25 to 35 years depending on asset class. The net contribution from our projects the last months after this very aggressive debt repayment profile was $118 million or $1.49 per share. And with that, I will leave the word over to Mr. Eirik Eide, our Chief Financial Officer, who will take you through the numbers for the third quarter.

Thank you, Ole. On Slide 9, we've shown our pro forma illustration of the cash flows for the quarter and compared this to the second quarter of 2011. Please note that this is only a guideline to assess the company's performance, and is not in accordance with U.S. GAAP. For the third quarter 2011, the company had an EBITDA, including profit share, of $169.7 million or $2.15 per share compared to $171 million or $2.16 per share for the second quarter 2011. For the VLCCs and the Suezmaxes, the revenues were in line with the second quarter despite the 0 profit share contribution from Frontline. For the chemical tankers, the revenues were in line with the second quarter and also for the container vessels, they were in line with the second quarter, showing revenues of $21.6 million compared to $21.2 million in the second quarter. For the dry bulk vessels, charter hire came in at $14.9 million compared to $16.1 million in the second quarter. The reduction is mainly due to the sale of the combination carriers Front Leader and Front Breaker, which both were sold during the second quarter. The 2 OBOs generated approximately $1.7 million per quarter of charter revenues per vessel. Now this reduction will be offset by deliveries of 2 newbuilding dry bulk vessels in Q3, one Handysize vessel which is chartered to the Hong Xiang Shipping Group and one Supramax which is chartered to Glovis. The Handysize vessel, SFL Spey, was delivered early in August and the Supramax vessel, SFL Kate, was delivered towards the end of August. These 2 vessels are expected to generate charter revenues of approximately $2.7 million per quarter in total, with full earnings from the fourth quarter of 2011. In addition, we've taken delivery of another Handysize vessel subsequent to quarter end, which will generate charter revenues of approximately $1.2 million per quarter going forward. On the offshore side, charter revenues came in at $107.5 million compared to $109 million in the second quarter. The variance is mainly due to loss of revenue from the drilling rig, West Prospero, which was sold to Seadrill towards the end of the second quarter. The vessel operating expenses were in line with the second quarter, but is expected to increase going forward as we take delivery of further dry bulk newbuildings. The profit share for the VLCCs was negative, with $1.6 million compared to the $2.4 million as of second quarter. The profit share for the year cannot be negative, but there's a risk that a part of the remaining amount may be reversed in the fourth quarter if we don't see an improvement in tanker market. So that gives us an overall EBITDA of $169.7 million for the quarter overall. Now moving on to the next slide. As we've described in previous earnings calls, our accounting statements are slightly different than those of a traditional shipping company due to the fact that our business strategy focuses on long-term charter contracts and as a result, a large part of our activities are classified as capital leasing. Therefore, a significant portion of our charter revenue is excluded from our book operating revenues and instead booked as revenues classified as repayment of investment in finance lease, results in associates on long-term investments and interest income from associates. Now if you wish to gain more understanding of our accounts, we have published a separate webcast which explains the finance lease accounting and investments in associates in more detail. This webcast can be viewed on our website, www.shipfinance.no. So overall for the quarter, we reported total operating revenues according to U.S. GAAP of $73.3 million. The profit share was negative with $1.6 million for the quarter, as mentioned on the previous slide. The accrued profit share for 2011 now stands at $0.8 million. We had a negative noncash mark to market of derivatives of $2.4 million in the quarter, and most of our interest rate hedges qualify for hedge accounting, which means that any mark-to-market movements are shown as movements of other comprehensive income under stockholders' equity in the balance sheet rather than on the profit and loss statement. However, a small portion of our hedges did not qualify for hedge accounting and this quarter, we had a negative mark to market related to certain of these interest rate swaps. So overall and according to U.S. GAAP, the company showed reported net income of $27.5 million or $0.35 per share for the quarter, or if you exclude the negative noncash mark to market of derivatives and the negative profit split, the adjusted net income was $31.4 million or $0.40 per share. Now moving onto the balance sheet. We show $81 million of cash at the end of the quarter. In addition to that, we have invested $23 million in short-term tradable securities as a short-term liquidity placement. Under the post newbuildings and vessel deposits, this has decreased from the second quarter since we've taken delivery of yet another 2 dry bulk newbuildings and this is, hence, also reflected in vessels and equipment, which is increasing quarter-on-quarter. The $50 million investment in the 2 CMA CGM vessels is booked under other long-term