FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 12 — FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE DISCLOSURES:

The following methods and assumptions were used to estimate the fair value of each class of financial instrument.

Cash and cash equivalents—The carrying amounts reported in the consolidated balance sheet for interest-bearing deposits approximate their fair value.

Debt— For publicly-traded debt, estimates of fair value are based on quoted market prices. For unsecured floating rate revolving credit facilities and secured term loans, fair value is estimated based on a model-driven approach using U.S. forward swap interest rate yield curves. At December 31, 2012, all of the Company’s debt is subject to compromise (see Note 11, “Debt”) as a result of the Company’s filing of the Chapter 11 Cases.

Forward freight agreements and bunker swaps—The fair values of forward freight agreements and bunker swaps are the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, which include an adjustment for the counterparty or the Company’s credit risk, as appropriate, after taking into consideration any underlying collateral securing the agreements.

Interest rate swaps—The fair values of interest rate swaps are the estimated amounts that the Company would receive or pay to terminate the swaps at the reporting date, which include adjustments for the counterparty or the Company’s credit risk, as appropriate, after taking into consideration any underlying collateral securing the swap agreements.

Foreign Currency Contracts—The fair values of foreign currency contracts are the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date, which include adjustments for the counterparty or the Company’s credit risk, as appropriate, after taking into consideration any underlying collateral securing the swap agreements.

The estimated fair values of the Company’s financial instruments, other than derivatives and marketable securities that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, at December 31, 2012 and 2011, are as follows:

			Level 1:
			Quoted prices in
			active markets for		Level 2:
			identical assets		Significant other
	Fair Value		or liabilities		observable inputs
December 31, 2012:
Cash and cash equivalents	$	507,342	$	507,342	$	-
Unsecured Senior Notes	$	(181,504)	$	-	$	(181,504)
December 31, 2011:
Cash and cash equivalents	$	54,877	$	54,877	$	-
Debt	$	(1,801,681)	$	-	$	(1,801,681)

Since the Company’s publicly traded debt is not actively traded, their fair value was categorized within Level 2 of the fair value hierarchy  as of December 31, 2011. The Company’s debt is included in Liabilities Subject to Compromise as of December 31, 2012. Having filed the Chapter 11 Cases, the Company would not have been able to enter into similar credit facilities to its Unsecured Revolving Credit Facility and the floating rate Secured Term Loans. It is impractical to therefore obtain fair value estimates for such floating rate debt as of December 31, 2012 and such debt is excluded from the above table as of December 31, 2012. The fair values of the Unsecured Senior Notes were derived from quoted market prices, but because the Unsecured Senior Notes are thinly traded the fair value estimates are considered to be Level 2.

Derivatives

The Company is exposed to certain risks relating to its ongoing business operations. The risks, managed by using derivative instruments, are volatility with respect to spot (voyage) charter rates, fuel prices, interest rates and foreign currency exchange rates.

Spot Market Rate Volatility Risk

The Company enters into Forward Freight Agreements (“FFAs”) and bunker swaps with an objective to utilize them as (i) economic hedging instruments some of which qualify as cash flow hedges for accounting purposes that reduce its exposure to changes in TCE revenue earned by some of its vessels operating in the spot market; and (ii) from time to time for trading purposes to take advantage of short term fluctuations in the market. The FFAs and bunker swaps involve contracts to provide affixed number of theoretical voyages at fixed rates, which generally range from one month to one year and settle monthly based on a published index. There were no contracts outstanding as of December 31, 2012.

Fuel Price Volatility Risk

The Company enters into standalone bunker swaps to protect the Company against future increases in fuel prices in the normal course of its International Crude Tankers lightering business, which includes a number of fixed rate Contracts of Affreightment. These swap contracts, which do not qualify as cash flow hedges for accounting purposes, settle on a net basis at the end of each calendar month, based on the average daily closing prices, as quoted by the Baltic Exchange, of the commodity during each month. There were no bunker swap agreements outstanding as of December 31, 2012.

