Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments [Abstract]

Derivative Instruments

Note 10.  Derivative Instruments

We use derivative instruments from time to time 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 $5.4 million in the aggregate for all of our contracts as of September 30, 2014.  The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss, net of taxes, was $3.9 million and $4.3 million as of September 30, 2014 and December 31, 2013, respectively.  

The notional and fair value amounts of our derivative instruments as of September 30, 2014 were as follows:

			Asset Derivatives			Liability Derivatives
			2014			2014
		Current Notional	Balance Sheet		Fair Value	Balance Sheet		Fair Value
(All Amounts in Thousands)		Amount	Location			Location
Interest Rate Swaps - L/T*	$	42,000		$	-	Other Liabilities	$	(5,262)
Foreign Exchange Contracts		31,231	Other Current Assets		7	Current Liabilities	$	(115)
Total Derivatives designated as hedging instruments	$	73,231		$	7		$	($5,377)

*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 $42.0 million (based on a Yen to USD exchange rate of 109.65 as of September 30, 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 third quarter of 2014 as an $89,000 gain. The fair value balance as of September 30, 2014, includes a negative $461,000 balance related to an interest rate swap associated with 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 nine months ended September 30, 2014 were as follows:

		Gain(Loss) Recognized in OCI*	Location of Gain(Loss) Reclassified from AOCL** to Income		Amount of Gain(Loss) Reclassified from AOCL to Income		Gain/(Loss) Recognized in Income from Ineffective portion
(All Amounts in Thousands)		2014			2014		2014
Interest Rate Swaps	$	446	Interest Expense	$	1,048	$	57
Foreign Exchange Contracts		(24)	Other Revenues		116		-
Total	$	422		$	1,164	$	57
*  Other Comprehensive (Loss) Income
**Accumulated Other Comprehensive Loss

Interest Rate Swap Agreements

From time to time, we enter into interest rate swap agreements to manage well-defined interest rate risks. We record the fair value of the interest rate swap 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 September 30, 2014, we had the following interest rate swap contract outstanding:

(All Amounts in Thousands)
Effective	Termination		Current
Date	Date		Notional Amount*	Swap Rate		Type
3/15/2009	9/15/2020	$	42,000	2.065	%	Variable-to-Fixed

*Notional amount converted from Yen at September 30, 2014 at a Yen to USD exchange rate of 109.65.

Foreign Currency Contracts 

From time to time, 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 December 2014.  The first was for Mexican Pesos of$1.2 million U.S. Dollar equivalents at an exchange rate of 13.6103 and the second was for Mexican Pesos of$600,000 U.S. Dollar equivalents at an exchange rate of 13.3003.  In September 2014, we entered into a new forward purchase contract for Mexican Pesos, which expire in December 2015, for $900,000 U.S. Dollar equivalents at an exchange rate of 13.6007.  Our Mexican Peso foreign exchange contracts cover 25% of our projected Peso exposure. 

In December 2013, we entered into three forward foreign exchange contracts totaling approximately 3.3 billion Yen 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 was exercised in March 2014 and one was exercised in June 2014.  The remaining July contract for 3.1 billion Yen was rolled forward under four contracts, one which expired in September 2014, two which coincide to the next two scheduled quarterly loan installments on December 2014 and March 2015 of approximately 85 million Yen each, and the remaining 2.885 billion Yen mature in April 2015.  These remaining contracts allow us to limit our exposure to currency fluctuations. 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.  These particular forward foreign exchange contracts do not qualify for hedge accounting treatment and are thus accounted for as economic hedges.

The following table summarizes the current notional values as of September 30, 2014, of these contracts: 

(All Amounts in Thousands)
Transaction Date	Type of Currency		Amount Available in Dollars	Effective Date	Expiration Date
Aug-13	Peso	$	300	Jan-14	Dec-14
Nov-13	Peso		150	Jan-14	Dec-14
May-14	Yen		831	May-14	Dec-14
May-14	Yen		831	May-14	Mar-15
May-14	Yen		28,219	Jan-15	Dec-15
Sep-14	Peso		900	Jan-15	Dec-15
		$	31,231