assets since this transaction is structured as a loan and we have a mortgage securing our investment. Stockholders' equity stands at just over $1 billion if we include the $169 million of deferred equity. The book equity ratio including deferred equity was 32% at the end of the quarter. So onto the cash flow statement. We show net cash flow from operating activities on the U.S. GAAP of $37.8 million in the third quarter. Under investing activities, the repayment of investment in finance lease of $24.1 million is part of the charter hire for those vessels that are subject to finance lease accounting in our consolidated subsidiaries. Under investing activities, we have paid in another $42.1 million of installments to the yards relating to our newbuilding program. The remaining scheduled payments are detailed in the table in the press release for your information. In addition on the financing activities, we have drawn down on debt related to some of our newbuildings and one existing container vessel of $44.5 million in total for this quarter. And then finally, we have purchased another $6.6 million of our bond maturing in 2013, and this was mentioned as a post quarter event on the earnings call for Q2. So as for today, approximately $274 million of the bond maturing in 2013 is now outstanding, which is approximately 8% of our overall total outstanding long-term debt. So as mentioned, the company had cash of $81 million at the end of the quarter, and this figure excludes approximately $23 million of liquid securities that we hold as a short-term liquidity placement. On the debt side, we had approximately $3.5 billion of total long-term debt, of which $2 billion is consolidated long-term debt and approximately $1.5 billion is long-term debt in our subsidiaries, which are accounted for as investments in associates. This includes the $82 million of unsecured bonds maturing in 2014, and it includes the $125 million of convertible bonds maturing in 2016, and it also includes the $274 million of unsecured bonds maturing in 2013. The convertible bonds can be repaid in shares in the company's option at maturity. As we have mentioned previously, we have now arranged long-term financing for all vessels under construction, with total commitments of up to $388 million. The leverage is in excess of 75% of contract price for each vessel, with maturities between 10 and 12 years. Now part of these facilities have already been drawn subsequent to the quarter end and hence, we have no refinancing needs in the near term. The next graph gives an update on the committed financing compared to the remaining shipyard installments for our newbuilding program. For the fourth quarter 2011, we have $58 million of remaining scheduled payments on our newbuildings while we can draw down $120 million of related financing, which means a potential cash positive effect of $62 million. In 2012, the payments are $78 million, while we can draw $94 million of related financing. And in 2013, we total have installments of $167 million with committed financing of $133 million. So overall for the period until 2013, this gives a positive cash effect of $44 million in total and in addition to this, we have drawn down $25 million of available long-term debt on an unfinanced container vessel, which puts the total positive liquidity effect to approximately $87 million in the fourth quarter of 2011. As of the third quarter, we're in compliance with all financial covenants under our loan agreements. Free cash was $81.2 million compared to the minimum requirement of $25 million. Working capital was $184.3 million compared to the requirement of being positive, and the book equity ratio was 32% compared to the minimum requirement of 20%. Asset values in the tanker sector have dropped significantly since the second quarter, as certain of our credit facilities have minimum value clauses which regulates the amount available compared to the underlying charter free values of the assets. We monitor the drawn amounts from these facilities accordingly. As for the third quarter, we have full access to all our credit facilities despite the recent reduction in tanker values. Most of these facilities are structured as revolving credit facilities which means that if we choose to prepay as a result of uncertainty around values, this may lead to lower or even 0 net installments in future quarters if values stabilize. Should values improve, these credit facilities can then be redrawn. And as Ole mentioned, the amortization schedule on our loan facilities related to the Frontline vessels is fairly steep, where we repay more than $100 million on an annual basis on these vessels alone. With the current scrap values, the outstanding debts would be equivalent to the scrap value within the next 2 to 3 years based on this repayment profile. And then to summarize for the first quarter 2011, the board has declared a quarterly cash dividend of $0.39 per share. This is a dividend yield of 14.6% based on the closing share price as of November 22. The quarterly adjusted net income of $31.4 million or $0.40 per share and an aggregate EBITDA of $169.7 million or $2.15 per share. We're taking delivery of newbuildings according to plan, and we have arranged long-term financing for all vessels under construction. In the current turbulent markets, we focus on portfolio management and close follow-up of our charters. And with that, I give the word back to the operator, who will open the line for any questions.

