Note 8 — Financial instruments

The Company uses derivative instruments for risk management purposes. Forward rate contracts are used to manage foreign currency transaction exposure. These derivative instruments are designated as cash flow hedges and are recorded on the balance sheet at fair market value. The effective portion of the gains or losses on derivatives is reported as a component of other comprehensive income and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. See Note 9, “Fair value measurement” for additional information.

The following table presents the location and fair values of derivative instruments designated as hedging instruments in the condensed consolidated balance sheet as of September 30, 2012 and December 31, 2011:


	September 30, 2012 Fair Value		December 31, 2011 Fair Value
	(Dollars in thousands)
Asset derivatives:
Foreign exchange contracts:
Other assets — current	$	447	$	204

Total asset derivatives	$	447	$	204

Liability derivatives:
Foreign exchange contracts:
Derivative liabilities — current	$	957	$	633

Total liability derivatives	$	957	$	633

The following table provides information as to the gains and losses attributable to derivatives in cash flow hedging relationships that were reported in other comprehensive income (“OCI”), and the location and amount of gains and losses attributable to such derivatives that were reclassified from accumulated other comprehensive income (“AOCI”) in the condensed consolidated statement of income for the three and nine months ended September 30, 2012 and September 25, 2011:


	After Tax Gain/(Loss) Recognized in OCI
	Three Months Ended					Nine Months Ended
	September 30, 2012		September 25, 2011			September 30, 2012			September 25, 2011
	(Dollars in thousands)
Interest rate swap	$	2,329	$	2,433		$	7,032		$	5,784
Foreign exchange contracts		377		(250	)		(20	)		(276	)

Total	$	2,706	$	2,183		$	7,012		$	5,508


	Pre-Tax (Gain)/Loss Reclassified from AOCI into Income
	Three Months Ended				Nine Months Ended
	September 30, 2012		September 25, 2011		September 30, 2012			September 25, 2011
	(Dollars in thousands)
Interest rate swap:
Interest expense	$	3,663	$	3,978	$	11,057		$	11,633
Foreign exchange contracts:
Cost of goods sold		13		183		(754	)		(479	)
Income from discontinued operations		—		257		—			(511	)

Total	$	3,676	$	4,418	$	10,303		$	10,643

There was no ineffectiveness related to the Company’s derivatives for the three and nine months ended September 30, 2012 and September 25, 2011.

During the third quarter of 2012, the Company entered into forward exchange contracts for Singapore dollars and US dollars in anticipation of the acquisition of substantially all of the assets of LMA International N.V. (“LMA”). In accordance with FASB guidance, a forecasted transaction is not eligible for hedge accounting if the forecasted transaction involves a business combination. Therefore, gains and losses relating to this arrangement were recognized as incurred. The Company realized a pre-tax loss of $7.6 million upon settlement of the forward exchange contracts. See Note 17, “Subsequent event” for additional information on the LMA acquisition.

In 2011, the Company terminated its interest rate swap covering a notional amount of $350 million designated as a hedge against the variability of the cash flows in the interest payments under the Company’s term loan. As of September 30, 2012, all unrealized losses within AOCI associated with this interest rate swap has been reclassified into earnings.

Based on exchange rates at September 30, 2012, approximately $0.2 million of unrealized losses, net of tax, within AOCI are expected to be reclassified from AOCI during the next twelve months. However, the actual amount reclassified from AOCI could vary due to future changes in exchange rates.

Concentration of Credit Risk

Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the Company’s large number of customers and their diversity across many geographic areas. A portion of the Company’s trade accounts receivable outside the United States, however, include sales to government-owned or supported healthcare systems in several countries which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies. Deteriorating credit and economic conditions in parts of Europe, particularly in Spain, Italy, Greece and Portugal, may continue to increase the average length of time it takes the Company to collect its account receivable in certain regions within these countries.

The Company evaluates all receivables for potential collection risks. If the financial condition of customers or the countries’ healthcare systems continue to deteriorate such that their ability to make payments is uncertain, the Company may be required to increase its allowance for doubtful accounts in future periods.

The Company’s aggregate accounts receivable, net of the allowance for doubtful accounts, in Spain, Italy, Greece and Portugal as a percent of the Company’s total accounts receivable at the end of the period are as follows:


	September 30, 2012			December 31, 2011
	(Dollars in thousands)
Accounts receivable, net in Spain, Italy, Greece and Portugal		102,664			108,545
Percentage of total accounts receivable, net		38	%		38	%

For the nine months ending September 30, 2012 and September 25, 2011, net revenues to customers in Spain, Italy, Greece and Portugal were $101.4 million and $108.0 million, respectively. During the second quarter of 2012, the Company collected approximately $17.5 million from the Spanish government related to past due receivables. During the third quarter of 2012, the Company collected approximately $6.5 million from the Italian government related to past due receivables.