Derivative Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments [Abstract]

Derivative Instruments

Note 13.  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, 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 $6.2 million in the aggregate for all of our contracts, with $469,500 of posted collateral as of March 31, 2013. The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss, net of taxes, was $6.8 million as of March 31, 2013 and $7.4 million as of December 31, 2012.

The notional and fair value amounts of our derivative instruments as of March 31, 2013 were as follows (in thousands):

		Asset Derivatives		Liability Derivatives
		2013		2013
	Current Notional	Balance Sheet	Fair Value	Balance Sheet	Fair Value
As of March 31, 2013	Amount	Location		Location
Interest Rate Swaps - L/T*	$67,544			Other Liabilities	($6,143)
Foreign Exchange Contracts	$3,800	Other Assets	$177
Foreign Exchange Contracts	$3,000			Current Liabilities	($281)
Total Derivatives designated as hedging instruments	$74,344		$177		($6,424)

*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 $55,543,763 (based on a Yen to USD exchange rate of 94.22 as of March 31, 2013). 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 $77,000 gain for the quarter ended March 31, 2013 and this amount was reflected in earnings.

The effect of derivative instruments designated as cash flow hedges on our condensed consolidated statement of income for the three months ended March 31, 2013 was as follows:

	Gain(Loss) Recognized in OCI	Location of Gain(Loss) Reclassified from AOCI to Income	Amount of Gain(Loss) Reclassified from AOCI to Income	Gain (Loss) Recognized in Income from Ineffective portion
Year Ended March 31, 2013	2013		2013	2013
Interest Rate Swaps	$542	Interest Expense	($478)	$77
Foreign Exchange contracts	$5	Other Revenues	$29	$0
Total	$547	-	($449)	$77

Interest Rate Swap Agreements

We enter into interest rate swap agreements to manage well-defined interest rate risks. We record 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 March 31, 2013, we had the following swap contracts outstanding:

Effective Date	Termination Date	Current Notional Amount	Swap Rate	Type
9/26/05	9/28/15	$ 6,000,000	4.41%	Variable-to-Fixed
9/26/05	9/28/15	$ 6,000,000	4.41%	Variable-to-Fixed
3/15/09	9/15/20	*$ 55,543,763	2.065%	Variable-to-Fixed
Total:		$ 67,543,763

*Notional amount converted from Yen at March 31, 2013 at a Yen to USD exchange rate of 94.22

Foreign Exchange Rate Risk

In May 2012, we entered into three foreign exchange contracts to hedge certain firm foreign currency purchase commitments. 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 50% of our projected Peso exposure.

In December, 2012 we entered into two forward purchase Yen contracts which expire in 2013. The first contract was for Japanese Yen for $1.5 million U.S. Dollar equivalents at an exchange rate of 85.27 which expires in September, 2013 and the second was for Japanese Yen for $1.5 million U.S. Dollar equivalents at an exchange rate of 85.16 which expires in December, 2013. Our Japanese Yen foreign exchange contract represents approximately 7.93% of our projected Yen exposure.

In January, 2013, we entered into a forward purchase Indonesian Rupiah contract which expires in 2013. The contract was for $3,300,000 U.S. Dollar equivalents at an exchange rate of 9910. Our Indonesian Rupiah foreign exchange contract represents approximately 80% of our projected Rupiah exposure.

The following table summarizes the notional current values as of March 31, 2013, of these contracts:

(Amounts in Thousands)
Transaction Date	Type of Currency	Amount Available in Dollars	Effective Date	Expiration Date
May 2012	Peso	$300	January 2013	May 2013
May 2012	Peso	$100	January 2013	May 2013
May 2012	Peso	$700	June 2013	December 2013
December 2012	Yen	$1,500	December 2012	September 2013
December 2012	Yen	$1,500	December 2012	December 2013
January 2013	Rupiah	$2,700	January 2013	December 2013
		$6,800