[Operator Instructions] Our first question today comes from Martin Korsvold from Pareto Securities. Martin Korsvold - Pareto Securities AS, Research Division: I was wondering if you could give us the number on the exact debts on your Frontline vessels at the end of the third quarter. Ole B. Hjertaker: The debt relating to the Frontline vessels at the end of the third quarter was approximately $750 million. Martin Korsvold - Pareto Securities AS, Research Division: And also, you were talking about $1 million clauses. We have seen some other companies reporting this season which have had to put up more liquid to stay in compliance. Some have also given the sensitivity on, say, another 10% downward movement in tanker values. Do you have a similar number which you could share with us? Ole B. Hjertaker: We have not made sort of specific sensitivity calculations. What we do have, of course, is a very steep amortization profile, so these are not, call it, flat revolving credits. We have amortization, quite significant amortization built into it. And also as we mentioned in the -- we have significant cash flow also coming out from the newbuilding program and as indicated in the press release, we intend in the near term to use this freed up liquidity to reduce drawn amounts on revolving credits. So we feel that we have an adequate buffer also for future drops in asset values. Martin Korsvold - Pareto Securities AS, Research Division: Okay. Last question, bank to market obviously difficult now with financing and asset values coming off in several asset classes. Can you talk a little bit about where you see growth opportunities for Ship Finance over the next year? Ole B. Hjertaker: I share your view that the whole financing market is struggling and this is not only within the shipping segment, I think it's across all sectors. We see the financial turbulence particularly in Europe, and that has an impact on all business development across the board. I think if you look at our position, we are a relatively big player in the market. We are working with a number of the banks. We have seen from time to time that some banks are more active than other banks and we believe that by our sheer size and our, call it, effective distribution across the different banks, we think we have better information and access than most other companies to access funding for new projects. We have seen that when we have discussed the potential new deals with banks relatively recently, that there is still significant interest on the banking side. But I think the banks will probably focus their attention on their bigger clients and call it their core clients, and I think it will be increasingly difficult for smaller players and typically, standalone project financing without any significant sponsors to access the financing market at least in the foreseeable future. This, of course, combined with a newbuilding order book where there is a good deal of funding that needs to take place could also, overtime, lead to very interesting opportunities for us if we have better access to capital.

Our next question today comes from Justine Fisher from Goldman Sachs. Justine Fisher - Goldman Sachs Group Inc., Research Division: The first question that I have is just in terms of uses of capital and bond repurchases. Obviously, if you guys -- you see -- you're keeping cash on hand, maybe if you have to make some payments for LTV covenants and your bank loans, but how -- where do the bonds stand in terms of the priority in buying those back given their near-term maturity date?

