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General Cable Corporation (NYSE:BGC)

Q4 2013 Earnings Conference Call

February 13, 2014 8:30 a.m. ET

Executives

Gregory B. Kenny - Chief Executive Officer, President and Director

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

Gregory J. Lampert – Executive Vice President; President and Chief Executive Officer, the Americas

Robert J. Siverd – Executive Vice President, General Counsel, Secretary

Len Texter – Vice President of Investor Relations

Analysts

Shawn Harrison – Longbow Research

Brent Thielman – D.A. Davidson & Co.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Matt McCall – BB&T Capital Markets

Gary Farber – CL King & Associates

Operator

Good morning. My name is Steve, and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's Fourth Quarter 2013 Earnings Conference Call. This conference 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.

Len Texter

morning everyone, and welcome to General Cable's Fourth Quarter 2013 Earnings Conference Call. I'm Len Texter, Vice President Investor Relations at General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer; and Brian Robinson, our Chief Financial Officer; Gregory Lampert, our President and Chief Executive Officer of the Americas; and Bob Siverd, our General Counsel.

Many of you have already seen a copy of our press release issued last night. For those of you who have not, it is available on our website at generalcable.com. Today's call will be accompanied by a slide presentation, also available on our website. If you have not downloaded a copy, we recommend that you do so, as we will refer to the presentation throughout our prepared remarks today. The format of today's call will first be an overview by Brian Robinson of our fourth quarter and full year results. Secondly, Greg Kenny will provide some comments on the company's outlook for 2014 followed by a question-and-answer period.

Before we get started, I wanted to call your attention to our Safe Harbor provisions regarding forward-looking statements and company-defined non-GAAP financial measures as defined on Slide #2, as we may refer to adjusted operating income in today's call. Also, please note the financial results discussed today are preliminary estimates due to the timing and ongoing preparation of the company's restated financial statements as described in the press release issued last night.

To begin, please turn to Slide number 5, where we have summarized the key highlights for the fourth quarter.

With that, I'll turn the call over to Brian Robinson. Brian?

Brian Robinson

Thank you, Len. Good morning. We’re pleased to report we closed out 2013 with all three of our segments delivering better than expected results. This performance was driven by near record high aerial transmission product shipments in North America and Brazil, as well as the third consecutive quarter of stable execution in our submarine turnkey project business.

Operating cash flow of $60 million for the fourth quarter was also strong due to the efficient management of working capital and the collection of submarine turnkey project milestone payments.

As you can see on Slide number 6, our results exceeded our expectations by all measures, including metal pounds sold, net sales, adjusted operating income and adjusted EPS. The company’s North American electric utility and aluminum construction products businesses also generated solid results in the fourth quarter following a difficult third quarter. Our fourth quarter results also reflect ongoing construction and infrastructure spending in Venezuela, Asia Pacific and Central America.

Next on Slide 7 and 8, we summarize our full year results and the significant progress we made in a number of areas in 2013 as we continue to build for the long term and reinforce our one company global culture. In North America, the acquisitions of Prestolite Wire and lcan Cable performed above the investment case for 2013 and both businesses are now substantially integrated. In Europe, we have significantly reduced our cost structure over the past several years and continue to improve the cost utilization of our seven manufacturing facilities as we implemented a metric management system based on products and looking at Europe as one market with various sales channels. We also made meaningful improvements in the execution of our submarine turnkey project business in Europe, which reported better results over the last three quarters of 2013 following the difficult finish to 2012 and start to 2013.

In ROW, we launched turnaround plans focused on improving the returns on investments in Brazil, India, Mexico, Peru and South Africa, which will be closely monitored. Finally, we strengthened our balance sheet with the expansion of the asset based revolving credit facility to potentially $1 billion by incorporating certain European assets, while extending its maturity to 2018. We also completed the restatement process and filed our restated financial statements with the SEC a couple of weeks ago.

Next on Slide 9, 10 and 11, we have summarized the performance for each of our reportable segments. First in North America on Slide 9, the strong performance of lcan Cable and Prestolite Wire in 2013, coupled with the continuing benefit of aerial transmission product shipments throughout the year, more than offset typical seasonal patterns. Also yesterday we announced the permanent closure of two electric utility manufacturing facilities as we can fully meet potential market requirements utilizing our other North American facilities. This action is expected to result in a one-time charge to the income statement estimated to be in the range of $10 million to $12 million of which approximately one half is expected to be non-cash.

