Derivative Instruments

3 Months Ended

Mar. 31, 2016

Derivative Instruments [Abstract]

Derivative Instruments

NOTE 14 – 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. As of March 31, 2016 and December 31, 2015, we did not have any outstanding derivative instruments in accumulated other comprehensive loss.

Embedded Derivative

We routinely evaluate our preferred equity instruments to determine whether the penalty interest component embedded therein should be bifurcated and accounted for separately.  Based on the fact that we have not paid our cumulative preferred dividend payments each quarter since October 2015 and have incurred penalties in the form of higher dividend accruals as a result of missing 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 March 31, 2016.  In determining the appropriate fair value of this liability, we calculated the present value of potential future penalties and estimated the probability of the occurrence. The range of probable outcomes was $1.8 million to $4.9 million. At March 31, 2016, we determined that the fair value of the liability of this embedded derivative was  $2.6 million, which we recorded in both current and long term liabilities on the Condensed Consolidated Balance Sheet at March 31, 2016.  We reflected the increase in the fair value of this liability since December 31, 2015 as a derivative loss for the quarter ended March 31, 2016. We intend to continue to adjust this liability to reflect fair value at the end of each subsequent reporting period.  Any increase or decrease in the fair value from inception will be made quarterly and will be recorded as a derivative (gain) loss in our Condensed Consolidated Statements of Operations.  See Note 17- Stockholders’ Equity for additional information on our preferred stock dividends. 

The notional and fair value amounts of our derivative instruments as of March 31, 2016 were as follows:

(All Amounts in Thousands)			Liability Derivatives
	Current Notional		Balance Sheet	Fair
	Amount		Location	Value
Embedded Derivative	$	-	Current Liabilities	$	(2,417)
Embedded Derivative	$	-	Other Long Term Liabilities	$	(183)

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)

Interest Rate Swap Agreements and Foreign Currency Contracts

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 Condensed 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 Condensed Consolidated Balance Sheet while the ineffective portion is recorded to derivative gain or loss on the Condensed Consolidated Statement of Operations in the period of change in fair value.

Additionally, from time to time, we enter into foreign exchange contracts to hedge certain firm foreign currency purchase commitments. During 2015, we were party to 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.

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 entered into a new loan agreement with DVB Bank SE in the amount of $32.0 million by refinancing our 2010 built PCTC. We received the loan proceeds on April 24, 2015 and applied them as follows: (i) $24.0 million to pay off the outstanding Yen-based facility in the amount of 2.9 billion Yen, (ii) $4.0 million to settle the related Yen forward contract, and (iii) $2.9 million to settle a Yen-denominated interest rate swap. As a result of the early debt payoff, we recorded a loss on extinguishment of debt of approximately $0.3 million during the second quarter of 2015.

Under the new DVB loan agreement, interest was, prior to a recent loan amendment, payable at a fixed rate of 4.16% with the principal being paid quarterly over a five-year term based on a ten-year amortization schedule with a final quarterly balloon payment of $16.8 million due on April 22, 2020.  Our 2010-built foreign flag PCTC along with customary assignment of earnings and insurances were pledged as security for the facility.  Additionally, we capitalized approximately $0.6 million in loan costs associated with the DVB Bank loan, which we amortized over the remaining life of the loan.  On November 4, 2015, this loan agreement was materially amended. Prior to December 31, 2015, we finalized the sale of the underlying 2010 built PCTC and extinguished the related debt. Refer to Note F – Debt Obligations and Note O – Derivative Instruments of our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information.

The effect of derivative instruments designated as cash flow hedges on our Condensed Consolidated Statement of Operations for the three months ended March 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	$	243	Interest Expense	$	484	$	49
De-Designation of Interest Rate Swaps		2,859			-		(2,859)
Foreign Exchange Contracts		(3)	Other Revenues		99		-
Total	$	3,099		$	583	$	(2,810)

*Other Comprehensive (Loss) Income

**Accumulated Other Comprehensive Income