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 $147.3 million and $128.1 million at March 31, 2013 and December 31, 2012, respectively. For further discussion regarding the company’s use of derivative instruments, see Note 1 of the consolidated financial statements in Bard’s 2012 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 that are 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	March 31, 2013		December 31, 2012
(dollars in millions)
Forward currency contracts	Other current assets	$	5.1	$	1.4
Option currency contracts	Other current assets		0.7		0.6
Option currency contracts	Other assets		1.3		—
Interest rate swap contract	Other assets		12.2		13.3

		$	19.3	$	15.3

Forward currency contracts	Accrued expenses	$	—	$	0.4

		$	—	$	0.4

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 into Income
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013			2012
(dollars in millions)
Forward currency contracts	$	4.8		$	3.4	Costs of goods sold	$	(0.4	)	$	0.4
Option currency contracts		(0.3	)		—	Costs of goods sold		(0.3	)		0.4

	$	4.5		$	3.4		$	(0.7	)	$	0.8

The location and amounts of gains and losses on the derivative instrument designated as a fair value hedge for the three months ended March 31, are as follows:


	Income Statement Location	Loss Recognized on Swap						Gain Recognized on Long-Term Debt
	Income Statement Location	2013			2012			2013		2012
(dollars in millions)
Interest rate swap contract	Interest expense	$	(1.1	)	$	(0.1	)	$	1.1	$	0.1

The location and amounts of gains and losses on derivative instruments not designated as hedging instruments for the three months ended March 31, are as follows:


	Income Statement Location	Gain Recognized in Earnings
	Income Statement Location	2013		2012
(dollars in millions)
Forward currency contracts^(A)	Other (income) expense, net	$	—	$	3.0

(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 is 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 measured at fair value on a recurring basis:


	March 31, 2013		December 31, 2012
(dollars in millions)
Forward currency contracts	$	5.1	$	1.0
Option currency contracts		2.0		0.6
Interest rate swap contract		12.2		13.3

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 $79.1 million and $77.1 million at March 31, 2013 and December 31, 2012, 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 estimated fair value of long-term debt including the effect of the related interest rate swap contract was approximately $1,511.7 million and $1,532.2 million in March 31, 2013 and December 31, 2012, respectively. 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. 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 has experienced significant delays in the collection of accounts receivable associated with the national healthcare systems in Spain, Italy, Greece and Portugal. At March 31, 2013, 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	$	17.7	$	0.9
Italy		27.1		2.4
Greece		13.9		4.6
Portugal		3.5		1.3

	$	62.2	$	9.2