Interest Rate Risk

The Company uses interest rate swaps for the management of interest rate risk exposure. The interest rate swaps effectively converted a portion of the Company’s debt from a floating to a fixed rate and were designated and qualified as cash flow hedges. At the Petition Date, the Company was a party to seven floating-to-fixed interest rate swaps with various major financial institutions covering notional amounts aggregating approximately $219,940, pursuant to which it paid fixed rates ranging from 3.3% to 4.7% and received floating rates based on LIBOR. These agreements contained no leverage features and had various final maturity dates ranging from December 2012 to August 2014. Two of the floating-to-fixed interest rate swap agreements with an aggregate notional value of $30,000 that were scheduled to mature in December 2012 were de-designated in September 2012. The related balances in accumulated other comprehensive loss aggregating $331 were reclassified into earnings during the quarter ended September 30, 2012.

The filing of the Chapter 11 Cases (see Note 3, “Bankruptcy Filing and Going Concern”) constituted an event of default or termination under the seven interest rate swap agreements to which the Company was a party as of the Petition Date. Accordingly, on November 14, 2012, outstanding interest rate swap obligations (including accrued interest) totaling $ 3,566 were reclassified to Liabilities Subject to Compromise on the consolidated balance sheet and the Company de-designated all of its interest rate swaps, other than those entered into by the joint ventures in which it participates, from hedge accounting. The related balances in accumulated other comprehensive loss aggregating $1,866 were reclassified into earnings as of the Petition Date. The outstanding interest rate swap obligations as of the Petition Date represent general unsecured claims against the Company.

Foreign Exchange Risk

The Company seeks to reduce its exposure to fluctuations in foreign exchange rates related to recurring monthly foreign currency denominated general and administrative expenses through the use of foreign currency forward contracts and through the purchase of bulk quantities of currencies at rates which management considers favorable. At December 31, 2012, there were no foreign currency forward contracts outstanding.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are voyage receivables due from charterers and pools in which the Company participates. With respect to voyage receivables, the Company limits its credit risk by performing ongoing credit evaluations. During the three years ended December 31, 2012, the Company did not have any individual customers who accounted for 10% or more of its revenues apart from the pools in which it participates. The pools in which the Company participates accounted for 59% and 65% of consolidated voyage receivables at December 31, 2012 and 2011, respectively.

Tabular disclosure of derivatives location

Derivatives are recorded in the balance sheet on a net basis by counterparty when a legal right of setoff exists. The following tables present information with respect to the fair values of derivatives reflected in the balance sheet on a gross basis by transaction. The tables also present information with respect to gains and losses on derivative positions reflected in the statement of operations or in the balance sheet, as a component of accumulated other comprehensive loss. As noted above, as a result of the Chapter 11 Cases, all derivative obligations outstanding as of the Petition Date were reclassified to Liabilities Subject to Compromise as they represent general unsecured claims against the Company.

Fair Values of Derivative Instruments:

	Asset Derivatives				Liability Derivatives
December 31, 2011	Balance Sheet Location		Amount		Balance Sheet Location		Amount
Derivatives designated as hedging     instruments:
Interest rate swaps:
Current portion		Prepaid expenses and other current assets	$	-		Accounts payable, accrued expenses and other current liabilities	$	(6,109)
Long-term portion		Other assets		-		Other liabilities		(1,109)
Foreign currency contracts:
		Prepaid expenses and other current assets		-		Accounts payable, accrued expenses and other current liabilities		-
Total derivatives designated as hedging instruments			$	-			$	(7,218)
Derivatives not designated as hedging instruments:
Bunker swaps:
Current portion		Prepaid expenses and other current assets	$	165		Accounts payable, accrued expenses and other current liabilities	$	-
Long-term portion		Other assets		-		Other liabilities		(321)
Foreign Currency Contracts:
		Prepaid expenses and other current assets		-		Accounts payable, accrued expenses and other current liabilities		(57)
Total derivatives not designated as hedging instruments			$	165			$	(378)
Total derivatives			$	165			$	(7,596)

The amount reported for December 31, 2011 in the table below reflects the correction of an error described in Note 2, “Company Inquiry and Restatement.” The effects of cash flow hedging relationships on the statements of operations for the three years ended December 31, 2012 are shown below:

