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GENERAL CABLE CORP /DE/ - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) All of the financial information presented in this Item 2 has been adjusted to reflect the restatement of our Condensed Consolidated Financial Statements (unaudited) as of September 28, 2012 and December 31, 2011 and for the three and nine fiscal months ended September 28, 2012 and September 30, 2011. Specifically, we have restated our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows as of and for the three and nine fiscal months ended September 30, 2011. The restatement is more fully described in Note 23 - Restatement of Condensed Consolidated Financial Statements, which is included in Condensed Consolidated Financial Statements in Item 1 of this Amended Quarterly Report on Form 10-Q/A. The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Company's financial position, changes in financial position and results of operations. MD&A is provided as a supplement to the Company's condensed consolidated financial statements and the accompanying Notes to condensed consolidated financial statements ("Notes") and should be read in conjunction with the condensed consolidated financial statements and Notes. Certain statements in this report including, without limitation, statements regarding future financial results and performance, plans and objectives, capital expenditures and the Company's or management's beliefs, expectations or opinions, are forward-looking statements, and as such, General Cable desires to take advantage of the "safe harbor" which is afforded to such statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those statements as a result of factors, risks and uncertainties over which the Company has no control. Such factors include, but are not limited to, those stated in Item 1A of the Company's 2011 Amended Annual Report on Form 10-K/A as filed with the SEC on January 21, 2014. Overview The Company is a global leader in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products for use in the energy, industrial, construction, specialty and communications markets. The Company additionally engages in the design, integration, and installation on a turn-key basis for products such as high and extra- high voltage terrestrial and submarine systems. The Company analyzes its worldwide operations based on three geographical segments: North America, Europe and Mediterranean, and Rest of World ("ROW"). The Company believes it has a strong market position in each of the segments in which it competes due to consistent execution of the Company's guiding principles which are: • Utilizing the Company's assets, financial strength and flexibility, distribution system, global and product diversity, brands, and the talents and strong commitment of employees to build profitability through excellence in the Company's primary business, wire and cable manufacturing and distribution; • Managing the Company's product portfolio by pursuing market share in fast growing and value added product lines as well as strategic investments in attractive long-term growth opportunities; • Focusing on continuous improvement and operating efficiency through the execution of Lean Six Sigma ("Lean") strategies and technical expertise to maintain the Company's position as a low cost provider; • Expanding operations through organic growth and acquisitions with continued focus in emerging economies; • Leveraging the Company's diversity and intellectual property through the sharing of best practices across the global organization; and • Maintaining high operational standards through sustainability, safety, and innovation. The Company's key performance indicators are considered to be volume, as measured in metal pounds sold, operating income, net income, earnings per share, operating cash flows, returns on capital employed and invested capital and working capital efficiency. Significant Current Business Trends and Events The wire and cable industry is competitive, mature and cost driven with minimal differentiation for many product offerings among industry participants from a manufacturing or technology standpoint. Starting in late 2010, the Company has benefited from a recovery in demand. However, demand and pricing levels generally remain low compared to the levels that were achieved prior to the impact of the global financial crisis and economic downturn that began in late 2007. The following are significant trends and events that occurred in the three and nine months ended September 28, 2012 that affected the Company's operating results: 83-------------------------------------------------------------------------------- Table of Contents The Company's reported results are directly influenced by the price of copper, and to a lesser extent, aluminum. The price of copper and aluminum as traded on the London Metal Exchange ("LME") and COMEX has historically been subject to considerable volatility. The Company continues to experience volatile commodity pricing, primarily copper and aluminum, as well as volatility in other cost inputs. Volatility in the price of copper and aluminum and other raw materials, as well as fuel and energy, may in turn lead to significant fluctuations in our cost of sales or revenues. A significant portion of the Company's electric utility and telecommunications business and, to a lesser extent, the Company's electrical infrastructure business has metal escalators and de-escalators included in customer contracts under a variety of price setting and recovery formulas. The remainder of the Company's business requires that volatility in the cost of metals be recovered through negotiated price changes with customers. In these instances, the ability to change the Company's selling prices may lag the movement in metal prices by a period of time as the customer price changes are implemented. Therefore, in the short-term, during periods of escalating raw material cost inputs, to the extent the Company is able to increase prices in the market to recover the higher raw material costs, the Company will generally experience an increase in gross profit from the sale of its relatively lower value inventory as computed under the weighted average inventory costing method. If the Company is unable to increase prices with the rise in the raw material market prices due to low levels of demand or market dynamics, the Company will experience lower gross profit. Conversely, during periods of declining raw material cost inputs, to the extent the Company has to decrease prices in the market due to competitive pressure as the current cost of metals declines, the Company will generally experience downward pressure on its gross profit due to the sale of relatively higher value inventory as computed under the weighted average inventory costing method. If the Company is able to maintain price levels in an environment in which raw material prices are declining due to high levels of demand, the Company will experience higher gross profit. There is no exact future measure of the effect to the Company's profitability of the change of raw material cost inputs due to the unique set of selling variables and the high volume of transactions in any given period, each of which involves numerous individual pricing decisions. In the three and nine months ended September 28, 2012, a 1% change in copper and aluminum costs would have impacted the cost of sales by approximately $22 million and $7 million respectively. This impact would directly impact gross profit if the Company was unable to adjust selling prices with a change in the price of copper and aluminum. To help reduce this volatility, the Company has implemented various pricing mechanisms and hedges a portion of its metal purchases when there is a firm price commitment for a future delivery but does not engage in speculative metals trading. The Company generally has experienced and expects to continue to experience certain seasonal trends in many products in which demand is linked with construction spending. Demand for these products during winter months in certain