Second in ROW on Slide 10, the high unit run rate for 2014 principally reflects volume attributable to aerial transmission product shipments in Brazil, as well as the acquisitions of Procables in Colombia and lcan Cable China. Our business in China exceeded our expectations in 2013 due to the strong and well recognized premium branding in the local market. For 2013, construction and infrastructure spending in Venezuela was strong as the business generated around $60 million of adjusted operating income.

Lastly on Slide 11, conditions in Europe and MED stabilized throughout 2013, albeit at low levels. An important part of the stabilization was the progress our team made in improving our submarine turnkey project business. Overall, we’re encouraged by our results in Europe and MED, which contributed $16 million of adjusted operating income in 2013 and benefited from meaningful cost reduction over the past several years.

Moving to Slide 12, net debt was $968 million at the end of 2013, a decrease of $27 million from the end of the third quarter. The decrease in net debt is principally due to reductions in working capital as a result of normal seasonal trends, including the collection of submarine turnkey project milestone payments. The company continues to maintain adequate liquidity to fund operations, internal growth opportunities, including product geographic expansion, as well as its stock repurchase program and quarterly dividend. We are committed to our shareholder capital deployment program and we’ll utilize the remaining $160 million buyback authority in the context of economic conditions as well as the then prevailing market prices of the common stock of the company, regulatory requirements, financial covenants and alternative capital investment opportunities.

With those comments, I'll turn the call over to Greg.

Gregory Kenny

Thank you, Brian, and good morning, everyone. We’re pleased to have ended the year with solid momentum in key areas of our business. Brian has just taken you through some of the highlights for 2013 which are encouraging as we carry this momentum into 2014. As you can see on Slide 14, our focus for 2014 is on the enhancement of returns through productivity improvement and asset optimization. This focus includes both developed and emerging markets and encompasses all aspects of our portfolio. Just yesterday we announced the permanent closure of two electric utility plants in North America, which we estimate will result in $3 million to $5 million of annual savings, part of which is expected to be realized in the latter part of 2014. Equally important is a continued improvement of our Greenfield investments where we have launched turnaround plants that will be closely monitored throughout 2014.

On Slide 15 and 16, we outlined our expectations for the full year, including the opportunities and risks faced in 2014. We’re expecting to generate adjusted operating income in the range of $260 million to $320 million on low single digit volume growth. Also, we expect to generate operating cash flow in the range of $250 million to $325 million in 2014, principally due to better cash earnings and continued improvement in working capital management. Our guidance range incorporates a global demand assumption consistent with 2013 exit run rate, while the width of the range reflects the ongoing limited visibility in certain parts of our business as summarized in the opportunities and risks on Slide number 16.

Overall we are expecting to generate around $290 million of adjusted operating income at the midpoint of our range for 2014, which represents a 10% improvement year-over-year. We expect the benefit of productivity gains in North America, continuing submarine turnkey project execution in Europe and significant progress in the turnaround of Greenfields and ROW to more than offset lower operating results in Venezuela. We are evaluating the potential impact of the recently extended price controls on our current outlook, but assumes Venezuela’s contribution in 2014 at the midpoint to be approximately $45 million, which represents about $15 million headwind year-over-year.

On Slide 17, we provide our first quarter outlook. Typically the first quarter is our slowest period of the year due to limited construction activity driven principally by weather and extended holidays. The harsh weather in the north and Baltic seas during the first quarter is expected to restrict the installation of submarine power cables. In Latin America and China, the extended holiday schedules and facility shutdowns are anticipated to result in loss absorption in the first quarter as is the statutory leave requirement in Venezuela. The company is also expecting demand weakness beyond seasonal trends in North America due to the frigid weather impacting construction projects. Partially offsetting the impact of these typical seasonal patterns are the anticipated results in North America where operating margins are expected to return to the range of 6% assuming stable metal pricing.

Going forward into the second quarter, the Company expects a very sharp improvement in operating results as construction activity accelerates and installation work on submarine projects in the North and Baltic Seas resumes. For reference, our adjusted operating income in 2013 improved approximately 80% sequentially from first quarter to second quarter. We hope to do even better this year.

