Derivative Instruments

12 Months Ended

Dec. 31, 2015

Derivative Instruments [Abstract]

Derivative Instruments

NOTE O –DERIVATIVE INSTRUMENTS

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 Consolidated 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 loss, 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. The unrealized loss related to our derivative instruments included in accumulated other comprehensive loss was $3.7 million as of December 31, 2014. As of December 31, 2015, we did not have any outstanding derivative instruments in accumulated other comprehensive loss.

The notional and fair value amounts of our derivative instruments as of December 31, 2015 were as follows:

(All Amounts in Thousands)			Liability Derivatives
	Current Notional		Balance Sheet	Fair
	Amount		Location	Value
Embedded Derivative	$	-	Current Liabilities	$	(1,040)
Embedded Derivative		-	Other Long Term Liabilities		(121)

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

(All Amounts in Thousands)			Liability Derivatives
	Current Notional		Balance Sheet	Fair
	Amount		Location	Value
Interest Rate Swaps - Long-Term	$	37,593	Other Long Term Liabilities	$	(3,021)
Foreign Exchange Contracts		3,232	Current Liabilities		(298)
Foreign Exchange Contracts		28,219	Other Long Term Liabilities		(4,029)

The effect of derivative instruments designated as cash flow hedges on our Consolidated Statement of Operations for the year ended December 31, 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	$	626	Interest Expense	$	484	$	(132)
De-Designation of Interest Rate Swaps		2,859			-		(2,859)
Foreign Exchange Contracts		180	Other Revenues		425		-
Total	$	3,665		$	909	$	(2,991)

The effect of derivative instruments designated as cash flow hedges on our Consolidated Statement of Operations for the year ended December 31, 2014 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	$	818	Interest Expense	$	1,351	$	132
Foreign Exchange Contracts		(204)	Other Revenues		196		-
Total	$	614		$	1,547	$	132

* Other Comprehensive Income (Loss)

** Accumulated Other Comprehensive Income (Loss)

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:

Embedded Derivatives

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 December 31, 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 $0.8 million to $1.5 million. At December 31, 2015, we recorded a $1.2 million embedded derivative, of which $1.1 million was recorded in current liabilities and $0.1 million was recorded in long-term liabilities on the Consolidated Balance Sheet at December 31, 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 Consolidated Statement of Operations. See Note T – Capital Stock for additional information on the deferral of our preferred stock dividends.

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 our Consolidated Balance Sheet. We account for our interest rate swaps as effective cash flow hedges. Accordingly, the effective portion of the change in fair value of the swap is recorded in other comprehensive loss on the Consolidated Balance Sheet while the ineffective portion is recorded to derivative gain or loss on the Consolidated Statement of Operations in the period of change in fair value.

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 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 Consolidated Balance Sheet as it related to this interest rate swap.

At December 31, 2014, accumulated other comprehensive loss included approximately $412,000 which was related to an interest rate swap from our 25% investment in Oslo Bulk AS.  This interest rate swap was settled during 2015. As of December 31, 2015, we were no longer party to any interest rate swap agreements.

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 expired 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.

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 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 Consolidated Balance Sheet as it related to this contract.