Financial Instruments

9 Months Ended

Sep. 30, 2011

Financial Instruments

Financial Instruments

9. Financial Instruments

The Company is exposed to various market risks, including changes in interest rates, foreign currency and raw material (commodity) prices. To manage risks associated with the volatility of these natural business exposures the Company enters into interest rate, commodity and foreign currency derivative agreements, as well as copper and aluminum forward pricing agreements. The Company does not purchase or sell derivative instruments for trading purposes. The Company does not engage in trading activities involving derivative contracts for which a lack of marketplace quotations would necessitate the use of fair value estimation techniques.

General Cable utilizes interest rate swaps to manage its interest expense exposure by fixing its interest rate on a portion of the Company's floating rate debt. The Company has entered into interest rate swaps on the Company's Spanish Term Loans with a notional value of $35.9 million and $48.8 million as of September 30, 2011 and December 31, 2010, respectively. In addition, the Company has one outstanding interest rate swap with a notional value of $9.0 million that provides for a fixed interest rate of 4.49% maturing in October 2011. The Company does not provide or receive any collateral specifically for this contract. The fair value of interest rate derivatives, which are designated as and qualify as cash flow hedges, are based on quoted market prices, which reflect the present values of the difference between estimated future variable-rate receipts and future fixed-rate payments.

The Company enters into commodity instruments to hedge the purchase of copper, aluminum and lead in future periods and foreign currency exchange contracts principally to hedge the currency fluctuations in certain transactions denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange rates. Principal transactions hedged during the year were firm sales and purchase commitments. The fair value of foreign currency contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices.

We account for these commodity instruments and foreign currency exchange contracts as cash flow or economic hedges. Changes in the fair value of derivatives that are designated as cash flow hedges are recorded in other comprehensive income and reclassified to the income statement when the effects of the items being hedged are realized. Changes in the fair value of economic hedges are recognized in current period earnings.

Fair Value of Derivatives Instruments

The notional amounts and fair values of derivatives designated as cash flow hedges and derivatives not designated as cash flow hedges at September 30, 2011 and December 31, 2010 are shown below (in millions).

	September 30, 2011						December 31, 2010
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset (1)		Liability (2)				Asset (1)		Liability (2)
Derivatives designated as cash flow hedges:
Interest rate swaps	$	44.9	$	—	$	0.7	$	57.8	$	—	$	1.8
Commodity futures		282.8		0.3		43.0		164.6		30.6		—
Foreign currency exchanges		51.7		2.0		—		115.2		1.4		3.1
			$	2.3	$	43.7			$	32.0	$	4.9
Derivatives not designated as cash flow hedges:
Commodity futures	$	79.1	$	2.8	$	15.5	$	91.6	$	1.4	$	7.9
Foreign currency exchanges		314.1		6.7		5.0		230.3		3.1		3.4
			$	9.5	$	20.5			$	4.5	$	11.3

(1) Balance recorded in "Prepaid expenses and other" and "Other non-current assets"

(2) Balance recorded in "Accrued liabilities" and "Other liabilities"

Depending on the extent of an unrealized loss position on a derivative contract held by the Company, certain counterparties may require collateral to secure the Company's derivative contract position. As of September 30, 2011 there were contracts held by the Company that required $2.4 million in collateral to secure the Company's derivative liability positions. As of December 31, 2010, there were no contracts held by the Company that required collateral to secure the Company's derivative liability positions.

