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General Cable Corp. (NYSE:BGC)

Q4 2008 Earnings Call

February 11, 2009 08:30 AM ET

Executives

Michael P. Dickerson - Vice President, Finance, Investor Relations and Corporate Development

Gregory B. Kenny - President and Chief Executive Officer

Brian J. Robinson - Executive Vice President, Chief Financial Officer and Treasurer

Gregory J. Lampert - Executive Vice President, President and Chief Executive Officer, General Cable North America

Analysts

Joseph Gibney - CapitalOne/Southcoast Inc.

Jeff Beach - Stifel Nicolaus

Celeste Laurenzano - Merrill Lynch

Stuart Bush - RBC Capital

Will Stein - Credit Suisse

Nate Kellogg - Next Generation Equity Research

Brent Thielman - D.A. Davidson

J. Keith Johnson - Morgan Keegan & Co.

Steve Gambuzza - Longbow Capital

Operator

Good morning. My name is Kerry and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's Fourth Quarter 2008 Earnings Conference Call. This call is being recorded at the request of General Cable. Should you have any objections, you may disconnect at this time. All participants have been placed on mute to prevent any background noise. There will be a question-and-answer period after the speakers' remarks. (Operator Instructions). Thank you.

General Cable, you may begin your conference.

Michael P. Dickerson

Thank you, Kerry. Good morning, everyone, and welcome to General Cable's fourth quarter 2008 earnings conference call. I am Mike Dickerson, Vice President of Finance and Investor Relations at General Cable.

Joining me this morning are Greg Kenny, our President and Chief Executive Officer; Brian Robinson, our Chief Financial Officer; Greg Lampert, President of North America; and Bob Siverd, our General Counsel.

Many of you who have already seen a copy of our press release from last night, for those of you who have not, it is available on First Call, and on our website at generalcable.com.

I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements.

Our current Form 10-K report and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

During this call, we may refer to adjusted operating income and adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization, plant rationalizations, lower cost or market LIFO inventory adjustments and other restructuring items.

These non-GAAP company defined measures are being provided because management believes they are useful in analyzing the operating performance and cash flow, before the impact of various reorganization and other charges. A reconciliation of adjusted operating income and EBITDA to GAAP net income is available on the Investor Relations section of our website at generalcable.com.

The format for today's call will first be some discussion by Greg Kenny about the overall business environment. Secondly, Brian Robinson will discuss the overall financial results. And finally, Greg will provide some comments on the company's first quarter 2009 outlook, followed by question-and-answer period.

With that, I will now turn the call over to Greg Kenny.

Gregory B. Kenny

Thank you, Mike, and good morning. In the fourth quarter we've seen our single largest input cost copper fall by about 50%. At the same time despite economic difficulties in the U.S. the dollar has continued to draw interest from international investors trying to find a safe haven for their investments putting pressure on currencies around the world relative to the dollar.

The uncertainty of how long negative economic growth will last, currency and raw material price movement and limited visibility to end user demand in nearly every sector, have led many companies to discontinue providing investors with a forward outlook. Business conditions today are difficult. The macro economy is weak and the outlook is uncertain. But my intention is to continue to provide investors my thoughts and like you know what I expect for the next quarter.

You'll see however, that due to these uncertainties, we have widened our range of EPS guidance. It seems that conditions in the credit markets have improved a bit over the last several weeks which is positive long-term. This does not yet stimulates significant new projects which require cables typically six to 12 months after financing.

As you know General Cable has 46 factories in 23 countries and is the leader in North America, Western Europe, Latin America, Africa and Southeast Asia. While each market is different, our major drivers are energy infrastructure, construction as well as repair and maintenance, OEM and Do-It-Yourself are also important end markets.

Our two largest individual geographies are the U.S. and Spain which together accounts for about 43% of revenues. They remain our most distressed markets. The developed economies continue to be weak, while emerging markets have performed relatively better.

I am concerned however, that prolonged credit market tightness, weakening emerging market currencies, and low commodity prices may have negative implications for the emerging market growth rates in the future.

The Obama administration stimulus plan has many provisions and they benefit the company in the U.S., particularly those focused on improvements in the country's electricity grid and expansion of alternative energy usage.

I do not believe however, that spending initiatives coming from the government's stimulus bill are necessarily incremental for the overall spending that would have occurred by the private sector on its own overtime.

It is likely that we will see some pulp order demand for transmission projects for which there is $6.5 billion in the Senate Bill. There is also $8 billion for renewable energy loan guarantees and a three-year extension of the wind energy tax credit. The bigger driver long-term are green mandates in the U.S. that according to a recent industry study could require $100 billion of investment in the energy grid to move the power from source to consumer.

Turning more specifically to the company's results for the fourth quarter; on a basis consistent with our guidance for the quarter, that is before the impact of LIFO and lower cost or market gains and losses and the impact of certain emerging market currency devaluations, earnings for the quarter were $0.72 compared to guidance of $0.70 to $0.75. Brian, will talk more specifically about the charges in the fourth quarter in just a bit.

Fourth quarter volumes on a metal pounds basis sold were down 6.6% and 7.8% year-over-year in North America, and Europe, and North Africa respectively after adjusting for required businesses. This is consistent with what we've been experiencing for several quarters. At this point, there are no significant signs that would suggest that things are improving.

Fourth quarter volumes are on metal pounds basis sold were in the Rest of World segment after adjusting for acquired businesses were down 3.7% from prior year. Again while relatively performing better than developed economies, growth has slowed and is beginning to modestly contract.

Companywide in January, businesses has continued to be soft, experienced an overall reduction of approximately 7% in metal pounds sold compared to January of 2008.

Continuous cost reductions is part of our corporate culture and metrics. In addition, to direct labor actions that take place more in conjunction with changes in volumes, the company also continues to lean out inefficiency in indirect labor and management ranks as we have done overtime. We believe we have actively managed to the right production and head count levels in good times and in bad, which reduces the need for a large restructuring action as many are currently enacting.

We have taken larger actions in the past when necessary. However, such as the closure of the Bonham, Texas telecommunications facility in 2005 or more recently in an effort to continue to position the company for economic recovery, the recent shift in direction in Mexico with a conversion of a telecommunications facility historically directed to the U.S. demand to instead manufacture energy, industrial, and construction cables for the regional and local Mexican market.

Over the last several months investors have focused more heavily on debt maturities, liquidity, and the overall strength of the balance sheet. As I did last quarter, let me remind everyone where we stand in this regard. Gross debt at the end of the fourth quarter was $1.45 billion, while net debt was $1.16 billion down slightly from the end of the third quarter.

The company's principal long-term debt obligations are in the United States and consist of two convertible note offerings totaling $830 million with coupon interest rates of 1% and seven ace of 1%, we also have senior notes of $200 million at seven and eight and $125 million of floating rate senior notes, which pay an interest of 2.375 over LIBOR. These long-term debt obligations have scheduled maturities beginning in October 2012 and extending through April 2017.

The company maintains a $400 million asset base lending facility in the United States of which zero was drawn at the end of the fourth quarter. The facility matures in August of 2012 and is financed by a syndicate of 12 financial institutions. The largest holding by an individual syndicate member is 20% with the remaining institutions participating at an average of less than 10% of the facility. The facility continues to operate as designed.

The company also maintains multiple revolving credit facilities to fund working capital needs around the world with both global and local institutions. These are renewed typically on an annual basis.

At the end of the fourth quarter, through a combination of existing cash balances and undrawn available lines of credit, the company had approximately $1.2 billion of available liquidity around the world to fund operations, internal growth opportunities continuing product and geographic expansion, as well as repurchase of the company's common stock under the existing Board authorization. The majority of the assets and cash flows outside of North America remain encumbered and are an additional potential source of future liquidity.

