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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2024
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, 2024 and December 31, 2023, we had no interest rate swap agreements outstanding. The Company had treasury lock agreements, designated as cash flow hedges, to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our senior unsecured notes. As part of the issuance of our senior notes, we net settled these derivatives for $10 million in cash and the deferred gains recorded in other comprehensive income (loss) will be released to interest expense over the life of the senior notes. The effect of these settled treasury locks reduces the effective interest rate on the senior 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 rates 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 at a 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. 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 March 2027. The aggregate notional amount of these contracts was $368.6 million and $393.3 million at September 30, 2024 and December 31, 2023, 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, gains of $13.4 million and $4.3 million for the quarter and nine months ended September 30, 2024, respectively, and losses of $12.8 million and $4.5 million for the quarter and nine months ended September 30, 2023, respectively, were recorded in other comprehensive income (loss). We recognized losses of $0.2 million and $2.2 million in gross margin during the quarter and nine months ended September 30, 2024, respectively, and losses of $1.5 million and $7.8 million for the quarter and nine months ended September 30, 2023, 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, 2024, we recognized net foreign exchange gains of $1.2 million and $3.2 million, respectively, in the Condensed Consolidated Statements of Operations. During the quarter and nine months ended September 30, 2023, we recognized net foreign exchange losses of $1.6 million and $1.4 million, respectively. The net foreign exchange impact recognized from these contracts offsets the translation exposure of these transactions. The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive income (loss) for the quarters and nine months ended September 30, 2024 and September 30, 2023 was as follows:
|  | Quarter Ended September 30, |  |  | Nine Months Ended September 30, |
(In millions) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Unrealized gains (losses) at beginning of period, net of tax |  | $ | - |  |  | $ | 0.4 |  |  | $ | 5.3 |  |  | $ | (10.5 | )
Losses reclassified to net sales |  |  | 0.1 |  |  |  | 1.1 |  |  |  | 1.6 |  |  |  | 5.8 |
Increase (decrease) in fair value |  |  | 10.0 |  |  |  | (9.5 | ) |  |  | 3.2 |  |  |  | (3.3 | )
Unrealized gains (losses) at end of period, net of tax |  | $ | 10.1 |  |  | $ | (8.0 | ) |  | $ | 10.1 |  |  | $ | (8.0 | )
Unrealized gains of $10.1 million recorded in accumulated other comprehensive loss, less taxes of $2.6 million, as of September 30, 2024, are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded. Commodity Swap Agreements We use commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of September 30, 2024, we had commodity swap agreements with a notional value of $18.2 million. The swaps mature monthly through September 2026. 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 values of outstanding derivative financial instruments as of September 30, 2024 and December 31, 2023 were as follows:
| Prepaid and Other Current Assets | Other Assets | Current Liabilities | Non-Current Liabilities
(In millions) | September 30, 2024 | December 31, 2023 | September 30, 2024 | December 31, 2023 | September 30, 2024 | December 31, 2023 | September 30, 2024 | December 31, 2023
Derivative Products |  |  |  |  |  |  |  |
Foreign currency forward exchange contracts | $10.4 | $4.8 | $3.7 | $5.5 | $0.2 | $3.2 | $- | $-
Undesignated hedges | 0.4 | - | - | - | - | 1.4 | - | -
Commodity swaps | 0.6 | 0.5 | 0.1 | 0.2 | 0.2 | 1.5 | 0.1 | 0.2
Cross currency and interest rate swap | 4.4 | 4.3 | 3.9 | 3.7 | - | - | - | -
Total Derivative Products | $15.8 | $9.6 | $7.7 | $9.4 | $0.4 | $6.1 | $0.1 | $0.2

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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