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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 | Note 6 — Derivative Financial Instruments Interest Rate Swap and Interest Lock Agreements At September 30, 2022 and December 31, 2021, we had no interest rate swap agreements outstanding. The Company had treasury lock agreements to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges for hedge accounting purposes thus any change in fair value was recorded as a component of other comprehensive (loss) income. As part of the issuance of our 3.95% Senior Unsecured Notes, we net settled these derivatives for $10 million in cash. As a result of settling these derivatives the previously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the 3.95% Senior Unsecured Notes. The effect of these treasury locks reduced the effective interest rate on these notes by approximately 0.25%. Cross Currency and Interest Rate Swap Agreements In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €270 million, 5-year amortizing, intercompany loan between one of our European subsidiaries and the U.S. parent company. Changes in the spot exchange are recorded to the general ledger and offset the fair value re-measurement of the hedged item. The net difference in the interest rates coupons is recorded as a credit to interest expense. The derivative swaps €270 million bearing interest at a fixed rate of 0.30% for $319.9 million plus fixed rate interest of 1.115%. The interest coupons settle semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, €50 million versus $59.2 million, and a final settlement on November 15, 2025 of €70 million versus $82.9 million. The carrying value of the derivative at September 30, 2022 is a current asset of $12.0 million and a long-term asset of $27.6 million. The carrying value of the derivative at December 31, 2021 was a current asset of $4.0 million and a long-term asset of $3.4 million. Foreign Currency Forward Exchange Contracts A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We have entered into contracts to exchange U.S. dollars for Euros and British pound sterling through December 2024. The aggregate notional amount of these contracts was $475.2 million and $316.4 million at September 30, 2022 and December 31, 2021, respectively. The purpose of these contracts is to hedge a portion of the forecasted transactions of our European subsidiaries under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates. The effective portion of the hedges, losses of $31.9 million and $60.3 million were recorded in other comprehensive (loss) income for the quarter and nine months ended September 30, 2022, respectively, and losses of $6.2 million and $10.2 million were recorded for the quarter and nine months ended September 30, 2021, respectively. We classified the $54.7 million carrying amount of these contracts as liabilities ($22.2 million of which is recorded in non-current liabilities) on the Condensed Consolidated Balance Sheets at September 30, 2022, and $1.9 million of the carrying amount of these contracts was classified in assets ($1.7 million of which was recorded in prepaid expenses and other current assets) and $6.8 million as liabilities (less than $3.9 million of which is in other non-current liabilities) at December 31, 2021. We recognized losses of $6.2 million and $10.5 million in gross margin during the quarter and nine months ended September 30, 2022, respectively, and gains of $1.5 million and $4.8 million for the quarter and nine months ended September 30, 2021, respectively. In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are no credit contingency features in these derivatives. During the quarter and nine months ended September 30, 2022, we recognized net foreign exchange losses of $1.0 million and $2.0 million, respectively, in the Condensed Consolidated Statements of Operations. During the quarter and nine months ended September 30, 2021, we recognized net foreign exchange losses of $0.3 million and $1.1 m illion, respectively. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions. The carrying amount of the contracts for derivatives not designated as hedging instruments was $0.1 million classified in current assets at September 30, 2022, and $0.2 million classified in current liabilities on our Condensed Consolidated Balance Sheet at December 31, 2021. The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive (loss) income for the quarters and nine months ended September 30, 2022 and September 30, 2021 was as follows:
|  | Quarter Ended September 30, |  |  | Nine Months Ended September 30, |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Unrealized (losses) gains at beginning of period, net of tax |  | $ | (21.7 | ) |  | $ | 5.3 |  |  | $ | (3.5 | ) |  | $ | 10.6 |
Losses (gains) reclassified to net sales |  |  | 4.8 |  |  |  | (1.2 | ) |  |  | 7.9 |  |  |  | (3.7 | )
Decrease in fair value |  |  | (24.7 | ) |  |  | (4.8 | ) |  |  | (46.0 | ) |  |  | (7.6 | )
Unrealized losses at end of period, net of tax |  | $ | (41.6 | ) |  | $ | (0.7 | ) |  | $ | (41.6 | ) |  | $ | (0.7 | )
Unrealized losses of $25.7 million recorded in accumulated other comprehensive loss, less taxes of $6.0 million, as of September 30, 2022, are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded. Commodity Swap Agreements On occasion we enter into commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of September 30, 2022, we had commodity swap agreements with a notional value of $25.9 million. The swaps mature monthly through August 2024. The swaps are accounted for as a cash flow hedge of our forward raw material purchases. To ensure the swaps are highly effective, all of the critical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements a liability of $9.3 million ($1.9 million of which was recorded in other non-current liabilities) at September 30, 2022, a nd an asset of $0.9 million ($0.9 million of which was recorded in prepaid expenses and other current assets) and a liability of $2.3 million ($0.8 million of which was recorded in other non-current liabilities) at December 31, 2021.

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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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