Cash flow from operating activities was $100 million in the fourth quarter including the use of approximately $25 million to liquidate certain fixed U.S. dollar obligations in emerging markets to reduce the overall currency exposure that had resulted in currency devaluation charges in the third and fourth quarters.

I'll now turn the call over to Brian Robinson, who will provide further details on our financial performance for the fourth quarter. Brian?

Brian J. Robinson

Thanks Greg. On a consolidated basis, net sales for the fourth quarter of 2008 were a $1.292 billion, an increase of $215.3 million or 20% compared to the fourth quarter of 2007 on a metal adjusted basis. This growth was principally due to the $173.9 million of revenues from acquisitions completed in the last 12months.

Partially offset by lower demand as a result of ongoing weak economic conditions in the developed economies of the world and the unfavorable impact of a generally stronger U.S. dollar.

Fourth quarter 2008 operating income before the impact of LIFO and lower cost or market inventory accounting related charges was $76.4 million compared to operating income of $93 million before the impact of similar inventory accounting related charges and telecommunications restructuring charges in the fourth quarter of 2007, a decrease of $16.6 million or 17.8%.

The decrease in operating income was principally a result of lower demand and pricing particularly in the developed economies, telecommunications and electric utility products in North America, and ongoing weakness in Spanish construction, partially offset by acquisitions completed in the last 12 months.

Operating margin before items was 5.9% in the fourth quarter of 2008, a decrease of approximately 270 basis points from the operating margin of 8.6% in the fourth quarter of 2007 on a metals adjusted basis.

Reported operating earnings for the fourth quarter included approximately $14.7 million of non-cash net LIFO and lower cost or market inventory accounting related charges. This consist of approximately $19.1 million of charges in the Rest of World segment and $5.4 million of charges in Europe and North Africa segment, principally related to inventory valuation adjustments as a result of the significant reduction in copper market prices during the quarter.

Partially offset by $9.8 billion benefit in North America resulting from the accounting impact of inventory quantity movements during the year.

As a reminder under LIFO the company charges itself, the current cost of metals in the period and calls out the accounting impact of LIFO and lower cost or market gains and losses as they occur for investors.

Historically these adjustments have been quite small, however they have been much larger and more volatile in the last several quarters due to the rapid movements in the market prices for metals and the acquisition cost of inventories acquired during these periods.

Net interest expense for the fourth quarter of 2008 was $17.4 million compared to $12.1 million of net expense in the same quarter last year, due to additional interest on international lines of credits supporting operations in the Rest of World segment and incremental borrowings in the Europe and North African segment related to the May 2008 acquisition of Enica Biskra.

The company also reported less interest income in 2008 as a result of using existing cash to partially fund the PDIC acquisition. The increase in net interest due to acquisitions was partially offset by lower balances on the company's U.S. asset based revolver.

With regard to income taxes, the company continues to maintain an effective tax rate below the U.S. statutory rate due to the continuing effective tax rate benefit of the increased relative mix of income from lower rate jurisdictions as a result of recent acquisitions. The company is actively pursuing opportunities to further improve its effective tax rate overtime.

During the fourth quarter, we have increased slightly our full year 2008 effective tax rate from an expected rate of 33% to 33.3%. For 2009 I expect to report an effective tax rate throughout the year in a range of approximately 33% to 33.5%.

As for our recent foreign currency transaction charges historically the company has included expectations for transaction gains and losses related to currency fluctuations and its expectations of future performance. And I expect this will be the case going forward. Only in the last two quarters due to the extraordinary devaluation in many currencies particularly those in emerging markets had the company severely caught out these transaction currency impacts.

For the fourth quarter included in pre-tax income was approximately $15.5 million or $0.20 per share of foreign currency transaction charges related to the rapid devaluation of certain emerging market currencies, that occurred from about mid-September 2008 until the middle of the fourth quarter.

During the fourth quarter the company took measures to reduce its exposure to movements in these currencies partly by accelerating payments of approximately $25 million of fixed U.S. dollar obligations.

Adjusted EBITDA was $100.1 million for the fourth quarter of 2008, resulting in $528.3 million of EBITDA for the trailing 12 months and a leverage ratio of 2.2 times on a net debt basis. Our coverage ratio of adjusted EBITDA to trailing 12 months net interest expense is 9.5 times.

Capital spending in fourth quarter was $68.3 million, while depreciation and amortization was $23.7 million. For 2009, before the impact of any new acquisitions or JVs, the company expects to invest approximately $120 million to $140 million. This spending is over weighted internationally as the company more narrowly focuses it's capital programs to developing regions of the world coupled with an ongoing global focus on lean initiatives and continuous improvement in the areas of safety, quality, material usage, conversion costs and throughput.

Before I turn the call back over to Greg, I would like to discuss the recent change in accounting, which will impact our reported earnings per share beginning with the first quarter of 2009.

The company's two convertible debt instruments, which fall under the new Staff Position APB 14-1 issued by the Financial Accounting Standards Board effective for the first quarter of 2009.

This new accounting standard requires that issuers of convertible debt instruments recognize interest cost in subsequent periods. They will reflect the entity's non-convertible debt borrowing rate as of the instrument's issuance date rather than the cash coupon as is our current practice. Additionally prior periods are to be restated on the same basis.

The company will record incremental non-cash interest expense, which is the estimated impact of applying a straight debt instrument interest rate to the company's $830 million of outstanding convertible notes.

The company expects this incremental expense to be approximately $0.15 per share and $0.14 per share for the first quarter of 2009 and 2008 respectively. There is no impact on periodic cash flows.

With those comments, I will turn the call back to Greg for some final remarks. Greg?

Gregory B. Kenny

As I said before General Cable has the strongest business mix, capital structure, and liquidity position in my 25 years of the company. We are much better positioned than during the 2001 - 2003 industry downturn, while economic conditions continue to be difficult, and will likely deteriorate further, I believe General Cable is well positioned to emerge stronger than many of its competitors.

This is due to ongoing contributions of our exceptionally talented people throughout the world that are focused on continuous improvement, a strong balance sheet, and diversified product, and geographic mix.

General Cable benefits from an ongoing... from an operating model that leverages our best global ideas and know-how in safety, technology, manufacturing, purchasing, talent management, and of course our one company performance to our global customers. The effect is powerful and continuous as we draw on the strength of 46 factories in 23 countries and 13,000 associates.

Before the impact of the incremental non-cash interest expense from the convertible debt accounting charge for the first quarter of 2009, the company expects reported earnings per share to be in a range of $0.50 to $0.65 per share. Revenues are expected to be approximately $1.175 billion to $1.225 billion.

That concludes our prepared remarks. I'll now turn the call back over to the operator who will assist us in taking your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Joseph Gibney with Capital One.

Joseph Gibney - CapitalOne/Southcoast Inc.

Good morning, everybody.

Gregory Kenny

Good morning, Joe.

Brian Robinson

Good morning.

Joseph Gibney - CapitalOne/Southcoast Inc.

Brian, I just want to touch base on the ForEx sign. Obviously, positive initiatives there with the $25 million on the incremental payments, I'm just curious on your thoughts of combating this a little bit further in the first quarter. Do you feel confident this will be adequate, this is actually a very rapidly moving target and putting hedges as you alluded in your last call is something that is an expensive kind of proposition and certainly a difficult one, but curious to be thinking you're a little bit better prepared here into first quarter, potentially not be facing as much noise as we saw in the last couple of quarters?

Brian Robinson

Yes, Joe, I think generally the answer to that would be yes, again. So much of this was caused really during the six week period from mid-September really through the end of October. And so in addition to both accelerating those payments of the U.S. dollar denominated obligations there are other sort of actions, which we're doing. And so I think we have our arms rounded.