Well, the bond loan -- just for your information and to other participants, the bond loan started at $580 million back in 2003. It was a 10-year bond, so it matures in December 2013. And it is now down to -- with a net outstanding of $274 million. So we have repurchased a very significant amount of that loan already. It's still more than 2 years until maturity, but we can call the loan at anytime at par if we like to from here until maturity. We have not made any specific plans for that. We still think that there is ample time to maneuver. And also compared to our overall capital structure with the $3.4 billion of net interest-bearing debt, we believe that refinancing $274 million will be achievable also in a more difficult financing environment that we have seen recently. We have purchased some bonds selectively, but it's not part of a fixed program or with any specific percentages. And it's something we always will evaluate on an opportunistic basis along with other investment opportunities. Justine Fisher - Goldman Sachs Group Inc., Research Division: Have you been -- have any shareholders approached you to buy back stock given the dividend yield difference between where the bonds are costing you? Do you guys have a share repurchase program outstanding, or no?

We don't have an active share repurchase program outstanding. Justine Fisher - Goldman Sachs Group Inc., Research Division: Okay. And then just a question on Frontline. I'm going to try it, even though I know you said you couldn't make too many comments, but I think that a lot of people who are looking at the impact to Ship Finance feel somewhat uncertain about what the potential range of outcomes could be. Can you tell us what might even be on the table in terms of what you discussed with Frontline? Would it be an adjustment of the rates? Would it be an adjustment of cash costs? Would it involve cash lump sum payments upfront in order to make up the value of these charters? I mean if it's 20%, even 25% of your EBITDA, it sounds like it's $170 million or $180 million or so of cash flow, which is pretty significant. So can you at least tell us what may even be on the table? Ole B. Hjertaker: Yes. I mean, I'm sure there are many potential outcomes of this, and I said Frontline stated this is of course also -- if the current weak market or the weak market we've seen in the third quarter persists. I think it's worth noting from our side and we note that they did have around $190 million of cash as of the third quarter. And we've also seen the spot market that is recovering a little bit in the fourth quarter, but of course not in a major way. What the potential outcome could be? Is it would be pure speculation. I mean we have here an independent company. We have an independent Board and we would evaluate the situation with a view to take care of the long-term interest of our shareholders and stakeholders. And it's difficult to give any specific comments when it is still so early in the process on our part. Justine Fisher - Goldman Sachs Group Inc., Research Division: Is there anything that you would not accept given that you guys are coming at this from an independent standpoint? Is there an offer that Frontline might have that may be very advantageous to Frontline, but that Ship Finance simply will not accept or go that low on the rates or anything like that? Ole B. Hjertaker: Well, I think the agreements we have with Frontline is fixed. We have long-term charters in place, and they have no right to renegotiate anything. So any adjustments, if anything, will of course be on a voluntary basis from Ship Finance and will be based on an evaluation by the Board if it comes to that, where I'm sure they would look at the long-term opportunities also for the company. Frontline is a valued counterpart. We have enjoyed very significant cash flow from them over the years and on top of that, we've also received $500 million of profit split. Hopefully, the markets will recover down the road and there could be potential for also for future profit splits coming in future years. But you have, I'm sure, many moving parts in a situation like that. You have banks. You have shipyards and you have charters -- or vessel, call it, charters like us, who have chartered vessels to Frontline. And I'm sure everyone is looking for, call it, a full solution to the situation and not necessarily a piecemeal solution. I think one of the strengths, I would say -- and this is referring to the presentation by Frontline yesterday, there was also some statements by representatives of their main shareholder that there is support for Frontline going into -- going through these difficult times. And I think that is something -- generally, that is something that I think will distinguish, call it, stronger companies from weaker companies are the ones who's got proper backing by companies or individuals with, call it, significant wealth and those who have no backing like that. Justine Fisher - Goldman Sachs Group Inc., Research Division: Okay. And then sorry, one last question if I may. Can you just update us, please, on the Ship Finance situation? I know they discontinued the service -- sorry, the Horizon Lines situation. I know they discontinued the service that they were operating using the vessels that are chartered from you guys. And are they trying to return those vessels to you? What's the status of those ships? Ole B. Hjertaker: Well the status of the ships, they were chartered on 12-year charters and we are now approximately 5 years into those charters. They announced a financial restructuring, a significant financial restructuring which also provided good liquidity contribution to the company just 2 months ago. And they have also decided that due to the poor market and weak performance in their transpacific service to discontinue that service. So what's happened after that? They have to dry docked our vessels, which is also coincidental with their 5-year schedule, so timing for that was good. And to our knowledge, they are marketing those vessels for alternative charters. And that is all really all we can say. Say that they are performing on the charters, and that is the situation. Justine Fisher - Goldman Sachs Group Inc., Research Division: Can they put them back to you if they can't get charters that are good enough to cover what they owe you in terms of rates? Ole B. Hjertaker: They have no right to return the vessels to us. If so, it would be a voluntary situation from our side. I think that we just want to highlight also that these vessels, I mean we invested $70 million of equity into these vessels. There was $210 million of debt. They're all in nonrecourse subsidiaries, so they're not provided any corporate guarantees relating to these vessels. And the contribution from these vessels have been approximately $11 million per year after debt installments and interest. So you can say that well, of the $70 million we have invested we have, call it, effectively received around $55 million back on those. Of course, we do hope that they will -- that the company will manage to recharter those vessels and continue their charter hire to us.