geographies is usually lower than demand during spring and summer months. Therefore, larger amounts of working capital are generally required during winter months in order to build inventories in anticipation of higher demand during the spring and summer months, when construction activity increases. In turn, receivables related to higher sales activity during the spring and summer months are generally collected during the fourth quarter of the year. Additionally, the Company has historically experienced changes in demand resulting from poor or unusual weather. The Company has access to various credit facilities around the world and believes that it can adequately fund its global working capital requirements through both internal operating cash flow and the use of the various credit facilities. Overall, the capital structure changes made in recent years, including the September 2012 issuance of $600.0 million of 5.75% Senior Notes due 2022 as well as entering into the $400.0 million Revolving Credit Facility in July 2011, and amending it to $700 million on August 1, 2012, creates global operating flexibility to meet working requirement needs and to support organizational and strategic growth. Due to the volatility in metal prices and the fact that metals represent approximately 55% of our product cost at today's levels, the Company's working capital requirements are expected to be variable for the foreseeable future. The Company continues to actively identify key trends in the industry to capitalize on expanding and new niche markets or exit declining or non-strategic markets in order to achieve better returns. The Company also sets aggressive performance targets for its business and intends to refocus or divest those activities which fail to meet targets or do not fit long-term strategies. The Company completed a greenfield project in India late in 2011 that began operating in 2012 and recently completed a significant further investment in the Company's operations in Brazil. On September 4, 2012, the Company completed the acquisition of the North American business of Alcan Cable for $171.3 million, including customary adjustments primarily related to working capital levels at closing. See Note 22 - Subsequent Events regarding the acquisition of the Chinese business of Alcan Cable. The Company has made the necessary regulatory filings in the People's Republic of China and that review process is ongoing. The Company completed an acquisition in Brazil in the three months ended June 29, 2012. The results of operations of the acquired business have been included in the condensed consolidated financial statements since the date of acquisition, and have been determined to be immaterial for disclosure purposes. No material divestitures were made in the three and nine months ended September 28, 2012. In addition to the factors previously mentioned, the Company is currently being affected by the following general macro-level trends: • Currency volatility and continued political uncertainty in certain markets; 84 -------------------------------------------------------------------------------- Table of Contents • Competitive price pressures in certain markets, particularly those where the Company is a new entrant; • Continued low levels of demand for a broad spectrum of products in Europe; • Worldwide underlying long-term growth trends in electric utility and infrastructure markets; • Continuing demand for natural resources, such as oil and gas, and alternative energy initiatives; • Increasing demand for further deployment of submarine power and fiber optic communication systems; and • Population growth in developing countries with growing middle classes that influences demand for wire and cable. The Company's overall financial results discussed in this section reflect the trends described in the Company's 2011 Amended Annual Report on Form 10-K/A. 85-------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth, for the periods indicated, statement of operations data in millions of dollars and as a percentage of net sales. Percentages may not add due to rounding. Three Fiscal Months Ended Nine Fiscal Months Ended September 28, 2012 September 30, 2011 September 28, 2012 September 30, 2011 Amount % Amount % Amount % Amount % Net sales $ 1,512.6 100.0 % $ 1,491.1 100.0 % $ 4,437.3 100.0 % $ 4,462.3 100.0 % Cost of sales 1,347.2 89.1 % 1,347.4 90.4 % 3,949.1 89.0 % 3,986.2 89.3 % Gross profit 165.4 10.9 % 143.7 9.6 % 488.2 11.0 % 476.1 10.7 % Selling, general and administrative expenses 95.2 6.3 % 93.7 6.3 % 296.1 6.7 % 283.2 6.3 % Operating income 70.2 4.6 % 50.0 3.4 % 192.1 4.3 % 192.9 4.3 % Other income (expense) 9.3 0.6 % (31.5 ) (2.1 )% 2.6 0.1 % (28.4 ) (0.6 )% Interest expense, net (23.7 ) (1.6 )% (23.2 ) (1.6 )% (70.3 ) (1.6 )% (66.8 ) (1.5 )% Income before income taxes 55.8 3.7 % (4.7 ) (0.3 )% 124.4 2.8 % 97.7 2.2 % Income tax (provision) benefit (76.8 ) (5.1 )% (4.1 ) (0.3 )% (99.8 ) (2.2 )% (41.3 ) (0.9 )% Equity in net earnings of affiliated companies 0.5 - % 0.8 0.1 % 1.0 - % 2.2 - % Net income including non-controlling interest (20.5 ) (1.4 )% (8.0 ) (0.5 )% 25.6 0.6 % 58.6 1.3 % Less: preferred stock dividends 0.1 - % 0.1 - % 0.3 - % 0.3 - % Less: net income attributable non-controlling interest 2.3 0.2 % 0.3 - % 5.6 0.1 % 0.6 - % Net income (loss) attributable to Company common shareholders $ (22.9 ) (1.5 )% $ (8.4 ) (0.6 )% $ 19.7 0.4 % $ 57.7 1.3 % Three Fiscal Months Ended September 28, 2012 Compared with Three Fiscal Months Ended September 30, 2011 Net Sales The following tables set forth net sales, metal-adjusted net sales, and metal pounds sold by segment, in millions. For the metal-adjusted net sales results, net sales for the third quarter of 2011 have been adjusted to reflect the third quarter of 2012 copper average price of $3.52 per pound (a $0.55 decrease compared to the same period in 2011) and the aluminum average price of $0.98 (a $0.19 decrease compared to the same period in 2011). Metal-adjusted net sales, a non-GAAP financial measure, are provided herein in order to eliminate an estimate of metal price volatility from the comparison of revenues from one period to another. The comparable GAAP financial measure is set forth below. See previous discussion of metal price volatility in the "Overview" section. Net Sales Three Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 563.6 37 % $ 528.6 35 % Europe and Mediterranean 419.1 28 % 442.8 30 % ROW 529.9 35 % 519.7 35 % Total net sales $ 1,512.6 100 % $ 1,491.1 100 % 86-------------------------------------------------------------------------------- Table of Contents Metal-Adjusted Net Sales Three Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 563.6 37 % $ 498.7 36 % Europe and Mediterranean 419.1 28 % 418.0 30 % ROW 529.9 35 % 478.8 34 % Total metal-adjusted net sales $ 1,512.6 100 % $ 1,395.5 100 % Metal adjustment - 95.6 Total net sales $ 1,512.6 $ 1,491.1 Metal Pounds Sold Three Fiscal Months Ended September 28, 2012 September 30, 2011 Pounds % Pounds % North America 106.2 38 % 76.6 32 % Europe and Mediterranean 64.7 23 % 68.9 28 % ROW 111.6 39 % 97.5 40 % Total metal pounds sold 282.5 100 % 243.0 100 % Net sales increased $21.5 million to $1,512.6 million in the third quarter of 2012 from $1,491.1 million in the third quarter of 2011. After adjusting third quarter 2011 net sales to reflect the $0.55 decrease in the average monthly copper price per pound and the $0.19 decrease in the average aluminum price per pound, net sales of $1,512.6 million reflects an increase of $117.1 million, or 8%, from the metal adjusted net sales of $1,395.5 million in 2011. Volume, as measured by metal pounds sold, increased 39.5 million pounds, or 16%, to 282.5 million pounds in the third quarter of 2012 as compared to 243.0 million pounds in the third quarter of 2011. Metal pounds sold is provided herein as the Company believes this metric to be an appropriate measure of sales volume since it is not impacted by metal prices or foreign currency exchange rate changes. The increase in sales on a metal adjusted basis is primarily due to favorable