Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. These risk factors can impact our results of operations, cash flows and financial position. 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 Risk

Sales outside of the U.S. accounted for 57.5% of our consolidated net sales in 2024. Virtually all of these sales and related operating costs are denominated in the currency of the local country and translated into USD for consolidated reporting purposes. Although the majority of the assets and liabilities of these subsidiaries are denominated in the functional currency of the subsidiary, they may also hold assets or liabilities denominated in other currencies. These items may give rise to foreign currency transaction gains and losses. As a result, our results of operations and financial position are exposed to changing currency exchange rates. We periodically use forward exchange contracts to hedge certain transactions or to manage month-end balance sheet exposures on cross-currency intercompany balances.

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, 2024 the total amount of these forward exchange contracts was Singapore Dollar ("SGD") 421.9 million and $13.4 million. As of December 31, 2023 the total amount of these forward exchange contracts was 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 at various times throughout 2023 and 2024. As of December 31, 2024, the total amount of these forward exchange contracts was Euro ("EUR") 145.3 million and $47.1 million. As of December 31, 2023, the total amount of these forward exchange contracts was 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 December 31, 2024, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:

In December 2019, we entered into a five-year floating-to-floating forward-starting cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. This cross-currency swap had an original maturity date of December 31, 2024, but was extinguished in July 2024. In July 2024, we entered into a new cross-currency swap for $130 million, which we designated as a hedge of our net investment in Daikyo. As of December 31, 2024, the notional amount of the cross-currency swap is Japanese Yen ("JPY") 17.0 billion ($130.0 million) and the swap termination date is July 2, 2027. Under the current cross-currency swap, we receive fixed USD interest rate payments in return for paying fixed JPY interest rate payments.

A sensitivity analysis of changes in fair value of these contracts outstanding as of December 31, 2024, while not predictive in nature, indicated that a 10% decrease or increase in the foreign currency exchange rates from their level would increase or decrease the fair value of these contracts by $7.0 million or $5.8 million, respectively, the majority of which relates to our hedges of the movement between the Euro and United States Dollar contracts.

Interest Rate Risk

As a result of our normal borrowing activities, we have long-term debt with both fixed and variable interest rates. Long-term debt consists of our Term Loan and Series C notes.

The following table summarizes our interest rate risk-sensitive instruments:

A change of 1.0% in variable interest rates would decrease or increase annual interest expense by $1.3 million based on our outstanding debt as of December 31, 2024.

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. In recent years, raw material costs have fluctuated due to crude oil price fluctuations. We expect this volatility to continue and will continue to pursue pricing and hedging strategies, and ongoing cost control initiatives, to offset the effects on gross profit.

We regularly purchase call options on 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 December 31, 2024, we had outstanding contracts to purchase 190,773 barrels of crude oil from December 2024 to June 2026, at a weighted-average strike price of $84.70 per barrel.

During 2024, the loss recorded in other expense (income) related to these options was $0.7 million. During 2023, the loss recorded in other expense (income) related to these options was $1.3 million.

A sensitivity analysis of changes in brent crude oil prices indicated that a 10% decrease or increase in pricing would decrease or increase the fair value of our commodity call options by $0.2 million or $0.4 million, respectively, as of December 31, 2024.