Note 10 — 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 are reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Approximately $0.4 million of loss of the amount in accumulated other comprehensive income at December 31, 2012 would be reclassified as expense to the consolidated statement of income (loss) during 2013 should foreign currency exchange rates remain at December 31, 2012 levels. See Note 11, “Fair Value Measurement” for additional information.

The location and fair values of derivative instruments designated as hedging instruments in the consolidated balance sheet are as follows:


	December 31, 2012 Fair Value		December 31, 2011 Fair Value
	(Dollars in thousands)
Asset derivatives:
Foreign exchange contracts:
Other assets — current	$	1,279	$	204

Total asset derivatives	$	1,279	$	204

Liability derivatives:
Foreign exchange contracts:
Derivative liabilities — current	$	598	$	633

Total liability derivatives	$	598	$	633

The location and amount of the gains and losses for derivatives in cash flow hedging relationships that were reported in other comprehensive income (“OCI”), and the location on the consolidated statements of income (loss) of amounts of AOCI reclassified from AOCI into income for the years ended December 31, 2012, 2011 and 2010 are as follows:


	After Tax Gain/(Loss) Recognized in OCI
	2012			2011			2010
	(Dollars in thousands)
Interest rate swap	$	7,032		$	8,330		$	2,248
Foreign exchange contracts		(156	)		(325	)		(167	)

Total	$	6,876		$	8,005		$	2,081


	Pre-Tax (Gain)/Loss Reclassified from AOCI into Income
	2012			2011			2010
	(Dollars in thousands)
Interest rate swap:
Interest expense	$	11,057		$	15,769		$	17,331
Foreign exchange contracts:
Net revenues		34			—			(266	)
Cost of goods sold		(898	)		(22	)		(3,516	)
Income from discontinued operations		—			(536	)		(169	)

Total	$	10,193		$	15,211		$	13,380

For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, there was no ineffectiveness related to the Company’s derivatives.

During 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. In accordance with applicable accounting 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 3, “Acquisitions” 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 December 31, 2012, all unrealized losses within AOCI associated with this interest rate swap has been reclassified into earnings. See Note 9, “Borrowings” for additional information on the termination of the interest rate swap.

After-tax loss (gain) reclassified from AOCI into income with respect to the Company’s terminated interest rate swap and forward rate contracts hedge results contributed approximately $7.0 million and $(0.7) million, respectively, to the increase (decrease) in other comprehensive income for 2012 and approximately $10.0 million and $(0.4) million, respectively, to the increase (decrease) in other comprehensive income for 2011.

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’ economies.

In the ordinary course of business, the Company grants non-interest bearing trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all of its customer relationships, (ii) performs ongoing credit evaluations of its customers’ financial condition, (iii) monitors the payment history and aging of its customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.

An allowance for doubtful accounts is maintained for accounts receivable based on the Company’s historical collection experience and expected collectability of the accounts receivable, considering the period an account is outstanding, the financial position of the customer and information provided by credit rating services. The adequacy of this allowance is reviewed each reporting period and adjusted as necessary.

In light of the disruptions in global economic markets, the Company instituted enhanced measures to facilitate customer-by-customer risk assessment when estimating the allowance for doubtful accounts. Such measures included, among others, monthly credit control committee meetings, at which customer credit risks are identified after review of, among other things, accounts that exceed specified credit limits, payment delinquencies and other customer problems. In addition, for some of the Company’s non-government customers, the Company instituted measures designed to reduce its risk exposures, including issuing dunning letters, reducing credit limits, requiring that payments accompany orders and instituting legal action with respect to delinquent accounts. With respect to government customers, the Company evaluates receivables for potential collection risks associated with the availability of government funding and reimbursement practices.

Some of the Company’s customers, particularly in Europe, have extended or delayed payments for products and services already provided. Collectability concerns regarding the Company’s accounts receivable from these customers, for the most part in Greece, Italy, Spain and Portugal resulted in an increase in the allowance for doubtful accounts related to these countries. If the financial condition of these customers or the healthcare systems in these countries continue to deteriorate such that the ability of an increasing number of customers to make payments is uncertain, additional allowances may be required 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:


	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Accounts receivable (net of allowances of $6.3 million and $4.9 million in 2012 and 2011, respectively) in Spain, Italy, Greece and Portugal	$	101,009		$	108,545
Percentage of total accounts receivable, net		34	%		38	%

For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, net revenues to customers in Spain, Italy, Greece and Portugal were $132.5 million, $138.4 million and $128.1 million, respectively. In the second quarter of 2012, the Company collected approximately $17.5 million from the Spanish government related to past due receivables. In the third quarter of 2012, the Company collected approximately $6.5 million from the Italian government related to past due receivables.