selling price and product mix of approximately $101.4 million, net sales of $50.5 million attributable to acquisitions completed in the third quarter of 2012, and increased volume of $47.2 million excluding acquisitions in the third quarter of 2012, partially offset by unfavorable foreign currency exchange rate changes of $82.0 million on the translation of reported revenues. Metal-adjusted net sales in the North America segment increased $64.9 million, or 13%. Sales increased on a metal adjusted basis is due to net sales of $50.5 million attributable to acquisitions completed in the third quarter of 2012 and increased volume of $21.6 million partially offset by unfavorable selling price and product mix of approximately $5.9 million and unfavorable foreign currency exchange rate changes of $1.3 million on the translation of reported revenues, principally related to the Canadian dollar. Volume, as measured by metal pounds sold, excluding pounds sold related to acquisitions completed in the third quarter of 2012 , increased by 8.2 million pounds, or 11%, in the third quarter of 2012 compared to the third quarter of 2011. The increase in volume is primarily attributable to demand for bare aluminum transmission products related to aerial transmission grid projects and renewable energy power generation projects in the electrical utility market as well as increased volume due to industrial and specialty cables particularly those used in natural resource extraction and transit applications. Metal-adjusted net sales in the Europe and Mediterranean segment remained relatively flat. The increase in sales on a metal adjusted basis is due to favorable selling price and product mix of approximately $61.1 million partially offset by decreased volume of $10.9 million and by unfavorable foreign currency exchange rate changes of $49.1 million on the translation of reported revenues primarily due to a weaker Euro relative to the U.S. dollar. Volume, as measured by metal pounds sold, decreased by 4.2 million pounds, or 6%, in the third quarter of 2012 compared to the third quarter of 2011. The decrease in demand was primarily attributable to weak economic conditions in Iberia, which negatively influenced demand across a broad spectrum of products partially offset by increased submarine turnkey project activity in Germany. Metal-adjusted net sales in the ROW segment increased $51.1 million or 11%. The increase in sales on a metal adjusted basis is due to favorable selling price and product mix of approximately $45.9 million and increased volume of $36.8 million, partially offset by unfavorable foreign currency exchange rate changes of $31.6 million on the translation of reported revenues primarily due to the weakening of certain currencies in Central and South America relative to the U.S. dollar. Volume, as measured by metal pounds sold, increased by 14.1 million pounds, or 14%, in the third quarter of 2012 compared to the third quarter of 2011 primarily attributable to increased Brazilian aerial transmission projects in the third quarter of 2012, increased demand in Chile and Zambia 87-------------------------------------------------------------------------------- Table of Contents from rod mill customers in South America and Africa, higher pre-election spending on housing and electrical infrastructure in Venezuela, electrical infrastructure investment and construction activity in Latin America and higher domestic demand due to reconstruction activity in Thailand following the flooding in 2011. Cost of Sales Cost of sales remained relatively flat in the third quarter of 2012 from the third quarter of 2011, principally due to lower average copper and aluminum costs in the third quarter of 2012 as compared to the third quarter of 2011, substantially offset by higher volume. As previously noted, cost of sales is raw material intensive with copper and aluminum comprising the major cost components for cable products. At current metal prices, material costs are approximately 85% of total product costs with copper and aluminum metal costs comprising approximately 55% of total product cost. Gross Profit Gross profit increased $21.7 million, or 15%, in the third quarter of 2012 from the third quarter of 2011. Gross profit as a percentage of sales was 11% in the third quarter of 2012 and was 10% in the third quarter of 2011. The gross profit increase is primarily due to stronger product mix including the benefit from higher margin product demand related to the European submarine and land based turnkey projects as well as a positive operating environment in Venezuela. Selling, General and Administrative Expense Selling, general and administrative expense ("SG&A") remained relatively flat in the third quarter of 2012 as compared to the third quarter of 2011. SG&A as a percentage of metal-adjusted net sales was approximately 6% for the third quarter of 2012 and 7% for the third quarter of 2011. Operating Income (Loss) The following table sets forth operating income (loss) by segment, in millions of dollars. Operating Income (Loss) Three Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 26.8 38 % $ 27.7 55 % Europe and Mediterranean 7.0 10 % 5.9 12 % ROW 36.4 52 % 16.4 33 % Total operating income (loss) $ 70.2 100 % $ 50.0 100 % The decrease in operating income for the North America segment of $0.9 million was primarily attributable to a weaker price environment across a broad spectrum of products partially offset by the electrical utility market which benefited from increased demand for bare aluminum transmission products as well as improved pricing in the third quarter of 2012 as compared to the third quarter of 2011. The increase in operating income for the Europe and Mediterranean segment of $1.1 million was primarily attributable to increased submarine and land based turnkey project activity in Europe partially offset by the continued weak economic conditions in Spain, influencing demand and the pricing environment across a broad spectrum of products in the three months ended September 28, 2012 as compared to the three months ended September 30, 2011. The increase in operating income for the ROW segment of $20.0 million was primarily attributable to increased demand and a positive operating environment in Venezuela as a result of higher pre-election spending on housing and electrical infrastructure, increased demand and operational improvements in Thailand resulting in cost reductions as well as increased sales in Brazil as noted above. Other Income (Expense) Other income (expense) includes foreign currency transaction gains or losses, which result from changes in exchange rates between the designated functional currency and the currency in which a transaction is denominated as well as gains and losses on derivative instruments that are not designated as cash flow hedges and ineffectiveness on derivatives designated as cash flow hedges. During the three months ended September 28, 2012 and September 30, 2011, the Company recorded other income of $9.3 million and other expense of $31.5 million, respectively. For the three months ended September 28, 2012, other income was primarily the result of gains of $8.4 million on derivative instruments which were not designated as cash flow hedges and $0.9 million of foreign 88-------------------------------------------------------------------------------- Table of Contents currency transaction gains which resulted from changes in exchange rates in the various countries in which the Company operates. For the three months ended September 30, 2011, other expense of $31.5 million was primarily attributable to foreign currency transaction losses which resulted from changes in exchange rates in the various countries in which the Company operates. The functional currency of the Company's subsidiary in Venezuela is the U.S. dollar; therefore, gains and losses for transactions at a rate other than the official exchange rate are recorded in the statement of operations and comprehensive income (loss). The Company remeasures the financial statements of the Venezuelan subsidiary at the rate in which the