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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 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 consolidated balance sheet at fair value. Foreign Currency 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 December 31, 2022 and December 31, 2021, the total 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 December 31, 2022, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions) |  |  | Sell
Currency | Purchase |  | USD | EUR
USD | 1.7 |  |  |  | 1.2 |
Yen | 6,123.6 |  |  | 31.0 |  | 15.0 |
SGD | 62.8 |  |  | 21.1 |  | 23.5 |
In November and December 2019, in conjunction with the repayment of the outstanding long-term borrowings under our Credit Facility denominated in Euro and Japanese Yen, we de-designated these borrowings as hedges of our net investments in certain European subsidiaries and Daikyo. The amounts recorded as cumulative translation adjustments within accumulated other comprehensive loss related to these borrowings (prior to de-designation) will remain in accumulated other comprehensive loss indefinitely, unless certain future events occur, such as the disposition of the operations for which the net investment hedges relate. In December 2019, we entered into a five-year floating-to-floating forward-starting cross-currency swap (the “cross-currency swap”) for $90 million, which we designated as a hedge of our net investment in Daikyo. The notional amount of the cross-currency swap is ¥9.1 billion ($83.2 million) as of December 31, 2022. 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 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 December 2022, we purchased several series of call options for a total of 867,500 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases. As of December 31, 2022, we had outstanding contracts to purchase 258,597 barrels of crude oil from December 2022 to September 2024, at a weighted-average strike price of $108.28 per barrel. Effects of Derivative Instruments on Financial Position and Results of Operations Please refer to Note 12, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2022 and 2021. The following table summarizes the effects of derivative instruments designated as fair value hedges in our consolidated statements of income for the years ended December 31:
| Amount of Gain (Loss) Recognized in Income |  | Location on Statement of Income
($ in millions) | 2022 |  | 2021 |  | 2020 |  |
Fair Value Hedges: |  |  |  |  |  |  |
Hedged item (intercompany loan) | $ | (28.3) |  |  | $ | (22.1) |  |  | $ | 28.5 |  |  | Other expense (income)
Derivative designated as hedging instrument | 28.3 |  |  | 22.1 |  |  | (28.5) |  |  | Other expense (income)
Amount excluded from effectiveness testing | 5.2 |  |  | 3.0 |  |  | 6.1 |  |  | Other expense (income)
Total | $ | 5.2 |  |  | $ | 3.0 |  |  | $ | 6.1 |  |  |
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 years ended December 31, 2022, 2021 and 2020 were $4.0 million, $2.6 million and $6.3 million, respectively. We expect to recognize $3.2 million in earnings, pre-tax, for forward point components in 2023. The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on OCI and earnings, net of tax, for the years ended December 31:
| Amount of Gain (Loss) Recognized in OCI
($ in millions) | 2022 |  | 2021 |  | 2020
Fair Value Hedges: |  |  |  |  |
Foreign currency hedge contracts | $ | 1.3 |  |  | $ | 0.6 |  |  | $ | 4.0 |
Total | $ | 1.3 |  |  | $ | 0.6 |  |  | $ | 4.0 |
Cash Flow Hedges: |  |  |  |  |
Foreign currency hedge contracts (hedges of net sales) | $ | 0.3 |  |  | $ | (0.2) |  |  | $ | (0.6) |
Foreign currency hedge contracts (hedges of cost of goods and services sold) | (1.1) |  |  | (1.8) |  |  | (0.6) |
Forward treasury locks | — |  |  | — |  |  | — |
Total | $ | (0.8) |  |  | $ | (2.0) |  |  | $ | (1.2) |
Net Investment Hedges: |  |  |  |  |
Cross-currency swap | $ | 9.1 |  |  | $ | 7.7 |  |  | $ | (3.2) |
Total | $ | 9.1 |  |  | $ | 7.7 |  |  | $ | (3.2) |
| Amount of (Gain) Loss Reclassified from Accumulated OCI into Income |  | Location of (Gain) Loss Reclassified from Accumulated OCI into Income
($ in millions) | 2022 |  | 2021 |  | 2020 |  |
Fair Value Hedges: |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (1.6) |  |  | $ | (0.8) |  |  | $ | (4.3) |  |  | Other expense (income)
Total | $ | (1.6) |  |  | $ | (0.8) |  |  | $ | (4.3) |  |  |
Cash Flow Hedges: |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (1.2) |  |  | $ | 0.9 |  |  | $ | 0.2 |  |  | Net sales
Foreign currency hedge contracts | 3.5 |  |  | 1.7 |  |  | (0.1) |  |  | Cost of goods and services sold
Forward treasury locks | 0.2 |  |  | 0.3 |  |  | 0.3 |  |  | Interest expense
Total | $ | 2.5 |  |  | $ | 2.9 |  |  | $ | 0.4 |  |  |
Net Investment Hedges: |  |  |  |  |  |  |
Cross-currency swap | — |  |  | — |  |  | — |  |  | Other expense (income)
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  |
Refer to the above table which summarizes the effects of derivative instruments designated as fair value hedges within the other expense (income) line in our consolidated statements of income for the years ended December 31. The following table summarizes the effects of derivative instruments designated as cash flow and net investment hedges by line item in our consolidated statements of income for the years ended December 31:
($ in millions) | 2022 |  | 2021 |  | 2020
Net sales | $ | (1.2) |  |  | $ | 0.9 |  |  | $ | 0.2 |
Cost of goods and services sold | 3.5 |  |  | 1.7 |  |  | (0.1) |
Interest expense | 0.2 |  |  | 0.3 |  |  | 0.3 |
The following table summarizes the effects of derivative instruments not designated as hedges in our consolidated statements of income for the years ended December 31:
| Amount of Gain (Loss) Recognized in Income |  | Location on Statement of Income
($ in millions) | 2022 |  | 2021 |  | 2020 |  |
Commodity call options | $ | 1.5 |  |  | $ | 1.7 |  |  | $ | (0.2) |  |  | Other expense (income)
Total | $ | 1.5 |  |  | $ | 1.7 |  |  | $ | (0.2) |  |  |
During 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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