The hedging situation, the ability to hedge some of these currencies hasn't... to be candid hasn't changed a lot. I think it's more around managing our monetary positions in these parts of the world. So as we've said, in a business, which is truly global, we would expect some element of transactional gains and losses going forward, but we've embedded that in our guidance.

Joseph Gibney - CapitalOne/Southcoast Inc.

Okay, thanks. And Greg, just one question on the emerging market side. I appreciate the color there. Actually growth slowing, certainly starting to beginning to contract there, I know previously you talked about Europe lagged in the U.S. by a couple of quarters and still steadier growth in the emerging side, but have we kind of starting to see a little bit of a flip flop more signs of may be some stabilization of bottoming in North America and reversal of that trend where things accelerate to the downside in the rest of the world or some general color there will be appreciated?

Gregory Kenny

Yes, Joe, good question. I guess one as in Europe it's really a tale of two cities with Spain which had as you know had a tremendous run as an economy with really negative real interest rates for a long time. That was down in the fourth quarter about 25% from the prior year.

The rest of our business was up and that's France. Again there is a fair amount of export activity but overall our German acquisition of NSW performed strongly in terms of demand side. We also saw France which sells globally but also heavily to the French market. Seems to be... or are clearly had been much less volatile than say Spain and the United Kingdom. So Europe seems, which we've seen in past turndowns has been relatively stickier, that's not to say they are immune and certainly with Russia and Eastern Europe sliding from their former rates of growth that will put some drag on the West.

In the U.S., I'd say we... it's hard to call a bottom and we have been saying that this U.S. was headed down from the fourth quarter of '07. Our infrastructure business was actually... this is heavy cable for major projects was up in the fourth quarter and seems to be up in January versus prior year. Again that's probably a long tail of projects that are obviously important ones, the business is tied to MRO, that's maintenance repair was down high single-digits in the fourth quarter and looks like it's also down that level in January.

So that would say that it's again tracking industrial activity in the U.S. which is clearly down. Take telecommunications business we continue to have new product launches as you may have read about that business seems to be softening, we probably have a very growing and expanding position because of some of the things we've done at the high end 10 gig area but that is a bit concerning.

Telephone utility has been way down and is probably the largest drag, it was down versus prior year more than 40%, though January it's a bit of a seasonal business January seems to be coming back a bit.

Electric utilities were relatively stable year-over-year. So it's kind of a mixed bag in the U.S. and in fact January we had bookings above sales in some businesses and below in others. But broadly it's still choppy and I would say we are feeling around that bottom and again now more than a year into this cycle.

Overseas clearly with the developing countries, the spill over is there we do see more governmental involvement in projects and many of these countries had current account surpluses.

So it's a mixed bag of activity but we're hanging in there. And of course have expanded into Mexico by converting that factory but that was down 3% to 4% in the fourth quarter and looks to be continuing that in January though January I would say January and December are particularly hard months to gauge particularly in North America, we saw extended shutdowns, as people began to slowdown their factories in terms of OEMs and just activity generally, we saw some of that in the developing world.

But broadly I am not ready to say the U.S. has bottomed but it seems to be... may be I'd say this gently is, if the rate of decline could be slowing though we'll have to see. Again we're probably down 20% from the peak which was in the '06 timeframe.

And then Europe seems to be tale of two cities with North of Europe better shaped than Spain and the United Kingdom, and a mixed bag in rest of the world depending on the country. But overall, I think again our balance is good, our continuous improvement matters and our balance sheet is also excellent. So we are ready for this and we will find opportunity in it.

Joseph Gibney - CapitalOne/Southcoast Inc.

Okay, thanks guys appreciated and also identifying the bottom. I'll turn it back, thanks.

Gregory Kenny

Yes, I am not going to call again.

Operator

Your next question comes from Jeff Beach with Stifel Nicolaus.

Jeff Beach - Stifel Nicolaus

Yes, good morning, Greg.

Gregory Kenny

Hi, Jeff.

Jeff Beach - Stifel Nicolaus

I have three questions.

Gregory Kenny

Okay.

Jeff Beach - Stifel Nicolaus

First, in the fourth quarter do you feel like you reduced your inventories enough by the end of the year to match the level of demand or you still have further reductions to go here into the early part of 2009?

Gregory Kenny

I think again this we're watching the changes in demand. There's less and less visibility, but broadly in North America we were pulling inventory down all of last year. And our sense is that the distributors have been watching closely as well. Again I'm speaking broadly. So I don't think the channel is in the current demand environment is particularly long and material, though we were driving down all of last year, which I think was a prescient and a good thing on our part.

We'll continue to watch it very closely and probably slow down a bit more in the first quarter. In the rest of the world we're also slowing and I suspect we'll be reducing inventory though we're in relatively good shape. I think we need to pull, continue to work there.

And then again Spain is a special case, but broadly Europe again we're to continue to drag down in Spain and watching closely the rest. So I would say there will be unbalanced inventory reductions and we may not see the normal seasonality that we see in this business as we continue to adjust to what were the demand rates, but did impact our business in the fourth quarter, certainly.

Brian Robinson

Jeff, it's Brian. The other thing I would add to that is it gets harder and harder given our nature to put a real linear relationship around the inventory. So one thing to keep in mind is in some of these markets, part of our strategies around currency, and other risks is around investing in hard asset. So that would, may cause some distortion in the inventory numbers as well.

Gregory Kenny

We're looking at how we pay people and are again trying to get to... based on the earlier question, sort of a net exposure of zero in these places that we do business and we've looked at historical currency volatility and the volatility we saw in many of our rest of the world markets in a six week period where many times the historical average that we're looking back over seven to 10 years and that seemed to all happen in a six week period.

So we are, even if it means higher local interest rates, we're trying that is increased borrowing in the local currency at rates higher than say our global rates, we will do that, and we will also watch dollar denominated payables et cetera. So we're continuing to manage that, to manage risk around those economies. So that impacted a little bit our cash flow, as Brian called out earlier in the fourth quarter.

Jeff Beach - Stifel Nicolaus

Okay, thank you. Second question. You're guiding in the first quarter about $100 million sales reduction from the fourth quarter. And we've been trying to calculate the impact of passing on declining copper cost to the customers. It looks like if you took out copper that there isn't too much of a decline if any at all in terms of actual volume first quarter versus fourth quarter. Is this correct and then if it so, why are the... what's the primary reason you're looking at earnings below the fourth quarter?

Gregory Kenny

Yes Jeff, again you touched on an interesting issue. As you know half of our business, approximately is priced going forward. So in the fourth quarter which makes some of the comparisons a little trickier, half of the sales we delivered were at metals brought at $3 a pound, I'm over generalizing for delivery in the fourth quarter because as soon as we have a firm price we'll go back to back.

As we now have had some months in a lower copper environment between $1.30 to $1.29 at the end of the year to $1.50 something now. We're beginning to run through those hedges and which again we take those hedges based on firm demand from costumers. So yes, I'd say our unit volume is approximately the same, we're watching as obviously pricing behavior as you know half our business is fixed price approximately half is priced on a short cycle.

And clearly we've got demand but it's quite weak in some areas as well as... obviously, we're really less, there is less priority than we've had. Again we really only enjoy some of our business, it's relatively small part, it has extended backlog. So we are also thinking through electric utilities by given the lower demand on them, the telephone companies have been way down.

So while we have forecast, we don't know what they are going take. So I would say Jeff, we've tried to be prudent which is to open up the range, but we are dealing with a Spanish market that's down 25% from where it was a year ago. And we know that in some markets you can see people price at their cost if they have a desire to for a while and eventually they can't do that forever. But they need to cut sub sizes (ph), so we are trying to figure all of that in Jeff, but I would say, broadly we've widened the range.

