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Financial Instruments
 9 Months Ended
Sep. 30, 2016
Financial Instruments
8. Financial Instruments

We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates and commodity prices used as raw materials in our products. The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company. In addition, from time to time, we enter into commodity swaps.

Our primary foreign currency hedge contracts pertain to the Canadian dollar, the Mexican peso and the Chinese yuan. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at September 30, 2016 was $212.2 million, representing a net settlement liability of $2.6 million. Based on foreign exchange rates as of September 30, 2016, we estimate that $2.4 million of net foreign currency derivative losses included in other comprehensive income as of September 30, 2016 will be reclassified to earnings within the next twelve months.

The fair values of derivative instruments on the consolidated balance sheets as of September 30, 2016 and December 31, 2015 were:

 

(In millions)         Fair Value  
    

Location

    September 30,
2016		      December 31,
2015		  

Assets

         

Foreign exchange contracts

   

Other current assets

    $ 1.2       $ 6.7   

Net investment hedges

   

Other current assets

      —           0.1   
     

 

 

     

 

 

  
  

Total assets

    $ 1.2       $ 6.8   

Liabilities

         

Foreign exchange contracts

   

Other current liabilities

    $ 3.6       $ 3.1   

Net investment hedges

   

Other current liabilities

      0.2         —     
     

 

 

     

 

 

  
  

Total liabilities

    $ 3.8       $ 3.1   

The effects of derivative financial instruments on the statements of comprehensive income for the nine and three months ended September 30, 2016 and 2015 were:

 

(In millions)       Gain (Loss) Recognized in Income
Nine Months Ended September 30,		  

Type of hedge

  

Location

   2016     2015  

Cash flow

  

Cost of products sold

   $ (2.6 )    $ 3.0   

Fair value

  

Other (income) expense, net

     1.3        5.9   
   

 

 

    

 

 

  

Total

     $ (1.3 )    $ 8.9   
(In millions)       Gain (Loss) Recognized in Income
Three Months Ended September 30,		  

Type of hedge

  

Location

   2016     2015  

Cash flow

  

Cost of products sold

   $ (1.2 )    $ 1.0   

Fair value

  

Other (income) expense, net

     0.3        3.2   
   

 

 

    

 

 

  

Total

     $ (0.9 )    $ 4.2   

The effective portion of cash flow hedges recognized in other comprehensive income were net (losses) gains of $(8.0) million and $4.4 million in the nine months ended September 30, 2016 and 2015, respectively. The effective portion of cash flow hedges recognized in other comprehensive income were net (losses) gains of zero and $2.4 million in the three months ended September 30, 2016 and 2015, respectively. In the nine and three months ended September 30, 2016 and 2015, the ineffective portion of cash flow hedges recognized in other (income) expense, net, was insignificant.