Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments [Abstract]

Derivative Instruments

Note 14.  Derivative Instruments

We use derivative instruments to manage certain foreign currency and interest rate risk exposures. We do not use derivative instruments for speculative trading purposes.  All derivative instruments are recorded on the balance sheet at fair value.  For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is recorded to other comprehensive income and is reclassified to earnings when the derivative instrument is settled.  Any ineffective portion of changes in the fair value of the derivative is reported in earnings.  None of our derivative contracts contain credit-risk related contingent features that would require us to settle the contract upon the occurrence of such contingency.  However, all of our contracts contain clauses specifying events of default under specified circumstances, including failure to pay or deliver, breach of agreement, default under the specific agreement to which the hedge relates, bankruptcy, misrepresentation and the occurrence of certain transactions.  The remedy for default is settlement in entirety or payment of the fair value of the contracts, which is $8.4 million in the aggregate for all of our contracts, with $261,000 of posted collateral as of September 30, 2012.  The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss, net of taxes was $8.7 million as of September 30, 2012 and $8.6 million as of December 31, 2011.

The notional and fair value amounts of our derivative instruments as of September 30, 2012 were as follows:

(Amounts in thousands)			Asset Derivatives				Liability Derivatives
	Current Notional		Balance Sheet		Fair Value		Balance Sheet		Fair Value
	Amount		Location				Location
Interest Rate Swaps - S/T	$	35,583		N/A		-	Current Liabilities		$	(634	)
Interest Rate Swaps - L/T*	$	83,174		N/A		N/A	Other Liabilities		$	(7,799	)
Foreign Exchange Contracts	$	3,644	Other Current Assets		$	172		N/A		N/A
Foreign Exchange Contracts	$	1,125		N/A			Current Liabilities		$	(34	)
Total Derivatives Designated as Hedging Instruments	$	123,526		-	$	172		-	$	(8,467	)

*We have outstanding a variable-to-fixed interest rate swap with respect to a Yen-based facility for the financing of a PCTC delivered in March 2010.   The notional amount under this contract is $69,840,455 (based on a Yen to USD exchange rate of 77.93 as of September 30, 2012).  With the bank exercising its option to reduce the underlying Yen loan from 80% to 65% funding of the vessel's delivery cost, the 15% reduction represents the ineffective portion of this swap, which consists of the portion of the derivative instrument that is no longer supported by underlying borrowings.  The change in fair value related to the ineffective portion of this swap was a $129,000 loss for the quarter ended September 30, 2012 and this amount was reflected in earnings.

In July of 2011, Oslo Bulk, an entity in which we hold a 25% ownership interest and account for under the equity method, entered into an interest rate swap agreement to mitigate is exposure to fluctuating interest rates.  We were unsuccessful in obtaining adequate documentation and reaching a conclusion on the effectiveness of the swap prior to filing both our Annual Report on Form 10-K for the year ended December 31, 2011 and Form 10-Q for the first quarter of 2012.  Therefore, we accounted for the swap as if it were ineffective, recognizing the losses incurred in earnings under the caption "Equity in Net (Loss) Income of Unconsolidated Entities."

Oslo Bulk's 2011 financial statement audit was completed in the second quarter of 2012 and their auditors concluded that the swap did, in fact, meet all of the criteria for hedge accounting at its inception.  As a result of this information, we corrected the prior year ineffectiveness of approximately $674,000 during the three months ended June 30, 2012.  See Note 17 (Out of Period Adjustments) for further details. The swap was properly accounted for in the three months ended September 30, 2012.

