5. Financial Instruments

For further discussion regarding the company’s use of derivative instruments, see Note 1 of the notes to consolidated financial statements in Bard’s 2014 Annual Report on Form 10-K.

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 $232.2 million and $191.1 million at September 30, 2015 and December 31, 2014, respectively.

Interest Rate Derivative Instruments

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 million.

The company’s outstanding forward starting interest rate swap contract manages its exposure to interest rate volatility in anticipation of issuing fixed-rate debt. The forward swap contract has a notional value of $250 million and a mandatory termination date of May 2016.

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	September 30, 2015		December 31, 2014
(dollars in millions)
Forward currency contracts	Other current assets	$	2.7	$	1.9
Option currency contracts	Other current assets		6.2		9.3
Interest rate swap contract	Other current assets		1.4		—
Forward currency contracts	Other assets		0.6		—
Option currency contracts	Other assets		0.7		—
Interest rate swap contracts	Other assets		—		4.9

		$	11.6	$	16.1

Forward currency contracts	Accrued expenses	$	7.3	$	6.6
Interest rate swap contract	Accrued expenses		10.5		—
Forward currency contracts	Other long-term liabilities		1.4		—

		$	19.2	$	6.6

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 (Loss)						Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
	Quarter Ended September 30,							Quarter Ended September 30,
	2015			2014				2015			2014
(dollars in millions)
Forward currency contracts	$	(3.6	)	$	(1.7	)	Cost of goods sold	$	(1.6	)	$	0.1
Option currency contracts		(2.4	)		1.9		Cost of goods sold		4.5			(0.6	)
Interest rate swap contract		(12.9	)		—		Interest expense		—			—

	$	(18.9	)	$	0.2			$	2.9		$	(0.5	)


	Gain/(Loss) Recognized in Other Comprehensive Income (Loss)						Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2015			2014				2015			2014
(dollars in millions)
Forward currency contracts	$	(5.4	)	$	(0.8	)	Cost of goods sold	$	(1.0	)	$	0.9
Option currency contracts		8.0			1.9		Cost of goods sold		9.0			(1.6	)
Interest rate swap contract		(10.7	)		—		Interest expense		—			—

	$	(8.1	)	$	1.1			$	8.0		$	(0.7	)

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


	Location in Statement of Operations		(Loss) Recognized on Swap												Gain Recognized on Debt
			Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended September 30,				Nine Months Ended September 30,
			2015			2014			2015			2014			2015		2014		2015		2014
(dollars in millions)
Interest rate swap contract		Interest expense	$	(1.2	)	$	(1.3	)	$	(3.3	)	$	(3.2	)	$	1.2	$	1.3	$	3.3	$	3.2

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 and (liabilities) measured at fair value on a recurring basis:


	September 30, 2015			December 31, 2014
(dollars in millions)
Forward currency contracts	$	(5.4	)	$	(4.7	)
Option currency contracts		6.9			9.3
Interest rate swap contracts		(9.1	)		4.9

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 acquisitions was $11.2 million and $23.1 million at September 30, 2015 and December 31, 2014, respectively. The decrease in the fair value of the liability for contingent consideration was primarily due to a reduction in the probability of the achievement of a certain revenue-based milestone and payment in respect of the achievement of unrelated milestones. This decrease was partially offset by the addition of contingent consideration due to the acquisition of VPI. See Note 2 of the notes to condensed consolidated financial statements. 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 company maintains a $750 million five-year committed syndicated bank credit facility that expires in November 2019. 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 ratings and includes a financial covenant that limits the amount of total debt to total capitalization. At September 30, 2015 the company was in compliance with this covenant. There were no commercial paper borrowings outstanding at September 30, 2015. The fair value of commercial paper borrowings outstanding of $78.0 million at December 31, 2014 approximated the carrying value.

The estimated fair value of long-term debt including current maturities and the effect of the related interest rate swap contract was approximately $1,465.7 million and $1,481.7 million at September 30, 2015 and December 31, 2014, respectively. The fair value was estimated using dealer quotes for similarly-rated debt instruments over the remaining contractual term of the company’s obligation and 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 monitors economic conditions and evaluates accounts receivable in certain countries for potential collection risks. Economic conditions and other factors in certain countries, particularly in Spain, Italy, Greece and Portugal, 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. At September 30, 2015, the company’s accounts receivable, net of allowances, from the national healthcare systems and private sector customers in these four countries was $54.0 million, of which $7.9 million was greater than 365 days past due.

The company is closely monitoring recent economic developments in Greece, including its financial stability and creditworthiness. At September 30, 2015, total accounts receivable, net of allowances, from both the national healthcare system and private sector customers in Greece was $13.0 million, of which $6.5 million was greater than 365 days past due.