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Fair Value Measurements And Derivative Instruments | 12 Months Ended
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Dec. 31, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements And Derivative Instruments | Fair Value Measurements and Derivative Instruments Fair Value Measurements Depending on the inputs, we classify each fair value measurement as follows: •Level 1 – Quoted market prices in active markets for identical assets or liabilities. •Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable. •Level 3 – Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use. The following tables present the classification of our assets and liabilities measured at fair value on a recurring basis:
December 31, 2022 | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: | (Dollars in thousands)
Foreign currency derivatives | $ | 92 |  |  | $ | — |  |  | $ | 92 |  |  | $ | — |
Interest rate swap contracts | 27,384 |  |  | — |  |  | 27,384 |  |  | — |
Total assets at fair value | $ | 27,476 |  |  | $ | — |  |  | $ | 27,476 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Foreign currency derivatives | $ | 282 |  |  | $ | — |  |  | $ | 282 |  |  | $ | — |
Total liabilities at fair value | $ | 282 |  |  | $ | — |  |  | $ | 282 |  |  | $ | — |
December 31, 2021 | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: | (Dollars in thousands)
Foreign currency derivatives | $ | 388 |  |  | $ | — |  |  | $ | 388 |  |  | $ | — |
Commodity derivative contracts | 8,469 |  |  | — |  |  | 8,469 |  |  | — |
Interest rate swap contracts | 6,060 |  |  | — |  |  | 6,060 |  |  | — |
Total assets at fair value | $ | 14,917 |  |  | $ | — |  |  | $ | 14,917 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Foreign currency derivatives | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Interest rate swap contracts | 140 |  |  | — |  |  | 140 |  |  | — |
Total liabilities at fair value | $ | 142 |  |  | $ | — |  |  | $ | 142 |  |  | $ | — |
The carrying amounts and fair values of financial instruments, other than cash and cash equivalents, short-term notes and accounts receivable, accounts payable and other current payables, are shown in the table above. The carrying value of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of these instruments. The fair value of our debt as of December 31, 2022 and 2021 was $843.2 million and $1,051.6 million, respectively. The fair values were determined using Level 2 quoted market prices for the same or similar debt instruments. Additional fair value information related to our pension funds' assets can be found in Note 11, "Retirement Plans and Post-Employment Benefits." Derivative Instruments In the normal course of business, we are exposed to certain risks related to fluctuations in currency exchange rates, commodity prices and interest rates. We use various derivative financial instruments, primarily foreign currency derivatives, commodity derivative contracts and interest rate swaps as part of our overall strategy to manage risks from these market fluctuations. Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counterparties to our instruments. Foreign currency derivatives We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, are used to hedge global currency exposures such as foreign currency denominated debt, receivables, payables, sales and purchases. Foreign currency forward and swap contracts are used to mitigate the foreign exchange risk of balance sheet items. These derivatives are fair value hedges. Gains and losses from these derivatives are recorded in cost of sales and they are largely offset by the financial impact of translating foreign currency-denominated payables and receivables. In the first quarter of 2022, we entered into foreign currency derivatives with maturities of one month to 12 months in order to protect against the risk that cash flows associated with certain sales and purchases denominated in a currency other than the U.S. dollar will be adversely affected by future changes in foreign exchange rates. These derivatives are designated as cash flow hedges. The resulting unrealized gains or losses from these derivatives are recorded in AOCL and subsequently, when realized, are reclassified to net sales or cost of sales in the Consolidated Statements of Operations when the hedged exposures affect earnings. Commodity derivative contracts We have entered into commodity derivative contracts for refined oil products. These contracts were entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. In the fourth quarter of 2017, we began to enter into LTAs with many of our customers and began to hedge the cash flows related to these contracts. The unrealized gains or losses related to commodity derivative contracts designated as cash flow hedges are recorded in accumulated other comprehensive income ("AOCI") and subsequently, when realized, are reclassified to the Consolidated Statement of Operations when the hedged item impacts earnings, which is when the finished product is sold. The last of our commodity derivative contracts matured as of June 30, 2022 and no new contracts were entered during 2022. Interest rate swap contracts We utilize interest rate swaps to limit exposure to market fluctuations on our variable-rate debt. Each derivative agreement's unrealized gain or loss is recorded in AOCL and, when realized, is recorded to interest expense. In the third quarter of 2019, we entered into interest rate swap contracts that are "pay fixed, receive variable." Our risk management objective was to fix our cash flows associated with the risk of variability in the one-month USD LIBOR for a portion of our outstanding debt. It was expected that the swaps would fix the cash flows associated with the forecasted interest payments on our debt to an effective fixed interest rate of 4.2%, which could be lowered to 3.95% depending on credit ratings. Since their modification concurrent with the 2018 Term Loan Facility modification in the first quarter of 2021, the swaps contain an other-than-insignificant financing element. As such, they are considered hybrid instruments composed of a debt host and an embedded derivative and the associated cash (outflows)/inflows are classified as financing (use)/source of cash. The debt host portion amounted to a liability of $3.8 million as of December 31, 2022, with $2.3 million included in "Other accrued liabilities" and $1.5 million in "Other long-term obligations" on the Consolidated Balance Sheets. As of December 31, 2021, the debt host portion amounted to a liability of $7.0 million, with $2.6 million included in "Other accrued liabilities" and $4.4 million included in "Other long-term obligations" on the Consolidated Balance Sheets. The corresponding loss is accounted for in AOCL and is being amortized over the remaining life of the swaps. The associated embedded derivative is treated as a cash flow hedge. In the first quarter of 2022, in connection with the repayment of principal on our 2018 Term Loan Facility discussed in Note 4, "Debt and Liquidity," and our probability assessment of the variable-rate debt remaining outstanding through the term of the swaps, we de-designated one interest rate swap contract with a $250.0 million notional amount, maturing in the third quarter of 2024. The fair value of the embedded derivative at the de-designation date was a gain of $6.6 million and was recorded in AOCI and will be amortized into interest expense over the remaining life of the swap. The change in fair value of the de-designated embedded derivative in 2022 resulted in a gain of $7.1 million and was recorded in interest expense in the Consolidated Statements of Operations. In the third quarter of 2022, we redeemed $67.0 million of our $250.0 million notional amount de-designated interest rate swap and recorded in interest expense in the Consolidated Statements of Operations a gain of $4.6 million on the reduction of the embedded derivative. The partial redemption of the interest rate swap also triggered a $0.7 million accelerated settlement of the associated debt host. All derivatives are recorded on the balance sheet at fair value. If the derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCL until the hedged item is recognized in earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through earnings. The fair values of the outstanding derivatives are recorded on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The fair values will also be classified as short-term or long-term depending upon their maturity dates. The notional amounts of our outstanding derivative instruments as of December 31, 2022 and 2021 were as follows:
| December 31, 2022 |  | December 31, 2021
| Notional Amount |  | Notional Amount
| (Dollars in thousands)
Derivative instruments designated as hedges: |  |  |
Commodity derivative contracts | $ | — |  |  | $ | 19,474 |
Interest rate swap contracts | 250,000 |  |  | 500,000 |
Derivative instruments not designated as hedges: |  |  |
Foreign currency derivatives | $ | 70,420 |  |  | $ | 99,260 |
Interest rate swap contracts | 183,000 |  |  | — |
The following table summarizes the fair value of our outstanding derivatives designated as hedges (on a gross basis) and balance sheet classification as of December 31, 2022 and 2021:
| December 31, 2022 |  | December 31, 2021
| Fair Value |  | Fair Value
| (Dollars in thousands)
Prepaid and other current assets |  |  |
Commodity derivative contracts | $ | — |  |  | $ | 8,469 |
Interest rate swap contracts | 10,246 |  |  | — |
Total | $ | 10,246 |  |  | $ | 8,469 |
Other assets |  |  |
Interest rate swap contracts | $ | 5,575 |  |  | $ | 6,060 |
Total | $ | 5,575 |  |  | $ | 6,060 |
Other accrued liabilities |  |  |
Interest rate swap contracts | $ | — |  |  | $ | (140) |
Total | $ | — |  |  | $ | (140) |
Net asset | $ | 15,821 |  |  | $ | 14,389 |
As a result of the settlement of commodity derivative contracts and foreign currency derivatives, as of December 31, 2022, net realized pre-tax gains of $17.6 million and net realized pre-tax losses of $5.5 million were reported in AOCL and will be released to earnings within the following 12 months. In addition, we recorded $0.8 million of ineffectiveness income to cost of sales in the Consolidated Statements of Operations in 2022 related to the settlement of commodity derivative contracts. No ineffectiveness expense was recorded in 2021 or 2020. See the table below for amounts recognized on the effective portion of our commodity derivative contracts in the Statement of Operations. The realized (gains) losses on cash flow hedges are recognized in the Statements of Operations when the hedged item impacts earnings and are as follows for the years ended December 31, 2022, 2021 and 2020:
|  |  |  | Amount of (Gain)/Loss Recognized
|  | Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations |  | 2022 |  | 2021 |  | 2020
Derivatives designated as cash flow hedges: |  | (Dollars in thousands)
Foreign currency derivatives |  | Cost of sales |  | $ | 1,975 |  |  | $ | — |  |  | $ | — |
Commodity derivative contracts |  | Cost of sales |  | (11,452) |  |  | 6,440 |  |  | (4,134) |
Interest rate swaps |  | Interest expense |  | (2,423) |  |  | 1,846 |  |  | 4,390 |
Pre-tax gains and losses on non-designated derivatives recognized in earnings are as follows:
|  |  |  | Amount of (Gain)/Loss Recognized
|  | Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations |  | 2022 |  | 2021 |  | 2020
Derivatives not designated as hedges: |  | (Dollars in thousands)
Foreign currency derivatives |  | Cost of sales, other (income) expense, net |  | $ | (938) |  |  | $ | 3,895 |  |  | $ | (2,671) |
Commodity derivative contracts |  | Cost of sales |  | — |  |  | (1,399) |  |  | (530) |
Interest rate swaps |  | Interest expense |  | (11,716) |  |  | 866 |  |  | — |
The following table summarizes the fair value of our outstanding derivatives not designated as hedges (on a gross basis) and balance sheet classification as of December 31, 2022 and 2021:
| December 31, 2022 |  | December 31, 2021
| Fair Value |  | Fair Value
| (Dollars in thousands)
Prepaid and other current assets |  |  |
Interest rate swap contracts | $ | 7,492 |  |  | $ | — |
Foreign currency derivatives | 92 |  |  | 388 |
Other assets |  |  |
Interest rate swap contracts | 4,071 |  |  | — |
Other accrued liabilities |  |  |
Foreign currency derivatives | (282) |  |  | (2) |
Net asset | $ | 11,373 |  |  | $ | 386 |

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