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FINANCIAL INSTRUMENTS | 6 Months Ended
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Jun. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates and exchange rates. The Company has a portfolio of swaps which swap floating rate interest to fixed rate, and which also fix the Norwegian kroner to US dollar exchange rate applicable to the interest payable and principal repayment on the NOK denominated bonds due 2017 and 2019. From a financial perspective, these swaps hedge interest rate and exchange rate exposure. The counterparties to such contracts are Nordea Bank Finland Plc, ABN AMRO Bank N.V., BNP Paribas, NIBC Bank N.V., Scotiabank Europe Plc, Skandinaviska Enskilda Banken AB (publ), ING Bank N.V., Lloyds Banking Group Plc, Credit Agricole Corporate and Investment Bank, Danske Bank A/S and Swedbank AB (publ). Credit risk exists to the extent that the counterparties are unable to perform under the contracts, but this risk is considered remote as the counterparties are all banks which have provided the Company with loans to which the swaps relate. The following table presents the fair values of the Company’s derivative instruments that were designated as cash flow hedges and qualified as part of a hedging relationship, and those that were not designated:
(in thousands of $) | June 30, 2014 |  |  | December 31, 2013 |
Designated derivative instruments - Assets: |  |  |
Interest rate swaps | 646 |  |  | 6,565 |
Cross currency interest rate swaps | — |  |  | — |
Non-designated derivative instruments - Assets: |  |  |
Interest rate swaps | 6,674 |  |  | 10,068 |
Cross currency interest rate swaps | — |  |  | — |
Total derivative instruments - non-current assets | 7,320 |  |  | 16,633 |
(in thousands of $) | June 30, 2014 |  |  | December 31, 2013 |
Designated derivative instruments -short-term liabilities: |  |  |
Interest rate swaps | 1,987 |  |  | 2,279 |
Cross currency interest rate swaps | — |  |  | 3,358 |
Non-designated derivative instruments -short-term liabilities: |  |  |
Interest rate swaps | 581 |  |  | — |
Cross currency interest rate swaps | — |  |  | 68 |
Total derivative instruments - short-term liabilities | 2,568 |  |  | 5,705 |
(in thousands of $) | June 30, 2014 |  |  | December 31, 2013 |
Designated derivative instruments - long-term liabilities: |  |  |
Interest rate swaps | 42,691 |  |  | 44,006 |
Cross currency interest rate swaps | 14,974 |  |  | 8,915 |
Non-designated derivative instruments - long-term liabilities: |  |  |
Interest rate swaps | 1,782 |  |  | 3,183 |
Cross currency interest rate swaps | 533 |  |  | 386 |
Total derivative instruments - long-term liabilities | 59,980 |  |  | 56,490 |
Interest rate risk management The Company manages its debt portfolio with interest rate swap agreements denominated in U.S. dollars and Norwegian kroner to achieve an overall desired position of fixed and floating interest rates. At June 30, 2014, the Company and its consolidated subsidiaries had entered into interest rate swap transactions, involving the payment of fixed rates in exchange for LIBOR or NIBOR, as summarized below. The summary includes all swap transactions, most of which are hedges against specific loans.
