NOTE M -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 $7.3 million in the aggregate for all of our contracts as of December 31, 2014. The unrealized loss related to the Company’s derivative instruments included in accumulated other comprehensive income (loss) was $3.7 million and $4.3 million as of December 31, 2014 and 2013, respectively (See Note T – Accumulated Other Comprehensive Loss).

The notional and fair value amounts of our derivative instruments as of December 31, 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*	$	37,593		$	-	Other Liabilities	$	(3,021)
Foreign Exchange Contracts		3,232			-	Current Liabilities	$	(298)
Foreign Exchange Contracts		28,219			-	Other Liabilities		(4,029)
Total Derivatives designated as hedging instruments	$	69,044		$	-		$	($7,348)

*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 $37.6 million (based on a Yen to USD exchange rate of 119.72 as of December 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 was a $132,000 gain for the year ended December 31, 2014 and this amount was included in earnings. The fair value balance as of December 31, 2014, includes a negative $412,000 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, 2013 were as follows:



			Asset Derivatives			Liability Derivatives
			2013			2013
		Current Notional	Balance Sheet		Fair Value	Balance Sheet		Fair Value
(All Amounts in Thousands)		Amount	Location			Location
Interest Rate Swaps - L/T*	$	46,713		$	-	Other Liabilities	$	(3,724)
Foreign Exchange Contracts		1,800	Current Assets		39			-
Foreign Exchange Contracts		33,164			-	Other Liabilities		(748)
Total Derivatives designated as hedging instruments	$	81,677		$	39		$	(4,472)

*We had 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, included a negative $659,000 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 consolidated statement of income for the year ended December 31, 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	$	818	Interest Expense	$	1,351	$	132
Foreign Exchange Contracts		(204)	Other Revenues		196		-
Total	$	614		$	1,547	$	132

* Other Comprehensive (Loss) Income
**Accumulated Other Comprehensive Loss

The effect of derivative instruments designated as cash flow hedges on our consolidated statement of income for the year ended December 31, 2013 were 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	$	(1,655)	$	(438)
Foreign Exchange Contracts		135	Other Revenues		(134)		-
Total	$	3,073		$	(1,789)	$	(438)

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 the 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, 2014, the Company has the following swap contract outstanding:


(All Amounts in Thousands)
Effective	Termination		Current
Date	Date		Notional Amount*	Swap Rate		Type

3/15/2009	9/15/2020	$	37,593	2.065	%	Variable-to-Fixed

*Notional Amount converted from Yen at December 31, 2014 at a Yen to USD exchange rate of 119.72.

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, except for the Yen contract (see below). Accordingly, the effective portion of the change in fair value is recorded in Other Comprehensive Income (Loss).

In 2014, we entered into three forward purchase contract for Mexican Pesos, which expire in December 2015, two for $900,000 U.S. Dollar equivalents at an exchange rate of 13.6007 and 13.7503, and another for $600,000 U.S. Dollar equivalents at an exchange rate of 14.1934. Our Mexican Peso foreign exchange contracts cover 85% 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 pay off 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 with the change in fair value recorded in earnings.

The following table summarizes these contracts:


(All Amounts in Thousands)
Transaction Date	Type of Currency		Amount Available in Dollars	Effective Date	Expiration Date
May-14	Yen	$	832	May-14	Mar-15
May-14	Yen		28,219	Jan-15	Dec-15
Sep-14	Peso		900	Jan-15	Dec-15
Oct-14	Peso		900	Jan-15	Dec-15
Dec-14	Peso		600	Jan-15	Dec-15
		$	31,451

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 $244.5 million as of December 31, 2014.

Notes Receivables

The carrying amount, $29.3 million, of the notes receivables approximated fair market value as of December 31, 2014. The majority of our note receivables balance relates to a loan to PT Amas from the sale of two vessels and has a remaining balance of $27.7 million at 7% interest annually at year end December 31, 2014. 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 years ended December 31, 2014 and 2013, we held no marketable securities.