Our next question today comes from Russ Oberhanks [ph] Jefferies & Co.

Most of my questions were asked. Just one more question. Are there any restrictions in your bond indenture or credit agreements that would preclude modifications in your contracts with Frontline? Ole B. Hjertaker: No. Not -- there's no restrictions in the bond indenture to our knowledge.

How about the credit agreements? Ole B. Hjertaker: No. We -- to our knowledge, there are no such restrictions in the bond indenture.

[Operator Instructions] From Pax World Funds, we will take our next question from Phyllis Camara.

Just a couple of questions, if you don't mind. You guys also have a contract, and I guess it's in your investment in associates with the CMA CGM. How is that transaction working? Because CMA CGM is a separate company and yet you're not affiliated with them. What's -- how do the vessel arrangement work with them? Ole B. Hjertaker: Well, I can answer that. We've also published -- if you look at the accounting webcast, I think we also touched upon that transaction in a bit more detail. But overall, the transaction is subject to a French tax lease. We have granted a $25 million loan per vessel, which is then invested from one of our subsidiaries and then that's secured by a third-party mortgage in each of the 2 container vessels. And then effectively, we are being paid an interest rate overall per quarter. And I think we've also said in previous statements that, that transaction generates about $7 million of cash flow on an annual basis. So looking at sort of effectively a 15% yield on that investment on an annual basis.

Okay. And I assume that CMA CGM, they're having -- they're sort of in a distressed situation, it seems like. Are you having any talks with them about anything? Any kind of a renegotiation of that contract or anything with what's going on? Ole B. Hjertaker: No, we haven't. And I think the reason for that is that this is also a fairly accretive transaction for CMA CGM, so we don't think it's potentially -- that would be something that they would be looking at. And overall if you look at the total exposure that we have outstanding against those vessels, if you sort of aggregate our debt and the other senior secured debts on those vessels, I think the total exposure as of the year end is roughly $109 million per vessel, which is far below the charter-free market value that we've seen recently. So there's a fairly significant net present value benefit for the company under the French tax lease and that's why we think they will stand.

Okay. So if something did happen to them, you think if you needed to take back those vessels, you wouldn't have any problems. Ole B. Hjertaker: Yes. No, I don't think so. Because if you look at the net outstanding of $108 million or to $109 million as of the end of the year, I mean you could easily recharter that vessel or sell it. The market value is significantly above the $109 million.

