Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The following table presents the fair value and balance sheet classification of our derivative instruments that were designated as hedging instruments (in thousands): 

	December 31,
	2015			2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Asset Derivatives:
Interest rate swaps	Other assets, net	$	413	Other assets, net	$	369
		$	413		$	369
Liability Derivatives:
Foreign exchange contracts	Accrued liabilities	$	14,955	Accrued liabilities	$	12,661
Interest rate swaps	Accrued liabilities	1,473		Accrued liabilities	561
Foreign exchange contracts	Other non-current liabilities	28,458		Other non-current liabilities	37,767
		$	44,886		$	50,989

The following table presents the fair value and balance sheet classification of our derivative instruments that were not designated as hedging instruments (in thousands): 

	December 31,
	2015			2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Liability Derivatives:
Foreign exchange contracts	Accrued liabilities	$	6,763	Accrued liabilities	$	—
Foreign exchange contracts	Other non-current liabilities	11,251		Other non-current liabilities	—
		$	18,014		$	—

As a result of the announcement in December 2012 of the sale of ERT, we de-designated all of our then remaining oil and gas derivative contracts and our then existing interest rate swaps as hedging instruments. In February 2013, we cash settled all of these commodity derivative contracts and interest rate swap contracts.

In January 2013, we entered into foreign currency exchange contracts to hedge through September 2017 the foreign currency exposure associated with the Grand Canyon charter payments ($104.6 million) denominated in Norwegian kroner (NOK591.3 million). In February 2013, we entered into similar foreign currency exchange contracts to hedge our foreign currency exposure with respect to the Grand Canyon II and Grand Canyon III charter payments ($100.4 million and $98.8 million, respectively) denominated in Norwegian kroner (NOK594.7 million and NOK595.0 million, respectively), through July 2019 and February 2020, respectively.

During renegotiations on the Grand Canyon, the Grand Canyon II and the Grand Canyon III charters, it became apparent in December 2015 that a portion of previously forecasted charter payments in NOK would no longer be made. We concluded that the foreign currency exchange contracts associated with the charter payments for the Grand Canyon II and the Grand Canyon III vessels no longer qualified for hedge accounting treatment. As a result, we de-designated these hedges and re-designated the hedging relationship between a portion of our foreign currency exchange contracts and our forecasted Grand Canyon II and Grand Canyon III charter payments of NOK434.1 million and NOK185.2 million, respectively, that were expected to remain highly probable of occurring. We recognized unrealized losses of $18.0 million related to the foreign currency exchange contracts associated with the portion of previously forecasted charter payments that would no longer be made. These unrealized losses are reflected in “Other income (expense), net” in the accompanying consolidated statement of operations. As of December 31, 2015, our Accumulated OCI (net of tax) included unrealized losses of $19.8 million associated with the re-designated foreign currency exchange contracts that qualify for hedge accounting treatment.

Hedge ineffectiveness is reflected in “Other income (expense), net” in the accompanying consolidated statement of operations. For the year ended December 31, 2015, we recorded realized losses of $3.6 million related to the Grand Canyon II and Grand Canyon III hedge ineffectiveness and unrealized losses of $1.5 million related to the Grand Canyon hedge ineffectiveness. For the year ended December 31, 2014, we recorded realized losses of $0.5 million and unrealized losses of $1.2 million related to the Grand Canyon II hedge ineffectiveness. Ineffectiveness associated with our cash flow hedges was immaterial for the year ended December 31, 2013.

In September 2013, we entered into various interest rate swap contracts to fix the interest rate on $148.1 million of our Term Loan borrowings (Note 7). These contracts, which are settled monthly, began in October 2013 and extend through October 2016. Additionally, in June 2015 we entered into various interest rate swap contracts to fix the interest rate on $187.5 million of our Nordea Q5000 Loan borrowings (Note 7). These swap contracts, which are settled monthly, began in June 2015 and extend through April 2020. Our interest rate swap contracts qualify for cash flow hedge accounting treatment.

The following tables present the impact that derivative instruments designated as cash flow hedges had on our Accumulated OCI (net of tax) and our consolidated statements of operations (in thousands). We estimate that as of December 31, 2015, $9.6 million of losses in Accumulated OCI associated with our derivatives is expected to be reclassified into earnings within the next 12 months.

	Gain (Loss) Recognized in OCI on Derivatives, Net of Tax (Effective Portion)
	Year Ended December 31,
	2015			2014			2013
Foreign exchange contracts	$	4,734		$	(22,170	)	$	(9,796	)
Interest rate swaps	(534		)	70			(195		)
	$	4,200		$	(22,100	)	$	(9,991	)

	Location of Loss Reclassified from Accumulated OCI into Earnings	Loss Reclassified from Accumulated OCI into Earnings (Effective Portion)
		Year Ended December 31,
		2015			2014			2013
Foreign exchange contracts	Cost of sales	$	(11,516	)	$	(2,507	)	$	(1,324	)
Interest rate swaps	Net interest expense	(2,143		)	(858		)	(152		)
		$	(13,659	)	$	(3,365	)	$	(1,476	)

The following table presents the impact that derivative instruments not designated as hedges had on our consolidated statement of operations (in thousands): 

	Location of Gain (Loss) Recognized in Earnings on Derivatives	Gain (Loss) Recognized in Earnings on Derivatives
		Year Ended December 31,
		2015			2014		2013
Oil and gas commodity contracts	Loss on commodity derivative contracts	$	—		$	—	$	(14,113	)
Interest rate swaps	Other income (expense), net	—			—		(86		)
Foreign exchange contracts	Other income (expense), net	(18,014		)	7		(630		)
		$	(18,014	)	$	7	$	(14,829	)