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Fair Value Measurements And Derivative Instruments | 12 Months Ended
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Dec. 31, 2023
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, 2023 | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: | (Dollars in thousands)
Foreign currency derivatives | $ | 630 |  |  | $ | — |  |  | $ | 630 |  |  | $ | — |
Total assets at fair value | $ | 630 |  |  | $ | — |  |  | $ | 630 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Foreign currency derivatives | $ | 519 |  |  | $ | — |  |  | $ | 519 |  |  | $ | — |
Total liabilities at fair value | $ | 519 |  |  | $ | — |  |  | $ | 519 |  |  | $ | — |
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 |  |  | $ | — |
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, 2023 and 2022 was $676.6 million and $843.2 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. We use derivative financial instruments, primarily foreign currency derivatives, and have in the past used 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 goods sold and they are largely offset by the financial impact of translating foreign currency-denominated payables and receivables. In the first quarter of 2022 and in the second, third and fourth quarters of 2023, 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 goods sold 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. The unrealized gains or losses related to commodity derivative contracts designated as cash flow hedges are recorded in AOCL 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 we have not entered into any new contracts as of December 31, 2023. Interest rate swap contracts We have utilized interest rate swaps in the past to limit exposure to market fluctuations on our variable-rate debt. For each derivative agreement that is designated as a cash flow hedge, the unrealized gain or loss is recorded in AOCL and, when realized, is recorded in interest expense. Upon discontinuance of a designated cash flow hedging relationship, when interest payments are still probable of occurring, the fair value at the date of discontinuance is deferred into AOCL and amortized into interest expense based upon the term of the cash flow hedging relationship. We entered into interest rate swap contracts that were "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 contained an other-than-insignificant financing element. As such, they were considered hybrid instruments composed of a debt host and an embedded derivative and the associated cash flows are classified as financing (uses)/sources of cash. The embedded derivative was treated as a cash flow hedge. In the first quarter of 2022, in connection with the partial repayment of principal on our 2018 Term Loan Facility 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, originally scheduled to mature 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 AOCL and is being amortized into interest expense over the remaining life of the swap. In the third quarter of 2022, we redeemed $67.0 million of our $250.0 million notional amount de-designated interest rate swap. The change in fair value of the de-designated embedded derivative for the year ended December 31, 2023 resulted in a loss of $7.1 million, compared to a gain of $7.1 million for the year ended December 31, 2022, recorded in interest expense in the Consolidated Statements of Operations. In the second quarter of 2023, in connection with the repayment of the $433.7 million outstanding balance on our 2018 Term Loan Facility, we terminated our $183.0 million notional de-designated interest rate swap and our $250.0 million notional designated interest rate swap and received net cash of $20.4 million. The net cash received included a $23.1 million gain on the embedded derivatives, partially offset by a $2.8 million loss on the settlement of our debt host liability as of the termination date. As of December 31, 2022, the debt host liability was $3.8 million, with $2.3 million included in "Other accrued liabilities" and $1.5 million included in "Other long-term obligations" on the Consolidated Balance Sheets. As of December 31, 2023, a cumulative loss of $1.8 million related to the debt host liability was recorded in AOCL and will be amortized into interest expense using the effective interest method through August 2024. Out of the $23.1 million gain on the embedded derivatives, $6.9 million for the de-designated swap was recorded in interest expense and $16.2 million for the designated swap was recorded in AOCI and will be amortized into interest expense using the effective interest method through August 2024. 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 its 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, 2023 and 2022 were as follows:
| December 31, 2023 |  | December 31, 2022
| Notional Amount |  | Notional Amount
| (Dollars in thousands)
Derivative instruments designated as hedges: |  |  |
Foreign currency derivatives | $ | 10,684 |  |  | $ | — |
Interest rate swap contracts | — |  |  | 250,000 |
Derivative instruments not designated as hedges: |  |  |
Foreign currency derivatives | $ | 41,863 |  |  | $ | 70,420 |
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, 2023 and 2022:
| December 31, 2023 |  | December 31, 2022
| Fair Value |  | Fair Value
| (Dollars in thousands)
Prepaid and other current assets |  |  |
Foreign currency derivatives | $ | 386 |  |  | $ | — |
Interest rate swap contracts | — |  |  | 10,246 |
Total | $ | 386 |  |  | $ | 10,246 |
Other assets |  |  |
Interest rate swap contracts | $ | — |  |  | $ | 5,575 |
Total | $ | — |  |  | $ | 5,575 |
Total asset | $ | 386 |  |  | $ | 15,821 |
As a result of the settlement of commodity derivative contracts and interest rate swaps, as of December 31, 2023, net realized pre-tax gains of $2.5 million and $9.2 million, respectively, were reported in AOCL and will be released to earnings within the next 12 months. As of December 31, 2023, net realized pre-tax losses of $0.4 million related to our foreign currency derivatives were reported in AOCL and will be released to earnings within the next 12 months. In addition, we recorded $0.8 million of ineffectiveness income to cost of goods sold in the Consolidated Statements of Operations in 2022 related to the settlement of commodity derivative contracts. No ineffectiveness expense was recorded in 2023 or 2021. 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, 2023, 2022 and 2021:
|  |  |  | Amount of (Gain)/Loss Recognized
|  | Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations |  | 2023 |  | 2022 |  | 2021
Derivatives designated as cash flow hedges: |  | (Dollars in thousands)
Foreign currency derivatives |  | Cost of goods sold |  | $ | 5,541 |  |  | $ | 1,975 |  |  | $ | — |
Commodity derivative contracts |  | Cost of goods sold |  | (15,089) |  |  | (11,452) |  |  | 6,440 |
Interest rate swaps |  | Interest expense |  | (10,617) |  |  | (2,423) |  |  | 1,846 |
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 |  | 2023 |  | 2022 |  | 2021
Derivatives not designated as hedges: |  | (Dollars in thousands)
Foreign currency derivatives |  | Cost of goods sold, other expense (income), net |  | $ | (314) |  |  | $ | (938) |  |  | $ | 3,895 |
Commodity derivative contracts |  | Cost of goods sold |  | — |  |  | — |  |  | (1,399) |
Interest rate swaps |  | Interest expense |  | (2,957) |  |  | (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, 2023 and 2022:
| December 31, 2023 |  | December 31, 2022
| Fair Value |  | Fair Value
| (Dollars in thousands)
Prepaid and other current assets |  |  |
Interest rate swap contracts | $ | — |  |  | $ | 7,492 |
Foreign currency derivatives | 244 |  |  | 92 |
Other assets |  |  |
Interest rate swap contracts | — |  |  | 4,071 |
Other accrued liabilities |  |  |
Foreign currency derivatives | (519) |  |  | (282) |
Net (liability) asset | $ | (275) |  |  | $ | 11,373 |

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