Finally, over the last year, we’ve made significant progress building our one company global culture and reinforcing our values and compliance programs. We have strengthened our global operating systems, expanded our Global Councils and created global roles in Talent Management, Manufacturing, Technology, Supply Chain, Sales and Communications products. Overall, our view of the intermediate and long term demand growth drivers in the company’s key end markets is unchanged. We are well positioned to capitalize in the late cycle recovery in energy and infrastructure related investments, as well as construction activity in our end markets around the world. We’re committed to our balanced capital deployment program and remain focused on improving daily execution, working capital management and returns in 2014.

That concludes our prepared remarks. I'll now turn the call 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 the line of Shawn Harrison from Longbow Research. Your line is open.

Shawn Harrison – Longbow Research

With the low volume growth expected for 2014, if you could maybe parse it out within the three regions you -- I guess three business segments regionally you operate.

Gregory Kenny

Just from a broad macro view, we certainly will be helping ourselves to hit the midpoint of our range in terms of our turnarounds of our Greenfields and continued cost out. But we’re broadly seeing not a big kick in North America with non-resi. Resi should help a bit. We think there’s a bit of pent up demand that will be released in the second quarter. But we’re really on a broad view taking a sense that it’s broadly more of the same relative to 2013 in terms of unit demand. So the demand increases that we will execute are around new products or other things we’re doing to introduce a stronger footprint in certain markets. But we’ve also entered the construction cables business for copper products which is a THHN product which is complementary of our overall construction package to our customer base which picks up pounds of it. So we’re seeing very little market growth and I think Europe has bottomed.

Asia Pacific is sloppy with some headwinds in Thailand because of the political situation. But we’re seeing more of the same. Latin America I think we’ll be helping ourselves there in terms of just some of the new investments and them coming up to speed that we made over the last year. These are the Greenfields that we talk about. And then some improved performance in NSW. But I think in the end on a macro basis, we see 2014 a lot like 2013, with a bit of puts and takes, but we’re going to have to help our self. U.S housing recovery is a good thing, but we haven’t seen that really break out materially.

Shawn Harrison – Longbow Research

That’s helpful. And I guess the second part of the question is just, Venezuela, the $15 million year-over-year headwind is significant. But I think that the valuation was something like 40% to 45% on non-essential items. I know you don’t have any visibility maybe into the timing of that, but that $15 million, how much of I guess the evaluation have you baked in to get to that amount? And then -- yeah, I’ll just leave it there.

Gregory Kenny

It's complicated because of the development of these price controls that have expanded and they’re now looking at how to apply that and a return on your cost is one of the measures. There could be downside to our view because if there is an evaluation you would need to recover increased costs into the pricing. We’re trying to go through now how the implementation of the wall will work. So I would look at it as we’ve got $40 million to $45 million at the current exchange rate which on a GAAP basis is 63 in there. Historically if there’s an evaluation you would offset that which had some lags from some sales price increases to reflect your higher cost. And we’re looking at what the law will provide and allow. Obviously this problem is well beyond us as you do have to get dollars approved. So Bolivia has an official exchange rate to go by in our case copper.

For other companies it may be other components that go into final assembly there. And the Venezuelans have approved those at those rates, but they are -- as you see in the headlines, they’re behind for us and others from making dollars available. So you begin to have companies saying we’re not going to import any more materials until there’s a catch up. And this story was breaking of course in today’s journal yet again. So it’s fluid and represents some downside risk. There’s a possibility that we could over perform, but I guess I would see more downside than upside in our thinking around $44ish million or 13% to 15% of our operating income. But we’ll have to see.

Shawn Harrison – Longbow Research

That’s very helpful understanding it’s a very fluid situation. I’ll hop back in the queue. Thanks.

Brian Robinson

Hey Shawn, I’d also add that the trending from the fourth quarter of 2012 to the first quarter of 2013, remember in Venezuela we had a meaningful step down because of the statutory leave requirements and that phenomenon is baked into our guidance as well for 2014. That’s probably why you see the sequential step down in expected first quarter earnings because of the results in Venezuela which we had expected even prior to this whole -- this discussion around the new pricing controls.

Shawn Harrison – Longbow Research

Got you. So maybe a similar type of EBIT margin year-over-year, then you would add back the incremental benefits you’re seeing in terms of the Greenfield improvements?