We always hope to deliver well and hard but we just know less than we have, as we haven't really seen an environment with raw materials falling, demand falling, and then obviously volatility in currencies.

Jeff Beach - Stifel Nicolaus

All right. I guess the question is why first quarter earnings lower than fourth quarter?

Gregory Kenny

Because Jeff, I hope it's not, but I would say that we have widened our range and we're dealing with probably worsening conditions, because as I said earlier I don't believe we have bottoms. So I am trying to allow for worsening condition.

Jeff Beach - Stifel Nicolaus

Okay, that's good. Last question. If you were able to go back and take a pro forma fourth quarter of '07 as just you owned PDIC, you owned, you consolidated Philippines everything and looked at Rest of World volumes stripped out currency, copper everything? Do you think Rest of World volume from everything you have in fourth quarter of '08 was flattish or up slightly, flattish down or little bit over fourth quarter of '07 pro forma, just a gut feel on--?

Gregory Kenny

We tried the pro forma Jeff, and 3.7% that I mentioned in the earlier I thing I say fourth quarter volumes on a metal pounds sold basis in our Rest of World segment after adjusting for acquired businesses. So we would have looked, we brought Phelps Dodge in the October 30th or 31st of '07 as if we own them. So exactly the question you asked we were down 3.7%. So we pulled out the Philippines which we now consolidate and we looked at what Phelps Dodge actually sold in October of '07 before we owned them, it would have been down 3.7%.

Jeff Beach - Stifel Nicolaus

All right, thank you.

Gregory Kenny

Okay.

Operator

Your next question comes from Celeste Santangelo (ph) with Bank of America - Merrill Lynch.

Celeste Laurenzano - Merrill Lynch

Good morning.

Gregory Kenny

Good morning, Celeste.

Celeste Laurenzano - Merrill Lynch

Hi, so based on the answers you gave to the past couple of questions regarding currencies in emerging markets and LIFO evaluation, how should we look at the Q1 outlook and may be what you have accounted for, if anything regarding those two issues?

Brian Robinson

Celeste, sure it's Brian here. With respect to the transactional currency as I said given the nature of the global business, we would expect going forward that there will be some level of transactional currency and that is embedded in the guidance which we provided. With respect to the LCM and the other LIFO accounting items, again that one is really subject to the spot price of copper mainly despite spot price of copper at the end of the first quarter as well as inventory quantities.

But I guess I can tell you, you can see copper is very volatile. It ticked up for some period of time here in the first quarter and that... and so all things being equal that would create some sort of gain. But as we've done historically the right thing for us to do is to charge ourselves current copper, explain our business that way we run our business on a current copper basis and we would call anything out that whether rates of LCM over LIFO accounting. But be clear there is nothing in the guidance on that subject.

Celeste Laurenzano - Merrill Lynch

Okay.

Brian Robinson

Our guidance is based on charging ourselves at current metals.

Gregory Kenny

It's because we think the numbers are small Celeste--

Celeste Laurenzano - Merrill Lynch

Right.

Gregory Kenny

And we don't know what copper will be at March 31st. But basically it's more it may not be, but right now it's more of a pusher noise level. So you would say this is our all in number based on what we see today. Again that to say that's what in fact happened, because copper could be $2.50 a pound on March 31st. But what we're seeing today, this looks to be where we'll be. Again we could also have currencies changed 25%, but that volatility has seemed to have come down, and the metal is trading in a narrower bandwidth obviously.

Celeste Laurenzano - Merrill Lynch

Got it, okay. And then regarding pricing, you made a couple of comments. I mean, it's been a difficult environment for a while. You called out that you're seeing a more difficult environment due to just lower capacity utilization.

Gregory Kenny

Yes.

Celeste Laurenzano - Merrill Lynch

Is that just, is that just an effect of lower volumes or are you seeing anything in the way of may be irrational capacity coming on line or is there something different going on?

Gregory Kenny

No, I would say there is nothing different than what we've talked about in the past.

Celeste Laurenzano - Merrill Lynch

Okay.

Gregory Kenny

So clearly, as utilization levels drop you have people that are less busy and it depends upon different competitive strategies, which obviously we don't control. But what we can control is have the best cost position and be able to compete on that basis. But I would say it all depends on the market and what we're seeing in volume. But generally as capacity utilization comes down, you do see pressure on price and we've seen it before in other cycles. What we did have and we talked about in the past is we had a fair amount of capacity being installed not always effective capacity clearly in China, a lot of that is shut-in and may be it's not working. And we saw some expansion in the Middle East and parts of Eastern Europe.

Again, because of the regional nature of the business, it really depends upon only a few products are really global in nature, more on the very high end products that might be extra high voltage, and those kinds of things where it's traded more regionally or super regionally. But for the most part it's what's going on in your environment and there it has probably been capacity creep and investment with mostly in the developing world and I would say that Latin America is in relatively good shape in terms of I think supply - demand. Again, you always wish it were tighter. The U.S., there has been some investment, but not remarkable.

Asia, there has been a lot of investment, but a lot of its not working very well. And again you can buy the equipment, but then the operator is tricky. And I would say the same for the Middle East and Eastern Europe. So we do have, we do know that clear capacity has been build during the run up from the last downturn in '01 to '03 and we'll have to wrestle and compete with that capacity and it depends on each individual market. But it's nothing there is no new major investment that is triggering my comment.

Celeste Laurenzano - Merrill Lynch

Okay, okay that's helpful. And then, lastly just looking at the stimulus package, I know it's difficult to quantify just, because of lack of details regarding what kind of project we're looking at here. But just if we can get kind of your general thoughts on what you're thinking. You made a comment that not necessarily all of it is incremental. Can you give us some kind of feel of may be a split how much you think would be incremental versus maintenance that would have happened here anyway?

Gregory Kenny

I think the bigger, the big driver for us Celeste is really the... I guess is 29 states or so that now have green mandates. And again Obama, the 20% target for 2025 you begin to look at if indeed we go do that and we do it through solar and wind.

We've been building 5,000 megawatts to 8,300 megawatts a year in wind. And in order to get to that kind of number, you need to go to 12,000 to 18,000 per year. And with the stimulus goal, it does have is some language around $8 billion for renewable loan guarantees and also $6.5 billion to build new transmission systems. Just to scale that again we don't know precisely, but we think roughly transmission spend in the U.S. is about $10 billion a year, and that's the entire project from land write-aways to towers to labor to cable and some of the pole line hardware and other items and cable might be 5% of that $10 billion.

So when he says or when the Senate Bill for example says $6.5 billion again we think that will, that's a big number could be two-thirds of a year. But the much bigger numbers are tied to what needs to be done and there is a bit of number of reports including one out in the Wall Street Journal this earlier this week, the number is a $100 billion plus kinds of numbers.

So I think this will help hope for our demand, we saw 2009 as a slower year because of some of the financing vehicles having dried up. Lehman was active in that GE and we saw that as a slower year, 2009 falling back to sort of 2006 levels. This could help hold it at 2008 levels on terms of win.

Transmission as we said was very slow in the first half of '08. It began to pick up in the fourth quarter. This will help may be enable some projects to get financed obviously its way more complicated in that as you need write-aways and there's hearings and other things and FERC is really not exercise it's eminent domain powers that came from the Energy Policy Act of 2005.

But net, net it's important I think it could help what might have been a weaker 2009, relative to 2008 in wind and may accelerate some of the transmission. But we're really playing for the green mandates and again we look at headlines that everyday there are alternative projects, some funded some unfunded, some talked about, but they are big numbers.

But to go to 20% green in the U.S. will put big demand on our undersea medium voltage cable plant that we're going into in Germany and that just won some wind farm orders there and clearly will help our medium voltage business, the transmission were well prepared for that.

