General Cable Corporation Q2 2009 Earnings Call Transcript

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General Cable Corporation (NASDAQ:GBC)

Q2 2009 Earnings Call

August 6, 2009 8:30 am ET


Michael Dickerson – Vice President Finance and Investor Relations

Gregory Kenny – President, Chief Executive Officer

Brian Robinson – Chief Financial Officer


Richard Wesolowski – Sidoti & Company

Jeff Beach – Stifel Nicolaus

William Stein – Credit Suisse

Shawn for Matthew McCall –BB&T Capital Markets

Brent Thielman - D. A. Davidson

Keith Johnson – Morgan Keegan

Nate Kellogg – Next Generation

Joe Wittine – Longbow Research

Gary Farber – C.L. King

[Kevin Parsony – Legend]


Welcome to the General Cable Corporation's second quarter 2009 earnings conference call. This conference call is being reported at the request of General Cable. (Operator Instructions) General Cable, you may begin your conference.

Michael Dickerson

Good morning everyone and welcome to General Cable's second quarter 2009 earnings conference call. I'm Mike Dickerson, Vice President of Finance and Investor Relations of General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer and Brian Robinson, our Chief Financial Officer.

Many of you 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 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-Ka 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, planned rationalizations, lower cost of market and LIPO 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

The format for today call, there will first be some discussion by Greg Kenny of our current business environment and overall financial results. Secondly, Brian Robinson will provide further details about the second quarter including segment results, and finally, Greg will provide some comments on the company's third quarter 2009 outlook, followed by a question and answer period.

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

Gregory Kenny

Good morning. In the second quarter the company continued to deliver strong earnings and cash flow despite a difficult operating environment. The company reported adjusted earnings per share of $1.02 and cash flow from operating activities of over $150 million.

Demand for many of our products in the second quarter continued to contract. Volume is measured by metal pounds without the impact of acquired businesses was down 19.8% from the second quarter of 2008 and down 2.2% from the first quarter of 2009.

The fact that second quarter volumes are less that the first quarter is unusual from a historical perspective, as the first quarter has generally been one of the weaker quarters of the calendar year and the second quarter has historically been the strongest quarter of the year.

I believe this partially reflects the completion of large scale projects started some time ago, in some of our end markets which is large industrial and commercial construction and very careful inventory management by our distribution partners.

During the second quarter copper averaged $2.15 per pound compared to $1.57 in the first quarter, an increase of 37% and it's now trading near $2.80. This increase in copper prices seems counter to the reduction in global copper demand resulting from lower global wire and cable consumption. Wire and cable is the biggest terminal market for copper at roughly 65% of consumption. The continuing increase in copper prices is more difficult to rapidly recover in a low capacity utilization environment and will likely put pressure on earnings in the upcoming quarter.

Discussions around the U.S. government stimulus seems to have subsided as the realization sets in that very little actual spending has taken place. As you know, we have not planned for any windfall related to these government programs. In fact, from our fourth quarter 2008 conference call, before the new administration even took office, we specifically said that we did not believe that the new administration's spending initiatives coming from the stimulus bill would necessarily be incremental in the short term to the spending that would have occurred by the private sector on its own.

I remain hopeful however, that stimulus spending and the Senate suspend on the nation's critical systems supporting energy generation transmission, distribution, security and energy independence will accelerate over time, and will have a favorable impact on the company's growth in 2010 and beyond.

Our focus on continuous cost reduction and lean thinking is a big part of our corporate culture and extends into our back office functions and management working capital as well. These ongoing initiatives have thus far mitigated the need to take large corporate charges and write offs that have been reported throughout the industry for several quarters, in some cases resulting in significant losses.

Over the last several quarters, in order to continue to balance production with end market demand, the company has reduced its labor force by nearly 900. We will of course continue to keep a close watch on near and long term demand and adjust accordingly. On balance, we see this time as a time of great opportunity to improve our market position worldwide.

Let me talk a little bit about the overall results. On a consolidated basis, net sales for the second quarter of 2009 were $1,133 million, a decrease of $225 million or 16.6% compared to the second quarter of 2008 on a metal adjusted basis.

This decline was principally due to the $173.4 million unfavorable impact of a stronger U.S. dollar and lower demand as a result of ongoing weak economic conditions partially offset by $32.6 million in revenues from businesses acquired last year.

Before the impact of acquired businesses, on a metal pounds sold basis, volume was down 19.8% in the second quarter of 2009 compared to the prior year and was down 2.2% from the first quarter of 2009.

Second quarter 2009 operating income before the impact of $9.9 million of lower cost of market inventory accounting gains, was $85.1 million compared to operating income of $130.2 million in the second quarter of 2008, a decrease of $45.1 million or 34.6%. The decrease in operating income was principally a result of unfavorable changes in foreign currency translation, lower overall demand in many of the company's end markets and a competitive trading environment.

Additionally, the company has reduced inventory by over $50 million during the second quarter resulting in lower capacity utilization and therefore incurring incremental unabsorbed fixed costs.

Operating margin before items was 7.5% in the second quarter of 2009, a decrease of 210 basis points in the operating margin of 9.6% in the second quarter of 2008 on a metal adjusted basis. Reported operating earnings for the second quarter including approximately $9.9 million of non cash net lower cost of market inventory accounting related gains.

As a reminder, under LIPO, the company charged itself the current cost of metals in the period and culls out the inventory accounting impact of LIPO and lower cost of market gains and losses as they occur for investors.

Net interest expense for the second quarter of 2009 before the non cash APB 14-1 charge was $11.5 million. This net interest expense was down slightly compared to the $12.7 million on the same basis in the second quarter of last year. Reported net interest expense in the second quarter of 2009 was $21.5 million and includes $10 million of non cash interest expense resulting from the adoption of APB 14-1 which was effective with the first quarter of 2009.

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 tax rate jurisdictions. The company is actively pursuing opportunities to further improve its effective tax rate over time.

During the second quarter we benefited from a foreign statutory rate reduction and reduced our full year forecasted rate from 33.5% to 33%. This resulted in an effective tax rate of 30.6% for the second quarter of 2009.

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

Brian Robinson

Revenues in the company's Europe and North Africa segment were $401.6 million in the second quarter of 2009 compared to $491.5 million in the prior year period on a metal adjusted basis. Before the impact of $14.3 million of revenues from acquired businesses, and $77.7 million of unfavorable foreign currency translation, revenues decreased 6.4% on a metal adjusted basis in the second quarter of 2009 compared to the second quarter of 2008. Before the impact of the acquisition on a metal pounds sold basis, volumes in the second quarter were down 18.1% compared to the year ago period.

At NSW, the company was recently awarded the infield cable installation portion of the [Bard Offshore] Windpark project, the first commercial off-shore wind park to be located in the North Sea. If you recall, the company was awarded the in-field cable construction portion of this 80 turbine project in early 2008. Combined, these two projects have a value of over $60 million and are expected to be completed by the end of 2010.