Gregory Kenny

Shawn, I lost you. Can you ask that question again?

Shawn Harrison – Longbow Research

I was just following up on Brian’s statement in that. So the EBIT margin in ROW year-over-year, subtract out the Venezuela pricing headwind and then maybe add back some of the Greenfield benefits you’re seeing to get to maybe an appropriate EBIT margin for the first quarter.

Brian Robinson

That’s right. And you think about – and you layer that in the cadence for the full year, that’s right. We would expect improvements in the Greenfields as we go throughout the year and similar to this year in Venezuela where we had a better last nine months than we did first quarter of 2013.

Shawn Harrison – Longbow Research

Got you. Thanks a lot, guys.

Gregory Kenny

Shawn, we would expect our ROW businesses would headwind in Thailand because of the situation there which is impacting our business and Venezuela being something that’s evolving every day. We’d expect the rest of the ROW businesses to improve materially over the year. In part this is a Greenfield improvement and we’ve also seen of course the NSW business, the submarine business improve nicely over the second half of last year, which again is a complicated business. But we’d expect them to improve and again we have to perform and lots of stuff happens but that’s encouraging. But our overall demand scenario is -- from an industry standpoint is probably very little growth, probably less than our own internal forecast which we’re helping ourselves with.

Operator

Your next question comes from the line of Brent Thielman from D.A. Davidson. Your line is open.

Brent Thielman – D.A. Davidson & Co.

On the first quarter outlook, it looks like you’re guiding revenue above prior year levels. So there were just earnings below. And so I’m just trying to understand, are you expecting a shift in contribution from higher profit regions to lower profit regions or is the metal price headwind that concerns you? Just walk me through that a little bit more.

Brian Robinson

Brent, when we think about the first quarter, as we said we see North America at about that 6% operating margin, which in fact was better in 2013, but as we said lcan Cable came in very strong in the first quarter of last year. So we certainly feel good around the North American business. And then the other pieces as we head into the first quarter, and again consistent with what we – the seasonal trends we experienced in the last couple of years. So we have generally a weaker first quarter in Europe and MED. And again mainly simply the weather phenomenon for these offshore projects. So again it’s a meaningful sequential step down from Q4 of 2013 to the first quarter. And then in Latin America the same phenomenon. So both the -- typically the first quarter is a slower period.

Brent, as we said in the call, moving from -- so first quarter is what it is that we just described. And as we move to the second quarter, last year we were up about , I think we said about 85%, 90% from first quarter to second quarter. And we saw meaningful improvement in 2013 in the European and MED and ROW businesses sequentially. And so our expectation is we’ll see that again this year. And then in North America, whereas in 2013 we had a very strong first quarter, which now we see more of a, as we said more of a seasonal first quarter and a nice step up from Q1 to Q2 in 2014 on the North American business.

Brent Thielman – D.A. Davidson & Co.

Okay. Thanks for that, Brian. And then when you think about the full year outlook and maybe arriving at the higher end of that range $320 million, do you need to see a certain level of stability in certain key regions to get there? Can you walk me through some scenarios that you see that could play out to get you there?

Brian Robinson

Yeah. Brent, the keys there are going to be the North American market I think just in terms of scale for the company. Clearly it’s a big geographic area for us and a meaningful contributor. So North America, U.S and Canadian markets will be critical to watch. I think in Europe and MED, the continued execution on the offshore projects will be a very important part of our 2014 and obviously we’re watching that very closely. The stabilization of our businesses in the classic businesses or our flow businesses in the rest of Europe and our high voltage underground business will be also important, but again we know and everyone knows the economic headwinds we’re dealing with in Europe. In ROW, clearly we talked a great deal about Venezuela. Our turnaround and improvement in Brazil will be very important as well. That’s a meaningful market for us. Central America and then Asia Pacific as Greg mentioned, very important. Our businesses in Asia have been very good businesses, performing very well. We’re wrestling with some of the follow on effect of the geopolitical situation in Thailand, but we’re managing through that. So we’d like to see that, get more clarity to it and I think that would be a help for our business. But I think those are the key -- so in summary I’d say North America is the project business, it’s Asia and it’s some of the Latin countries that are in regions that I mentioned.