	Amount of Derivative Gain or (Loss)
	Recognized in Accumulated Other
	Comprehensive Loss
	(Effective Portion)
	December 31, 2012		December 31, 2011		December 31, 2010
	(As Restated)
Interest rate swaps	$	(330)	$	(42,819)	$	(25,851)
Total	$	(330)	$	(42,819)	$	(25,851)

	Statement of Operations
	Effective Portion of Gain/(Loss)
	Reclassified from
	Accumulated Other Comprehensive
	Loss			Ineffective Portion
For the year ended		Amount of			Amount of
December 31, 2012	Location	Gain/(Loss)		Location	Gain/(Loss)
Interest rate swaps	Interest expense	$	(6,096)	Interest expense	$	-
Total		$	(6,096)		$	-

	Statement of Operations
	Effective Portion of Gain/(Loss)
	Reclassified from
	Accumulated Other Comprehensive
	Loss			Ineffective Portion
For the year ended		Amount of			Amount of
December 31, 2011	Location	Gain/(Loss)		Location	Gain/(Loss)
Interest rate swaps	Interest expense	$	(8,796)	Interest expense	$	-
Foreign currency contracts	General and administrative expenses		602	General and administrative expenses		-
Total		$	(8,194)		$	-

	Statement of Operations
	Effective Portion of Gain/(Loss)
	Reclassified from
	Accumulated Other Comprehensive
	Loss			Ineffective Portion
For the year ended		Amount of			Amount of
December 31, 2010	Location	Gain/(Loss)		Location	Gain/(Loss)
FFAs and bunker swaps	Shipping revenues	$	970	Shipping revenues	$	-
Interest rate swaps	Interest expense		(10,666)	Interest expense		-
Foreign currency contracts	General and administrative expenses		(2,318)	General and administrative expenses		6
Total		$	(12,014)		$	6

The effect of the gain/(loss) recognized on derivatives not designated as hedging instruments on the statements of operations for the years ended December 31, 2012, 2011 and 2010 are as follows:

		Year Ended
		December 31,
	Location	2012		2011		2010
FFAs and bunker swaps	Other income/(expense)	$	1,376	$	840	$	276
Foreign currency contracts	General and administrative expenses		-		(57)		-
		$	1,376	$	783	$	276

Fair Value Hierarchy

The following tables present the fair values, which are pre tax, for assets and liabilities measured on a recurring basis (excluding investments in affiliated companies):

			Level 1:
			Quoted prices in active			Level 2:
			markets for identical			Significant other
In thousands	Fair Value		assets or liabilities			observable inputs (1)
Assets/(Liabilities) at December 31, 2012:
Available-for-sale marketable securities	$	181	$	181		$	-
Assets/(Liabilities) at December 31, 2011:
Trading marketable securities	$	12,346	$	12,346	(2)	$	-
Available-for-sale marketable securities	$	1,038	$	1,038		$	-
Derivative Assets	$	165	$	165	(3)	$	-
Derivative Liabilities	$	(7,596)	$	(321)	(3)	$	(7,275)	(4)

(1)	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency contracts and interest rate swaps, fair values are derived using valuation models that utilize the income valuation approach. These valuation models take into account contract terms such as maturity, as well as other inputs such as exchange rates, interest rate yield curves and creditworthiness of the counterparty and the Company
(2)	Included in other assets in the accompanying balance sheet
(3)	Bunker swaps
(4)	Standard interest rate swaps (liability of $7,218) and foreign currency contracts (liability of $57)

The following table summarizes the fair values of items measured at fair value on a nonrecurring basis for the year ended December 31, 2012 :

			Level 2: Significant Other		Total Impairment
Description	Fair Value		Observable Inputs		Charges
Assets:
International Crude Tankers impairment – Vessels held for use(1)	$	106,400	$	106,400	$	(101,589)
International Product Carriers impairment – Vessels held for use(1)	$	139,000	$	139,000	$	(176,756)

⁽¹⁾   Aggregate pre-tax impairment charges of $278,345 were recorded in the fourth quarter of 2012, related to 15 vessels held for use in the International Crude Tanker and International Product Carriers segments. The fair value measurement used to determine the impairment for the vessels held for use was based upon a market approach, which utilized the expected sales prices of the vessels obtained from third party appraisals. Because sales of vessels occur somewhat infrequently, the expected sales prices are considered to be Level 2.