5. Financial Instruments

Foreign Exchange Derivative Instruments

The company enters into readily marketable forward and option contracts with financial institutions to help reduce its exposure to foreign currency exchange rate fluctuations. These contracts limit volatility because gains and losses associated with foreign currency exchange rate movements are generally offset by movements in the underlying hedged item. The notional value of the company’s forward currency and option currency contracts was $82.9 million and $205.2 million at June 30, 2012 and December 31, 2011, respectively. For further discussion regarding the company’s use of derivative instruments, see Note 1 of the consolidated financial statements in Bard’s 2011 Annual Report on Form 10-K.

Interest Rate Derivative Instrument

The company’s outstanding interest rate swap contract effectively converts its 2.875% fixed-rate notes due 2016 to a floating-rate instrument. The notional value of the company’s interest rate swap contract is $250.0 million.

The location and fair value of derivative instruments segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments recognized in the condensed consolidated balance sheets are as follows:


	Balance Sheet Location	Fair Value of Derivatives
Derivatives Designated as Hedging Instruments	Balance Sheet Location	June 30, 2012		December 31, 2011
(dollars in millions)
Forward currency contracts	Other current assets	$	1.0	$	1.5
Option currency contracts	Other current assets		3.5		4.3
Interest rate swap contract	Other assets		13.6		12.1

		$	18.1	$	17.9

Forward currency contracts	Accrued expenses	$	2.2	$	6.4

		$	2.2	$	6.4


Derivatives Not Designated as Hedging Instruments
(dollars in millions)
Forward currency contracts	Other current assets	$	—	$	3.8

		$	—	$	3.8

The location and amounts of gains and losses on derivative instruments designated as cash flow hedges and the impact on shareholders’ investment are as follows:


	Gain/(Loss) Recognized in Other Comprehensive Income						Location of Gain/(Loss) Reclassified from Accumulated Other Comp. Loss to Income	Gain/(Loss) Reclassified from Accumulated Other Comp. Loss to Income
	Quarter Ended June 30,							Quarter Ended June 30,
	2012			2011				2012			2011
(dollars in millions)
Forward currency contracts	$	(0.5	)	$	—		Costs of goods sold	$	(0.2	)	$	0.3
Option currency contracts		0.2			0.5		Costs of goods sold		0.3			—

	$	(0.3	)	$	0.5			$	0.1		$	0.3


	Gain/(Loss) Recognized in Other Comprehensive Income						Location of Gain/(Loss) Reclassified from Accumulated Other Comp. Loss to Income	Gain Reclassified from Accumulated Other Comp. Loss to Income
	Six Months Ended June 30,							Six Months Ended June 30,
	2012			2011				2012			2011
(dollars in millions)
Forward currency contracts	$	2.1		$	0.1		Costs of goods sold	$	0.1		$	0.9
Option currency contracts		(0.1	)		(0.1	)	Costs of goods sold		0.6			—

	$	2.0		$	—			$	0.7	^(A)	$	0.9	^(A)

^(A)	The tax effect of the amount reclassified from accumulated other comprehensive loss to income was $0.2 million and $0.6 million at June 30, 2012 and 2011, respectively.

The location and amounts of gains and losses on the derivative instrument designated as a fair value hedge are as follows:


	Income Statement Location	Gain Recognized on Swap								Gain/(Loss) Recognized on Long-Term Debt
		Quarter Ended June 30,				Six Months Ended June 30,				Quarter Ended June 30,						Six Months Ended June 30,
		2012		2011		2012		2011		2012			2011			2012			2011
(dollars in millions)
Interest rate swap contract	Interest expense	$	1.6	$	5.7	$	1.5	$	4.0	$	(1.6	)	$	(5.7	)	$	(1.5	)	$	(4.0	)

The location and amounts of gains and losses on derivative instruments not designated as hedging instruments are as follows:


	Income Statement Location	Gain Recognized in Earnings
		Quarter Ended June 30,				Six Months Ended June 30,
		2012		2011		2012		2011
(dollars in millions)
Forward currency contracts^(A)	Other (income) expense, net	$	—	$	2.7	$	3.0	$	4.6

^(A)	These derivative contracts mitigate changes in the value of remeasured foreign currency denominated intercompany loans attributable to changes in foreign currency exchange rates.

Financial Instruments Measured at Fair Value on a Recurring Basis

Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy range from Level 1 having observable inputs to Level 3 having unobservable inputs.

The following table summarizes certain financial instrument assets and (liabilities) measured at fair value on a recurring basis:


	June 30, 2012			December 31, 2011
(dollars in millions)
Foreign government bonds and notes	$	3.1		$	3.6
Forward currency contracts		(1.2	)		(1.1	)
Option currency contracts		3.5			4.3
Interest rate swap contract		13.6			12.1

The fair values were measured using significant other observable inputs and valued by reference to similar financial instruments, adjusted for restrictions and other terms specific to each instrument. These financial instruments are categorized as Level 2 under the fair value hierarchy.

The fair value of the liability for contingent consideration related to prior acquisitions was $72.6 million and $77.1 million at June 30, 2012 and December 31, 2011, respectively. The fair value was measured using significant unobservable inputs and is categorized as Level 3 under the fair value hierarchy.

Financial Instruments not Measured at Fair Value

The fair value of commercial paper borrowings of $303.5 million and $304.5 million at June 30, 2012 and December 31, 2011, respectively, approximated carrying value. The company maintains a $600 million five-year committed syndicated bank credit facility that expires in October 2016. The credit facility supports the company’s commercial paper program and can be used for general corporate purposes. The facility includes pricing based on the company’s long-term credit rating and includes a financial covenant that limits the amount of total debt to total capitalization.

The estimated fair value of long-term debt including the effect of the related interest rate swap contract was approximately $1.0 billion at both periods ended June 30, 2012 and December 31, 2011. The fair value was estimated using dealer quotes for similarly-rated debt instruments over the remaining contractual term of the company’s obligation. Long-term debt is categorized as Level 2 under the fair value hierarchy.

Concentration Risk

Accounts receivable balances include sales to government-supported healthcare systems outside the United States. The company continues to monitor sovereign debt issues and economic conditions in Europe and evaluates accounts receivable in certain countries for potential collection risks. Deteriorating economic conditions and other factors in certain countries in Europe have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect these accounts receivable and may require the company to re-evaluate the collectability of these receivables in future periods. The company is experiencing significant delays in the collection of accounts receivable associated with the national healthcare systems in Spain, Italy, Greece and Portugal. At June 30, 2012, the company’s accounts receivable, net of allowances, from the national healthcare systems in these countries and amounts past due greater than 365 days are as follows:


	Accounts receivable, net		Greater than 365 days past due
(dollars in millions)
Spain ^(A)	$	39.5	$	16.1
Italy		28.4		4.5
Greece		10.7		3.1
Portugal		5.3		1.8

	$	83.9	$	25.5

^(A)	Subsequent cash collections in the third quarter of 2012 were approximately $29.4 million, of which $16.1 million related to receivables greater than 365 days past due.

In March 2012, the Greek government approved a private sector bond exchange program for holders of Greek public debt, including those bonds held by the company. As a result, the company’s bonds were exchanged for a combination of new Greek government bonds, notes issued by the European Financial Stability Facility and detachable warrants linked to contingent growth performance targets. The bonds and notes are interest-bearing and have maturities of up to thirty years. These bonds and notes are classified as available-for-sale securities and are reported at fair value. In July 2012, the company sold these bonds and notes.