Brent Thielman – D.A. Davidson & Co.

Okay. And then just one more and I’ll turn it over. With the investigation and restatements now behind you, are you at a point of looking more at investments and growth again in kind of this? So how are you thinking about Greenfield investments versus acquisitions?

Gregory Kenny

I would say we have a share authorization that’s been approved. We’re watching that and looking at investment inside the company. We’d like to put cash out and we’re really focused on returning capital. We expect to spend less than depreciation. As investors have seen, the Alcan Prestolite are acquisitions that worked well were very strategic and had a very good risk reward I think to them and with synergies. So we’ve always got that in mind, but I would say we would not contemplate, though I never say never, a material Greenfield of the scale that we undertook. We did those as you know when we had strategic goals and developing country assets were priced very fully and we decided -- and in some cases trying to find quality assets. So we undertook them. We need to earn a return on those and they are pointing in the right direction. So I would say a major Greenfield, highly unlikely.

A movement into a new geography beyond where our concentration is, is we are very global, so I would say that would be unlikely, but again would never rule it out. We’re more focused on just doing the job with the capital we have. There’s a fair amount of churn in the wire and cable business, a lot of stress globally, maybe less so in the U.S, but stress globally and you can read the releases of a lot of these companies. And we’ve been choiceful and again principally internally focused and customer growth focused as well as new product development. You saw the kind of success we’re having around the new products. So I think again we’ll be mindful of what’s going on out there.

We’ll be reflective of things that have a very fine risk reward, but I would say that bar is quite high and we also look at General Cable as an asset which is alternative use of capital. So we have a dividend. We have an authorized stock buyback and we’re very focused on the business. But it would be silly to not be watching the moves in the industry as I said which are struggling with excess capacity in many markets and poor return. So we’ll help ourselves. We’ll not be close minded to those and I would be doubtful of any material Greenfield internally and CapEx should be less than depreciation, at least for 2014 and for the foreseeable future. This is again around our lean culture, more with less. We’ve got great assets. There’s some places to improve them and we’ll spend money there, but we hope to generate a lot of free operating cash.

Operator

Your next question comes from the line of Noelle Dilts from Stifel. Your line is open.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Congratulations on a nice quarter. First, I just wanted to circle back to first quarter EBIT guidance. I understand the 6% margin you're guiding to in North America is down a bit year over year, but it still seems pretty strong considering the weather impacts that you're talking about. So is there any benefit from mix or anything like that, that's contributing to that -- what I view as relatively strong margin?

Brian Robinson

I think some of it is mix, some of the mix in our industrial and specialty businesses. I would say it continues to be a credit to our team in terms of continuing to focus on cost reduction and cost containment and I think it continues to be the benefit of the productivity in the lean. I do think -- it’s not an excuse, but I think we have a strong comp from the first quarter of last year because of the strength of the lcan Cable business. But I think again that’s how I’m thinking about it.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Okay. And are you -- can you talk about if you're expecting -- it looks like you may be expecting a lawsuit in NSW in the first quarter, can you comment on that? And then comment longer-term, obviously last year you had some challenges with the weather, how you're thinking about and working to get this business profitable even through the tougher winter quarters?

Gregory Kenny

Noelle, in a percentage of completion accounting if you’re not installing, you’re not hitting milestones around that. And we do have some work that can go on, but limited and we do make other products within NSW. But basically we have fixed cost that is there that goes -- that begins to put cables in the water as the weather begins to break in March. We have as you know our power cable submarine communications as well as some oil and gas, other things. So I would look at NSW over a year it was nicely profitable in the fourth quarter and will operate somewhere in the breakeven zip code in the first quarter operating basis. But given the lower volumes, I think the team there has done a great job on working with the works council and looking at the overheads and our product niches that are less seasonal, but the bulk of it is really tied to the North and Baltic seas and there isn’t a lot that goes on there. So I’m hopeful that we will make money over the year in NSW and continue to improve our return on capital. It hasn’t required a lot of investment. We have that well done. So also pushing out cash which it did in the fourth quarter is important.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Great. And could you then expand on the plant closures, the utility plant closures, talk about where these plants were located, if they're more tied to distribution or transmission, and then just comment on if you're taking some capacity or really just shifting it to other areas?

