Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments And Hedging Strategies

v3.7.0.1
Derivative Instruments And Hedging Strategies
6 Months Ended
Jun. 30, 2017
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 June 30, 2017 were as follows (in thousands):
 
Derivative
Asset(1)
 
Derivative
Liability(2)
Derivatives designated as hedging instruments:
 
 
 
Forward currency exchange contracts (fair value hedges)
$

 
$
27

Interest rate swap agreements (cash flow hedges)
74

 
30

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Conversion option liability on 3.75% Convertible Senior Notes

 
27,109

Forward currency exchange, option and future contracts
151

 

Interest rate swap agreements

 
566

 
$
225

 
$
27,732

______________________
(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 conversion option liability on the 3.75% 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 June 30, 2017, the Company had euro denominated forward currency exchange contracts designated as fair value hedges with a U.S. dollar equivalent of $1.9 million. During the six months ended June 30, 2017, the Company recognized gains of $0.1 million on these contracts which were included as decreases 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 its 50% or less owned companies have interest rate swap agreements designated as cash flow hedges. By entering into these interest rate swap agreements, the Company and its 50% or less owned 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 $0.4 million and $3.6 million during the six months ended June 30, 2017 and June 30, 2016, respectively. As of June 30, 2017, the interest rate swaps held by the Company and its 50% or less owned companies were as follows:
Windcat Workboats 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 ($17.1 million) and receive a variable interest rate based on EURIBOR on the aggregate notional value.
MexMar had five interest rate swap agreements with maturities in 2023 that call for MexMar to pay a fixed rate of interest ranging from 1.71% to 2.10% on the aggregate amortized notional value of $117.2 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 the Company to pay a fixed rate of interest of 1.52% on the amortized notional value of $22.1 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 the Company to pay a fixed rate of interest of 1.52% on the amortized notional value of $19.6 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 six months ended June 30 as follows (in thousands):
 
2017
 
2016
Conversion option liability on 3.75% Convertible Senior Notes
$
145

 
$

Options on equities and equity indices

 
3,079

Forward currency exchange, option and future contracts
(56
)
 

Interest rate swap agreements
(391
)
 
(18
)
 
$
(302
)
 
$
3,061

The conversion option liability relates to the bifurcated embedded conversion option in the 3.75% Convertible Senior Notes (see Note 5).
The Company may hold positions in publicly traded equity options that convey the right or obligation to engage in a future transaction on the underlying equity security or index. Historically, the Company’s investment in equity options has primarily included positions in energy related businesses. These contracts are typically entered into to mitigate the risk of changes in 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 June 30, 2017, the fair market value of the outstanding forward currency exchange, option and future contracts was an unrealized gain of $0.1 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 June 30, 2017, the interest rate swaps held by the Company or its 50% or less owned companies were as follows:
Falcon Global had an interest rate swap agreement maturing in 2022 that calls for the Company to pay a fixed interest rate of 2.06% on the amortized notional value of $59.4 million and receive a variable interest rate based on LIBOR on the amortized notional value.
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 $35.5 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 $69.1 million and receive a variable interest rate based on LIBOR on the amortized notional value.
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 June 30, 2017 were as follows (in thousands):
 
Derivative
Asset(1)
 
Derivative
Liability(2)
Derivatives designated as hedging instruments:
 
 
 
Forward currency exchange contracts (fair value hedges)
$

 
$
27

Interest rate swap agreements (cash flow hedges)
74

 
30

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Conversion option liability on 3.75% Convertible Senior Notes

 
27,109

Forward currency exchange, option and future contracts
151

 

Interest rate swap agreements

 
566

 
$
225

 
$
27,732

______________________
(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 conversion option liability on the 3.75% Convertible Senior Notes.
Recognized Gains (Losses) On Derivative Instruments Not Designated As Hedging Instruments
The Company recognized gains (losses) on derivative instruments not designated as hedging instruments for the six months ended June 30 as follows (in thousands):
 
2017
 
2016
Conversion option liability on 3.75% Convertible Senior Notes
$
145

 
$

Options on equities and equity indices

 
3,079

Forward currency exchange, option and future contracts
(56
)
 

Interest rate swap agreements
(391
)
 
(18
)
 
$
(302
)
 
$
3,061