Operating earnings in the Europe and North Africa segment before items were $29.4 million in the second quarter of 2009 compared to $48.7 million in the prior year, a decrease of 39.6% and down sequentially 3.9% from the $30.6 million reported in the first quarter of 2009.

Revenue in the Rest of World segment was $337.1 million, a decrease of $35.7 million from the prior year on a metal adjusted basis. Before the impact of the consolidation of Phelps Dodge Philippines, on a metal pounds sold basis, volumes in the second quarter were down 20% compared to the year ago period.

We continue to supply high voltage and extra high voltage cable products into the growing Indian and Middle East markets and expect to supply nearly $40 million of these products into these markets in the second half of the year from our Thailand facility.

In Brazil, the economy is beginning to show signs of recovery as a result of government stimulus actions in the ongoing reinforcement of the power generation and distribution systems. We are beginning to see the release of transmission projects and were recently awarded a $48 million overhead transmission cable project that will begin to be delivered in the second half of 2010.

Operating earnings in the Rest of World segment before items were $31.3 million in the second quarter of 2009, a decrease of $17.7 million or 36.1% compared to the prior year period and up sequentially 3.6% from the $30.2 million reported in the first quarter of 2009.

In North America, in this case, the U.S. and Canada, revenue before the impact of $15.9 million of unfavorable foreign currency translation was $394.4 million, a decrease of $83.5 million or 17.5% compared to the second quarter of 2008 on a metal adjusted basis while metal pounds sold were down 21%.

While volumes for most product lines are down from the prior quarter, the company has continued to gain market position in North American with its family of GenSpeed 10 gig cable products with mosaic cross block technology. The company has found tremendous success particularly in medical data centers where advanced health care technology for diagnostics and monitoring electronic medical records, patient information systems and digital imaging technologies require reliable high speed transmission and storage of massive amounts of information.

The company introduced this new generation of 10 gig networking cable products at the beginning of the year and has already achieved approximately 20% market share in North America.

Operating earnings in the North America segment before items were $24.4 million in the second quarter of 2009, down 24.9% from the $32.5 million reported in the second quarter of 2008 and down 9.6% from the $27 million reported in the first quarter of 2009.

Gross debt at the end of the second quarter was $1.25 billion. Net debt was $951.8 million at the end of the second quarter down $98.5 million from the end of the first quarter of 2009. This decrease is principally the result of strong cash earnings, coupled with reductions in inventory in each of the company's geographic segments, more than offsetting capital expenditures.

At the end of the second quarter, through a combination of existing cash balances and undrawn available lines of credit, the company had approximately $1.2 billion of available liquidity spread around its three geographic regions to fund operation which could include increased working capital requirements as a result of higher metal costs, internal growth, continuing product and geographic expansion opportunities and potential common share repurchases.

During the second quarter of 2009, the company made no common share repurchases.

A seasonal investment in working capital is typical for the second quarter of the year. In the second quarter of 2009 however, due to the lower levels of current and expected demand for our products, the company has continued to reduce its investment in working capital, particularly in inventory in an effort to both maximize free cash flow and properly balance working capital levels with end market demand.

These efforts combined with strong cash earnings for the quarter resulted in $152.1 million of cash flow from operations for the second quarter of 2009. This is a $79 million improvement from the second quarter of 2008 and an improvement of $196.4 million for the year to date period compared to the first half of 2008.

Adjusted EBITDA was $108.5 million for the second quarter of 2009. This results in $462.2 million of adjusted EBITDA for the trailing 12 months and a leverage ratio of just less than 2.1 times on a net debt basis. Our coverage ratio of adjusted EBITDA to training 12 months net interest expense before the non cash APB 14-1 charge is 8.6 times.

Capital spending in the second quarter was $40.3 million while depreciation and amortization was $25.9 million. This spending is over weighted internationally as the company completed the NSW submarine energy project. Going forward, we will narrowly focus our capital programs primarily on developing regions of the world coupled with ongoing global focus on lean initiatives and continuous improvement in the areas of safety, quality, material usage, conversion costs and through put.

Excluding the impact of potential acquisitions and joint ventures, the company expects to spend a total of approximately $140 million in 2009 and much less than that in 2010. With those comments, I'll turn the call back to Greg for some final remarks.

Gregory Kenny

At the end of July, the company completed the acquisition of Gepco International. Gepco reported revenues of approximately $46 million in 2008. The Gepco brand of high end broadcast cable products are one of the best known and respected brands in the professional broadcast industry.

This is a specialty high end niche market that General Cable has not historically participated in. Gepco cabling solutions are a critical component to the special broadcast industry's continuing innovation in broadcast technologies such as the next generation super or ultra high definition video.

While the company continues to evaluate opportunities principally in the developing regions of the world, the Gepco acquisition is a good example of a niche product line which will immediately place General Cable as one of the leaders in this electronic cable category and provides a well known brand for the company to leverage throughout its global footprint.

The third quarter, the company expects to report earnings before the impact of APB 14-1 in the range of $0.45 to $0.55 per share. Revenues are expected to be approximately $1,050 million to $1 billion. Earnings in the third quarter of 2009 are expected to be sequentially lower due to a number of factors.

First, the company expects that third quarter volumes will be sequentially lower as a result of normal seasonal patterns. Second, during the third quarter, for many of our North American manufacturing facilities will take extended summer shut downs in an effort to continue to balance inventory levels with expected weak end market demand which will result in incremental unabsorbed fixed costs, but favorable cash flow.

Lastly, I expect that cost recovery in the market will lag the recent rapid rise in copper and aluminum prices. In the short term, we are continuing to see weak demand resulting from project deferrals and cancellations which resulted from tighter credit markets and reduced consumption.

These trends are not unlike the trends experienced near the end of the last business cycle. Copper prices are rising and capacity utilization rates were low leading to longer delays and recovery of costs. As economic conditions improved, capacity utilization rates improved and the leverage effect of increasing volumes improved margins and eventually pricing improved in many of our product lines.

There are a few significant differences in our business today however. We are much more global with nearly 70% of our revenues realized outside the United States. We have several more years of continuous improvement as a result of our lean journey resulting in a lower cost base and our product and geographic portfolio has also been improved.

At the bottom of the last cycle, General Cable reported trailing 12 months adjusted EBITDA of approximately $75 million while our most recent 12 months adjusted EBITDA as a point of reference was $462 million.

While I'm not calling the bottom of the current cycle, the equity markets are certainly beginning to price an economic recovery. As we've said many times before, demand for cables generally trails construction starts by six to 18 months. Therefore, I do not expect that our end markets will improve quickly.

However, as we work through this trough, we believe that the long term themes of growing populations and their increasing demand for energy and communications, as well as governmental desire for energy independence and security will be important drivers of growth over the long term for our products.