(in thousands of $) |  |  |  |  |  |
Notional Principal as at June 30, 2014 | Inception date |  | Maturity date |  | Fixed interest rate |
$167,895 (reducing to $122,632) | March 2010 |  | March 2015 |  | 1.96% - 2.22% |
$69,713 (reducing to $69,713) | September 2012 |  | September 2014 |  | 4.85% |
$35,686 (reducing to $24,794) | March 2008 |  | August 2018 |  | 4.05% - 4.15% |
$40,002 (reducing to $23,394) | April 2011 |  | December 2018 |  | 2.13% - 2.80% |
$59,591 (reducing to $34,044) | May 2011 |  | January 2019 |  | 0.80% - 2.58% |
$100,000 (remaining at $100,000) | August 2011 |  | August 2021 |  | 2.50% - 2.93% |
$173,142 (reducing to $153,804) | April 2012 |  | May 2019 |  | 3.67% - 3.77% |
$176,333 (reducing to $79,733) | May 2012 |  | August 2022 |  | 1.76% - 1.85% |
$105,436 (equivalent to NOK600 million) | October 2012 |  | October 2017 |  | 5.92% - 6.23% | *
$46,550 (reducing to $32,142) | February 2013 |  | December 2017 |  | 0.81% - 0.82% |
$100,000 (remaining at $100,000) | March 2013 |  | April 2023 |  | 1.85% - 1.97% |
$151,008 (equivalent to NOK900 million) | March 2014 |  | March 2019 |  | 6.03% | *
* These swaps relate to the NOK 600 million and NOK 900 million senior unsecured bonds due 2017 and 2019 respectively, and the fixed interest rates paid are exchanged for the NIBOR plus the margin on the bonds. For the remaining swaps the fixed interest rate paid is exchanged for LIBOR, excluding margin on the underlying loans. As at June 30, 2014, the total notional principal amount subject to such swap agreements was $1,225.4 million (December 31, 2013: $1,188.0 million). Foreign currency risk management The Company has entered into currency swap transactions, involving the payment of U.S. dollars in exchange for Norwegian kroner, which are designated as hedges against the NOK 600 million senior unsecured bonds due 2017 and NOK 900 million senior unsecured bonds due 2019.
Principal Receivable | Principal Payable |  |  | Inception date |  | Maturity date
NOK600 million | $ | 105.4 | million |  | October 2012 |  | October 2017
NOK900 million | $ | 151.0 | million |  | March 2014 |  | March 2019
Apart from the NOK 600 million and NOK 900 million senior unsecured bonds due 2017 and 2019, respectively, the majority of the Company’s transactions, assets and liabilities are denominated in U.S. dollars, the functional currency of the Company. Other than the corresponding currency swap transactions summarized above, the Company has not entered into forward contracts for either transaction or translation risk. Accordingly, there is a risk that currency fluctuations could have an adverse effect on the Company’s cash flows, financial condition and results of operations. Fair Values The carrying value and estimated fair value of the Company’s financial assets and liabilities at June 30, 2014 and December 31, 2013 are as follows:
| June 30, 2014 |  |  | June 30, 2014 |  |  | December 31, 2013 |  |  | December 31, 2013 |
(in thousands of $) | Carrying value |  |  | Fair value |  |  | Carrying value |  |  | Fair value |
Non-derivatives: |  |  |  |  |  |  |
Available for sale securities | 61,889 |  |  | 61,889 |  |  | 76,925 |  |  | 76,925 |
Floating rate NOK bonds due 2014 | — |  |  | — |  |  | 71,854 |  |  | 72,032 |
Floating rate NOK bonds due 2017 | 93,231 |  |  | 97,152 |  |  | 92,483 |  |  | 93,752 |
Floating rate NOK bonds due 2019 | 145,388 |  |  | 145,387 |  |  | — |  |  | — |
3.75% unsecured convertible bonds due 2016 | 125,000 |  |  | 135,516 |  |  | 125,000 |  |  | 130,589 |
3.25% unsecured convertible bonds due 2018 | 350,000 |  |  | 398,598 |  |  | 350,000 |  |  | 359,307 |
Derivatives: |  |  |  |  |  |  |
Interest rate/ currency swap contracts - short-term and long-term receivables | 7,320 |  |  | 7,320 |  |  | 16,633 |  |  | 16,633 |
Interest rate/ currency swap contracts - short-term payables | 2,568 |  |  | 2,568 |  |  | 5,705 |  |  | 5,705 |
Interest rate/ currency swap contracts - long-term payables | 59,980 |  |  | 59,980 |  |  | 56,490 |  |  | 56,490 |