Again, last year was a disappointment, we talked about hundreds of billions of work to be done in transmission for a first world grid and it's really only happened a tiny bit meaning we have just, in the last couple of years begun to pick up spending, saw a slowdown in our way and this may help.

So I think this language may be helps '09 and '10 which might have been tougher years, to sort of hold at '07, '08 levels but I don't think it's the big catalyst which is really so far 29 states that have green mandates.

Celeste Laurenzano - Merrill Lynch

Thank you.

Gregory Kenny

Okay, Celeste.

Operator

Your next question comes from Stuart Bush with RBC Capital Markets.

Stuart Bush - RBC Capital

Yes, good morning, Greg. If we take a look back at 2008, not at revenues since, that's a metal adjusted but if we look at volumes, can you give an estimate on how much of your business was maintenance and replacement, out of 2008 volumes?

Gregory Kenny

Yes, Stuart thanks. So let me just finish one last thing, Celeste I should mention that there is an extension of the renewable wind energy credit through 2012 which is we think very important and obviously there is also some bonus depreciation, capital equipment investment et cetera, et cetera which will help our MRO business.

So this isn't this is for just for general capital equipment investment by industry and as well as this $20 billion for health IT activities, so there is as well as there is energy upgrades and federal buildings and $14.4 billion of undescribed for renewable energy.

So we are still trying to see what the details are and as you know there is a corpus between the House and Senate but there is more in this Bill than just simply the $8 billion guarantees and $6.5 million of new transmission that would stimulate our overall business including our communications business.

Stuart we don't know the old rule of thumb in the industry has been about 50% of our demand is, if you are a cable maker about 50% of your demand is for maintenance repair and that could be a section of utility cable that's come down and gotten flooded or cable being used on the shop for portable power et cetera. But we really don't have... I've never seen anything scientific around that.

Stuart Bush - RBC Capital

Okay. And thanks for those additional comments on the stimulus package I mean clearly it seems that there are several elements in the current stimulus bill that help a variety of your end markets beyond just the transmission--

Gregory Kenny

Absolutely.

Stuart Bush - RBC Capital

Stuff... and I want to go back to one issue that you sort of glossed over before in your previous answer which was that the FERC hasn't really taken advantage of it's powers of eminent domain. Do you see any visibility that the government might ease the red tape for these projects, the transmission projects, the write-aways or any regulatory easing that may help these transmission projects come quicker or is it just the financing issues?

Gregory Kenny

I think it's financing. We have seen the states taking more aggressive action, but not the federal government, and I have not seen any. I think this administration certainly has it's hands full right now. So this is probably to come, but we have not seen any major change in public policy at the federal level.

Stuart Bush - RBC Capital

Okay. Then I have one another question on the rest of the world segment. I know you're talking about pro forma the volumes were down 3.7% year-over-year. When I look at ex-metals it looks to me like pricing was down much more significantly in the rest of the world. Is that a good read or what's going on there on the real price in the rest of the world segment?

Gregory Kenny

Yes, I would say that there is some price pressure. Again these are intensely and brutally competitive markets and we know that. I would say that as capacity, you'll see capacity from markets that are say down come hunting for volume in other markets is sort of the nature of competition. So you'll end up having sort of, you'll end up having that kind of capacity moving within its trading zone.

But I wouldn't say that we... financially we are continuing to perform. That is we continue to, we had one year of further cost reductions, we're getting tremendous leverage on the know-how of General Cable worldwide. So its finding the company's Phelps Dodge, they're now getting to look at everything we know in all the rest of the world. And that's all we've been purchasing to technology, material science, and global costumers.

So I'd say Stuart we are financially performing at similar levels, was running through some of this. The numbers obviously is some of the currency or transaction issues, which are confusing probably to the... if you're just reading the addendum to the press release. So from an operating basis they are performing despite weaker markets at approximately where they were prior year.

Stuart Bush - RBC Capital

Okay, great, thanks.

Gregory Kenny

Yes.

Operator

Your next question comes from William Stein with Credit Suisse.

Will Stein - Credit Suisse

Thanks, good morning.

Gregory Kenny

Hi, Will.

Will Stein - Credit Suisse

Hi. Greg, you made some earlier comments that I think kind of suggested that there was a chance that earnings in Q1 could be flat sequentially from Q4. So I'm going to try to ask you a different way. Assuming that the only impact on pricing is metals and foreign exchange and that units is somewhat flatter or unit demand let's say is somewhat flattish, sequentially there is no... well I guess what I'm trying to find out is are we expecting a significant change in pricing and if you're being conservative are we more likely to see upside to both the revenue and the earnings that you're providing or is it more that you're hoping at the revenue guidance level that perhaps you can squeeze out higher or better pricing in this account (ph)?

Gregory Kenny

Yes, we're constantly trying to get what the market will give us on price. And again we don't have formulaic escalators and de-escalators for more than half of our business. So it's price based on competitive behavior and we do have obviously some easing of our major inputs, which are... other materials today are about 40, depending on the product of 30% to 50%, say 40% on average. That's other materials, metal is in the 35% range and then direct labor is 4% and we've got indirect labor and overheads. So we've got a lot going on both in terms of what the marketplace will give, what are our cost inputs and then what is demand. Broadly, I think Europe is weakening, it's behind the U.S. Though we have improved Sealac a lot in terms of its productive capacity and we're entering into a new business area from NSW. So we have some interesting things going on for us. But Spain is not strong and I expect the utilities spent to fall behind the housing side and then of course they'll be looking for rate relief and if they don't get it they could elect not to spend. So I think Europe is still a story to be told putting aside for a moment some of the unique things that we've done to improve our hand there.

Phelps Dodge seems to be hanging in but January was an weak, relatively weak opening but it's I wouldn't draw a trend from that again a lot of countries so it took an extra week off it seems factories, none up in the U.S where really we had an extended shutdown in December and January.

But net, net I think I don't want to make a call yet. Obviously, we feel it's in that $0.50 to $0.65 range, I'd love to have a surprise the top end of that. But we just don't know, I mean we made $0.72 in the fourth quarter which was not at the high end of our range.

Our range was tighter but I'd just, I would say that Europe is probably the biggest thing on my mind and I don't want to call because I expect Europe to generally get tougher as they are probably nine months behind the U.S. in terms of the change.

Will Stein - Credit Suisse

I guess, really what I am going at is, if you do wind up having upside earnings--

Gregory Kenny

Yes.

Will Stein - Credit Suisse

Are you likely to see that from upside to revenue or upside to your margin expectations?

Gregory Kenny

I would say margin expectation, that's a good point. It would be margin I am not expecting a revenue surprise. Meaning we held prices better than we thought we might would be the basis for a positive surprise and got real margin.

Will Stein - Credit Suisse

Got it, that's helpful. Just quickly also, can you give us any comments on 2009 in terms of any view on overall revenue growth and in particular margin progression both gross and then on the SG&A as a portion of revenue. Should we think in particular in the latter the SG&A do we think that is relatively fixed on a dollar basis, it seems like it doesn't move around as much as perhaps the cost of goods?

Gregory Kenny

Well, I can't hear you. As for--

Will Stein - Credit Suisse

As cost of goods which I think--

Gregory Kenny

We have taken a number of actions. Culturally, we always run like we are going to get pulled down from behind and I think we have not yet other than adding engineers and direct sales people which are two biggest leverage points. We try to always run with less and less and less and we probably have done better than many in avoiding people whose job it is to watch others do work or manage the work of others.

And I think you've seen that overtime, we are continuing to look for adjusting to volume and I think likely we'll... again revenues are going to come down so our SG&A as a percentage of revenues would arithmetically go up, but we are going to continue to pull and lean out the company where ever we can.