For the above derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the unrealized gain and loss on the derivative is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings, which generally occurs over periods of less than one year. Gain and loss on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

		000000000000			000000000000			000000000000		000000000000
	Three fiscal months ended September 30, 2011
(in millions)	Effective Portion recognized in OCI Gain /(Loss)			Reclassified from Accumulated  OCI Gain / (Loss)			Ineffective portion and amount excluded from effectiveness testing Gain / (Loss)			Location
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(0.3	)	$	—		$	(0.1	)	Interest Expense
Commodity futures		(50.2	)		5.7			(0.5	)	Cost of Sales
Foreign currency exchanges		0.9			—			—		Other income /(expense)
Total	$	(49.6	)	$	5.7		$	(0.6	)
		000000000000			000000000000			000000000000		000000000000
	Nine fiscal months ended September 30, 2011
(in millions)	Effective Portion recognized in OCI Gain / (Loss)			Reclassified from Accumulated  OCI Gain / (Loss)			Ineffective portion and amount excluded from effectiveness testing Gain / (Loss)			Location
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(0.6	)	$	—		$	(0.3	)	Interest Expense
Commodity futures		(54.3	)		26.6			(0.5	)	Cost of Sales
Foreign currency exchanges		2.3			0.3			0.1		Other income /(expense)
Total	$	(52.6	)	$	26.9		$	(0.7	)
		000000000000			000000000000			000000000000		000000000000
	Three fiscal months ended October 1, 2010
(in millions)	Effective portion recognized  in Accumulated OCI Gain / (Loss)			Reclassified from Accumulated  OCI Gain / (Loss)			Ineffective portion and amount excluded from effectiveness testing Gain / (Loss)			Location
Derivatives designated as cash flow hedges:
Interest rate swap	$	(2.3	)	$	(0.1	)	$	—		Interest Expense
Commodity futures		21.2			(2.3	)		0.1		Cost of Sales
Foreign currency exchange		5.1			(7.2	)		(0.6	)	Other income /(expense)
Total	$	24.0		$	(9.6	)	$	(0.5	)
	Nine fiscal months ended October 1, 2010
(in millions)	Effective portion recognized in Accumulated OCI Gain / (Loss)			Reclassified from Accumulated OCI Gain / (Loss)			Ineffective portion and amount excluded from effectiveness testing Gain / (Loss)			Location
Derivatives designated as cash flow hedges:
Interest rate swap	$	(4.9	)	$	(0.3	)	$	0.1		Interest Expense
Commodity futures		4.5			18.4			—		Cost of Sales
Foreign currency exchange		(0.9	)		(8.5	)		(1.1	)	Other income /(expense)
Total	$	(1.3	)	$	9.6		$	(1.0	)

For derivative instruments that are not designated as cash flow hedges, the unrealized gain or loss on the derivatives is reported in current earnings. For the three fiscal months ended September 30, 2011 and October 1, 2010, the Company recorded a loss of $6.7 million and $9.4 million and for the nine months ended September 30, 2011 and October 1, 2010, the Company recorded a loss of $0.3 million and $9.0 million, respectively, for derivative instruments not designated as cash flow hedges in other income/ (expense) on the condensed consolidated statements of operations.

Other Forward Pricing Agreements

In the normal course of business, General Cable enters into forward pricing agreements for the purchase of copper and aluminum for delivery in a future month to match certain sales transactions. The Company accounts for these forward pricing arrangements under the "normal purchases and normal sales" scope exemption because these arrangements are for purchases of copper and aluminum that will be delivered in quantities expected to be used by the Company over a reasonable period of time in the normal course of business. For these arrangements, it is probable at the inception and throughout the life of the arrangements that the arrangements will not settle net and will result in physical delivery of the inventory. At September 30, 2011 and December 31, 2010, the Company had $45.4 million and $30.8 million, respectively, of future copper and aluminum purchases that were under forward pricing agreements. At September 30, 2011 and December 31, 2010, the fair value of these arrangements was $36.5 million and $35.6 million, respectively, and the Company had an unrealized loss of $8.9 million and an unrealized gain of $4.8 million, respectively, related to these transactions. The Company believes the unrealized gains (losses) under these agreements will be largely offset as a result of firm sales price commitments with customers. Depending on the extent of the unrealized loss position on certain forward pricing agreements, certain counterparties may require collateral to secure the Company's forward purchase agreements. There were no funds posted as collateral as of September 30, 2011 or December 31, 2010.