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Leases
12 Months Ended
Dec. 31, 2014
Leases [Abstract]  
Leases

NOTE O  - LEASES

 

Direct Financing Leases

 

In the first quarter of 2013, an Addendum was executed to the Time Charter of one of our PCTCs which, in part, extended the Time Charter for a further period of time.  Because this Addendum was substantive, we reassessed the Time Charter classification resulting in the Time Charter being reclassified from a direct financing lease to an operating lease. The book value of the asset as of  June 30, 2013 was $16.2 million and is now presented in the Vessel, Property, and Other Equipment, section of the balance sheet and is being depreciated over the remaining estimated useful life of the vessel.

 

Sale and Leaseback Transactions

 

On June 15, 2012, we negotiated the early buy-out of the operating lease related to our Molten-Sulphur Carrier. On November 27, 2012, we sold this vessel to BMO Harris Equipment Finance Company for approximately $32.0 million cash and commenced a seven-year lease agreement with an early buy-out option that can be exercised in 2017.  This lease is classified as an operating lease, with the $8.0 million gain on this sale-leaseback being deferred and recognized over the term of the lease. Also on November 27, 2012 we sold a 1998-built PCTC to CapitalSource Bank for approximately $31.0 million cash and commenced a six-year lease agreement with an early buy-out option that can be exercised in 2017.  This lease is classified as an operating lease, with the $11.7 million gain on this sale-leaseback being deferred and recognized over the term of the lease. The Company used the net proceeds of approximately $63.0 million from the November 27, 2012 transactions to finance a portion of the purchase price for the Company’s acquisition of UOS, which was completed on November 30, 2012.

 

On December 27, 2012, we sold a 1999-built PCTC to BB&T Equipment Finance for $32.0 million cash and commenced a six-year lease agreement with an early buy-out option that can be exercised in 2015 and again in 2018.  This lease is classified as an operating lease.

 

Early Lease Buy-Out

 

On February 22, 2012, we completed a sale and leaseback transaction with Wells Fargo Bank Northwest, National Association, of our 2007-built PCTC.  The transaction generated gross proceeds of $59.0 million, which we used to pay down debt of $54.5 million. We are leasing the vessel back under a ten year lease agreement with early buyout options that can be exercised in 2017 and 2019.  This lease is classified as an operating lease, with the $14.9 million gain on this sale-leaseback being deferred and recognized over the term of the lease.  On August 26, 2014, we determined that it was preferential under current market conditions to buy back this vessel with the intent to reflag this vessel to International flag in anticipation of deploying the vessel at a higher operating margin later in 2014.  We reached an agreement with the lessor to repurchase the vessel for $55.6 million and recorded the remaining unamortized deferred gain of $11.2 million as a reduction in the cost basis of the purchased asset.

 

In conjunction with the acquisition of UOS in November 2012, we acquired the rights to various vessels, including a Tug/Barge unit leased to UOS through December 2013. At the end of the lease term, the acquired lease provided UOS with a purchase option permitting UOS to purchase both the tug and barge. Prior to the closing of the acquisition, UOS exercised the purchase option through a legally binding agreement. We acquired the lease agreement as part of the acquisition of UOS, including the binding purchase commitment, and were therefore obligated to purchase the unit. On September 25, 2013, we concluded the purchase of the Tug/Barge unit.

 

We will continue to operate all of the aforementioned leased vessels under their respective charters and contract of affreightment arrangements. Annual rent payments due under the new lease agreements can be found in the table below.

 

Our operating lease agreements have fair value renewal options and fair value purchase options.  Most of the agreements impose defined minimum working capital and net worth requirements, impose restrictions on the payment of dividends, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined.

 

Office Leases

 

In late 2014, we signed an eighteen month lease agreement for office space in the Pan American Life Center in New Orleans, Louisiana.  This temporary office space will hold our employees until the completion of our New Orleans corporate office building.

 

The Mobile corporate office lease, which commenced on April 1, 2007, has a twenty year term, with early lease termination available in years 10 or 15, with periodic graduating payments that are accounted for on a straight line basis. We incurred $730,000 in leasehold improvements and were provided with incentives in the amount of $1.4 million, both of which are amortized over the life of the lease with the incentives amortized as a credit to rent expense.   We plan to vacate this office space sometime in early 2016 and if we cannot sublease our space we may incur a potential cash outlay of approximately $3.1 million.

 

In October 2008, we renewed our lease agreement on the New York office space under a ten year term with the first nine months as free rent and includes periodic graduating payments. The rent expense is amortized on a straight line basis over the term of the lease. In addition, we incurred $503,000 in leasehold improvements which are amortized over the life of the lease.

 

As part of our acquisition of UOS, we acquired a lease for our Tampa office space and a warehouse, the warehouse lease expires in December 2015.    On September 19, 2013, we executed a five year lease agreement for office space in Tampa, Florida.  These offices serve the employees of UOS and are located in the same building as the previous UOS lease agreements. The lease calls for graduated payments which are straight-lined over the 60 month term of the lease.

 

In addition to the Tampa office, we signed a new two year lease agreement for our Shanghai, China office space. This lease is effective October 1, 2013 through September 30, 2015.

 

In addition to those operating leases with terms expiring after December 31, 2014, we also operated certain vessels under short-term time charters during 2014.

 

Rent expense related to all of our operating leases totaled approximately $21.1 million, $20.0 million,  and $11.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The following is a schedule, by year, of future minimum payments required under operating leases that have initial non-cancelable terms in excess of one year as of December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Under Operating Leases

(All Amounts in Thousands)

 

Vessels

 

Other Leases

 

Total

Year Ended December 31,

2015 

$

12,499 

 

$

1,632 

 

$

14,131 

 

2016 

 

12,499 

 

 

1,428 

 

 

13,927 

 

2017 

 

12,500 

 

 

1,361 

 

 

13,861 

 

2018 

 

11,735 

 

 

1,048 

 

 

12,783 

 

2019 

 

2,842 

 

 

666 

 

 

3,508 

 

Thereafter

 

 -

 

 

3,187 

 

 

3,187 

Total Future Minimum Payments

 

$

52,075 

 

$

9,322 

 

$

61,397