Okay, excellent. In dealing with them, with the financing of your new vessels, your newbuilds have you seen, in talking to the banks, have any of their terms changed? Or are they getting more restrictive on covenants that they're requiring or anything like that? Ole B. Hjertaker: What we've seen when we have financed vessels is that banks -- and this goes back to a year or so when we also did the dry bulk vessels -- was that the terms that the banks were offering -- I would say all -- essentially similar type of terms, in terms of when we're looking at leverage, et cetera, but on much lower values. So from a bank's perspective, their relative exposure is also lower. So if you finance 75% to 80%, say you want for the bulker, the bulkers used to be $60 million in 2008. We acquired them at a little over $30 million. So a bank -- so the bank's financing on those assets of course at 80%. If a bank exposure -- and our deal is, of course, much, much more comfortable from the bank's side. And if we look at also the other deals that we've done recently, the financing relating to the newbuildings, they are typically longer in maturity than we've seen in the past, and they have covenant structure without minimum value clauses and other features and we think there will be good and long-term funding on those assets.

And then last question, I guess. Looking to follow-ups with some of what Justine was asking about with Frontline. I hate to beat a dead horse, but what would you consider like the worst-case scenario? Would that be if Frontline did file for bankruptcy and put all their vessels back to you? Do you have kind of a worst-case scenario and what you could do about it? Ole B. Hjertaker: You shouldn't speculate too much around that. I mean we own the assets. The assets, although the market, the spot market is weak, there's still a chartering market there that is available. If you look at the Clarksons' reports and what they report now for tankers, they -- the period's tank market is higher. For instance for crude oil tankers, while the spot market may now be in, say, in the sort of mid-20s as they report, you'll see a 3-year market around those levels and 1-year market around $20,000 per day. So you could say that well if something like that should happen, at least we own the assets. We can recharter them, and there's also a cash deposit, as I mentioned, of around -- of $2 million per vessels that we, of course, that we have pledged to us and then, of course, we have an access to. But we do, of course, expect that Frontline will manage to navigate through this and that there will be a solution and also long-term solution that is beneficial both for them and for their older stakeholders.

Our next question today comes from Herman Hildan from RS Platou Markets. Herman Hildan - RS Platou Markets AS, Research Division: I have a question to Ole, when we talked a couple of months back, where you presented your solutions to Frontline where you basically reshuffled the lease payments and given the right terms increase over time you would increase your dividend yield potential, though short term, obviously. The question is how you're going to bridge that if such a scenario is presented as a part of their structure on Frontline. And I'm wondering, are you currently in discussion with banks in terms of amending the steep amortization profile on the debt that you have so that the net outcome for you would not be cash negative if you were to give Frontline some breathing space over the next couple of years? Ole B. Hjertaker: Well as I said, we are -- it's still at an early stage. So far, we've only had some initial discussions. We've not had any formal requests by Frontline, and we have not made any requests to the banks relating to these financings. And also, as I mentioned earlier, the financing has been taken down very significantly over the last 5, 6 years and only with the amortization, scheduled amortization that is in place there, we're talking about 2 to 3 years until we're down at scrap levels. But apart from that, I cannot comment anything on what potential amendments could be, if any. Herman Hildan - RS Platou Markets AS, Research Division: Okay. And also I was wondering -- I mean for example, Seadrill has couple or you own a couple of the Seadrill rigs that -- where they have a call option on the vessels substantially below the market value. Has there been any indications that Seadrill will buy back any other rigs which effectively would give you more liquidity? Or I mean are you looking at the ways that you could increase your liquidity position to allow more buffer in terms of flexibility with Frontline? Ole B. Hjertaker: Well, I mean we are very happy with the Seadrill charters. We have 3 deepwater rigs. They are generating very significant cash flow for us and effectively yielding around 15% annually on around $150 million per rig in equity investment. They did have a purchase option for one of the rigs in October -- sorry, in this November, but they did not exercise that. The next option for one of the units is in October 2012. Then, there is one in November 2014 and one in February 2015. So we are -- as I said, we are very happy with those. We will also pay down the charter, pay down the loans related to those assets very significantly. So we believe we have a very comfortable, call it, asset exposure on those units. Herman Hildan - RS Platou Markets AS, Research Division: Sure. Kind of as a last maybe somewhat annoying or stupid question, I mean, because obviously the current situation that you are in with Frontline, the financing to be voluntary for Ship Finance. That would mean higher dividends, you're positive over time. But will you kind of allow dividends to be lower short-term in exchange for longer-term higher dividends? Or can you give some indications on whether we -- how you think about that? Ole B. Hjertaker: Well the dividend, as we have always communicated to the market, the dividend is set by the Board quarter-by-quarter. What we have seen in the past is that the dividends typically have been stable and/or increasing. But we, as management, cannot give any guiding on what the Board may view as appropriate dividends going forward. So it's impossible for us to answer that question.