Company expects to remit dividends, which is 4.30 Venezuelan Bolivar ("BsF") per U.S. dollar. Effective January 1, 2011, the Central Bank of Venezuela and the Ministry of Finance published an amendment to Convenio Cambiario No. 14 (the Exchange Law), whereby the official exchange rate was set at 4.30 BsF per U.S. dollar. Refer to Note 22 - Subsequent Events for further detail. Interest Expense Net interest expense remained relatively flat at $23.7 million in the third quarter of 2012 and $23.2 million in the third quarter of 2011. Tax Provision The Company's effective tax rate for the third quarters of 2012 and 2011 was 137.6% and (87.2%), respectively. Relative to the statutory tax rate, the higher effective tax rate for the third quarters of 2012 and 2011 was primarily attributable to the cumulative adjustment to first half income tax expense due to an upward revision in the full year forecasted effective tax rate. The cumulative adjustment for the third quarter of 2012 was primarily driven by a revision to forecasted earnings and recording valuation allowances for certain deferred tax assets as further explained below. The cumulative adjustment for the third quarter of 2011 was primarily driven by revisions to the amount and geographic mix of forecasted earnings, and resulted in a negative effective tax rate percentage due to the relatively small $4.1 million income tax expense and $4.7 million pre-tax loss amounts. In the third quarter of 2012, the Company updated its 2012 forecasts and substantially completed its 2013 global business planning process, which indicated continuing weakness in its Iberian market and business. After weighing all positive and negative evidence, including the three year cumulative loss position, and factoring in prudent and feasible tax planning strategies, management judged that it was not more likely than not that a future tax benefit for the deferred tax assets of its Spanish and Portuguese business units would be realized. Tax expense of $15 million was recorded in 2012 to establish a full valuation allowance against Spanish and Portuguese deferred tax assets, of which $5.3 million related to the beginning of the year net deferred tax asset position. Preferred Stock Dividends The Company accrued and paid $0.1 million in dividends on its preferred stock in the third quarter of 2012 and 2011. Nine Fiscal Months Ended September 28, 2012,Compared with Nine Fiscal Months Ended September 30, 2011 Net Sales The following tables set forth net sales, metal-adjusted net sales, and metal pounds sold by segment, in millions. For the metal-adjusted net sales results, net sales for the first nine fiscal months of 2011 have been adjusted to reflect the first nine fiscal months of 2012 copper average price of $3.62 per pound (a $0.58 decrease compared to the same period in 2011) and the aluminum average price of $1.01 (a $0.20 decrease compared to the same period in 2011). Metal-adjusted net sales, a non-GAAP financial measure, are provided herein in order to eliminate an estimate of metal price volatility from the comparison of revenues from one period to another. The comparable GAAP financial measure is set forth below. See previous discussion of metal price volatility in the "Overview" section. 89-------------------------------------------------------------------------------- Table of Contents Net Sales Nine Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 1,652.8 37 % $ 1,636.8 37 % Europe and Mediterranean 1,281.8 29 % 1,336.1 30 % ROW 1,502.7 34 % 1,489.4 33 % Total net sales $ 4,437.3 100 % $ 4,462.3 100 % Metal-Adjusted Net Sales Nine Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 1,652.8 37 % $ 1,531.7 37 % Europe and Mediterranean 1,281.8 29 % 1,248.5 30 % ROW 1,502.7 34 % 1,358.5 33 % Total metal-adjusted net sales $ 4,437.3 100 % $ 4,138.7 100 % Metal adjustment - 323.6 Total net sales $ 4,437.3 $ 4,462.3 Metal Pounds Sold Nine Fiscal Months Ended September 28, 2012 September 30, 2011 Pounds % Pounds % North America 276.6 34 % 240.4 32 % Europe and Mediterranean 213.9 26 % 214.2 29 % ROW 319.7 40 % 288.3 39 % Total metal pounds sold 810.2 100 % 742.9 100 % Net sales decreased $25.0 million to $4,437.3 million in the first nine fiscal months of 2012 from $4,462.3 million in the first nine fiscal months of 2011. After adjusting the first nine fiscal months of 2011 net sales to reflect the $0.58 decrease in the average monthly copper price per pound and the $0.20 decrease in the average aluminum price per pound, net sales of $4,437.3 million reflects an increase of $298.6 million or 7%, from the metal adjusted net sales of $4,138.7 million in 2011. Volume, as measured by metal pounds sold, increased 67.3 million pounds or 9% to 810.2 million pounds in the first nine fiscal months of 2012 as compared to 742.9 million pounds in the first nine fiscal months of 2011. Metal pounds sold is provided herein as the Company believes this metric to be an appropriate measure of sales volume since it is not impacted by metal prices or foreign currency exchange rate changes. The increase in sales on a metal adjusted basis is primarily due to favorable selling price and product mix of approximately $308.3 million, increased volume of $125.1 million, and $52.3 million attributable to acquisitions in 2012 partially offset by unfavorable foreign currency exchange rate changes of $187.1 million on the translation of reported revenues. Metal-adjusted net sales in the North America segment increased $121.1 million, or 8%. The increase in sales on a metal adjusted basis is due to $52.3 million attributable to acquisitions in 2012, favorable selling price and product mix of approximately $33.0 million and increased volume of $40.6 million, partially offset by unfavorable foreign currency exchange rate changes of $4.8 million on the translation of reported revenues, principally related to the Canadian dollar. Volume, as measured by metal pounds sold, and excluding pounds sold related to acquisitions completed in the third quarter of 2012, increased by 14.8 million pounds, or 6%, in the third quarter of 2012 compared to the third quarter of 2011. The increase in volume is primarily attributable to demand for bare aluminum transmission products related to aerial transmission grid projects in the electrical utility market. Metal-adjusted net sales in the Europe and Mediterranean segment increased $33.3 million, or 3%. The increase in sales on a metal adjusted basis is due to favorable selling price and product mix of approximately $145.9 million partially offset by decreased volume of $0.8 million and by unfavorable foreign currency exchange rate changes of $111.8 million on the translation of reported revenues primarily due to a weaker Euro relative to the U.S. dollar. Volume, as measured by metal pounds sold, remained relatively flat in the first nine fiscal months of 2012 compared to the first nine fiscal months of 2011. The weak economic conditions in 90-------------------------------------------------------------------------------- Table of Contents Iberia, which negatively influenced demand across a broad spectrum of products were offset by increased submarine turnkey project activity in Germany. Metal-adjusted net sales in the ROW segment increased $144.2 million or 11%. The increase in sales on a metal adjusted basis is due to favorable selling price and product mix of approximately $129.1 million and increased volume of $85.6 million, partially offset by unfavorable foreign currency exchange rate changes of $70.5 million on the translation of reported revenues primarily due to the weakening of certain currencies in Central and South America relative to the U.S. dollar. Volume, as measured by metal pounds sold, increased by 31.4 million pounds, or 11%, in the first nine fiscal months of 2012 compared to the first nine fiscal months of 2011, which is primarily attributable to Venezuelan government supported housing development projects, increased demand in Chile from rod mill customers in South America due to supply shortage issues in the region, increased Brazilian aerial transmission