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 2015 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 $205.4 million and $191.6 million at March 31, 2016 and December 31, 2015, respectively.

Interest Rate Derivative Instruments

In January 2016, the company’s outstanding interest rate swap contract was terminated concurrent with the maturity of the underlying 2.875% fixed-rate notes. The notional value of the company’s interest rate swap contract was $250 million and effectively converted these fixed-rate notes to a floating-rate instrument.

The company maintains a forward starting interest rate swap contract which is intended to manage its exposure to interest rate volatility in anticipation of issuing fixed-rate debt. The company’s 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	March 31, 2016		December 31, 2015
(dollars in millions)
Forward currency contracts	Other current assets	$	1.2	$	2.9
Option currency contracts	Other current assets		1.7		3.8
Interest rate swap contract	Other current assets		—		0.2
Forward currency contracts	Other assets		0.1		—

		$	3.0	$	6.9

Forward currency contracts	Accrued expenses	$	4.0	$	6.2
Interest rate swap contract	Accrued expenses		22.5		8.0

		$	26.5	$	14.2

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
	Three Months Ended March 31,							Three Months Ended March 31,
	2016			2015				2016			2015
(dollars in millions)
Forward currency contracts	$	(0.8	)	$	0.1		Cost of goods sold	$	(2.4	)	$	0.8
Option currency contracts		(1.7	)		9.0		Cost of goods sold		1.8			1.1
Interest rate swap contract		(14.5	)		(7.9	)	Interest expense		—			—

	$	(17.0	)	$	1.2			$	(0.6	)	$	1.9

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:


	March 31, 2016			December 31, 2015
(dollars in millions)
Forward currency contracts	$	(2.7	)	$	(3.3	)
Option currency contracts		1.7			3.8
Interest rate swap contracts		(22.5	)		(7.8	)

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 $22.8 million and $11.2 million at March 31, 2016 and December 31, 2015, respectively. The increase in the fair value of the liability for contingent consideration was primarily related to the addition of contingent consideration due to the acquisition of Embo and was partly offset by a reduction in the probability of the achievement of other unrelated revenue-based and manufacturing-related milestones. 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 $1 billion five-year committed syndicated bank credit facility that expires in November 2020. 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 March 31, 2016 the company was in compliance with this covenant. The fair value of commercial paper borrowings outstanding of $525.6 million at March 31, 2016 approximated the carrying value. There were no commercial paper borrowings outstanding at December 31, 2015.

The estimated fair value of long-term debt (including current maturities and the effect of the related interest rate swap contract for the prior year period) was approximately $1,227.0 million and $1,449.8 million at March 31, 2016 and December 31, 2015, respectively. The decrease in fair value is primarily due to the company’s redemption of its $250 million 2.875% notes due January 2016. 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.

The fair value of the non-contingent future payments related to the Medicon, Inc. acquisition of $70.9 million and $66.0 million at March 31, 2016 and December 31, 2015, respectively, approximated the carrying value. At March 31, 2016 and December 31, 2015, future payments of $54.1 million and $50.3 million, respectively, were recorded to other long-term liabilities. These payments will be paid in Japanese Yen and are subject to exchange rate fluctuations. The fair value was estimated by discounting the future payments based upon the timing of such payments 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 March 31, 2016, the company’s accounts receivable, net of allowances, from the national healthcare systems and private sector customers in these four countries was $49.6 million, of which $4.7 million was greater than 365 days past due.