NOTE R -FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND MARKETABLE SECURITIES

We use derivative instruments to manage certain foreign currency exposures and interest rate exposures. The Company does 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 the Company’s 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 mergers, without exception. The remedy for default is settlement in entirety or payment of the fair value of the contracts, which is $4.5 million in the aggregate for all of our contracts as of December 31, 2013. The unrealized loss related to the Company’s derivative instruments included in accumulated other comprehensive income (loss) was $4.3 million and $7.4 million as of December 31, 2013 and 2012, respectively (See Note U – Accumulated Other Comprehensive Loss).

The notional and fair value amounts of our derivative instruments as of December 31, 2013 were as follows:



			Asset Derivatives			Liability Derivatives
(All Amounts in Thousands)			2013			2013
		Current Notional	Balance Sheet		Fair Value	Balance Sheet		Fair Value
As of December 31, 2013		Amount	Location			Location
Interest Rate Swaps - L/T*	$	46,713		$	-	Other Liabilities	$	(3,724)
Foreign Exchange Contracts		1,800	Current Assets		39	Current Liabilities		(748)
Total Derivatives designated as hedging instruments	$	48,513		$	39		$	(4,472)

*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 approximately $46.7 million (based on a Yen to USD exchange rate of 105.31 as of December 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 $362,000 gain for the year ended December 31, 2013 and this amount was included in earnings. The fair value balance as of December 31, 2013, includes a negative $659,000 balance related to an interest rate swap from our 25% investment in Oslo Bulk AS.

The notional and fair value amounts of our derivative instruments as of December 31, 2012 were as follows:


			Asset Derivatives			Liability Derivatives
(All Amounts in Thousands)			2012			2012
		Current Notional	Balance Sheet		Fair Value	Balance Sheet		Fair Value
As of December 31, 2012		Amount	Location			Location
Interest Rate Swaps - L/T*	$	74,207		$	-	Other Liabilities	$	(7,683)
Foreign Exchange Contracts		1,700	Current Assets		147
Foreign Exchange Contracts		6,000			-	Current Liabilities		(257)
Total Derivatives designated as hedging instruments	$	81,907		$	147		$	(7,940)

*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 approximately $61.5 million (based on a Yen to USD exchange rate of 86.74 as of December 31, 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 $87,000 gain for the year ended December 31, 2012 and this amount was included in earnings. We paid down this facility in January 2012 in an amount of Yen 686,318,979 to bring our Asset Maintenance Loan to Value Facility requirement in line. The fair value balance as of December 31, 2012, includes a negative $1.0 million balance related to an interest rate swap from our 25% investment in Oslo Bulk AS. Also included in earnings is a $571,000 loss, related to the early pay-off of loans relating to two of our Pure Car Truck Carriers that were part of our recent Sale Leasebacks.

The effect of derivative instruments designated as cash flow hedges on our consolidated statement of income for the year ended December 31, 2013 is as follows:



(All Amounts in Thousands)		Gain Recognized in OCI	Location of Gain(Loss) Reclassified from AOCI to Income		Amount of (Loss) Reclassified from AOCI to Income		(Loss) Recognized in Income from Ineffective portion
		2013			2013		2013
Interest Rate Swaps	$	2,938	Interest Expense	$	(1,656)	$	(438)
Foreign Exchange Contracts		135	Other Revenues		(134)		-
Total	$	3,073		$	(1,789)	$	(438)

The effect of derivative instruments designated as cash flow hedges on our consolidated statement of income for the year ended December 31, 2012 is as follows:


(All Amounts in Thousands)		Gain(Loss) Recognized in OCI	Location of Gain(Loss) Reclassified from AOCI to Income		Amount of (Loss) Reclassified from AOCI to Income		(Loss) Recognized in Income from Ineffective portion
		2012			2012		2012
Interest Rate Swaps	$	1,486	Interest Expense	$	(3,106)	$	(485)
Foreign Exchange Contracts		(243)	Other Revenues		(180)		-
Total	$	1,243		$	(3,286)	$	(485)

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

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. The Company’s interest rate swaps are accounted for as effective cash flow hedges with the exception of a small portion of one contract. Accordingly, the effective portion of the change in fair value of the swap is recorded in Other Comprehensive Income (Loss) while the ineffective portion is recorded to the earnings in the period of change in fair value. As of December 31, 2013, the Company has the following swap contract outstanding:



Effective	Termination	Current
Date	Date	Notional Amount	Swap Rate		Type

3/15/2009	9/15/2020	$ 46,712,880	2.065	%	Variable-to-Fixed

*Notional Amount converted from Yen at December 31, 2013 at a Yen to USD exchange rate of 105.31.

Foreign Currency Contracts

We enter into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. The term of the currency contracts is rarely more than one year. Our foreign currency contracts are accounted for as effective cash flow hedges. Accordingly, the effective portion of the change in fair value is recorded in Other Comprehensive Income (Loss).

During 2013, we entered into two forward purchase contracts for Mexican Pesos which expire in 2014. The first was for Mexican Pesos for $1.2 million U.S. Dollar equivalents at an exchange rate of 13.6103 and the second was for Mexican Pesos for $600,000 U.S. Dollar equivalents at an exchange rate of 13.3003. Our foreign exchange contracts represent approximately 60% of our projected Mexican Peso exposure. There were no forward sales contracts as of December 31, 2013 or 2012.

In early December 2013, we entered into three forward foreign exchange contracts totaling approximately Yen 3.3 billion in order to to limit our exposure to currency fluctuations and to provide us with the option to fully payoff our current Yen Facility at an approximate exchange rate of 102.53 to $1.00. These contracts and related agreements with the current lender give us the option to convert the Yen Facility into a USD-based Facility with the current lender at this fixed exchange rate, but otherwise on the same terms and with the same collateral. As of the date of this report, we have not yet decided if or when to exercise this loan conversion option. This particular forward foreign exchange contract does not qualify for hedge accounting treatment and is thus accounted for as an economic hedge.

The following table summarizes these contracts (All Amounts in Thousands):



Transaction Date	Type of Currency		Amount Available in Dollars	Effective Date	Expiration Date
Aug-13	Peso	$	1,200	Jan-14	Dec-14
Nov-13	Peso		600	Jan-14	Dec-14
Dec-13	Yen		1,268	Mar-14	Mar-14
Dec-13	Yen		1,269	Jun-14	Jun-14
Dec-13	Yen		30,628	Jul-14	Jul-14
		$	34,965

Long-Term Debt

The fair value of long-term debt, which is calculated based on the current rates offered to us versus current market rates on our outstanding obligations, is approximately $196.6 million as of December 31, 2013.

Amounts Due from Related Parties

The carrying amount, $33.7 million, of the notes receivable approximated fair market value as of December 31, 2013. Fair market value takes into consideration the current rates at which similar notes would be made.

Marketable Securities

In the fourth quarter of 2012, we sold our entire portfolio of corporate bonds and mutual funds, generating a gain of $447,000, which is included in the $580,000 gain reported on our Income Statement, under the heading (Gain) Loss on Sale of Investments. For the year ended December 31, 2013, we held no marketable securities.