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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded in our condensed consolidated balance sheet at fair value. Foreign Exchange Rate Risk We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of September 30, 2022, the notional amount of these forward exchange contracts was Singapore Dollar (“SGD”) 601.5 million and $13.4 million. In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. As of September 30, 2022, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions) |  |  | Sell
Currency | Purchase |  | USD | Euro
USD | 13.5 |  |  | — |  | 11.8 |
Yen | 5,686.2 |  |  | 23.8 |  | 20.6 |
SGD | 68.7 |  |  | 33.7 |  | 15.6 |
In December 2019, we entered into a cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. As of September 30, 2022, the notional amount of the cross-currency swap is ¥9.2 billion ($83.8 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on USD compounded SOFR plus a margin, in return for paying floating interest rate payments based on Japanese Yen (“Yen”) Tokyo Overnight Average Rate ("TONAR") plus a margin. In addition, we receive periodic fixed principal payments of USD in return for paying fixed principal payments of Yen. Commodity Price Risk Many of our proprietary products are made from synthetic elastomers, which are derived from the petroleum refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain clauses that provide for surcharges related to fluctuations in crude oil prices. The following economic hedges did not qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception. From November 2017 through September 2022, we purchased several series of call options for a total of 823,536 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regard to a portion of our forecasted elastomer purchases. As of September 30, 2022, we had outstanding contracts to purchase 259,559 barrels of crude oil from September 2022 to June 2024, at a weighted-average strike price of $109.84 per barrel. Effects of Derivative Instruments on Financial Position and Results of Operations Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of September 30, 2022 and December 31, 2021. The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
| Amount of Gain (Loss) Recognized in Income for the |  | Amount of Gain (Loss) Recognized in Income for the |  |
| Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Location on Statement of Income
($ in millions) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Fair Value Hedges: |  |  |  |  |  |  |  |  |
Hedged item (intercompany loan) | $ | (14.1) |  |  | $ | (5.9) |  |  | $ | (35.4) |  |  | $ | (11.0) |  |  | Other (income) expense
Derivative designated as hedging instrument | 14.1 |  |  | 5.9 |  |  | 35.4 |  |  | 11.0 |  |  | Other (income) expense
Amount excluded from effectiveness testing | 2.2 |  |  | 0.9 |  |  | 4.4 |  |  | 2.1 |  |  | Other (income) expense
Total | $ | 2.2 |  |  | $ | 0.9 |  |  | $ | 4.4 |  |  | $ | 2.1 |  |  |
We recognize in earnings the initial value of forward point components on a straight-line basis over the life of the fair value hedge. The amounts recognized in earnings, pre-tax, for forward point components for the three and nine months ended September 30, 2022 and 2021 were $1.1 million, $2.8 million, and $0.6 million, $1.9 million, respectively. The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on other comprehensive income (“OCI”) and earnings, net of tax:
| Amount of Gain (Loss) Recognized in OCI for the |  | Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the |  | Location of (Gain) Loss Reclassified from Accumulated OCI into Income
| Three Months Ended September 30, |  | Three Months Ended September 30, |
($ in millions) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Fair Value Hedges |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (0.4) |  |  | $ | (0.2) |  |  | $ | 0.5 |  |  | $ | 0.1 |  |  | Other (income) expense
Total | $ | (0.4) |  |  | $ | (0.2) |  |  | $ | 0.5 |  |  | $ | 0.1 |  |  |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | 0.7 |  |  | $ | 0.1 |  |  | $ | (0.5) |  |  | $ | 0.1 |  |  | Net sales
Foreign currency hedge contracts | (1.5) |  |  | 1.4 |  |  | 1.0 |  |  | (0.3) |  |  | Cost of goods and services sold
Forward treasury locks | — |  |  | — |  |  | 0.1 |  |  | 0.1 |  |  | Interest expense
Total | $ | (0.8) |  |  | $ | 1.5 |  |  | $ | 0.6 |  |  | $ | (0.1) |  |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |
Cross-currency swap | $ | 4.3 |  |  | $ | 0.6 |  |  | $ | — |  |  | $ | — |  |  | Other (income) expense
Total | $ | 4.3 |  |  | $ | 0.6 |  |  | $ | — |  |  | $ | — |  |  |
| Amount of Gain (Loss) Recognized in OCI for the |  | Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the |  | Location of (Gain) Loss Reclassified from Accumulated OCI into Income
| Nine Months Ended September 30, |  | Nine Months Ended September 30, |
($ in millions) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Fair Value Hedges |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | 0.3 |  |  | $ | (0.6) |  |  | $ | (0.7) |  |  | $ | 0.9 |  |  | Other (income) expense
Total | $ | 0.3 |  |  | $ | (0.6) |  |  | $ | (0.7) |  |  | $ | 0.9 |  |  |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | 1.1 |  |  | $ | (0.5) |  |  | $ | (1.1) |  |  | $ | 0.9 |  |  | Net sales
Foreign currency hedge contracts | (4.9) |  |  | (1.4) |  |  | 2.5 |  |  | 1.2 |  |  | Cost of goods and services sold
Forward treasury locks | — |  |  | — |  |  | 0.2 |  |  | 0.2 |  |  | Interest expense
Total | $ | (3.8) |  |  | $ | (1.9) |  |  | $ | 1.6 |  |  | $ | 2.3 |  |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |
Cross-currency swap | $ | 13.2 |  |  | $ | 6.0 |  |  | $ | — |  |  | $ | — |  |  | Other (income) expense
Total | $ | 13.2 |  |  | $ | 6.0 |  |  | $ | — |  |  | $ | — |  |  |
The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges by line item in our condensed consolidated statements of income:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Net sales | $ | (0.5) |  |  | $ | 0.1 |  |  | $ | (1.1) |  |  | $ | 0.9 |
Cost of goods and services sold | 1.0 |  |  | (0.3) |  |  | 2.5 |  |  | 1.2 |
Interest expense | 0.1 |  |  | 0.1 |  |  | 0.2 |  |  | 0.2 |
Other (income) expense | 0.5 |  |  | 0.1 |  |  | (0.7) |  |  | 0.9 |
The following table summarizes the effects of derivative instruments not designated as hedges on the condensed consolidated statements of income:
| Amount of (Loss) Gain Recognized in Income for the |  | Amount of Gain (Loss) Recognized in Income for the |  |
| Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Location on Statement of Income
($ in millions) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Commodity call options | $ | (1.5) |  |  | $ | 0.5 |  |  | $ | 1.6 |  |  | $ | 1.6 |  |  | Other (income) expense
Total | $ | (1.5) |  |  | $ | 0.5 |  |  | $ | 1.6 |  |  | $ | 1.6 |  |  |
For the three and nine months ended September 30, 2022 and 2021, there was no material ineffectiveness related to our hedges.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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