Derivative Instruments

3 Months Ended

Mar. 31, 2014

Derivative Instruments [Abstract]

Derivative Instruments

Note 9.  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 through other comprehensive income and 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 was $4.0 million in the aggregate for all of our contracts as of March 31, 2014.  The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss, net of taxes, was $4.3 million as of March 31, 2014 and $4.3 million as of December 31, 2013.

The notional and fair value amounts of our derivative instruments as of March 31, 2014 were as follows:

			Asset Derivatives			Liability Derivatives
			2014			2014
		Current Notional	Balance Sheet		Fair Value	Balance Sheet		Fair Value
(Amounts in Thousands)		Amount	Location			Location
Interest Rate Swaps - L/T*	$	46,640		$	-	Other Liabilities	$	(3,801)
Foreign Exchange Contracts		450	Other Current Assets		6			-
Foreign Exchange Contracts		900	Other Assets		32	Other Liabilities		(183)
Foreign Exchange Contracts		31,897			-	Current Liabilities		(9)
Total Derivatives designated as hedging instruments	$	79,887		$	38		$	(3,993)

*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 $46.6 million (based on a Yen to USD exchange rate of 103.23 as of March 31, 2014).  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 is reflected in our statement of income (loss) for the first quarter of 2014 as a $14,000 loss. The fair value balance as of March 31, 2014, includes a negative $588,000 balance related to an interest rate swap from our 25% investment in Oslo Bulk AS.

The effect of derivative instruments designated as cash flow hedges on our condensed consolidated statement of income (loss) for the three months ended March 31, 2014 were 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
(Amounts in Thousands)		2014			2014		2014
Interest Rate Swaps	$	9	Interest Expense	$	341	$	(14)
Foreign Exchange Contracts		-	Other Revenues		131		-
Total	$	9		$	472	$	(14)
*  Other Comprehensive Income
**Accumulated Other Comprehensive Income

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 the balance sheet. Currently, our interest rate swap is accounted for as an effective cash flow hedge 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).

As of March 31, 2014, we had the following interest rate swap contract outstanding (amount in thousands):

Effective	Termination		Current
Date	Date		Notional Amount*	Swap Rate		Type
3/15/2009	9/15/2020	$	46,640	2.065	%	Variable-to-Fixed
Total:		$	46,640

*Notional amount converted from Yen at March 31, 2014 at a Yen to USD exchange rate of 103.23

Foreign Currency Contracts 

We enter into foreign exchange contracts to hedge certain firm foreign currency purchase commitments.  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 Mexican Peso foreign exchange contracts cover 60% of our projected Peso exposure.  There were no forward sales contracts as of March 31, 2014.

In December 2013 we entered into three forward foreign exchange contracts totaling approximately Yen 3.3 billion in order 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.  One of these contracts expired in March 2014.  These remaining 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 the notional current values as of March 31, 2014, of these contracts: 

(Amounts in Thousands)
Transaction Date	Type of Currency		Amount Available in Dollars	Effective Date	Expiration Date
Nov-13	Peso	$	450	Jan-14	Dec-14
Dec-13	Yen		1,269	Dec-13	Jun-14
Dec-13	Yen		30,628	Dec-13	Jul-14
Aug-13	Peso		900	Jan-14	Dec-14
		$	33,247