Our focus on cash flow and working capital management has allowed us to increase the strength and flexibility of our balance sheet. We will continue to seek value for our shareholders by expanding further into new products such as the recently completed acquisition of Gepco and to new geographies focuses primarily on faster growing developing regions of the world.

Clearly, the company's continuous improvement efforts around the world, market and product diversity and one company culture and healthy balance sheet, are significant differentiators for the company and should result in General Cable emerging from this suppressed economic environment stronger than many of our competitors.

That concludes our prepared remarks. I will now turn the call over to questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Richard Wesolowski – Sidoti & Company.

Richard Wesolowski – Sidoti & Company

[audio break] metals here in the third quarter but can you discuss the general trend in your hollow pricing? Are you just entering the meat of the competitive pressure or are you already deep into it or is it mostly behind you?

Gregory Kenny

You didn't come on for the first segment so I heard what's happening on hollow pricing and that's all.

Richard Wesolowski – Sidoti & Company

That's the gist of the question.

Gregory Kenny

Volumes are very weak. We're seeing Europe weaken further and the U.S. and Canada seem to be bouncing along at a pretty low bottom. Some signs of life overseas. The competitive pressure really depends upon the market and the behavior of those competitors, but broadly, I expect capacity utilization down as low as we've seen it, we'll continue to feel sharp pressure and obviously it's compounded because we've had, not only do we have a wire and cable demand globally down probably 30% from prior year, which obviously would back our capacity utilization down into the 50% or possibly 60%, which are very low numbers.

But we also now have seen aluminum go from $0.70 to $0.90 and we've also seen copper spike up dramatically over the last couple of weeks so we're trying to raise price. Obviously if you don't recover these kinds of movements, its suicide and people can't survive that. But we expect that as we saw in the last cycle, this takes time and now we're dealing with very fast movement in a 50% to 60% capacity utilization environment.

Again, that depends of the product and the market, but broadly, it's way off. So I think we're in that pricing trough and I hope it gets better. We work every day to get paid fairly for our product, but I think it will be sloppy for awhile.

Richard Wesolowski – Sidoti & Company

Am I correct in assuming that that 3Q earnings guidance should be considered atypically low relative to what you would otherwise expect in this recession owing to the lag in pricing relative to metals?

Gregory Kenny

We really haven't seen in my lifetime a recession that looks like this, but as I've been doing this since the early '80's and I've seen at least three different slowdown and nothing looks quite like this. But I think the third quarter in the last period has always been a bit weaker than the second, though I think there was actually one year where it was a bit stronger. But generally it's the second strongest quarter of the year.

We are continuing to crank down factories to make sure that we're as lean as possible on the inventory. We have the capacity to flex up, so I've got relatively quiet factories. As you know, our absorption is five to ten points of manufacturing cost absorption, so I'm unloading those factories. Obviously we're not capitalizing those costs which is not what we want to do.

So I would say the third quarter is tough because of the metals run up, weak utilization and we continue to, particularly in North America but also Europe is quite weak, so it's probably a combination of further capacity demand and also the attempt to try to catch these metals which have run certainly well ahead of, as I said, global copper demand certainly from the wire and cable perspective which is the biggest terminal market for metal.

So we've got the largest end market down 30% yet copper has run up hard as has aluminum. So very tricky problem for us, so it's probably both. I throw in pricing as the third thing. So it is certainly weaker than the normal pattern of second to third quarter.


Your next question comes from Jeff Beach – Stifel Nicolaus.

Jeff Beach – Stifel Nicolaus

Last quarter you ran through the geographies and a little bit about the primary products lines such as utility and energy and industrial by the different geographies and it was very helpful. Could you do that again for us on this call?

Gregory Kenny

I sure will. I would say as we head into Latin America, enormous pressure in Central America and particularly in Mexico with really the spill over effect of very slow U.S. conditions. As you go into South America, it's spotty but probably the strongest region of the world for us right now. Brazil seems to be clicking along and while certainly the global economy and global finance are highly interrelated, it didn't quite have the booms, and with commodities coming back up, we're seeing Chile move up a little bit.

We continue to see strength out of Brazil and Venezuela has been okay, Columbia a bit weaker. Moving over to the Pacific, the Pacific Islands, Australia and New Zealand very weak and you can see that in the housing and other things that are going on there, but we are profitable and that's only because of very material cost reductions, and then Phelps Dodge enabling, we're bringing product from all over the region. So we've really been able to lower our cost base in Australia and New Zealand.

Out of Thailand which is our high voltage facilities as well as construction cables, strong. The Thai's despite the issues recently politically, that seems to be okay and we're exporting very strongly throughout the region, though again a lot of those projects are tied to financing. But broadly, out of Thailand strong.

Philippines has hung in better despite lower patriations and a weakened auto industry. It continues to be productive. So broadly, South America and the rest of the world as well as Philippines and Thailand have been strong.

India, we're building a facility as you know. As I move over into Africa, I think we're starting to see things pick up a bit. It's been very weak in sub Sahara in Africa, but we're seeing some pick up there. I should also add that we're starting to see somewhat improved market pricing in Mexico which is again, volumes are off as bad or worse or the U.S.

But both in Mexico has improved and the Africa, where Zambia is trading throughout the region. Also, South Africa, that's also seems to be improving somewhat but the demand is lackadaisical but we're seeing some greater price discipline.

As you move into Europe and Northern Africa, I would say North Africa is weaker. You're seeing more people pushing into different markets and increased price pressure, though clearly in Algeria where we are, you've got a lot of natural resource projects in a large population. So we feel good about that and continue to see opportunity in the region, though I would say the excess capacity has been banging around North Africa lately.

Europe is generally very weak and Spain is bouncing off of a very low bottom with some product areas down 60% kind of numbers from prior year. The France, I would say is slowing but we are continuing to see some stimulus money, which again is the only place in the world besides Brazil that we're really seeing meaningful government intervention at this point. It always takes some time.

But France has stayed strong, but the industrial products in France are weaker and you can see the high voltage and the ultra high voltage market a bit sloppier as the projects are pushed out a bit. So you have generally some delays in projects and occasionally a funding issue.

Out of Germany, some project movement in terms of timing, again we feel good about that business over the intermediate term and we're hanging in nicely and on time and early with our undersea electrical cables as well as we have as you know, a big communications cable project.

Some of the specialty products, optical ground wire and other things out of Germany, very weak with, they traded into Eastern Europe which from a wire and cable perspective seems to be down 70% or 80% in Eastern Europe. And of course when Eastern Europe is down that much, the pressure in Western Europe gets worse because that was a good market for Western European cable manufacturers.

So Europe is very weak, and I would say probably the weakest overall for the company right now and obviously behind where the U.S. and Canada have been, but Europe seems to be on a very extended summer doldrums.

Moving around the world back to the U.S. and Canada, Canada has stayed relatively better and is something of a bright spot for the company. The U.S. I would say we're seeing the electrical infrastructure business continue to slow down which are tied to more important projects and again, that takes months to spool up and months to spool down.