projects, and increased economic activity boosting the construction and utilities markets in the Philippines and Thailand. Cost of Sales Cost of sales decreased $37.1 million to $3,949.1 million for the nine fiscal months ended September 28, 2012, from $3,986.2 million for the nine fiscal months ended September 30, 2011, principally due to a lower average copper and aluminum costs in the first nine months of 2012 partially offset by higher volume. As previously noted, cost of sales is raw material intensive with copper and aluminum comprising the major cost components for cable products. At current metal prices, material costs are approximately 85% of total product costs with copper and aluminum metal costs comprising approximately 55% of total product cost. Gross Profit Gross profit increased $12.1 million the first nine fiscal months of 2012 as compared to the first nine fiscal months of 2011. Gross profit as a percentage of sales remained flat at 11% in the first nine fiscal months of 2012 and 2011. The gross profit increase is primarily due to stronger product mix and a positive operating environment in Venezuela. Selling, General and Administrative Expense SG&A increased to $296.1 million in the first nine fiscal months of 2012 from $283.2 million in the first nine fiscal months of 2011. The increase in SG&A is primarily attributed to a $6.1 million settlement loss on the termination of a legacy pension plan in the United Kingdom, which was allocated amongst the segments, as well as higher acquisition costs related to global acquisition activity. SG&A as a percentage of metal-adjusted net sales was approximately 7% for the first nine fiscal months of 2012 and 2011. Operating Income (Loss) The following table sets forth operating income (loss) by segment, in millions of dollars. Operating Income (Loss) Nine Fiscal Months Ended September 28, 2012 September 30, 2011 Amount % Amount % North America $ 93.8 49 % $ 104.5 54 % Europe and Mediterranean 20.2 10 % 31.8 17 % ROW 78.1 41 % 56.6 29 % Total operating income (loss) $ 192.1 100 % $ 192.9 100 % The decrease in operating income for the North America segment of $10.7 million was primarily due to the positive impact the Company reported in the first nine fiscal months of 2011 as metal prices in the market were rising faster than the average cost of metal in cost of sales as compared to the first nine fiscal months of 2012. The decrease in operating income for the Europe and Mediterranean segment of $11.6 million was primarily due to the continued weak economic conditions in Europe, principally in Spain, influencing demand and pricing across a broad spectrum of products. These decreases were partially offset by benefits related to increased submarine and land based turn-key projects throughout Europe. 91-------------------------------------------------------------------------------- Table of Contents The increase in operating income for the ROW segment of $21.5 million was primarily due to the positive pricing environment in Venezuela related to government led projects as well as increased demand and operational improvements in Thailand as well as increased sales in Brazil as noted above. Other Income (Expense) Other income (expense) includes foreign currency transaction gains or losses, which result from changes in exchange rates between the designated functional currency and the currency in which a transaction is denominated as well as gains and losses on derivative instruments that are not designated as cash flow hedges and ineffectiveness on derivatives designated as cash flow hedges. During the nine months ended September 28, 2012 and September 30, 2011, the Company recorded other income of $2.6 million and other expense of $28.4 million, respectively. For the nine months ended September 28, 2012, other income was primarily the result of gains of $6.8 million on derivative instruments which were not designated as cash flow hedges and the result of $4.2 million of foreign currency transaction losses which resulted from changes in exchange rates in the various countries in which the Company operates. For the nine months ended September 30, 2011, other expense of $28.4 million was primarily the result of losses on derivative instruments which were not designated as cash flow hedges and foreign currency transaction losses. The functional currency of the Company's subsidiary in Venezuela is the U.S. dollar; therefore, gains and losses for transactions at a rate other than the official exchange rate are recorded in the statements of operations and comprehensive income (loss). The Company remeasures the financial statements of the Venezuelan subsidiary at the rate in which the Company expects to remit dividends, which is 4.30 Venezuelan Bolivar ("BsF") per U.S. dollar. Effective January 1, 2011, the Central Bank of Venezuela and the Ministry of Finance published an amendment to Convenio Cambiario No. 14 (the Exchange Law), whereby the official exchange rate was set at 4.30 BsF per U.S. dollar. Refer to Note 22 - Subsequent Events for further detail. Interest Expense Net interest expense increased to $70.3 million in the first nine fiscal months of 2012 from $66.8 million in the first nine fiscal months of 2011. Interest expense increased primarily due to additional debt used to fund higher working capital requirements along with the continued increase in interest expense related to the amortization of the debt discount on the convertible notes. Tax Provision The Company's effective tax rate for the first nine fiscal months of 2012 and 2011 was 80.2% and 42.3%, respectively. The effective tax rate for the first nine fiscal months of 2012 reflects the adverse impact of valuation allowances recorded against deferred tax assets as further explained below. The effective tax rate for the first nine fiscal months of 2011 reflects the adverse impact of nondeductible expenses, partially offset by tax benefits recognized for uncertain tax positions due to statute of limitations expirations. In the third quarter of 2012, the Company updated its 2012 forecasts and substantially completed its 2013 global business planning process, which indicated continuing weakness in its Iberian market and business. After weighing all positive and negative evidence, including the three year cumulative loss position, and factoring in prudent and feasible tax planning strategies, management judged that it was not more likely than not that a future tax benefit for the deferred tax assets of its Spanish and Portuguese business units would be realized. Tax expense of $15 million was recorded in 2012 to establish a full valuation allowance against Spanish and Portuguese deferred tax assets, of which $5.3 million related to the beginning of the year net deferred tax asset position. Preferred Stock Dividends The Company accrued and paid $0.3 million in dividends on its preferred stock in the first nine fiscal months of 2012 and 2011. Liquidity and Capital Resources The Company maintains a stable financial position as evidenced by the Company's ability to generate substantial cash from operations and access to capital markets at competitive rates. Cash flows from operations as well as borrowings from our various credit facilities provide the primary source for financing operating expenses and other short-term liquidity needs. As necessary, the Company funds working capital needs, debt and interest payments, as well as discretionary investment in internal product development, acquisitions, Series A preferred stock dividends, repurchase of common stock and taxes. The overall financial position of the Company reflects the business results and a global liquidity management strategy that incorporates cash needs, economic factors, volatile working capital needs and tax considerations. General Cable Corporation is a holding company with no operations of its own. All of the Company's operations are conducted, and net sales are generated, by its subsidiaries and investments. Accordingly, the Company's cash flow comes from the cash flows 92-------------------------------------------------------------------------------- Table