Gregory Kenny

It’s principally transmission. We have ample capability with our global footprint and North American footprint to meet that market. This was a facility in Canada. We have multiple facilities in Canada, in French speaking Canada. Particularly (inaudible) and then Roseburg, Oregon was a facility that came with Alcan. It was not operating when it came. And again with our culture of more with less, we don’t think we need to restart that facility and we’ll use the equipment to debottleneck wherever in the world as needed. So we continue to look at, we took a small electronics facility out. And again these are not easy things because we’re talking about associates and peoples livelihood, but we’ve got to make sure that we can be a cost leader in this segment.

So we continue to look at what’s happening from demand trends, what is our potential throughput as it keeps getting better and what envelopes we need to support that. And again we’ve got 55 to 60 plants around the world. As you know the cable industry principally has to meet local standards and it’s heavy. So its products, these plants aren’t interchangeable. So it’s not a simple thing, but wherever we see a chance to focus factories or do more with less or create sales within existing factories work cells, we’ll do it. And this is just two of the decisions that we have taken, but we’ll continue to look at that, Noelle, and when we see an opportunity to preserve our upside, but pull cost out and improve return on capital, that’s our job.

Operator

Your next question comes from the line of Matt McCall from BB&T. Your line is open.

Matt McCall – BB&T Capital Markets

I’m going to continue on the Greenfield burn rate reductions. Can you remind us what the pain was in 2013 from some of these targeted facilities, and what's the expected improvement? What’s your targeted improvement for 2014?

Brian Robinson

Matthew, the way we’re thinking about 2014 is a target of about a $25 million improvement on the Greenfields. And included in there would be another say – within there say another 5 to 10 improvement in NSW. So as we said, we’re really pleased with what the team in Germany has done to stabilize that business and continue the execution. And obviously we talked about having these turnaround plans in place for the other locations and we’re monitoring and we’ll evaluate as we move forward on the other locations as well.

Gregory Kenny

Our internal objectives, Matt, and their accomplishment of those objectives is -- there’s a variety of outcomes obviously along that. So if we’re not on track, we’ll look at these assets and say are we making progress, what’s the rate of progress and look at it strategically as well. So we’ll continue to take this a month at a time and we’re focused on all those assets daily. But we need to make the progress and satisfy ourselves. But it certainly won’t be linear, Matt. These things have breakthroughs and obviously competitive. Circumstances can change as well, but we’ll be all over it.

Matt McCall – BB&T Capital Markets

Perfect. Okay, on the metals assumptions side, it appears that at least what you put in the release, the assumptions included in your guidance are a touch above the current spot prices if -- I think my data is right. Can you talk about why that is? And the second part of a question, if we just assume the current spot environment and we carry that through for the rest of year, what is the tailwind that you would see in 2014 versus 2013?

Gregory Kenny

I don’t have the spot charts in front of me, but February the spot was a lot higher than March in some of the services it may be picking up March which I think is 324 or 5 February. Yesterday was 331, Len, 32? But broadly Matt there’s a backwardation where forward prices look lower than -- I’m sorry, the forward prices are lower than current prices if you look through the next year, but the current price is in the 330 range. So I would say it was a headwind. We don’t have a model that says what it represents on a gross basis. If we’re selling 700 million of copper at $0.10 is a $70 million headwind. And then you have some stickiness. It depends on capacity utilization. Some of it has been hedged because it’s against contracts. But copper and to a lesser extent aluminum are material to this. But again it’s been tricky because it’s been volatile and utilization continues to be fairly low in the industry, some markets harder than others. But it would be a bit of a tailwind if you withhold parts of last year here.

Matt McCall – BB&T Capital Markets

Okay. And so you mentioned some other efficiency measures that you've taken. I know I talked to Len and Brian in the past about lean, and you mentioned your lean culture. Can you talk about moves that were made, whether they were lean or not there were made in 2013 that weren't fully recognized, benefits weren't fully recognized in 2013, and those give you additional visibility in 2014 and how much that would be?