Portable power control which is really related to the daily usage in factories and other things is again off. We're talking about North American probably off 20% to 30% versus a very strong second quarter '08. It was strong because again, the lagging effect. So while the U.S. was slipping into recession in the fourth quarter of '07, we continued to have projects that were started in '07 that we were pulling the wire in '08.

But I would say the second quarter of '08 was a strong period for the company globally and even in the U.S., but I see the U.S. networking is weak, but we through our 10 gig products have done well and that's a profitable business for us and we have I think established ourselves as a leader in that segment, but that's really earned by our marketers and engineers and channel partners not so much because of conditions are good. In fact that business is also off. We just have a very good mix because of the engineering we brought to that.

Communications which is the telephone cable business also up substantially thought the business is actually performing better than last year. We're seeing greater price discipline in that business despite volume lay off. Again, a lot of this is tied to no housing starts, or very little housing starts and therefore no need to pull it.

But that's again off about 28% from prior year and that zip code. Electric utility, transmission is a bit of a bright spot. It's danced and flirted with being up over prior year or around even, and again we're seeing maybe utilities putting more money there than certainly on the distribution side. The distribution, the medium voltage cables is off plus 20% and was weak last year. It's weak further this year.

So utilities are not spending money but transmission is lumpy but it maybe a slight glimmer to that, and again we had a better first and second quarter than we did prior year.

The industrial harnesses, again a good business for us but off about 40%, so it's 35% to 40%, so it pretty much reflects U.S. manufacturing which as you know is up in the high 60% for utilization. I think we may see some restart of factories in the U.S. and I think some of the destocking may be, I think people need to build again so I think we may be bottoming there.

So that's really my tour of the world. I hope that was helpful.

Jeff Beach – Stifel Nicolaus

Do you have planned inventory reductions for the remainder of the year, third and fourth quarters?

Brian Robinson

Yes, we do, probably around the order of magnitude of in the second quarter we were about $50 million, so we're targeting $50 million and a little bit more for the second half.


Your next question comes from William Stein – Credit Suisse.

William Stein – Credit Suisse

I wonder if you can remind us of your strategy in China. I think you have very little or no presence there. Should we expect that to change at all in the coming year?

Gregory Kenny

We get asked a lot about China. We have two equity investments, meaning minority investments; one down near Hong Kong but just into China so we're trading in that region primarily into Hong Kong and Macao its power cables. We've also got an OEM/industrial cable plant outside of Shanghai and then lastly we have a joint venture where we're a minority holder for power cables with the utility up in the Yampi Peninsula.

We have generally waited China out. There's a lot of capacity and the banks haven't called those loans. It's not working very effectively. We don't see, again we have a limited advantage, but I would say that we're not seeing the kind of stimulus in China that's being reported. It seems a bit weaker.

Again, our position is somewhat limited so I say that with a grain of salt, but we are seeing it maybe begin to turn slightly upward. We also make a lot of products for industrial applications in China which seems to be picking up somewhat.

But China has been weak for us. We probably get a look into between the minority investments revenues and our own, probably about $140 million of volume, but a lot of the copper market obviously has risen on the view that China is consuming again. The stimulus is working. It's too early for us to say that's happening certainly from our vantage point. It's a bit better, but it's been pretty weak.

I would say we will come back at China as we see opportunity. We sell into China as you also may remember from France, with a big high voltage 400 kilovolt systems which are not effectively made in China, so we get another $10 million to $15 million into China for that as well as the results of aerial hydro transmission cable.

But I think we're watching really for the shake out of the industry in China and we'll pick our spots, but I would say we are relatively more focused elsewhere.

William Stein – Credit Suisse

To delve a little bit into the revenue guidance, I think you're guiding revenue down about 5% which is not out of line with normal seasonality, but as we saw this quarter in June you had pounds of metal sold down about 2% sequentially, but you still had about a 9% rise in revenue and clearly that could be driven a lot of metals and foreign exchange. It looks like metal and foreign exchange are going to help relative to unit volume growth quite a bit and I guess I'm wondering if you could help us understand, maybe break that down between the two basis contributors to revenue growth, because I was kind of surprised at the revenue growth given what we're seeing in copper in particular, but also other material input and foreign exchange as well which all seems to be going in your favor right now.

Gregory Kenny

As you know, about half of our volume for the third quarter will be formulaically recovered from metals and some cases petro chemicals so our problem is we will in the second quarter we processed about 162 million pounds and 82 million aluminum pounds. About 70% of the aluminum has a formulaic recovery and probably about 45% to 50% of the copper has a formulaic recovery.

So our trick is clearly pricing up to recover for the parts that aren't formulaic to recovering a higher cost, because as you know, we charge ourselves the monthly average of what we purchase it for. So if I've got copper at $1.75 today or $2.75 today I need to be pricing nicely above that today and we're seeing $0.05 and $0.10 movements on copper which if we process 160 million tons of copper in the second quarter just $0.10 is $16 million of inflation or deflation and then maybe you have back of that formulaically.

But these are big numbers moving around which again, with weak utilization, we're chasing very high aluminum in the spot market and very high copper today. We expect maybe this might help, again it doesn't really capture mix so easily, but it's a broad indicator. We would guess that our third quarter will be off a bit from the second quarter one, or two or three percent kinds of unit drop.

Again, it's hard to tell because we're obviously only in early August and the U.S. remains very weak and Europe is weak. I would say the developing world is slightly stronger through July but we would expect to sell less than we did in the second quarter and we will produce less than we will sell in the third quarter which will cause unabsorbed fixed.

William Stein – Credit Suisse

I'm kind of surprised to see inventories not worked down more in this quarter. If you go back two or three quarters ago, you were running between the mid 60's and mid 70's in terms of days of inventory. March was a little weird at 105 days, now we're back to 91 or 92. How should I think about that going forward? Are we going to get a big correction in September based on the shut downs? Should we expect the 70's or is this going to be more of a two or three quarter kind of activity?

Brian Robinson

I think you just have to be a little bit careful on the metal volatility when you do the turns, because again the balance sheet is somewhat static at the LIPO rates and of course you get, what we're doing internal computations, we take a stab at metals adjusting the cost of good sold. But having said that, I think it's fair to say our turns have slowed modestly, mainly in Europe.

But I think we're doing a good job of brining inventories down over time. These things don't get turned on and off overnight and so my expectation would be you would see the turns improve slightly as we continue to move into the second half of the year and that we would as I mentioned, we were targeting $50 million or more. $50 million is probably conservative for the second half of the year in terms of more inventory coming out.


Your next question comes from Shawn for Matthew McCall –BB&T Capital Markets.

Shawn for Matthew McCall –BB&T Capital Markets

I had a question on the SG&A line. Quite a sequential decline there despite the higher top line. Can you help me connect the dots on what type of initiatives drove that decline and are we going to stay at that low $80 million level assuming volume is in the $1 billion per quarter?