of Contents of its global operations. The Company's ability to use cash flow from its international operations, if necessary, has historically been adversely affected by limitations on the Company's ability to repatriate such earnings tax efficiently. As of September 28, 2012, approximately 52% of cash and cash equivalents were held outside of the U.S. by our foreign subsidiaries compared with 98% as of December 31, 2011. If these funds are needed for the Company's operations in the U.S., the Company may be required to accrue and pay U.S. taxes and foreign withholding taxes to repatriate these funds. However, the Company's intent is to indefinitely reinvest these funds outside of the U.S. and current plans do not demonstrate a need to repatriate them to fund U.S. operations. In addition, our Revolving Credit Facility provides the Company flexibility in financing operating expenses and any other short-term liquidity needs of our U.S. operations. Approximately 15% and 21% of the consolidated cash balance as of September 28, 2012 and December 31, 2011, respectively, was held in Venezuela. Operating cash flows attributable to Venezuela were $40.0 million and $43.0 million for the nine months ended September 28, 2012 and September 30, 2011, respectively. Venezuela has foreign exchange and price controls which have historically limited the Company's ability to convert bolivars to U.S. dollars and transfer funds out of Venezuela. In Venezuela, government restrictions on the transfer of cash out of the country have limited the Company's ability to repatriate cash. The Company does not consider the net assets of Venezuela to be integral to the Company's ability to service its debt and operational requirements. Summary of Cash Flows Operating cash inflow of $82.0 million for the nine months ended September 28, 2012 reflects a net working capital use of $127.4 million as compared to $194.0 million in the nine months ended September 30, 2011. The use of working capital declined principally due to the impact of lower average metal prices during the nine months ended September 28, 2012 as compared to the same period in 2011. For the nine months ended September 28, 2012, copper prices averaged $3.62 per pound (a decrease of $0.58 per pound compared to the same period in 2011) and aluminum prices averaged $1.01 per pound (a decrease of $0.20 per pound as compared to the same period in 2011). Excluding the impact of the Alcan Cable North America acquisition, days sales outstanding increased to approximately 78 days for the nine fiscal months ended September 28, 2012 as compared to approximately 72 days in the same period in 2011 principally due to the timing of customer receipts in ROW. Inventory turns remained relatively constant year over year at approximately 4.2. Overall, the use of working capital was more than offset by the generation of cash inflows of $209.4 million related to net income adjusted for depreciation and amortization, amortization of restricted stock awards, foreign currency exchange losses, deferred income taxes, excess tax benefits from stock-based compensation, convertible debt instruments noncash interest charges and losses on disposal of property. Cash flow used by investing activities was $265.0 million in the nine fiscal months ended September 28, 2012, primarily reflecting the acquisition of Alcan Cable for $171.3 million and $89.8 million of capital expenditures. The Company anticipates capital spending to be approximately $105 million to $125 million in 2012. Financing activities generated $620.9 million of cash inflows in the nine fiscal months ended September 28, 2012 principally reflecting the issuance of the $600.0 million 5.75% Senior Notes. The Company evaluates factors such as future operating cash flow requirements, other cash flow expectations, investment and financing strategic plans and the overall cost of capital to determine the appropriate levels of short and long-term debt to maintain. Refer to "Debt and Other Contractual Obligations" below for details. Debt and Other Contractual Obligations The Company's outstanding debt obligations were $1,697.1 million as of September 28, 2012 and the Company maintained approximately $964.6 million of excess availability under its various credit facilities around the world. The Company utilizes short and long term debt to address working capital needs, debt repayments, and interest as well as discretionary investments in internal product development, acquisitions, Series A preferred stock dividends, repurchase of common stock and taxes. Short-term liquidity and working capital needs are generally supported through operating cash flows. The Company maintains ratings on its public debt and is a well-known seasoned issuer; therefore, the Company has and expects to continue to obtain market rates on any new borrowings. On September 25, 2012, the Company completed the issuance and sale of $600.0 million in aggregate principal amount of new senior unsecured notes (the "5.75% Senior Notes"). As of September 28, 2012, the 5.750% Senior Notes were jointly and severally guaranteed by each of the Company's current and future U.S. subsidiaries that is a borrower or a guarantor under the Company's Revolving Credit Facility or certain of the Company's or the guarantors' other indebtedness. The Company used the proceeds of the 5.750% Senior Notes to redeem all of its outstanding $200.0 million of 7.125% Senior Fixed Rate Notes that were to mature in April 2017 in October 2012, see Note 22 Subsequent Events for further detail. The Company intends to use the balance of the proceeds to (i) purchase or redeem its 0.875% Convertible Notes through a possible tender offer, purchases or payment at maturity, and (ii) general corporate purposes, which may include repayment of borrowings under its Revolving Credit Facility. 93-------------------------------------------------------------------------------- Table of Contents On July 21, 2011, the Company entered into a $400 million Revolving Credit Facility, and on August 1, 2012 the Company entered into an amendment to the Revolving Credit Facility pursuant to which the amount of the facility was increased to $700 million ($70 million of which may be denominated in Canadian dollars). The Revolving Credit Facility replaced the Company's prior $400 million Senior Secured Revolving Credit Facility ("Terminated Credit Facility"), which was set to mature in July 2012. The Revolving Credit Facility contains restrictions in areas consistent with the Terminated Credit Facility, including limitations on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions. In the aggregate, however, the restrictions in the Revolving Credit Facility provide the Company greater flexibility than those under the Terminated Credit Facility, and generally only apply in the event that the Company's availability under the Revolving Credit Facility falls below certain specific thresholds. The Company used its Revolving Credit Facility to principally fund the acquisition of the Alcan Cable Business. Failure to comply with any of the covenants, financial tests and ratios required by the Company's existing or future debt obligations could result in a default under those agreements and under other agreements containing cross-default provisions, as defined in the Company's Revolving Credit Facility, 1.00% Senior Convertible Notes, 0.875% Convertible Notes, Subordinated Convertible Notes, 7.125% Senior Notes, Senior Floating Rate Notes, 5.75% Senior Notes and various other credit facilities maintained by the Company's restricted subsidiaries. A default would permit lenders to cease making further extensions of credit, accelerate the maturity of the debt under these agreements and foreclose upon any collateral securing that debt. As of September 28, 2012, indebtedness under the Company's Revolving Credit Facility was secured by a first priority security interest in substantially all of the Company's domestic and Canadian assets. In addition, the lenders under the Company's Revolving Credit Facility had received a pledge of (i) 100% of