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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial InstrumentsOur 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 interco mpany loans. As of both September 30, 2023 and December 31, 2022, the notional amount of these forward exchange contracts was Singapore Dollar (“SGD”) 601.5 million and $13.4 million. We have also entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany demand notes which were executed in June 2023. As of September 30, 2023, the total amount of these forward exchange contracts was Euro ("EUR") 278.6 million and SGD 94.0 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, 2023, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions) |  |  | Sell
Currency | Purchase |  | USD | Euro
EUR | 20.3 |  |  | 22.3 |  | — |
Yen | 5,159.3 |  |  | 29.8 |  | 9.0 |
SGD | 44.7 |  |  | 15.2 |  | 16.8 |
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, 2023, the notional amount of the cross-currency swap is ¥8.9 billion ($81.5 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 2023, we purchased several series of call options for a total of 975,206 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, 2023, we had outstanding contracts to purchase 229,397 barrels of crude oil from September 2023 to March 2025, at a weighted-average strike price of $94.93 per barrel. Effects of Derivative Instruments on Financial Position and Results of Operations Please refer to Note 10, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of September 30, 2023 and December 31, 2022. The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
| Amount of Gain (Loss) Recognized in Income for the |  | Amount of Gain (Loss) Recognized in Income for the |  |
| Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Location on Statement of Income
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Fair Value Hedges: |  |  |  |  |  |  |  |  |
Hedged item (intercompany loan) | $ | (1.2) |  |  | $ | (14.1) |  |  | $ | 8.7 |  |  | $ | (35.4) |  |  | Other expense (income)
Derivative designated as hedging instrument | 0.7 |  |  | 14.1 |  |  | (10.0) |  |  | 35.4 |  |  | Other expense (income)
Amount excluded from effectiveness testing | (1.5) |  |  | 2.2 |  |  | (0.4) |  |  | 4.4 |  |  | Other expense (income)
Total | $ | (2.0) |  |  | $ | 2.2 |  |  | $ | (1.7) |  |  | $ | 4.4 |  |  |
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, 2023 were $0.2 million and $1.6 million, respectively. The amounts recognized in earnings, pre-tax, for forward point components for the three and nine months ended September 30, 2022 were $1.1 million and $2.8 million, respectively. The following tables summarize the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on other comprehensive income (“OCI”) and earnings, net of tax:
| Amount of Gain (Loss) Recognized in OCI for the |  | Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for the |  | Location of (Gain) Loss Reclassified from Accumulated OCI into Income
| Three Months Ended September 30, |  | Three Months Ended September 30, |
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Fair Value Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (0.3) |  |  | $ | (0.4) |  |  | $ | 2.3 |  |  | $ | 0.5 |  |  | Other expense (income)
Total | $ | (0.3) |  |  | $ | (0.4) |  |  | $ | 2.3 |  |  | $ | 0.5 |  |  |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | 0.5 |  |  | $ | 0.7 |  |  | $ | 0.1 |  |  | $ | (0.5) |  |  | Net sales
Foreign currency hedge contracts | (2.5) |  |  | (1.5) |  |  | 1.1 |  |  | 1.0 |  |  | Cost of goods and services sold
Forward treasury locks | — |  |  | — |  |  | — |  |  | 0.1 |  |  | Interest expense
Total | $ | (2.0) |  |  | $ | (0.8) |  |  | $ | 1.2 |  |  | $ | 0.6 |  |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |
Cross-currency swap | $ | 2.9 |  |  | $ | 4.3 |  |  | $ | — |  |  | $ | — |  |  | Other expense (income)
Total | $ | 2.9 |  |  | $ | 4.3 |  |  | $ | — |  |  | $ | — |  |  |
| 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) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Fair Value Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (2.3) |  |  | $ | 0.3 |  |  | $ | 4.2 |  |  | $ | (0.7) |  |  | Other expense (income)
Total | $ | (2.3) |  |  | $ | 0.3 |  |  | $ | 4.2 |  |  | $ | (0.7) |  |  |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |
Foreign currency hedge contracts | $ | (0.4) |  |  | $ | 1.1 |  |  | $ | 1.2 |  |  | $ | (1.1) |  |  | Net sales
Foreign currency hedge contracts | (6.1) |  |  | (4.9) |  |  | 1.5 |  |  | 2.5 |  |  | Cost of goods and services sold
Forward treasury locks | — |  |  | — |  |  | 0.1 |  |  | 0.2 |  |  | Interest expense
Total | $ | (6.5) |  |  | $ | (3.8) |  |  | $ | 2.8 |  |  | $ | 1.6 |  |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |
Cross-currency swap | $ | 10.1 |  |  | $ | 13.2 |  |  | $ | — |  |  | $ | — |  |  | Other expense (income)
Total | $ | 10.1 |  |  | $ | 13.2 |  |  | $ | — |  |  | $ | — |  |  |
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 condensed consolidated statements of income for the three and nine months ended September 30, 2023 and September 30, 2022. The following table summarizes the effects of derivative instruments designated as 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) | 2023 |  | 2022 |  | 2023 |  | 2022
Net sales | $ | 0.1 |  |  | $ | (0.5) |  |  | $ | 1.2 |  |  | $ | (1.1) |
Cost of goods and services sold | 1.1 |  |  | 1.0 |  |  | 1.5 |  |  | 2.5 |
Interest expense | — |  |  | 0.1 |  |  | 0.1 |  |  | 0.2 |
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) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Commodity call options | $ | 0.5 |  |  | $ | (1.5) |  |  | $ | (0.5) |  |  | $ | 1.6 |  |  | Other expense (income)
Currency Forwards | — |  |  | — |  |  | (0.2) |  |  | — |  |  | Other expense (income)
Total | $ | 0.5 |  |  | $ | (1.5) |  |  | $ | (0.7) |  |  | $ | 1.6 |  |  |
For the three and nine months ended September 30, 2023 and 2022, there was no material ineffectiveness related to our hedges.

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