So combine jobs and redesign work and we have done that in the fourth quarter. Again we've never been someone to go out and say well we took this much charges, it's just part of what we view as ongoing business.

If we ever took a plant down, we tell you about that but we've adjusted our head count by hundreds and hundreds as we as to the point earlier of volume coming down and you rebalance your direct labor. We are working at basically five days in the U.S. and we've slowed, we continue to slowdown our operations and take out SG&A where we do have salary people is probably a couple of thousand worldwide and we keep working on that.

So I think we're in good shape but I don't think we're going go send 500 salaried people home we're very lean, we'll keep working in individual places and keep moving work with that again it's been cultural for us for seven or eight years. And our salaried workforce has been constant or coming down even through a very good period in this industry.

Will Stein - Credit Suisse

And a revenue outlook for '09 any comments?

Gregory Kenny

I think we were... my gut is that its continuing to fall and that the rest of the world is behind the U.S. My personal view is that as you see the credit markets come back together somewhat, eventually this restarts and money is getting even with higher spreads is getting to be at sort of historical averages to go out, and if you want to do some financing, and I think is becoming more available. We're seeing obviously central banks around the world engage.

But I think we'll feel this basically in 2010. So I expect Europe to... Spain to continue to weaken. I think the rest of Europe will sort of hang in and I think Spain will come down probably by double digits in terms of volume. And it's an important part of the business. I think the U.S. will weaken over '08. But I think the rate of decline is probably slowing and I think the rest of the world will be a tailor. Again we started a new business in Mexico and other things, but on an apples-to-apples basis, I think we will see declines in the rest of the world.

But again all these places didn't have mortgage markets. They didn't have per se toxic assets. There people are getting homes for the first time. They're getting electricity for the first time. So the rest of the world government is stepping in places where it can. Yes, we'll see less hotels built in Costa Rica, which will affect our business, and that kind of thing or Macao, but broadly I expect a decline probably on an apples-to-apples basis, but a modest one in the rest of the world, a modest decline in the U.S. and probably Spain at an accelerated decline with the rest of Europe sort of hanging in. But as you know, we don't get in the business of putting forecast in terms for a full year, in part because of the lack of pricing visibility.

Will Stein - Credit Suisse

Got it, thanks, Greg.

Gregory Kenny

Yes.

Operator

Your next question comes from Nate Kellogg from Next Generation Research.

Nate Kellogg - Next Generation Equity Research

Hi, guys. Nice quarter. Just a couple of quick questions. I guess I know you guys talk a lot about your liquidity, but if you can just sort of I know you gave us what CapEx might look like for the next year, but after that if you could just sort of talk about your priorities for uses of cash generation especially if you expect to continue to work down inventories. My guess is we should see some pretty decent cash flows over the next couple of quarters?

Gregory Kenny

Yes, we look to be investing a bit above depreciation. Again we're still supporting a major new initiative to enter the submarine electrical cable business for medium voltage products, which is basically wind farm and deepwater drilling. We are expanding to take a meaningful position in a very important market in Mexico which I think is very important strategically over a long term and we're looking at build out of our India business. But broadly I would expect if copper stays down here, that will help us, as well as volume driving down that should help on the cash flow side of things.

We continue to look at opportunities in the developing world as we've seen these IPO markets and those stock exchanges adjust. We're pretty good. In fact, I think we're one of the better companies in operating in places like Latin America and Africa, which are complex places and I see as continuing to look to build out our geographic footprint just and Angola already has become a $25 million business.

It's obviously in OPEC and oil is not likely to stay at $40 long-term. So those are the kinds of things that we will continue to do and those would be my priorities that really that continue to push cash out of the system to take advantage of mismatched (ph) opportunity that we can leverage as a company given our skill set and continue to try do more with less on the CapEx side.

I think '09 is likely to be higher than '10 on CapEx which again we're in great shape on our physical assets and entered some new businesses. So clearly paying down debt if we see some interesting opportunities in the developing world or JVs, we'll do it. If we see assets that are being given away or where the seller has just lost the will or know-how to run these things we'll obviously always look at this and these kind of opportunities and I say given away is figuratively.

In the bottom of cycles we've seen companies sell at working capital plus probably below replacement cost and the fixed assets. Those are always our kinds of deals and those companies may have no income or no earnings and if we think things are bottoming and we can improve them just even in a bad market those are the kind of things when we acquired BICC or the contact business or NSW, we have done that and Sealac, we have done that in all scenarios.

So those are things to look out for but I would say the priority is just continue to build cash but we are saying on the offense there is a company and not hunkering down meaning, we still believe that these are terribly important products that this too will come around I want to continue to build our footprint.

Nate Kellogg - Next Generation Equity Research

Okay, that's helpful. And then also on the, just on the, I mean if you look at your customers, I know it's hard to put a real number on this but obviously this tougher job in copper fits challenging for you guys managing the business and what not. But I mean at some point do some of your customers look at this as an opportunity, I mean the cost of doing a project for a lot of customers, I got to assume is job pretty materially and at some point does this helps per people or I mean I got to realize financing and the economy sort of may be are way down but I mean is that the margin that helps things at all?

Gregory Kenny

I think cable itself is not, it's typically 5% to 10% of a project.

Nate Kellogg - Next Generation Equity Research

Okay.

Gregory Kenny

Many of the project, so the bigger impact is probably 10%, 20% and 30% reductions on labor cost that could spur a project. So across the board things that all the materials probably have come down as well as more importantly the labor cost as lots of people obviously are not working in the construction sector.

So I think that could be unbalanced, this is a great time to go do a project, our utility partners will see more money left in their budgets and those utilities do have a way of thinking, well they have an overall engineering and maintenance plan. But we will generally aluminum has fallen from 140 to 67 or whatever to 68 which is obviously an important part of the utility budget of the average utility meaning when they look at their line item around cable.

So I don't know that will change utility spending but certainly they will be in better shape relative to their budget, if aluminum stays down. So too with copper, some utilities use copper and certainly the telcos and clearly copper has gone from a peak of 4 and changed to 158 and those numbers add up copper is between... even at today's low number of a $1.50 a pound it's between 25% and 50% of the cost of sales, even at $1.50 so it was up in the 60s and 70s when we had $4 copper.

Nate Kellogg - Next Generation Equity Research

Right, right. And then the transmission business obviously had nice quarter-over-quarter performance. And have you touched on this before but I mean was that due to any particular projects or you guys finally starting to see things actually hit down or is that something that you would expect to continue in '09 or is that sort of like a couple of one-time things that made the quarter look particularly strong?

Gregory Kenny

The projects are lumpy and I wouldn't necessarily other than the fact of the stimulus bill and that there is lots of projects being discussed. And again it's daily that the project is talked about, but I wouldn't necessarily say that... again these are projects, high voltage is a project oriented by the utilities as they do some maintenance when they lose their lines. But generally, what drives is when they are thinking about an expansion on over build. And as you know we have a number of products that allow them to do that more efficiently but I wouldn't trend line off the fourth quarter though it does feel a bit better.

Nate Kellogg - Next Generation Equity Research

Okay, okay. And then just last question for Brian, it looked like you sort of netting out of minority interest and affiliated earnings and what now was down quite a bit in the fourth quarter from the third quarter. Just wondering if you could help as to sort of what's your expectations are, what that might look like going forward, I think it was 4.4 in the third quarter and down to basically nothing in the fourth quarter, so if there is seasonality or what you guys expect going forward?

Brian Robinson

Yes, I think there is some element of seasonality I think there is also some element, many of the things we've talked about with respect to the trend line from the third to the fourth quarter. So I mean as you go into '09 I think the second half of '08 is probably the appropriate run-rate right because then we have the impact of consolidating the Philippines, we have our Algerian investment in there for that full period. So I think it's a little hard to contrast third and fourth quarter but I would encourage you to look more at the second half as been indicative going forward.