Brian Robinson

I think when you move sequentially it's less around volume or a variable piece. There are a number of different things going on sequentially. One of the biggest items is the benefit of the work force reductions that we've taken. There's an element of that, and that's again spread around the world, so we're seeing benefit there.

And then I think interesting, when you go through much of our detail internally in SG&A, the reductions, I'm very impressed with our reduction around everything, P&E, outside resources in terms of consultant fees or legal fees or whatever the case may be.

So I think that continues focus on costs. In the first quarter as well we had some pension and deferred comp items which were included in the first quarter results and then we've had some improvement. So those items are not in Q2.

Sequentially, it's been a nice step down and I would expect going forward, we'll probably be in that $85 million type range. When you look at it year over year, we drove about $15 million reduction, about half of that in currency and then when you go year over year about $3 million to $4 million of that is in the variable piece leaving about $4 million to $5 million of what we would think of as true reductions in force and then watching every spend on T&E and outside fees.

Gregory Kenny

We are obviously flexing down. We mentioned about 900 people and that's continuing globally in the third quarter. We take through our income line those charges, so we haven't out boarded these charges. We just simply take them because I think it's part of business. But we are dropping direct labor as volumes drop and then we're looking for and then through lean, continue to build a hopefully flex back without adding as much direct labor, but that's always the lean journey.

And then taking out indirect labor and salary where we can combining jobs, eliminating jobs and obviously that number is in the hundreds right now, and again those severance costs, early retirements are taken through our P&L without culling it out as a special thing because I don't think it's any more than what we need to do as good managers.

So we're hoping to get even leaner though this and we're testing everything we know in terms of how to do more with less, but we're cruising through a thousand person reduction year over year as we speak.

Shawn for Matthew McCall –BB&T Capital Markets

Just trying to look a little bit beyond Q3 into Q4, can you remind me of the general seasonality of your business to make sure that I'm looking at it right. In Q4 is that another step down seasonally from Q3 on the top line and the gross margin line as well? And I guess what I want to get an ideal of is are the pressures from the down time in North American, and we've got to assume flat copper from here, but the higher copper prices, the higher metal prices, will that trump any kind of normal seasonality in Q4 or could we see some sort of rebound sequentially in that period as we work through the items that are going to pressure Q3?

Gregory Kenny

A year ago our Q4 was kind of October holding together and then everything stopped, so it's going to be real hard by comparison. You're right. The copper, the forward forecast if you look at the copper terminal right now, it shows copper roughly flat at $2.80 which is a big number in my estimation relative to copper usage which is obviously a bet that says things are going to recover and recover pretty sharply.

We could get a catch up. It's very abnormal to have a second quarter below the first quarter. I would say it's somewhat normal to have the third quarter below the second quarter as we expect it will be. But I think it is possible the fourth quarter could surprise, and the surprise would be more on our industrial MRO related businesses, electronic cable, things that are used in the factory, our harnesses that go into products.

If there was a surprise, it would be that manufacturing has to catch up because consumption returns. People have pulled inventory way down and you see some pick up. But again, a lot of our business is tied to utility spending, major infrastructure projects, major communications projects locally or networking projects so those things sometimes take a longer time to spool up, and as we've talked about using the FW Dodge data and the architectural indices.

But I think the fourth quarter will be a hard one to call with respect to factory utilization which not ours, but our customers which could cause some pick up.

We would expect normally the fourth quarter to be weaker. Historically the fourth quarter and the first quarter were similar in terms of demand maybe going back 10 years. That's not to make a view towards forward profits, but the historical pattern has been second quarter strongest, third quarter second strongest, fourth and first relatively equal and down below the second and third quarter average.

Shawn for Matthew McCall –BB&T Capital Markets

I understand the dynamics of the weak utilization thinking it's difficult to recapture pricing to get pricing increases but are you seeing, is the pricing environment irrational? Are you seeing where you're actually losing price more so than just not being able to recapture higher commodities?

Gregory Kenny

I would say we see something we can't explain every day, probably many things. With the rapid movement in raw materials, particularly metals, if this isn't recovered, higher cost producers have a really bad time. I think again, with a good part of the industry republic, there's more scrutiny by shareholders.

But as I've said time and time again, in some markets when there isn't price discipline and there isn't enough demand, the market price is set by the cash cost of the least efficient producer. I would say we're seeing sloppiness in the electrical utility business in the United States, Mexico. I would say it was in a really tough price competition which I hope improves over time as I suspect people will lose money at that level.

It all depends on the day and the market, but I think broadly the competitive behavior seems so far somewhat better, and I'm talking in really general terms, than I've seen in other cycles. And I think again, it relates to how many companies are public. Every day, multiple times a day, something surprises us as to how and why would they do that.

Shawn for Matthew McCall –BB&T Capital Markets

Of your lean efforts and your cost reduction activities, how much of that could trickle back into the business before demand is ready to support it? If any sort of rebound in any market is not in shape and it takes a little bit longer to get there, do you have any pull backs that are time based and not necessarily volume based to return ahead of the supporting demand?

Gregory Kenny

Let me say a couple of things. One is it breaks my heart to let folks go and with 1,000 people reduced I wish the demand were there and I take seriously the 12,000 to 13,000 people and their families so all this stuff is hard discussions.

Lean does say that you're continuing to try to do more with less. I think you're out of business if you don't. And we have hundreds if not thousands of projects going at any one time, and all that's aimed at is operator led process control, many factories within the factory, and I think it's given us the ability, all that work to really flex down.

Utilization rates are not good in wire and cable today in many market areas and for us to be able to get through that, in the last down cycle we were losing money in product lines that we are making money in now. And I think that's the testimony to the power of one, in how we purchase, our efforts at continuous improvement and doing that now for really eight years and as we said, we don't talk about it publicly, but we believe we take out tens of millions of dollars a year in reduced scrap and waste and overhead etc.

So I don't have a view other than we will continue to get better as a company on making one unit production more efficiently than we did the day before. But unless volumes stayed very low for a long time, I don't have a magic bullet, and none of this is magic. If you take out fixed cost, if you take out a facility and then relocate it, you're spending cash in many cases.

I like our footprint geographically. As you know this business, stuff weighs a lot and we have taken out facilities over time always looking to have more flexibility and retain fire power at the least cost. But I don't have a view in mind unless we saw demand fall down another 20% forever, then you say well how many plants do I need to do this kind of work if that's the case.

Right now, we're flexing down, flexing down. An average plant probably has 25 to 35 salaried people. These are incredibly efficient places and I think the thing that people miss is that our plants in Thailand or the Philippines or Mexico or Chile aren't as efficient as the U.S. plants, meaning these places are extraordinary in terms of what this work force can do and they are as lean as the best we have in the developed world.

So I like out end. I don't have a magic bullet. We will get better tomorrow and the day after than we are, and that's what we've been doing for years.

