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 same 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 July 1, 2012 and December 31, 2011:


	July 1, 2012 Fair Value		December 31, 2011 Fair Value
	(Dollars in thousands)
Asset derivatives:
Foreign exchange contracts:
Other assets—current	$	572	$	204

Total asset derivatives	$	572	$	204

Liability derivatives:
Foreign exchange contracts:
Derivative liabilities—current	$	1,669	$	633

Total liability derivatives	$	1,669	$	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 six months ended July 1, 2012 and June 26, 2011:


	After Tax Gain/(Loss) Recognized in OCI
	Three Months Ended						Six Months Ended
	July 1, 2012			June 26, 2011			July 1, 2012			June 26, 2011
	(Dollars in thousands)
Interest rate swap	$	2,317		$	1,694		$	4,703		$	3,351
Foreign exchange contracts		(471	)		(275	)		(397	)		(26	)

Total	$	1,846		$	1,419		$	4,306		$	3,325


	Pre-Tax (Gain)/Loss Reclassified from AOCI into Income
	Three Months Ended					Six Months Ended
	July 1, 2012		June 26, 2011			July 1, 2012			June 26, 2011
	(Dollars in thousands)
Interest rate swap:
Interest expense	$	3,643	$	3,935		$	7,394		$	7,655
Foreign exchange contracts:
Cost of goods sold		130		(78	)		(767	)		(662	)
Income from discontinued operations		—		(333	)		—			(768	)

Total	$	3,773	$	3,524		$	6,627		$	6,225

For the three and six months ended July 1, 2012 and June 26, 2011, there was no ineffectiveness related to the Company’s derivatives.

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. At July 1, 2012, the Company had $2.3 million, net of tax, recorded in AOCI associated with this interest rate swap, which will be amortized as interest expense over the remaining life of the original term of the hedged obligation, which expires in September 2012.

Based on interest rates and exchange rates at July 1, 2012, approximately $3.0 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.