Our next question comes from Adam France from 1492 Capital Management. Adam M. France - 1492 Capital Management, LLC: Guys, could you maybe put out some more detail. If I understand it, looking at Frontline's documents, the 17 VLCCs that you have with them, 10 are on time charter. Are those 10 what you referred to as the ships that have been rechartered at higher rates? And are those charters running through 2012 so the issue is really 7 ships in the spot market? And then walk through the Suezmaxes as well. Ole B. Hjertaker: Well, we have chartered these vessels on a fixed-rate agreement to Frontline, and we have -- and we do receive a profit split if and when the charter revenues -- and we're talking for the calendar year -- is above the base rates. Over time -- and this is going back to 2004, 2005. Over time, we have received more than $500 million in profit split. We have no -- we cannot direct the Frontline to charter vessels specifically, and we do not have necessarily direct access to their day-to-day chartering operations. What we can read out of their press releases and their reports is that they have very, for instance, very high charter rate or sort of a high time charter coverage on the OBOs or combination carriers, and we know those vessels -- we own all the vessels they have in that segment. And as they reported in this -- and for the fourth quarter, they guided 95% utilization and 43,800 time charter rate. If we look at the other assets, we do not know whether those vessels are vessels they have chartered from us or vessels they own themselves or chartered from others. They have roughly as many vessels owned and chartered in from others as they have chartered in from Ship Finance. Adam M. France - 1492 Capital Management, LLC: Okay. So you cannot isolate the 10 on time -- the 10 ships that you have that Frontline has on time charter? Ole B. Hjertaker: Yes. I'm not aware of 10 vessels. But our relationship with Frontline is that we charter them to Frontline and then Frontline charter them, those vessels in the market. And... Adam M. France - 1492 Capital Management, LLC: But you can't see they're in charters, I guess? Because historically, every conference call you've spoken that a number of the ships that you've chartered to Frontline or rechartered at above market rates. I'm just curious have of all those charters expired and that's adding to the problem or are those good through 2012. Or is that -- what you're saying is that you just can't see that? Ole B. Hjertaker: Well, we can see that for the segments where they predominantly have vessels chartered from us such as the OBOs or combination carriers, where we see 95% time charter coverage in the fourth quarter and we see 56% coverage in 2012. And those levels are significantly above the base rates. Adam M. France - 1492 Capital Management, LLC: Okay. I'm just doing some quick math here. As I calculate it, Mr. Fredriksen's stake in your company is now worth about 4.5x his stake in Frontline. So hold your ground, fellows, I think you're in a good negotiating spot here.

Our next question today comes from Dan Wertz [ph] from JPMorgan.

A couple of questions. You mentioned there was $750 million of debt against the Frontline vessels. What interest rate is that? And what is the actual amortization schedule per year for the next couple of years, please? Ole B. Hjertaker: Yes. Average interest rate for those vessels and this is including interest rate swaps that we have attached to several of them, I would say are probably around 4%, approximately. The amortization schedule is quite steep. As we mentioned, we have more than $100 million loan amortization relating to those assets per year.