Brian Robinson

The other thing I think will accelerate and position us well for 2010 is the continuing work of we've talked externally about these councils we have within the company that spread global best practices around the technology, safety, manufacturing, sourcing and talent. And the benefits that are coming out of that work is, the benefit is not trivial. It's meaningful and that will help position us well.


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

Brent Thielman - D. A. Davidson

The $6.6 million gain in other income; can you clarify what that was?

Brian Robinson

The majority of that is currency. So it's transactional currency as opposed to the translational which is embedded in the revenue and the operating income etc. So that's the majority of it. There's a small piece which is related to mark to market financial instruments, but that's maybe $2 million.

Brent Thielman - D. A. Davidson

On the sequential decline of volumes, is there any way to identify how much of that is mix related? In other words, you sell less pounds of transmission cable and more pounds of smaller wire cable?

Gregory Kenny

Are you talking about first quarter to second quarter?

Brent Thielman - D. A. Davidson

That's right.

Gregory Kenny

Our first quarter North American electrical infrastructure was down slightly in the low single digits. The cables for portable power using the MRO environment was about flat. Networking cable sequentially was down a couple of points. Telecommunications was actually up slightly which again that's the outside plant used in the field and it was up low double digits.

Electrical, utility was down mid single digits and that would be something that you would expect not to see so utility was very weak. I've said most of that was, has been weak for some years. Medium voltage is also quite weak and then transmission has been generally a bit better but I wouldn't yet say that was a healthy business.

The industrial harness business was up slightly which again is OEM oriented. That means factories are starting to work again. North America was off just one or two percent. Europe and North Africa was very weak and particularly weak in Spain and weakening in the rest of Europe. And then the rest of the world is actually flat to up slightly.

So our happiest story right now is probably rest of world and maybe a flattening of the U.S. and Canada and Europe sort of lagging.

Brent Thielman - D. A. Davidson

I know few months ago Con Edison was out talking about some what seemed to be fairly significant investment this year in terms of their distribution transmission system, 2,000 miles of electrical cable. Are they one of the few bright spots you're seeing out there in the North American market and is this going to be material for you in the second half?

Gregory Kenny

When a company is running over $1 billion a quarter and Con Ed is a company we treasure, but you're talking about maybe a business that's $10 million or so a quarter. So they're up 30%. That's an incremental $3 million which is wonderful, but you need many Con Ed's to elect to do the same thing, and frankly utilities on their distribution networks, have been spending only small amounts of money.

They're down from last year and many of them have said they're watching their costs so think of a couple year funk and it's accelerated. But yes, Con Ed has been very proactive in re-conducting New York and each city it depends on the rate release, so you can get into further analysis of did they get the right from the utility commission to recover the cost to upgrade these things, and I think they had one or two decisions that were positive in terms of their abilities to do work and get some rate of return on it.


Your next question comes from Keith Johnson – Morgan Keegan.

Keith Johnson – Morgan Keegan

If we go back to the first quarter and thinking that you'd have normal seasonal trends, the slight up did come to the second quarter, where was the largest surprise in the demand patterns sequentially versus your expectations?

Gregory Kenny

I think maybe we answered it, but I would say Europe was weaker than I expected quarter to quarter. I would say the U.S. was sloppier, but it was not material, but it was sloppy.

Keith Johnson – Morgan Keegan

On the utility side, this is going into the second year that utilities have been cutting back on medium voltage distribution spending. Is there a limit that they can go from a maintenance standpoint and just the upkeep projects that they need to be doing to keep it efficient? Do we look into 2010 and say well they're kind of hitting the wall, they're going to have to spend this money?

Gregory Kenny

They all seem to be able to flex down for a period and again, if they win a rate case and get the right to invest in a 14% return, they'll invest. Generally the electricity load is down 4% in this very strong recession so they're seeing less pressure. We've had a very cool summer broadly speaking, so they're not seeing the kind of pressure they've seen.

I think obviously energy usage will uptick as this economy recovers. I would guess, there's a lot of analysis as to what goes on and we only listen to some of the conference calls with the utilities, but all of them are talking about fairly maintenance kind of level spending, but I don't have a numeric answer for you other than I think they're well hunkered down.

Keith Johnson – Morgan Keegan

On the adjustments within the head count that you've done over the last year, can you help me understand the timing of them? Was there a big fall more to the second half of 2008? Were they kind of spread over the last year?

Gregory Kenny

We're operating in 100 countries and we are manufacturing in 27 or something like that. It all depends on what's going on there. We actually were hiring in Northern Germany because we entered a new market and we're letting to and continue to let go, combine jobs or don't fill jobs, eliminate work which is back to the lean principal. I think it's been fairly spread starting fourth quarter last year and continues to this day.


Your next question comes from Nate Kellogg – Next Generation.

Nate Kellogg – Next Generation

Can you talk a little bit about what your outlook is for capital allocation priorities as we move into the back half of this year and into next year?

Gregory Kenny

We are in really good shape with our physical assets and again with the leverage globally, it's a wonderful lab with 46 factories and if you can share that knowledge on how to get better not to mention the back rooms around the world.

So I feel really good about our footprint. Will we spend money if there's employee safety involved or if there's extremely rapid pay backs, but we're finishing a major project in Europe and we're in great shape in terms of having the kinds of capacity we need for the infrastructure that I believe will be built, has to be built as well as alternative energy, and then also our communications business which remains a very important business and focus.

I would say that we will spend as little as possible in the developed world. By that I'm thinking Europe and the U.S. and Canada, meaning each project will have to be justified and I would expect that we would spend substantially less than depreciation. I want to zero base everything we spend from the first dollar in those areas.

And then with the free cash that the company has, we will pursue brown and green fields where it suits us or acquisitions that expand our distribution or manufacturing footprint particularly in economies with large populations that are developing and only beginning to consumer energy and obviously the need to communicate in order to compete in a global economy.

So look for continued rotation into the developing world. Phelps Dodge as you know was a huge bet on the developing world. We spent I think $700 million. It's been a terrific investment meaning they're great people. The cultures merged quickly and we did that because we wanted to be able to see into with local expertise further opportunity in Southeast Asia, Latin America, Middle East and sub Sahara and Africa.

We also remain very interested in the North Africa and around the Mediterranean basin, so we feel very good about our operating model. We don't think things go down forever. They don't go up forever. We all know that. We've seen that many times.

But this is a wonderful time for us with the kind of diversity of earnings that we have and the operating model to pick our spots, and I think you've all seen us very disciplined. People who have walked away from lots of things that we could do that we did not do as we looked at risk/reward.

But Phelps Dodge is a major enabler that's highly accelerated our ability to see opportunity and then improve it and again, that's been beautifully integrated in my judgment with what General Cable was doing in those regions.