The above long-term receivables relating to interest rate/ currency swap contracts at June 30, 2014, include $6.7 million which relates to non-designated swap contracts (December 31, 2013: $10.1 million), with the balance relating to designated hedges. The above short-term payables relating to interest rate/ currency swap contracts at June 30, 2014, include $0.6 million which relates to non-designated swap contracts (December 31, 2013: $0.1 million), with the balance relating to designated hedges. The above long-term payables relating to interest rate/ currency swap contracts at June 30, 2014, include $2.3 million which relates to non-designated swap contracts (December 31, 2013: $3.6 million), with the balance relating to designated hedges. In accordance with the accounting policy relating to interest rate and currency swaps described in the Company’s Annual Report on Form 20-F for the year ended December 31, 2013, where the Company has designated the swap as a hedge, and to the extent that the hedge is effective, changes in the fair values of interest rate swaps are recognized in other comprehensive income. Changes in the fair value of other swaps and the ineffective portion of swaps designated as hedges are recognized in the Consolidated Statement of Operations. The above fair values of financial assets and liabilities as at June 30, 2014, were measured as follows:
|  |  | Fair value measurements using
(in thousands of $) | June 30, 2014 |  |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |
Available for sale securities | 61,889 |  |  | 39,811 |  |  |  |  | 22,078 |
Interest rate/ currency swap contracts - long-term receivables | 7,320 |  |  |  |  |  | 7,320 |  |  |
Total assets | 69,209 |  |  | 39,811 |  |  | 7,320 |  |  | 22,078 |
Liabilities: |  |  |  |  |  |  |
Floating rate NOK bonds due 2017 | 97,152 |  |  | 97,152 |  |  |  |  |
Floating rate NOK bonds due 2019 | 145,387 |  |  | 145,387 |  |  |  |  |
3.75% unsecured convertible bonds due 2016 | 135,516 |  |  | 135,516 |  |  |  |  |
3.25% unsecured convertible bonds due 2018 | 398,598 |  |  | 398,598 |  |  |  |  |
Interest rate/ currency swap contracts – short-term payables | 2,568 |  |  |  |  | 2,568 |  |  |
Interest rate/ currency swap contracts – long-term payables | 59,980 |  |  |  |  |  | 59,980 |  |  |
Total liabilities | 839,201 |  |  | 776,653 |  |  | 62,548 |  |  | — |
Fair value is measured in accordance with FASB ASC Topic 820 “Fair Value Measurement and Disclosures”. ASC 820 establishes a fair value hierarchy as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable market based inputs other than quoted prices or unobservable inputs that are corroborated by market data. Level 3 - Unobservable inputs for assets or liabilities that are not corroborated by market data. Listed available-for-sale securities are recorded at fair value, being their market value as at the balance sheet date. The fair value of unlisted available for sale securities, which at June 30, 2014, comprise unlisted corporate bonds, is a Level 3 input and is determined from an analysis of projected cash flows, based on factors including the terms, provisions and other characteristics of the bonds, credit ratings and default risk of the issuing entity, the fundamental financial and other characteristics of that entity, and the current economic environment and trading activity in the debt market. The estimated fair values for the floating rate NOK denominated bonds due 2017 and 2019, the 3.75% and the 3.25% unsecured convertible bonds due 2016 and 2018 respectively, are all based on their quoted market prices as at the balance sheet date. The fair value of interest rate and currency swap contracts is calculated using a well-established independent valuation technique applied to contracted cash flows and LIBOR/NIBOR interest rates as at June 30, 2014. Concentrations of risk There is a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Skandinaviska Enskilda Banken, ABN AMRO, Danske Bank and Nordea. However, the Company believes this risk is remote. Since the Company was spun-off from Frontline in 2004, Frontline has accounted for a major proportion of our consolidated operating revenues. In the six months ended June 30, 2014, Frontline accounted for approximately 38% of our consolidated operating revenues (for the six months ended June 30, 2013: 41%, for the year ended December 31, 2013: 38%). There is thus a concentration of revenue risk with Frontline. The consolidated operating revenues for the six months ended June 30, 2014, do not include the operating revenues of $52.7 million (for the six months ended June 30, 2013: $64.3 million, for the year ended December 31, 2013: $122.8 million) reported by our subsidiaries accounted for using the equity method, none of which were earned from Frontline.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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