And is there anything in the documentation -- is there any recourse back on those loans to anything else within the company, whether it be the rig debt or whether it be at the corporate level? Or are they non-recourse the rest of the company? Ole B. Hjertaker: Well the, call it, the tank, the frontline assets are, you can say, a part of the original structure in Frontline -- no, sorry, in Ship Finance. So the tanker loans are all with -- or effectively guarantee from Ship Finance International Limited. There is no specific recourse to any of the other assets linked to the -- there is no recourse from these financings to other assets in our portfolio.

And last on that, the $56 million cash collateral you hold, does that sit on your balance sheet or Frontline's balance sheet? Ole B. Hjertaker: That sits on Frontline's balance sheet, and most of that has been, call it, pledged to us and we have pledged it on to our banks. So it's not something that they can eat into. If you remember, we did change the structure with Frontline 1.5 years ago where we changed that from a deposit which they could use actively if there was a shortfall in the market to a fixed deposit that cannot be reduced.

And lastly on that, if the values of the Frontline vessels, if they're charter free, are they, in your view, in excess of the $750 million debt. Ole B. Hjertaker: Yes, there was good excess as of the third quarter, which is the latest valuations we have.

When you say, a good access, is that kind of 10%, 20%? Ole B. Hjertaker: I would say more than that.

Our next question today comes from Paul Sage, [ph] individual investor.

Excuse me, my question was answered already.

Our next question today comes from Robert Suzarra [ph] from RE Suzarra Associates [ph].

I appreciate very much your aggressive amortization of debt. I'm kind of curious why -- with Europe hanging in the balance on its debt issues, its sovereign debt issues and what they would do to general business levels, et cetera, why the board doesn't say, "Okay, let's take a holiday on the dividend and pay down the debt even more aggressively," to put you in a stronger position yet for the longer haul, which is what we're really interested in as investors, is your long-haul survival, et cetera? Ole B. Hjertaker: Yes, absolutely. And I'm sure the Board in their deliberations are also very focused on the long-term sustainability, of course, of the company. I think a strength we have right now is, of course, that through the financing of the newbuilding program, because we have paid in so much cash already, there is a very significant, call it, net cash contribution to us when we now have secured financing and as indicated, around $90 million in the fourth quarter alone. And as indicated also in the press release in the near term, the plan is to use those amounts to effectively reduce drawn amounts and create, call it, an extra buffer due -- and this is, of course also based on the, call it, higher market volatility, you can call it, in the current market, an uncertainty compared to previous periods. The dividend is also in line with the adjusted result for the quarter, and all our charterers are performing as of current. So the board felt it was appropriate to pay that dividend when we have this extra, call it, also -- when we also had this extra liquidity cash.

Yes, how many shares outstanding are there for Ship Finance that you're putting out on the $0.39 a share? Ole B. Hjertaker: It's around 79 million shares.

So that's good chunk of cash that's going out the door then. And you feel that confident...

But we also have a very significant cash flow in the company after the debt amortization.

Okay, well, I appreciate the dividend. I just want to see the long-term survival increased.

[Operator Instructions] Our next question comes from Oly Gerard [ph] from Insight Investments.

Just a quick one on your cash collateral. You said that it's on Frontline balance sheet. In the event of a bankruptcy, how does that rank, please? Unsecured, is that correct? Ole B. Hjertaker: Well the deposit, as I mentioned, the deposit, most of the deposit has been pledged to us and is in a blocked account.

Yes, but is it secured? Ole B. Hjertaker: What do you mean by secured?

Well, is that a secured pledge? Ole B. Hjertaker: The cash is sitting in the account, and we have a pledge over the cash in that account, so that is secured.

All right. So you have a senior secured claim on that cash. Ole B. Hjertaker: Yes.

As there are no further questions in the queue, that will conclude today's question-and-answer session. I would now like to turn the call back for any additional or closing remarks. Ole B. Hjertaker: Thank you. I would then like to take the opportunity to thank everyone for participating in our third quarter conference call and wish everyone a nice day. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.