Nate Kellogg - Next Generation Equity Research

Okay, okay, that's helpful. All right guy's thanks very much, appreciate you've taken my questions as always.

Gregory Kenny

Yes.

Brian Robinson

You're welcome.

Operator

Your next question comes from Brent Thielman with D.A. Davidson.

Brent Thielman - D.A. Davidson

Hi, good morning.

Gregory Kenny

Good morning.

Brent Thielman - D.A. Davidson

Brian, just a quick question for you. I guess can you remind me what you guys have remained into your share repurchase authorization and then your sort of stance on repurchases at this stage?

Brian Robinson

Yes, broadly we have about $85 million to $90 million. As we reported, we spend about $11 million. So I think it really... where we go from here is tied back into the previous question around our uses of cash. So we'll continue to consider buyback as one other redeployment of capital in addition to growing the business and pursuing very interesting opportunities.

Brent Thielman - D.A. Davidson

Okay, that's helpful. And then on the I guess Greg just on the electrical infrastructure business, obviously still reporting some strength there. Can you just touch on couple of the sectors that are really still driving growth and sort of your stance on this going forward?

Gregory Kenny

Yes, I feel very good about the developing world and it's not a favor and we know the ability to communicate, and heat, and light are all key ingredients to economic growth rate in a society. So I like where we are there and the interesting thing for me is we can compete in markets with all the know-how of one of the most important companies in the world and get that know-how applied locally can be decisive, and in terms of your overall cost position, and what you can do.

So we'll continue with that. The data communications area is again a global business primarily driven from the U.S. where a lot of... we do a lot of the innovative work. We have done very well with new products and I would say we've moved from a middle of the pack to a leader there, and again that's getting sort of multimode direct band on copper multimode fiber optic band with copper transmission.

So that's one that I feel very good about not necessarily, because the market is getting easier, and there is more demand. I think that is slowing down unless obviously the schools consume this stuff and some of the stimulus will certainly take the edge off of that. But I feel very good about our position there. I feel very good about the undersea cable business that we have, that's so critical to bring renewables onshore as well as you've read communication links are very tenuous between countries like say South Africa and Europe, and we've seen a number of cables get cut. So I like where we are there.

The most exciting thing for me really has been the leveraged learning of General Cable Europe and North America and the rest of the world they are roughly one-third of the business, all contributing roughly equally from an economic standpoint. They're all up and down, but on average and that's very powerful that we've been able to pull together all these businesses and again the corporation I am doing this for memory.

But we probably have 10 or 15 people full staff that are at headquarters involved... that includes me involved globally. We've developed counsels that allow best practice sharing immediately around core things, and that is a very powerful thing for us and has taken some time to get that right. So our operating committee, which runs the company, obviously with me is really playing off each other, and I think that is to me one of the most exciting stories. The Phelps Dodge acquisition has been without surprise has been integrated beautifully and we're finding lots of opportunity.

But again, we will see in some of the developed world assets get in trouble in this industry and people will lose conviction, and we'll see it also in the developing world and we'll take a good hard look at this. We've never been afraid of buying well and right when we felt we saw some unique value or could uniquely improve the asset.

But broadly communications to the developing world of whole electrical, we're going to stay right on the ball with our whole energy infrastructure theme. So despite some of the pullback in investment in a lot of those areas, I think long-term we're now getting well shut-in and capacity shutdown in metals and minerals and energy. And this will have to come back and we're going to stay on it now and make hay. So energy infrastructure globally, developing world, the data communications area very interesting and then opportunities to find JVs or acquisitions where others don't see value.

Brent Thielman - D.A. Davidson

Okay. And I guess touching back on your point there. I mean you have the advantage of hitting a large different sectors there. And can you give any insight in what terms or what you're seeing the oil and gas side obviously your costumer base sort of focus there?

Gregory Kenny

The deeper water projects because of the longer cycle seem to be in better shape than some of the land. Again we'll hit that a couple of ways, we have cables that are on, oil and gas, rigs we have cables that can be on the submarine floor and then of course we have cables that go into solar and alternative energy arrays. But I would say you're seeing people cut back project and some others are saying we're keep on going. But I expect it to slowdown but these are projects that people in this business generally look at it in multi-year paybacks.

We know that $40 a barrel is probably too low, it probably needs to be $60 for most new projects to go. But we see a lot of people continuing to go and obviously the green is a big over ride. Greg, do you want to add anything to that?

Gregory Lampert

I'd say the crude oil and gas has slowed down a little bit the gas side has slowed down. But as you said Greg some people continuing to invest and the outlook is for oil much higher $40.

Gregory Kenny

Right

Brent Thielman - D.A. Davidson

Okay. Very helpful, thanks guys.

Gregory Kenny

We are not coming off to fly it on that as I said, we are going to stay focused on that area we think it's going to be an important area.

Brent Thielman - D.A. Davidson

Sure. Thank you.

Operator

Your next question comes from Keith Johnson with Morgan Keegan.

J. Keith Johnson - Morgan Keegan & Co.

Good morning.

Gregory Kenny

Good morning.

J. Keith Johnson - Morgan Keegan & Co.

Just, I guess a few follow-up questions, you guys covered most everything. I guess on the income statement I noticed that SG&A dropped about $6 million or so sequentially from the third quarter. I was wondering if that was just all related to the movement seasonality decline in revenue or were there some other factors in that number?

Brian Robinson

I would say it would be less related to the revenue again because most of the SG&A is fixed--

J. Keith Johnson - Morgan Keegan & Co.

Right.

Brian Robinson

And likely no element of currency as you move... as you translate the SG&A. And then I think just frankly it continues to be the continuous focus on cost pick-up.

J. Keith Johnson - Morgan Keegan & Co.

Okay.

Brian Robinson

I think it's a little bit of all of those things.

J. Keith Johnson - Morgan Keegan & Co.

Where did I guess kind of that $92 million type run-rate, be more in the ballpark over the current structure going forward or--?

Brian Robinson

I would expect it to be again I would say again most of its fixed. Again, we'll continue to I would expect take cost out. So what I think that is a fair run-rate.

J. Keith Johnson - Morgan Keegan & Co.

Okay.

Brian Robinson

Yes, yes because again for the quarter, I was just thinking it's just for the quarter we've really got again back to the impact of the consolidation of the Philippines and all those throughout the year accounting year-over-year comparisons. So I think that's fair.

J. Keith Johnson - Morgan Keegan & Co.

Okay. Yes, real quick on your first quarter guidance. What type of metal price were you guys assuming in that range?

Brian Robinson

I would say $1.50 - $1.60 on copper and $0.80 and $0.90 on aluminum.

J. Keith Johnson - Morgan Keegan & Co.

Okay.

Gregory Kenny

And aluminum, we own aluminum because we've had a buy forward but aluminum is trading at $0.68 or $0.70 and then we have adder on it obviously to get it so right but this is sort of current metals.

Brian Robinson

That's right.

Gregory Kenny

Whatever you see on the screen right now which I think is $0.70 aluminum and $1.57 on copper or something like that.

J. Keith Johnson - Morgan Keegan & Co.

Okay, okay.

Gregory Kenny

Plus or minus in that range.

J. Keith Johnson - Morgan Keegan & Co.

In that, okay, thanks. If can you talk to me a little bit about the pricing environment as you came to the fourth quarter I guess mainly on the 50% or so of your business that is more distribution prices kind of week-to-week? Did the price declines keep up with the metal decline as we saw 50% declines in metals as you came through the quarter, did the selling price in that distribution channel kind of keep with that or get ahead of it?

