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Financial Instruments
 3 Months Ended
Mar. 31, 2017
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 commodities 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. Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. As a result, from time to time, we enter into commodity swaps to manage the price risk associated with forecasted purchases of materials used in our operations.

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 March 31, 2017 was $185.7 million, representing a net settlement receivable of $1.5 million. Based on foreign exchange rates as of March 31, 2017, we estimate that $2.5 million of net foreign currency derivative gains included in other comprehensive income as of March 31, 2017 will be reclassified to earnings within the next twelve months.

The fair values of derivative instruments on the consolidated balance sheets as of March 31, 2017 and December 31, 2016 were as follows:

 

(In millions)         Fair Value  
    

Location

    March 31,
2017		      December 31,
2016		  

Assets

         

Foreign exchange contracts

   

Other current assets

    $ 2.9      $ 2.8  

Net investment hedges

   

Other current assets

      —          0.6  
     

 

 

     

 

 

  
  

Total assets

    $ 2.9      $ 3.4  

Liabilities

         

Foreign exchange contracts

   

Other current liabilities

    $ 1.4      $ 2.9  

Net investment hedges

   

Other current liabilities

      0.2        0.2  
     

 

 

     

 

 

  
  

Total current liabilities

    $ 1.6      $ 3.1  

The effects of derivative financial instruments on the statements of comprehensive income for the three months ended March 31, 2017 and 2016 were as follows:

 

          (Loss) Gain Recognized in Income  
(In millions)         March 31,      March 31,  

Type of hedge

   

Location

    2017      2016  

Cash flow

    Cost of products sold    $ (0.6 )     $ 0.7  

Fair value

    Other income, net      (1.1 )       0.5  
     

 

 

     

 

 

  

Total

       $ (1.7 )     $ 1.2  

 

The effective portion of cash flow hedges recognized in other comprehensive income were net gains (losses) of $2.1 million and $(4.6) million at March 31, 2017 and 2016, respectively. In the three months ended March 31, 2017 and 2016, the ineffective portion of cash flow hedges recognized in other income, net, was insignificant.