So look for our development in the Mediterranean basin, Middle East, North Africa and then sub Sahara in Africa, Southeast Asia and Latin America. Eastern Europe is obviously a mess right now. I'm not, as something of a contrarian, it's always a question of what you can do to improve the asset and where do you think this will be over time, but Eastern Europe remains of interest, although the populations are not growing.

That's a slightly different story of catching up for 50 years of communist rule as you know. So that's a slightly different thing. Turkey, again areas of great interest and we are reading the analysis of these regions from the regions with support from a couple of people here in legal and finance as needed.

Nate Kellogg – Next Generation

Can you give us an update on an outlook on what you're seeing on wind? I know that was a big help for the medium voltage cable business last year and obviously we've heard talk that's slowed down with credit tightening. I'm just wondering where you're seeing that now, sort of the offset to the credit markets getting better and there's supposed to be some federal stimulus there plus offset against the fact that it does seem to be a little bit of a slow down. I'm just curious what you're seeing there.

Gregory Kenny

There's 6,000 megawatts to be installed in 2009. I think that's down from 2008. A lot of it is under construction for the second half of '09. Some of it will spill over into the second quarter. This is the American Wind Energy Association I refer to you. I know that 29 states now have a renewable portfolio standard.

There's very little progress in transmission planning for wind at this point. There's a lot of talk about overhauling that process. You can't get there unless you can take away this power to get these 20% renewable standards that are in place typically 15 to 20 years from now.

The banks seem to be shying away from banking wind developments. They're waiting for the Department of Energy to clarify loan guarantees. We see generally the economic malaise and uncertainty really causing some hold off. Load growth is down. You look at Florida Power and Light second quarter earnings release, and that might be helpful.

The renewal energy tax credit policy is very positive for wind. I think they need to know what the rules are looking out as parts of this get touched into bills in Congress. We're seeing decent activity, but below '08. As General Cable, we're running about half of where we were in prior year.

So net net, I think wind and solar are clearly going to play. Again in Europe it's heavily green mandated and of course we can bring, and Brian talked about earlier, is obviously off-shore wind and of course in the U.S. it's most on-shore. But we feel positive about it. Wind needs a lot of medium and voltage cable and with the utilities off in their spending plus wind down, obviously that causes problems in medium voltage capacity utilization, but we feel good about it long term.


Your next question comes from Joe Wittine – Longbow Research

Joe Wittine – Longbow Research

I think you had given the utilization number in your prior comments. You gave a number of 50% to 60%. I'm curious on clarification if that was your estimate of industry utilization or if that's a General Cable more specific number.

Gregory Kenny

As you know, unlike the auto industry there is no independent assessment. That would be my approximate assessment of my sense of how far copper and aluminum demand has backed off in the wire and cable, so I would say General Cable is down. Because of what we do probably does better than some than many, but broadly my judgment is, but there is no way of proving this to you is that we were running as an industry as kind of 85% to 90% of demonstrated capacity.

We think in terms of theoretical capacity as well, and if you look at what many of the consumers of copper are reporting in terms of metal pounds, they're all down and they're down big double digits. So take off 20% to 30% from 85% or 90% and you're getting depending on the product, the region etc, in the 50% to 70% range.

Joe Wittine – Longbow Research

Your comments that this pricing environment is not unlike the last cycle was helpful. Just curious from a timing perspective, is it possible to put some sort of timing of how we should think about the recovery in prices. Assuming copper plateaus from here for the non formulaic business, given what you see out there, the utilization like you just spoke about, is it a couple month thing? Is it a couple of quarter thing before you're able to recover those prices? Just curious at a high level how we should think about timing.

Gregory Kenny

We may be seeing some markets, maybe, again this is to be determined, some toughing of demand maybe. But we need to generally see some recovery of demand. At least metal prices have gone up enough that if competitors don't recover, then they probably can't do that for long, and as we've said in the last cycle, arguably in 2004, the economy was beginning to recover and we may be, again we have a very different circumstance than the '01, '03 recession I think, and it's quite global and it's serious.

We have said in the past it's two to six months to recover this. We need some stability in demand and obviously competitors make their own decisions, but you always hope that they want to make money and not simply churn working capital.

I think it's really the question of where is the bottom in this thing. The U.S. was down first and we'll have to see.


Your next question comes from Gary Farber – C.L. King.

Gary Farber – C.L. King

When you go through all your geographic markets like to do before and you step back for a minute, are you saying that Q3 volumes probably down a couple of points versus Q2, and that's likely to carry over into Q4 as well?

Gregory Kenny

We only do a quarter at a time, but you would expect by historical patterns that Q4 would be down simply because it's cold and lots of parts of the world close down virtually for December, as Europe closes for most of the month of August. So I would expect looking at history, the fourth quarter to be down.

I think we're getting into some discussion of whether GNP were positive in the U.S. in this fourth quarter and you're turning factories back on and I said that that would impact positively my harness business and my portable power and control business. And then of course you get the other products that are more tied to constructions, non resi, industrial major projects and then on into the utility space.

I would guess that fourth quarter based on historical patterns would be weaker than the third quarter but we aren't going to make a forecast on it.

Gary Farber – C.L. King

I think you alluded to in regards to the second quarter that the project business was sort of running through, decelerating. Is that what you were saying?

Gregory Kenny

If you look at a whole load of A&E, big infrastructure firms have reported and their backlogs are broadly coming down, so projects get started and financed two years ago or a year ago, and then at some point in the cycle the project cable is either hooked to the grid or cable is put inside the power plant or whatever they're doing, or chemical plant.

We have said many parts of our business lag the economy to some extent because we're pulling the wire some months after the project was started. So I think we had some benefit of projects in the first and second quarter that were being pulled or being electrified if you will, or communications and the projects were started in '07.

As you know, these projects once they're financed and there's a go, oftentimes they continue and then you wait for people to feel confident again and to start a new project. So we lag in many of our businesses by some month's economic activity.

Gary Farber – C.L. King

Is it fair to say putting aside seasonality that there may be some incremental slowness because some of the conditions that you alluded to, the credit markets and things like that in the interim for project activity to pick up again and for you to see activity heading into next year.

Gregory Kenny

I think we're watching what the big construction firms are saying. I'm planning on relatively weak project activity and government's episodically helping, but probably begin to see more of that in 2010. It just takes governments a long time to do things.

All this stuff is complicated as you know. For a lot of this stuff, for their reasons, environmentalists will attack many of these projects so they can get hung up in court as well in terms of big transmission projects and other things.

So I think it's going to be a time of some consolidation and backlog run down and then new backlog build. Again, a lot of our business is tied to local construction conditions and Venezuela or Columbia which each have their own, as they're tied to the world, but also very local.

So it's a mixed bag but I think it's a relatively slow restart because these things are generally complicated and take time to plan, finance and execute.

Gary Farber – C.L. King

On acquisitions, you did a bolt on one. Can you talk about is that what we should expect in near term is just bolt ons or bigger ones?