Gregory Kenny

Well, we think we make money under value-added and we've always said that or the hollow price but you had, broadly you had distributors with high priced inventory, who were trying to get rid of it.

So they, many of them bought less so most of them are in very good shape, meaning I don't think there are over inventoried again we don't have perfect visibility into distribution. We have better look into other segments but so you had and you had manufacturers with high priced inventory.

So you had people trying to move that out and again I know we've never seen $2 changes in metals in short periods of time. So again never happened before but I would say people try to get rid of that material during the quarter and it's going to be all over the lot as this stabilizes and I think we will see, copper trade in this rage for a while inventories are build to 2003 levels that is in the LME warehouse.

And there was sort of a view that China was going to buy again, et cetera, et cetera. But so they are shutting mines in and you have demand in cables off from its probably peak demand, which is 65% of the demand for copper off by 10% to 20%. It's an interesting equation. But broadly we're in a 100 countries, so it's probably... I probably can't be useful to you. We're attempting obviously to get the most value we can for what we do--

J. Keith Johnson - Morgan Keegan & Co.

Okay.

Gregory Kenny

And keep improving our inventory velocity. But these markets are again set. They're fiercely competitive markets where you can differentiate on service and quality. But you only get a few points probably for being very good at what you do. So it's a market that will set the price and then hopefully you will have service and I'll pay attention to your customers.

J. Keith Johnson - Morgan Keegan & Co.

And I guess like you're saying earlier very regional aspect the way people look at spot demand and--

Gregory Kenny

Absolutely, yes.

J. Keith Johnson - Morgan Keegan & Co.

Despite given that metals dropped so much and I may have been just too optimistic in the way I was running our balance forecast, but if what if there would have been little bit more cash generation coming out of the working capital as the metals dropped as quickly as they did?

Gregory Kenny

Fourth quarter, don't forget half our business, we still we owned metals at a higher level. We also had some margin calls as we've talked about in the third quarter perhaps in the fourth, where we bought them on behalf in Europe say if our customer, metal dropped. They want that to be protected.

Again the customer will take the material. We also changed some of our payables in the developing world to lower our... to get even closer to a net neutral exposure--

J. Keith Johnson - Morgan Keegan & Co.

All right.

Gregory Kenny

And have done a number of things in the tens of millions probably to be as well prepared for an extremely volatile environment that is little more volatile than the last seven or eight years.

J. Keith Johnson - Morgan Keegan & Co.

Okay.

Gregory Kenny

So your model, we would have predicted a better number and in fact if we managed exactly the way we were and didn't have the copper drop with some of those margin calls, we would have probably even more cash additive. But again, if copper stays where it is, you'll begin to see us probably get back into things that you'll understand better. We've said every dollar of copper pushes out in 100 plus million of working capital, all things being equal and right now we've had volume decline buck and a half or more was the copper decline.

J. Keith Johnson - Morgan Keegan & Co.

Okay. I guess last question real quick. What about the credit situation at your costumer level. I know it's very broad set in a wide geographic area, but trends there I think are getting worse having to take more bad debt or expenses in the coming year would you expect?

Gregory Kenny

No, again a huge part of our business is to utilities and to major companies and we do business with a lot of major distributors. Actually, our fourth quarter if you look at the U.S. based delinquent was very much average. Accounts receivable was probably the lowest for the entire year in terms of number of days outstanding.

In Europe, we have some insurance. We're watching Spain very closely, because obviously it's been an enormous adjustment and we do have some forms of insurance there around the receivables. So we're watching closely, but I'm not observing today problems getting paid by distributors or major OEM/utility customers.

J. Keith Johnson - Morgan Keegan & Co.

Okay, great, thank you.

Gregory Kenny

Yes.

Operator

Your next question comes from Steve Gambuzza with Longbow Capital.

Steve Gambuzza - Longbow Capital

Good morning, Greg.

Gregory Kenny

Hi, Steve.

Steve Gambuzza - Longbow Capital

Did you say where CapEx is going to be in 2009?

Gregory Kenny

We're estimating between $120 million and $140 million excluding JVs, acquisitions, just above depreciation.

Steve Gambuzza - Longbow Capital

Is there kind of capacity or growth initiatives included there in that?

Gregory Kenny

We are in a developing world continuing to improve our positioning. We're finishing the major projects in the north of Europe. And we're continuing to build out our conversion of our Mexican facility that was a tough telephone cable business and obviously the demand has been declining for telephone cable for a long time. So we've gone from four factories to half of the factory in that business over the last... over this decade. So there is some expansion and there is some money as well around India.

Steve Gambuzza - Longbow Capital

And so presumably will those initiatives be completed in 2009?

Gregory Kenny

Yes, you'll see some benefit by 2009 but I wouldn't.

Steve Gambuzza - Longbow Capital

I'm wondering if the capital falls off in 2010, what the CapEx will be?

Gregory Kenny

I'm sorry. I thought you're talking about how much economic benefit would see, which I'm saying is interesting, but probably they are longer cycle investments. I would expect that we... our capital would come down in '10 for the business footprint we have. And that's what's we're working clearly as an operating committee and we are in very good shape in terms of all the controls, drives, and flexibility. Whether we're down below depreciation, we can certainly run the business below depreciation.

Steve Gambuzza - Longbow Capital

Okay. And then I think you made a couple of statements about inventory issues throughout the call. I was just wondering if you could comment on... we take all the factors around the economic environment and metal prices looking forward how the working cap, the overall working capital pattern might be different this year than kind of historical seasonal trends when you think delayed all the acquisitions.

Gregory Kenny

Yes, my gut is that we will see less pickiness in the second and third quarters in part the normal seasonal build will be less, because I think the markets are still broadly speaking dropping on a unit demand basis and not in every case. And I think my gut is that copper will stay and aluminum will stay in these trading ranges and you can go look at the forward markets and you'll see it may be $0.07 higher or something a year out.

Again this can change and certainly has changed. So I think we have an environment of lower metals, which will drive that, which will have a ability to release capital, and I think we'll be less picky in the second and third quarters. And I think metals will trade around in these ranges. I may be wrong, but that's my sense, so.

Steve Gambuzza - Longbow Capital

And you've also the... do you think--

Gregory Kenny

We'll go, we'll see a smoothing kind of our year.

Steve Gambuzza - Longbow Capital

And do you say that you expect the first quarter to continue to be that, actually in the first quarter you would expect to continue to reduce inventory with that part of your early remarks?

Gregory Kenny

Well, we have what is traditionally the beginning of a seasonal build versus a relatively remaining weak demand environment and my guess is that we're likely to... again we're trying to gauge what inbound orders are. We're going to keep running it skinny and again I'm not sure we'll actually reduce inventories, but we'll certainly won't have build like we would in prior years.

Steve Gambuzza - Longbow Capital

So it seems like at least for the first, second, third quarter that the relationship, that there will be a different relationship with net income to free cash flow, free cash flow from operations than there was last year?

Brian Robinson

If essential I think Steve again we model against 2008. Remember to go back to Greg's point. In the first quarter of 2008 we used about $133 million of cash flow from operations in Q1 where copper ran about $0.80 per pound. So I think your conclusion is reasonably fair.

Steve Gambuzza - Longbow Capital

Thank you very much.

Gregory Kenny

You bet.

Operator

At this time there are no questions. I will now like to turn the call over to Michael Dickerson for closing remarks.

Michael Dickerson

Well, thank you everybody for joining us this morning. That concludes today's call. A replay of the call will be made available later today on our website. We appreciate your continued interest in General Cable and have a nice day.

Operator

That concludes today's teleconference. You may now disconnect.

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Source: General Cable Q4 2008 Earnings Call Transcript
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