Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments And Hedging Strategies

v3.5.0.2
Derivative Instruments And Hedging Strategies
9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments And Hedging Strategies
DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
Derivative instruments are classified as either assets or liabilities based on their individual fair values. The fair values of the Company’s derivative instruments as of September 30, 2016 were as follows (in thousands):
 
Derivative
Asset(1)
 
Derivative
Liability(2)
Derivatives designated as hedging instruments:
 
 
 
Forward currency exchange contracts (fair value hedges)
$

 
$
150

Interest rate swap agreements (cash flow hedges)

 
229

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Exchange option liability on subsidiary convertible senior notes

 
8,938

Forward currency exchange, option and future contracts

 
102

Exchange traded commodity swap, option and future contracts
51

 
1,479

 
$
51

 
$
10,898

______________________
(1)
Included in other receivables in the accompanying condensed consolidated balance sheets.
(2)
Included in other current liabilities in the accompanying condensed consolidated balance sheets, except for the exchange option liability on subsidiary convertible senior notes.
Fair Value Hedges. From time to time, the Company may designate certain of its foreign currency exchange contracts as fair value hedges in respect of capital commitments denominated in foreign currencies. By entering into these foreign currency exchange contracts, the Company may fix a portion of its capital commitments denominated in foreign currencies in U.S. dollars to protect against currency fluctuations. As of September 30, 2016, the Company had euro denominated forward currency exchange contracts with an aggregate U.S. dollar equivalent of $9.7 million related to offshore support vessels scheduled to be delivered in 2017. During the nine months ended September 30, 2016, the fair value of these contracts decreased by $0.2 million and was included as an increase to the corresponding hedged equipment included in construction in progress in the accompanying condensed consolidated balance sheets.
Cash Flow Hedges. The Company and certain of the Company’s 50% or less owned companies have interest rate swap agreements designated as cash flow hedges. By entering into these interest rate swap agreements, these companies have converted the variable LIBOR or EURIBOR component of certain of their outstanding borrowings to a fixed interest rate. The Company recognized losses on derivative instruments designated as cash flow hedges of $3.9 million and $2.2 million for the nine months ended September 30, 2016 and 2015, respectively, as a component of other comprehensive income (loss). As of September 30, 2016, the interest rate swaps held by the Company and the Company’s 50% or less owned companies were as follows:
The Company had two interest rate swap agreements maturing in 2021 that call for the Company to pay a fixed rate of interest of (0.03)% on the aggregate notional value of €15.0 million ($16.9 million) and receive a variable interest rate based on EURIBOR on the aggregate notional value.
MexMar had four interest rate swap agreements with maturities in 2023 that call for MexMar to pay a fixed rate of interest ranging from 1.71% to 2.05% on the aggregate amortized notional value of $108.6 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
Sea-Cat Crewzer II had an interest rate swap agreement maturing in 2019 that calls for Sea-Cat Crewzer II to pay a fixed rate of interest of 1.52% on the amortized notional value of $23.9 million and receive a variable interest rate based on LIBOR on the amortized notional value.
Sea-Cat Crewzer had an interest rate swap agreement maturing in 2019 that calls for Sea-Cat Crewzer to pay a fixed rate of interest of 1.52% on the amortized notional value of $21.1 million and receive a variable interest rate based on LIBOR on the amortized notional value.
SeaJon had an interest rate swap agreement maturing in 2017 that calls for SeaJon to pay a fixed interest rate of 2.79% on the amortized notional value of $30.9 million and receive a variable interest rate based on LIBOR on the amortized notional value.
Other Derivative Instruments. The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the nine months ended September 30, 2016 as follows (in thousands):
 
2016
 
2015
Exchange option liability on subsidiary convertible senior notes
$
(3,328
)
 
$

Options on equities and equity indices
3,095

 
(699
)
Forward currency exchange, option and future contracts
(186
)
 
(474
)
Interest rate swap agreements
(18
)
 
(15
)
Commodity swap, option and future contracts:
 
 
 
Exchange traded
328

 
(2,606
)
Non-exchange traded

 
1,499

 
$
(109
)
 
$
(2,295
)
The exchange option liability relates to a bifurcated embedded derivative in the Company’s 3.75% Subsidiary Convertible Senior Notes.
The Company holds positions in publicly traded equity options that convey the right or obligation to engage in future transactions in the underlying equity security or index. The Company’s investment in equity options primarily includes positions in energy, marine, transportation and other related businesses. These contracts are typically entered into to mitigate the risk of changes in the market value of marketable security positions that the Company is either about to acquire, has acquired or is about to dispose.
The Company enters and settles forward currency exchange, option and future contracts with respect to various foreign currencies. As of September 30, 2016, the outstanding forward currency exchange contracts translated into a net purchase of foreign currencies with an aggregate U.S. dollar equivalent of $2.1 million. These contracts enable the Company to buy currencies in the future at fixed exchange rates, which could offset possible consequences of changes in currency exchange rates with respect to the Company’s business conducted outside of the United States. The Company generally does not enter into contracts with forward settlement dates beyond twelve to eighteen months.
The Company and certain of its 50% or less owned companies have entered into interest rate swap agreements for the general purpose of providing protection against increases in interest rates, which might lead to higher interest costs. As of September 30, 2016, the interest rate swaps held by the Company or its 50% or less owned companies were as follows:
OSV Partners had two interest rate swap agreements with maturities in 2020 that call for OSV Partners to pay a fixed rate of interest ranging from 1.89% to 2.27% on the aggregate amortized notional value of $39.3 million and receive a variable interest rate based on LIBOR on the aggregate amortized notional value.
Dynamic Offshore had an interest rate swap agreement maturing in 2018 that calls for Dynamic Offshore to pay a fixed interest rate of 1.30% on the amortized notional value of $76.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.
Falcon Global had an interest rate swap agreement maturing in 2022 that calls for Falcon Global to pay a fixed interest rate of 2.06% on the amortized notional value of $62.5 million and receive a variable interest rate based on LIBOR on the amortized notional value.
The Company and certain of its 50% or less owned companies enter and settle positions in various exchange and non-exchange traded commodity swap, option and future contracts. ICP enters into exchange traded positions (primarily corn, ethanol and natural gas) to protect its raw material and finished goods inventory balances from market changes. VA&E enters into exchange traded positions to protect its fixed price future purchase and sale contracts for sugar as well as its inventory balances from market changes. As of September 30, 2016, the net market exposure to these commodities under these contracts was not material.
Fair Values Of Derivative Instruments
Derivative instruments are classified as either assets or liabilities based on their individual fair values. The fair values of the Company’s derivative instruments as of September 30, 2016 were as follows (in thousands):
 
Derivative
Asset(1)
 
Derivative
Liability(2)
Derivatives designated as hedging instruments:
 
 
 
Forward currency exchange contracts (fair value hedges)
$

 
$
150

Interest rate swap agreements (cash flow hedges)

 
229

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Exchange option liability on subsidiary convertible senior notes

 
8,938

Forward currency exchange, option and future contracts

 
102

Exchange traded commodity swap, option and future contracts
51

 
1,479

 
$
51

 
$
10,898

______________________
(1)
Included in other receivables in the accompanying condensed consolidated balance sheets.
(2)
Included in other current liabilities in the accompanying condensed consolidated balance sheets, except for the exchange option liability on subsidiary convertible senior notes.