the equity interests in substantially all of the Company's domestic and Canadian subsidiaries, and (ii) 65% of the voting equity interests in and 100% of the non-voting equity interests in certain of the Company's foreign subsidiaries. In December 2012, the Company's Revolving Credit Facility was amended to reduce the amount of pledged Canadian shares from 100% to 65%. This change will be reflected in the Company's 2012 Amended Annual Report on Form 10-K/A. The Company also has incurred secured debt in connection with some of its European operations. Certain European countries have experienced varying degrees of financial stress. Risks from the continued debt crisis in Europe could continue to disrupt the financial markets which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets. As of September 28, 2012, the Company had no direct sovereign debt exposure. The lenders under these European secured credit facilities also have liens on assets of certain of the Company's European subsidiaries. As a result of these pledges and liens, if the Company fails to meet its payment or other obligations under any of its secured indebtedness, the lenders under the applicable credit agreement would be entitled to foreclose on substantially all of the Company's assets and liquidate these assets. Broadly, cross-default provisions would permit lenders to cause such indebtedness to become due prior to its stated maturity in the event a default remains unremedied for a period of time under the terms of one or more financing agreements, a change in control or a fundamental change. As of September 28, 2012 and December 31, 2011, the Company was in compliance with all debt covenants. The Company's defined benefit plans at December 31, 2011 were underfunded by $114.7 million. Pension expense for the Company's defined benefit pension plans for the nine fiscal months ended September 28, 2012 was $19.1 million and cash contributions were approximately $5.2 million. The Company anticipates being able to meet its obligations as they come due based on historical operating and financing experience and the expected availability of funds under its current credit facilities. The Company's contractual obligations and commercial commitments as of September 28, 2012 (in millions of dollars) are summarized below: 94-------------------------------------------------------------------------------- Table of Contents Payments Due by Period Less than 1 1 - 3 4 - 5 After 5 Contractual obligations (1,2): Total Year Years Years Years Total debt (excluding capital leases) $ 1,693.4 $ 230.3 $ 359.0 $ 327.1 $ 777.0 Convertible debt at maturity (3) 288.9 - 25.5 - 263.4 Capital leases 3.7 1.0 2.2 0.5 - Interest payments on 5.75% Senior Notes 345.0 34.5 103.5 69.0 138.0 Interest payments on 7.125% Senior Notes 64.2 14.3 28.5 21.4 - Interest payments on Senior Floating Rate Notes 8.4 3.3 5.1 - - Interest payments on 0.875% Convertible Notes 4.8 3.1 1.7 - - Interest payments on Subordinated Convertible Notes 259.7 19.3 38.6 38.6 163.2 Interest payments on Spanish term loans 0.8 0.6 0.2 - - Operating leases (4) 159.7 38.3 60.6 47.1 13.7 Purchase agreements (5) 34.3 34.3 - - - Preferred stock dividend payments 0.3 0.3 - - - Defined benefit pension obligations (6) 176.5 16.0 33.4 35.1 92.0 Postretirement benefits 6.9 1.0 1.8 1.3 2.8 Unrecognized tax benefits, including interest and penalties (7) - - - - - Total $ 3,046.6 $ 396.3 $ 660.1 $ 540.1 $ 1,450.1 (1) This table does not include interest payments on General Cable's revolving credit facilities because the future amounts are based on variable interest rates and the amount of the borrowings under the Revolving Credit Facility and Spanish Credit Facility fluctuate depending upon the Company's working capital requirements. (2) This table does not include derivative instruments as the ultimate cash outlays cannot be reasonably predicted. Information on these items is provided under Item 3, "Quantitative and Qualitative Disclosures about Market Risk." (3) Represents the current debt discount on the Company's 1.00% Senior Convertible Notes, 0.875% Convertible Notes and Subordinated Convertible Notes. (4) Operating lease commitments are described under Note 18 "Commitments and Contingencies." (5) Represents our firm purchase commitments on our forward pricing agreements as disclosed in Note 10 "Financial Instruments." (6) Defined benefit pension obligations reflect the Company's estimates of contributions that will be required in 2012 and future years to meet current law minimum funding requirements. (7) Unrecognized tax benefits of $88.0 million have not been reflected in the above table due to the inherent uncertainty as to the amount and timing of settlement, which is contingent upon the occurrence of possible future events, such as examinations and determinations by various tax authorities. Off Balance Sheet Assets and Obligations The Company has entered into various operating lease agreements related principally to certain administrative, manufacturing and distribution facilities and transportation equipment. At September 28, 2012, future minimum rental payments required under non-cancelable lease agreements during the twelve month periods beginning September 28, 2012 through September 29, 2017 are $38.3 million, $31.7 million, $28.9 million, $26.1 million and $21.0 million, respectively, and $13.7 million thereafter. As of September 28, 2012, the Company had $52.2 million in letters of credit, $280.7 million in various performance bonds and $194.3 million in other guarantees. Other guarantees include bank guarantees and advance payment bonds. These letters of credit, performance bonds and guarantees are periodically renewed and are generally related to risk associated with self-insurance claims, defined benefit plan obligations, contract performance, quality and other various bank and financing guarantees. Advance payment bonds are often required by customers when the Company obtains advance payments to secure the production of cable for long-term contracts. The advance payment bonds provide the customer protection on their deposit in the event that the Company does not perform under the contract. See "Liquidity and Capital Resources" for excess availability under the Company's various credit borrowings. See the previous section, "Debt and Other Contractual Obligations," for information on debt-related guarantees. Environmental Matters The Company's expenditures for environmental compliance and remediation amounted to approximately $1.1 million and $0.8 million for the three months ended September 28, 2012 and September 30, 2011, respectively. The Company's expenditures for environmental compliance and remediation amounted to approximately $2.8 million and $2.4 million for the nine months ended September 28, 2012 and September 30, 2011, respectively. In addition, certain of General Cable's subsidiaries have been named as potentially responsible parties in proceedings that involve environmental remediation. The Company has accrued $1.8 million at September 28, 2012, and $1.9 million at December 31, 2011, for all environmental liabilities. While it is difficult to estimate 95-------------------------------------------------------------------------------- Table of Contents future environmental liabilities, the Company does not currently anticipate any material adverse effect on results of operations, cash flows or financial position as a result of compliance with federal, state, local or foreign environmental laws or regulations or remediation costs. Disclosure Regarding Forward-Looking Statements Certain statements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations," including, without limitation, statements regarding future financial results and performance, plans and objectives, capital expenditures, understanding of competition, projected sources of cash flow, potential legal liability, proposed legislation and regulatory action, and our management's beliefs, expectations or opinions, are forward-looking statements, and as such, we desire to take advantage of the "safe harbor" which is afforded to such statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words "believe," "expect," "may," "anticipate," "intend," "estimate," "project," "plan," "assume," "seek to" or other similar expressions, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those discussed in forward-looking statements as a result of factors, risks and uncertainties over many of which we have no control. These factors, risks and uncertainties include, but are not limited to, the following: (1) general economic conditions, particularly those in the construction, energy and information technology sectors; (2) the volatility in the price of raw materials, particularly copper and aluminum; (3) our ability to invest in product development, to improve the design and performance of our products; (4) economic, political and other risks of maintaining facilities and selling products in foreign countries; (5) domestic and local country price competition; (6) our ability to successfully integrate and identify acquisitions; (7) the impact of technology; (8) our ability to maintain relationships with our distributors and retailers; (9) the changes in tax rates and exposure to new tax laws; (10) our ability to adapt to current and changing industry standards; (11) our ability to execute large customer contracts; (12) our ability to maintain relationships with key suppliers; (13) the impact of fluctuations in foreign currency rates; (14) compliance with foreign and U.S. laws and regulations; (15) our ability to negotiate extensions of labor agreements; (16) our ability to continue our uncommitted accounts payable confirming arrangements; (17) our exposure to counterparty risk in our hedging arrangements; (18) changes in financial impact on any future plant closures; (19) our ability to achieve target returns on investments in our defined benefit plans; (20) possible future environmental liabilities and asbestos litigation; (21) our ability to properly defend current pending antitrust and competition law; (22) our ability to attract and retain key employees; (23) our ability to make payments on our indebtedness; (24) our ability to comply with covenants in our existing or future financing agreements; (25) lowering of one or more of our debt ratings; (26) our ability to maintain adequate liquidity; (27) our ability to maintain effective disclosure controls and procedures and internal control over financial reporting; (28) the trading price of our common stock; (29) and other material factors. See Item 1A "Risk Factors" in the Company's 2011 Amended Annual Report on Form 10-K/A, for a more detailed discussion on some of these risks. Forward-looking statements reflect the views and assumptions of management as of the date of this report with respect to future events. The Company does not undertake, and hereby disclaims, any obligation, unless required to do so by applicable securities laws, to update any forward-looking statements as a result of new information, future events or other factors. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material. 96-------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates The Company's significant accounting policies are described in Note 2 - Summary of Significant Accounting Policies to the audited annual consolidated financial statements in the Company's 2011 Amended Annual Report on Form 10-K/A. In the nine months ended September 28, 2012, there have been no significant changes to these policies. In the nine months ended September 28, 2012, there have been no recent accounting pronouncements that are expected to have a significant effect on the consolidated financial statements. Venezuelan Operations Effective January 1, 2011, the Central Bank of Venezuela and the Ministry of Finance published an amendment to Convenio Cambiario No. 14 (the Exchange Law), whereby the official exchange rate was set at 4.30 BsF per U.S. dollar. In the nine months ended September 28, 2012 and September 30, 2011 the Company purchased 17.0 million and 12.3 million pounds of copper, respectively. At September 28, 2012 and December 31, 2011, the Company's total assets in Venezuela were $363.9 million and $286.4 million and total liabilities were $105.3 million and $65.9 million, respectively. At September 28, 2012 and December 31, 2011, total assets included BsF denominated monetary assets of $216.4 million and $138.3 million, which consisted primarily of $132.8 million and $92.9 million of cash, and $75.7 million and $42.2 million of accounts receivable, respectively. At September 28, 2012 and December 31, 2011, total liabilities included BsF denominated monetary liabilities of $43.5 million and $31.1 million, which consisted primarily of accounts payable and other accruals, respectively. All monetary assets and liabilities were remeasured at 4.30 BsF per U.S. dollar at September 28, 2012 and December 31, 2011. Sales in Venezuela were 5% and 4% of consolidated net sales for the three fiscal months ended September 28, 2012 and September 30, 2011. Operating income in Venezuela was 32% and 23% of consolidated operating income for the three fiscal months ended September 28, 2012 and September 30, 2011, respectively. The Company's sales in Venezuela were 4% and 3% of consolidated net sales for the nine fiscal months ended September 28, 2012 and September 30, 2011, respectively. Operating income in Venezuela was 22% and 16% of consolidated operating income for the nine fiscal months ended September 28, 2012 and September 30, 2011, respectively. For the three fiscal months ended September 28, 2012, Venezuela's sales and cost of goods sold were approximately 99% and 36% BsF denominated and approximately 1% and 64% U.S. dollar denominated, respectively. For the three fiscal months ended September 30, 2011, Venezuela's sales and cost of goods sold were approximately 90% and 29% BsF denominated and approximately 10% and 71% U.S. dollar denominated, respectively. For the nine fiscal months ended September 28, 2012, Venezuela's sales and cost of goods sold were approximately 99% and 36% BsF denominated and approximately 1% and 64% U.S. dollar denominated, respectively. For the nine fiscal months ended September 30, 2011, Venezuela's sales and cost of goods sold were approximately 90% and 29% BsF denominated and approximately 10% and 71% U.S. dollar denominated, respectively. During the three and nine fiscal months ended September 28, 2012, the Company settled $9.3 million and $39.9 million U.S. dollar denominated intercompany payables and accounts payable in Venezuela, respectively. During the three and nine fiscal months ended September 30, 2011 the Company settled $24 million and $39 million of U.S. dollar denominated intercompany payables and accounts payable in Venezuela, respectively. During the three and nine fiscal months ended September 28, 2012, settlements were made at the official exchange rate of 4.30 BsF per U.S. dollar on U.S. dollar denominated intercompany payables and accounts payable. At September 28, 2012, $61.8 million of requests for U.S. dollars to settle U.S. dollar denominated liabilities remained pending, which the Company expects will be settled at the 4.30 BsF per U.S. dollar rate. Approximately $47.0 million of the requested settlements are current, $14.2 million have been pending over 30 days and $0.6 million have been pending over one year. Currency exchange controls in Venezuela continue to limit the Company's ability to repatriate funds from Venezuela. We do not consider the net assets of Venezuela to be integral to the Company's ability to service its debt and operational requirements. As a result of government restrictions, Venezuela continues to operate in a difficult economic environment. The Company has historically taken steps to address operational challenges including obtaining approval of copper imports at the 4.30 essential BsF per U.S. dollar rate in the first nine fiscal months of 2012, purchasing other raw material products domestically, and adjusting prices to reflect raw material cost and adherence to government price controls. Refer to Note 22 - Subsequent Events for further details. |