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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2019
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, 2019, the total amount of these forward exchange contracts was Singapore Dollar (“SGD”) 601.5 million and $13.4 million. As of December 31, 2018, the total amount of these forward exchange contracts was €10.0 million, 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, 2019, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
(in millions)
 
 
Sell
Currency
Purchase
 
USD
Euro
USD
39.3

 
—

34.2

Yen
5,921.1

 
31.8

20.2

SGD
31.9

 
18.7

4.3



At September 30, 2019, a portion of our debt consisted of borrowings denominated in currencies other than USD. We have designated our €21.0 million ($23.0 million) Euro-denominated borrowings under our Credit Facility as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation gain of $0.6 million pre-tax ($0.5 million after tax) on this debt was recorded within accumulated other comprehensive loss as of September 30, 2019. We have also designated our ¥500.0 million ($4.6 million) Yen-denominated borrowings under our Credit Facility as a hedge of our net investment in Daikyo. At September 30, 2019, there was a cumulative foreign currency translation loss of $0.5 million pre-tax ($0.4 million after tax) on this Yen-denominated debt, which was also included within accumulated other comprehensive loss.

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 July 2019, we purchased several series of call options for a total of 301,326 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 September 30, 2019, we had outstanding contracts to purchase 107,909 barrels of crude oil from October 2019 to December 2020, at a weighted-average strike price of $71.15 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, 2019 and December 31, 2018.

The following table summarizes the effects of derivative instruments designated as fair value hedges on the condensed consolidated statements of income:
 
Amount of Loss (Gain) Recognized in Income for the
 
Amount of Gain Recognized in Income for the
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Location on Statement of Income
($ in millions)
2019
 
2018
 
2019
 
2018
 
 
Fair Value Hedges:
 
 
 
 
 
 
 
 
 
Foreign currency hedge contracts
$
4.3

 
$
(2.0
)
 
$
(5.0
)
 
$
(3.4
)
 
Other expense (income)
Total
$
4.3

 
$
(2.0
)
 
$
(5.0
)
 
$
(3.4
)
 
 

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 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 (Loss) Gain Recognized in OCI for the
 
Amount of Loss (Gain) Reclassified from Accumulated OCI into Income for the
 
Location of Loss (Gain) Reclassified from Accumulated OCI into Income
 
Three Months Ended
September 30,
 
Three Months Ended
September 30,
 
($ in millions)
2019
 
2018
 
2019
 
2018
 
 
Fair Value Hedges
 
 
 
 
 
 
 
 
 
Foreign currency hedge contracts
$
(0.6
)
 
$
—

 
$
2.9

 
$
—

 
Other expense (income)
Total
$
(0.6
)
 
$
—

 
$
2.9

 
$
—

 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
Foreign currency hedge contracts
$
0.7

 
$
0.1

 
$
(0.3
)
 
$
—

 
Net sales
Foreign currency hedge contracts
0.6

 
(0.5
)
 
(0.2
)
 
(0.1
)
 
Cost of goods and services sold
Forward treasury locks
—

 
—

 
0.1

 
0.1

 
Interest expense
Total
$
1.3

 
$
(0.4
)
 
$
(0.4
)
 
$
—

 
 
Net Investment Hedges:
 

 
 

 
 

 
 

 
 
Foreign currency-denominated debt
$
0.7

 
$
0.2

 
$
—

 
$
—

 
Other expense (income)
Total
$
0.7

 
$
0.2

 
$
—

 
$
—

 
 

 
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)
2019
 
2018
 
2019
 
2018
 
 
Fair Value Hedges
 
 
 
 
 
 
 
 
 
Foreign currency hedge contracts
$
3.9

 
$
—

 
$
(3.3
)
 
$
—

 
Other expense (income)
Total
$
3.9

 
$
—

 
$
(3.3
)
 
$
—

 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
Foreign currency hedge contracts
$
1.0

 
$
0.2

 
$
(0.7
)
 
$
0.8

 
Net sales
Foreign currency hedge contracts
1.1

 
0.9

 
(0.5
)
 
0.4

 
Cost of goods and services sold
Forward treasury locks
—

 
—

 
0.2

 
0.2

 
Interest expense
Total
$
2.1

 
$
1.1

 
$
(1.0
)
 
$
1.4

 
 
Net Investment Hedges:
 

 
 

 
 

 
 

 
 
Foreign currency-denominated debt
$
0.5

 
$
0.7

 
$
—

 
$
—

 
Other expense (income)
Total
$
0.5

 
$
0.7

 
$
—

 
$
—

 
 


The following table summarizes the effects of derivative instruments not designated as hedges on the condensed consolidated statements of income:
 
Amount of Loss Recognized in Income for the
 
Amount of Loss (Gain) Recognized in Income for the
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Location on Statement of Income
($ in millions)
2019
 
2018
 
2019
 
2018
 
 
Commodity call options
$
0.1

 
$
—

 
$
0.3

 
$
(0.5
)
 
Cost of goods and services sold
Total
$
0.1

 
$
—

 
$
0.3

 
$
(0.5
)
 
 


For the three and nine months ended September 30, 2019 and 2018, there was no material ineffectiveness related to our hedges.