65 claims as well as determining in the historical claims data will be indicative of future warranty claims. Adjustments are made to the accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues. Long-T erm Debt In accordance with ASC 470 - Debt, convertible debt instruments that may be settled in cash or other assets, or partially in cash, upon conversion, are separately accounted for as long-term debt and equity components (or conversion feature). The accounting applies to the Subordinated Convertible Notes, the 1.00% Senior Convertible Notes due 2012 , which were repaid in 2012, and the 0.875% Convertible Notes due 2013 . The debt component represents the Company’ s contractual obligation to pay principal and interest and the equity component represents the Company’ s option to convert the debt security into equity of the Company or the equivalent amount of cash. Upon issuance the Company allocated the debt component on the basis of the estimated fair value of an identical debt instrument that it would issue excluding the convertible option and the remaining proceeds are allocated to the equity component. The bifurcation of the debt and equity components resulted in a debt discount for each of the aforementioned notes. In accordance with ASC 470 - Debt, the Company uses the interest method to amortize the debt discount to interest expense over the amortization period which is the expected life of the debt. Derivative Financial Instruments It is the company’ s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. Derivative financial instruments are utilized to manage interest rate, commodity and foreign currency risk. General Cable does not hold or issue derivative financial instruments for trading purposes. ASC 815 - Derivatives and Hedging , as amended, requires that all derivatives be recorded on the balance sheet at fair value. Each derivative is designated as a cash flow hedge or remains undesignated. Changes in the fair value of derivatives that are designated and ef fective as cash flow hedges are recorded in other comprehensive income and reclassified to the income statement when the ef fects of the item being hedged are recognized in the income statement. These changes are of fset in net income to the extent the hedge was ef fective by fair value changes related to the risk being hedged on the hedged item. Changes in the fair value of undesignated hedges are recognized currently in the income statement. All inef fective changes in derivative fair values are recognized currently in net income. Refer to Notes 10 - Financial Instruments and 20 - Fair V alue Disclosure for further discussion. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy . Both at inception and on an ongoing basis the hedging instrument is assessed as to its ef fectiveness, when applicable. If and when a derivative is determined not to be highly ef fective as a hedge, or the underlying hedged transaction is no longer likely to occur , or the hedge designation is removed, or the derivative is terminated, the hedge accounting discussed above is discontinued. Forward Pricing Agreements for Purchases of Copper and Aluminum In the normal course of business, the Company enters into forward pricing agreements for purchases of copper and aluminum 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 . The Company expects to recover the cost of copper and aluminum under these agreements as a result of firm sales price commitments with customers. Refer to Note 10 - Financial Instruments. Fair V alue of Financial Instruments The Company carries derivative assets, derivative liabilities and marketable equity securities held in rabbi trust as part of the Company’ s deferred compensation plan at fair value. The Company determines the fair market value of its financial instruments based on the fair value hierarchy established in ASC 820 - Fair V alue Measurement, which requires an entity to maximize the use of observable inputs (Level 1) and minimize the use of unobservable inputs (Level 3) when measuring fair value. The three levels of inputs that may be used to measure fair values include: T able of Contents