The effect of derivative instruments designated as cash flow hedges on our condensed consolidated statements of income for the nine months ended September 30, 2012 was as follows:

(Amounts in thousands)	Net Gain / (Loss) Recognized in Other Comprehensive Income			Location of Gain (Loss) Reclassified from AOCI to Income		(Loss) Reclassified from AOCI to Income			(Loss) Recognized in Income from Ineffective portion
	2012					2012			2012
Interest Rate Swaps	$	(84	)	Interest Expense		$	(853	)	$	(97	)
Foreign Exchange contracts	$	5		Voyage Expenses		$	(43	)	$	-
Total	$	(79	)		-	$	(896	)	$	(97	)

Interest Rate Swap Agreements

We enter into interest rate swap agreements to manage well-defined interest rate risks. The Company records the fair value of the interest rate swaps as an asset or liability on its balance sheet. Currently, each of our interest rate swaps is accounted for as an effective cash flow hedge.  Accordingly, the effective portion of the change in fair value of the swap is recorded in Other Comprehensive Income.

As of September 30, 2012, we had the following swap contracts outstanding:

Effective Date	Termination Date	Current Notional Amount		Swap Rate			Type
11/30/05	11/30/12	$	11,795,000		5.17	%	Fixed
3/31/08	9/30/13	$	7,929,333		3.46	%	Fixed
9/30/10	9/30/13	$	7,929,333		2.69	%	Fixed
9/30/10	9/30/13	$	7,929,333		2.45	%	Fixed
9/26/05	9/28/15	$	6,666,667		4.41	%	Fixed
9/26/05	9/28/15	$	6,666,667		4.41	%	Fixed
3/15/09	9/15/20	$	*69,840,455		2.065	%	Fixed
Total:		$	118,756,788

*Notional amount converted from Yen at September 30, 2012 at a Yen to USD exchange rate of 77.93

Foreign Exchange Rate Risk.

We have entered into foreign exchange contracts to hedge certain firm foreign currency purchase commitments.  In 2011, we entered into three forward purchase contracts which expire in 2012. The first was for Mexican Pesos for $1,200,000 U.S. Dollar equivalents at an exchange rate of 12.4717, the second was for Mexican Pesos for $450,000 U.S. Dollar equivalents at an exchange rate of 13.036 and the third was for Mexican Pesos for $750,000 U.S. Dollar equivalents at an exchange rate of 14.0292. In 2012, we entered into three forward purchase contracts which expire in 2013. The first was for Mexican Pesos for $750,000 U.S. Dollar equivalents at an exchange rate of 13.7787, the second was for Mexican Pesos for $250,000 U.S. Dollar equivalents at an exchange rate of 14.2939 and the third was for Mexican Pesos for $700,000 U.S. Dollar equivalents at an exchange rate of 14.5700.  Our Mexican Peso foreign exchange contracts represent 61.3% of our projected Peso exposure.

In May 2012, we entered into a forward purchase contract which expires in 2012. The contract was for Indonesian Rupiah for $2,100,000 U.S. Dollar equivalents at an exchange rate of 9315.  Our Indonesian Rupiah foreign exchange contracts represent approximately 66% of our projected Rupiah exposure.

 In August, 2012 we entered into a forward purchase contract which expires in 2012. The contract was for Japanese Yen for $1,569,024 U.S. Dollar equivalents at an exchange rate of 79.03. Our Japanese Yen foreign exchange contract represent approximately 3.27% of our projected Yen exposure.

The following table summarizes the notional value of these contracts:

Transaction Date	Type of Currency	Transaction Amount in Dollars		Fair Value of Contracts - Asset (Liability)			Effective Date	Expiration Date
August 2011	Peso	$	225,000	$	(3,504	)	September 2011	December 2012
September 2011	Peso	$	225,000		2,918		July 2012	December 2012
September 2011	Peso	$	150,000		15,396		October 2011	December 2012
May 2012	Peso	$	750,000		40,434		January 2013	May 2013
May 2012	Peso	$	250,000		23,330		January 2013	May 2013
May 2012	Peso	$	700,000		66,330		June 2013	December 2013
May 2012	Rupiah	$	900,000		(30,177	)	July 2012	December 2012
August 2012	Yen	$	1,569,024		23,414		August 2012	December 2012
		$	4,769,024	$	138,141