Derivative Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments [Abstract]

Derivative Instruments

NOTE 12 – 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 a liability of $107,000 in the aggregate for all of our contracts as of September 30, 2015 (see table below). As of March 31, 2015, we expected to refinance our Yen-based credit facility with a U.S. dollar facility.  Interest payable under the Yen-based loan was fixed after we entered into a variable-to-fixed interest rate swap in 2009.  Due to our determination at March 31, 2015 that it was more likely than not that the Yen-based loan would be refinanced, we classified the interest rate swap as completely ineffective at March 31, 2015.  As a result, we recorded at such time a $2.8 million charge to derivative loss on our Condensed Consolidated Statement of Operations with the offset to other comprehensive loss.  In April 2015, we refinanced our Yen-based facility with a USD-based facility and paid approximately $2.9 million to settle our related interest rate swap.  At December 31, 2014, we had a derivative liability of $3.0 million, which was recorded in other liabilities (long-term) on the Condensed Consolidated Balance Sheet as it related to this interest rate swap.The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss, net of taxes, was $0.4 million and $3.7 million as of September 30, 2015 and December 31, 2014, respectively.  As of September 30, 2015, we were no longer party to any interest rate swap agreements with the exception of our minority interest ownership in Oslo Bulk, AS, which is a party to one agreement.

We routinely evaluate our preferred equity instruments, to determine whether the derivative feature embedded in the hybrid instruments should be bifurcated and accounted for separately.  Based on the fact that we elected to defer our cumulative preferred dividend payments in October 2015 and penalties apply if we miss more than one payment, we determined that (i) the penalty structure embedded within our preferred equity instruments was required to be bifurcated and (ii) a liability existed at September 30, 2015.  In determining the appropriate fair value, we calculated the present value of the potential penalties and estimated the probability of the occurrence. The range of probable outcomes was $80,000 to $730,000. At September 30, 2015, we recorded a $0.2 million embedded derivative, which was recorded in both current and long term liabilities on the Condensed Consolidated Balance Sheet at September 30, 2015.  We intend to adjust this liability to reflect fair value at the end of each reporting period.  Any increase or decrease in the fair value from inception will be made quarterly and will be recorded in interest expense in the Condensed Consolidated Statement of Operations.  See Note 16- Stockholders’ Equity for additional information on the deferral of our preferred stock dividends. 

The notional and fair value amounts of our derivative instruments as of September 30, 2015 were as follows:

(All Amounts in Thousands)			Liability Derivatives
	Current Notional		Balance Sheet	Fair
	Amount		Location	Value
Foreign Exchange Contracts	$	600	Current Liabilities	$	(107)
Embedded Derivative	$	-	Current Liabilities	$	(135)
Embedded Derivative	$	-	Other Long Term Liabilities	$	(67)

The effect of derivative instruments designated as cash flow hedges on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015 were as follows:

(All Amounts in Thousands)			Location of	Amount of		Gain (Loss)
	Gain (Loss)		Gain (Loss)	Gain (Loss)		Recognized in
	Recognized		Reclassified from	Reclassified from		Income from
	in OCI*		AOCI** to Income	AOCI to Income		Ineffective Portion
Interest Rate Swaps	$	338	Interest Expense	$	484	$	(132)
De-Designation of Interest Rate Swaps		2,859			-		(2,859)
Foreign Exchange Contracts		73	Other Revenues		327		-
Total	$	3,270		$	811	$	(2,991)

*Other Comprehensive (Loss) Income

**Accumulated Other Comprehensive Income

Foreign Currency Contracts 

From time to time, we enter into foreign exchange contracts to hedge certain firm foreign currency purchase commitments.  During 2014, we entered into three forward purchase contracts for Mexican Pesos, which expire in December 2015, two for $900,000 U.S. Dollar equivalents at an average exchange rate of 13.6007 and 13.7503, respectively, and another for $600,000 U.S. Dollar equivalents at an exchange rate of 14.1934.  Our Mexican Peso foreign exchange contracts cover approximately 85% of our projected Peso exposure. 

In April of 2015, we paid approximately $4.0 million to settle our foreign forward exchange contract in connection with the refinancing of our Yen-based facility to a USD-based facility.  This cash payment was reflected as a financing activity on the Condensed Consolidated Statement of Cash Flows since the instrument was acquired in connection with the Yen-based debt facility.  At December 31, 2014, we had a derivative liability of $4.0 million, which was recorded in other liabilities (long-term), and $0.1 million, which was recorded in current liabilities, on the Condensed Consolidated Balance Sheet as it related to this contract. 

The following table summarizes the remaining notional values as of September 30, 2015, of these contracts: 

(All Amounts in Thousands)
			Amount Available
Transaction Date	Type of Currency		in Dollars	Effective Date	Expiration Date
Sep-14	Peso	$	225	Jan-15	Dec-15
Oct-14	Peso		225	Jan-15	Dec-15
Dec-14	Peso		150	Jan-15	Dec-15
		$	600