Gregory Kenny

I would say geographic expansion which is a form of bolt on because we're usually in the region, probably supplying it from somewhere else with a distribution center and in the ten to couple hundred million category are things we work. We have a tendency to look at population and electrical usage and I want to be in those places.

We're very good operators and when you see populations of 30 million to 100 million and using very little cable, you're looking back to the United States many, many years ago. So we'll take our know how and go do that, and these things always take time and we're very careful. And again you need the right conditions to be in that country with a value, good quality cable and transparency.

I would expect to see that. It's not to say that if something in our judgment becomes, as you know a lot of these businesses are working capital intensive, and if we see a chance to pay cash for cash, and if we see that business and not be paying so much, a lot of wire and cable companies, the EBITDA's are not supporting the capital of these businesses as we've seen in other cycles, and this is a very vicious cycle.

We think there was over investment in some places. We think some people thought they could get in the business and grow forever. This is what we do. So if I have a chance to buy assets or even if I take some goodwill on the books because I get a first mover or early mover position in a company much like Phelps Dodge, we paid well above book value, but it was a superbly run company that was highly valuable to the company strategically and you'll see us do a mixture of things.

So in the case of Gepco, that was simply a wonderful niche that completed our electronic cable package and something that we felt we could take worldwide and we also liked the analog digital trends and the end market. So we felt that combining with a great innovator like Ari and his team with our know how on production and multiple channels, that it would be a win win.

So that's General investing in a developed economy in the U.S., but bring a unique set of skills together. And we'll do that when we see those kinds of opportunities as well.

But I would say generally expect us to be looking at 10 to 15 opportunities always and patiently working them and hopefully creating the right environment for this potential seller. A lot of these are marriages of culture and often companies are considering joining us whether we make an equity investment or a acquiring the majority of the company, will ask people who have joined us, what kind of people are they and is our culture respected, and can I play at the table.

I think that's one of the strengths of the company as I said before. Everyone here respective of where they're from and their primary language, is at the table and I don't think of this as a U.S. centric company. It's really everywhere we are is a corporate center and again, as I've said in the past, we only have 10 or 15 people here that are involved globally.

Where I'm sitting is really the U.S. center of activity. So I think our model is a good one, and we'll keep exercising it. Brian alluded a little bit about these global councils, but keeping accountability high locally, but using the leverage we have as one company, but without creating a big beau racy to go manage that.

So we'll see, but expect us to look at singles primarily but always with an eye on something that would be very attractive for our shareholders and BICC was 10 years ago, which we bought that one wasn't making very much money, but it became the core of a lot of what we do today.

Gary Farber – C.L. King

You talked about there could be some surprises in the fourth quarter in some of your industrial areas as far as activity. Can you quantify what percentage of revenue that segment covers for your company?

Gregory Kenny

I wasn't projecting a surprise. We were talking about the fourth quarter and I said that the businesses that touch MRO or components used in industrial is probably an early indicator and that's in the hundreds of millions globally but it's not the predominant part of the company.

Just to be clear, I was not calling an industrial recovery in the fourth quarter. What I said is, it is possible there's been so much destocking and then if you begin to see consumers feeling a little bit better, you might see companies needing to make more goods. Obviously every day there's a story about cash for clunkers which is sort of a form of stimulus.

It doesn't materially change General Cable. I would look at it as hundred of millions of leverage against MRO and industrial production as opposed to infrastructure.


Your next question comes from [Kevin Parsony – Legend]

[Kevin Parsony – Legend]

You touched on a lot of this subject, but is there any way you can qualify your visibility. It sounds like a lot of projects are ending. Utilities seem to be pulling back, obviously the demand from the industrial side as well as in general the economy. But it seems like your visibility from last quarter has gone done and you're just kind of hunkering down here. Is that correct?

Gregory Kenny

I think we've said the only business that works on a backlog for us is primarily extra high voltage projects as well as under sea and we said that's may a $400 million or $500 million business globally. We work with distributors on projects and of course we also work with the utilities trying to understand what they may buy.

I don't know that we had any more visibility in the second quarter. I guess we like you watch people who are at the front end of these projects so we're watching Westco and what others say about their business. We're watching the Foster Wheeler, Chicago Bridge and Iron and many others are saying, and then we're trying to look at what the CFO's and CEO's are saying in their conference calls at the utilities.

But again, we're bidding with channel partners specifically on projects but I think, what I'm saying is we saw projects being completed and then there's lots of projects who are moving around or on hold pending people feeling better about the global economy, so I think we'll begin to see green lights on these things, and certainly you are attracting the financial markets and increasing we're seeing that execution come in and the risk premiums come in.

So we'll have to see, but I would say it's certainly not getting stronger.

[Kevin Parsony – Legend]

On the pricing, it sounds like a little bit of competition from your competitors. What are customers telling you given that your comment about copper at $2.80 that you don't really see the demand. Do you really think that customers are really going to accept these higher prices given that their business is pretty well down and historically, I've got to give you guy's credit. You usually do get the pricing, but it may just seem like there's going to be a little bit more of a lag this time.

Gregory Kenny

My view is our competitors have to get recover metals or they're out of business because we process 700 million pounds of copper or something like that annually. If you've got $1.00 a pound increase as it has been from, March it was $1.71. It's $2.71 or $2.76 right now. So it's $1.00 a pound times 800 million pounds, half of which we have a formula like escalator, so we're down to $400 million that has to be priced to market.

$400 million times $1.00 a pound is $400 million. You're talking about the size of, you're getting into the size of our trailing EBITDA. So every wire and cable company has to get that through eventually, and we're talking about large movements today.

But I think we have great systems. We're wrestling every day. I think our channel partners and we have to be paid fairly for what we do and you'll see people don't have the discipline eventually can't do this any longer unless there's a cost subsidy going on.

So I think it will be tough work, but at some point you'd rather not produce the product than sell it at your cash cost and again, I think we have better costs than most. So I think it's going to be tricky. I also think copper is trading at a level that is surprising. I'm a fundamentalist and there's so much faster money going through, but it's so much easier to access commodity markets than I would say it's very different than the commodity markets in which I grew up in.

So $2.70 to me is surreal in terms of high it is based on green shoots and China. We'll have to see. It could be $2.20 in a month for all we know. But right now, we're chasing high metals in a weak demand environment which makes this as hard or harder than 2004, 2005.

[Kevin Parsony – Legend]

At that time your revenue was growing.

Gregory Kenny

The big jump up was copper was trading in 2004 and 2005 at the $1.40, $1.50 and by early 2006 it was trading at $3.00 a pound and more. So we saw actually 2004, we sat flat kind of the whole year at the year average at $1.28. 2005 the average year $1.68, 2006 it was $3.08. So very tricky chasing this up somewhat through 2005, but 2006 was demanding but you did have the economy winding up.

Thanks everybody for joining us today. That's concludes our conference call. A replay of the call will be available on our website later today. We appreciate your continued interest in General Cable. Have a good day.

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