NOTE P – LEASES

In 2012, we commenced three sale/leaseback transactions, which we classified as operating leases, as follows: (i) we sold our molten-sulphur carrier and commenced a seven-year lease agreement with an early buy-out option that can be exercised in 2017 with the resulting $8.0 million gain being deferred and recognized by approximately $1.2 million each year over the term of the lease, (ii) we sold our 1998-built PCTC and commenced a six-year lease agreement with an early buy-out option that can be exercised in 2017 with the resulting $11.7 million gain being deferred and recognized by approximately $1.9 million each year over the term of the lease, and (iii) we sold our 1999-built PCTC and commenced a six-year lease agreement with an early buy-out option that can be exercised in 2018. As of December 31, 2015, the unamortized balance of the deferred gain on the molten-sulphur carrier and 1998-built PCTC were approximately $4.6 million and $5.7 million, respectively.

As of December 31, 2015, we held two container vessels and two multi-purpose vessels under operating contracts. Additionally, we held seven vessels under bareboat charter or lease agreements, which included the molten-sulphur carrier in our Jones Act segment and two pure car truck carriers discussed above, and two tankers and two multi-purpose heavy lift dry cargo vessels in our Specialty Contracts segment.

Three of these lease agreements impose certain financial covenants, including defined minimum working capital and net worth requirements, and prohibit us from incurring, without the lessor’s prior written consent, additional debt or lease obligations, subject to certain specified exceptions. These financial covenants are generally similar, but not identical, to the above-described financial covenants set forth in the Credit Facility. See Note F – Debt Obligations. Additionally, our vessel operating lease agreements have early buy-out options and fair value purchase options that enable us to purchase the vessels under certain specified circumstances. In the event that we default under any of our operating lease agreements, we may be forced to buy back the three vessels for a stipulated loss value of approximately $73.5 million. As of November 16, 2015, we reached separate agreements with each of our lessors to extend their waivers through March 31, 2016 and to provide relief from testing compliance of most of these covenants until June 30, 2016. As of December 31, 2015, we concluded the fair market value of these vessels exceeded the stipulated loss value; as such, if we were required to buy back these vessels, we would not have a loss from an embedded derivative.

In 2014, we determined that it was preferential under current market conditions to buy back our 2007-built PCTC, which we were operating under a sale leaseback transaction with Wells Fargo Bank Northwest, National Association, with the intent to reflag this vessel to International flag in anticipation of deploying the vessel at a higher operating margin. 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.

We intend to operate all of the aforementioned leased vessels under their respective charters and contract of affreightment arrangements.

In addition to those operating leases with terms expiring after December 31, 2015, we also operated certain vessels under short-term time charters during 2015.

We also conduct certain of our operations from leased office facilities. In 2013, we executed a five year lease agreement for office space in Tampa, Florida housing our UOS employees. The lease calls for graduated payments in equal amounts over the 60-month term of the lease. In addition to the Tampa office, we have a month to month lease agreement for our Shanghai, China office space.

We are in the process of relocating our corporate headquarters from Mobile, Alabama to New Orleans, Louisiana. We expect the transition to be completed by the second quarter of 2017. As such, we accelerated the depreciation expense on the leasehold improvements in Mobile by approximately $0.9 million and we estimate that we will be committed to pay up to approximately $2.7 million for the early cancelation of this lease. We received two grants from the State of Louisiana of approximately $5.2 million and $5.1 million, which will partially offset costs related to the New Orleans office building and other relocation expenses, respectively. In connection with the Strategic Plan, at December 31, 2015, we had stopped construction of the New Orleans office building and it was classified as an Asset Held for Sale. In late 2014, we signed an eighteen month lease agreement for office space in New Orleans.

Expense related to all of our operating leases totaled approximately $19.7 million and $21.1 million for the years ended December 31, 2015 and 2014, 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, 2015:



(All Amounts in Thousands)
	Payments under Operating Leases
Years Ended December 31,	Vessels		Other Leases		Total
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
2020		-		678		678
Thereafter		-		4,792		4,792
Total Future Minimum Payments	$	39,576	$	9,973	$	49,549