Gregory Kenny

We took out a facility in electronics that we think will improve our electronic cable. That’s the multi conductor cable that’s used in broadcast and industrial applications. So that’s worth a bit and is reflected in our guidance. We’ll go through these two things now with these two facilities which some of that will show up later. I think the big move was really NSW getting its footing in very complicated project management and a new market. The culture is such that we expect without volume and without raw material price increases or decreases, to take cost out every year. And that’s been very strong culturally in North America. Now with our global manufacturing leadership under Mark Thackeray, we’ll look for ways to accelerate that. There’s also a purchasing council. But there’s been activity and traction. We’re going to look for more of that. But I wouldn’t say it’s partially -- that shows up in our operating margins in the first quarter. Some of it sadly you give back to the market and some of it you might keep. We’ll keep more of it if we see utilization pick up in the industry. Anything, Greg Lampert or Brian, Len, that I’ve missed?

Brian Robinson

You’ve covered it.

Gregory Kenny

We’ve taken out hundreds and hundreds of people in Europe. We’re trying to focus those factories around core, what they do best. Now obviously it shows up in our numbers, but it’s still -- it’s been almost table stakes to remain in business as we’re beginning to see some stabilization in Europe. But it hasn’t -- you would argue our bottom line would be materially worse if we hadn’t done that. But as you know, we spend $40 million approximately in getting cost out in Europe over the last years.

Matt McCall – BB&T Capital Markets

And one follow-on, Brian, did you mention a tax rate for 2014?

Brian Robinson

We said 40%, Matt.

Operator

Your next question comes from the line of Gary Farber from CL King. Your line is open.

Gary Farber – CL King & Associates

Good morning. Just two questions. Can you speak to if you can get your volumes up to mid 6% maybe on an ongoing basis, how we should think about just the operating leverage that you could potentially get. Could you get a mid-teens operating leverage on that steady volume growth? And then also, just even theoretical, how should we think about your liquidity in Venezuela because it's obviously a significant part of your cash balance?

Gregory Kenny

Yeah, the operating -- I think your numbers, it depends on the product. Metals with the rod strip and transmission, I have a tendency which move around in a very metal intensive -- I’m thinking broadly if we can start running multi-conductor and portable cord and distribution cables for utilities, if we can run that harder, that should be at mid the 15% net contribution margin as long as I haven’t bumped up against a constraint. That’s without a cost price against a production constraint and that’s part of the lean culture and that allows us in some ways to contemplate continuing to get more capacity which is with the same assets because they change over time, scrap waste et cetera. So that would be a fair number, particularly on the bulk insulated businesses that we do, the mainstream businesses. Clearly some products have higher contribution margins than that, but I would say on average that’s probably a good number. I’ll let Brian take the Venezuelan question, but we clearly think about our liquidity without Venezuela which we’ve only pulled -- able to pull I think over the years, maybe $13 million of cash out of there. So it’s a separate kind of thought. But Brian, go ahead.

Brian Robinson

Gary, I would say -- just on both your points on the operating leverage side, I think assuming we get these high volumes in the short term on our sensitized opportunities and risk slide, you’d see us at the top end or even exceeding the range we’ve provided. But I think longer term I think in the end the earnings potential in the business is what we’ve been talking about a great deal as we get the volume leverage. So much of the opportunity in the business is on the pricing side once you get those volumes. I think on the Venezuelan question, as you can see from our slide deck, we show the Venezuelan cash as Greg mentioned. At the end of the year we had about $194 million of cash in Venezuela and global we saw hundreds of millions of dollars of global liquidity. So we’re not -- as we’ve talked for quite some time, Venezuela is what it is. We monitor it, but have sufficient liquidity without Venezuela. We’re comfortable with our overall profile.

Gary Farber – CL King & Associates

And is it fair to assume this 40% tax rate is for the ongoing tax rate even beyond this year or you think it could move around?

Brian Robinson

My intention would be that we continue to broaden our earnings base and improve the Greenfields and I think all that should -- if that all works out should help to drive the rate lower. That’s what keeps it. there’s a couple of phenomenon that will keep the rate more elevated than where I would like it to be or where it can be as well.

Operator

Your next question comes from the line of Shawn Harrison from Longbow Research. Your line is open.

Shawn Harrison – Longbow Research

Just a few brief follow-ups. Brian, what was the metal pounds for copper and aluminum that you guys experienced in the fourth quarter? The price per pound, excuse me.

Brian Robinson

The actual pricing was $3.31 and $0.92; $3.31 copper, $0.92 aluminum.

Shawn Harrison – Longbow Research

And then on the two plant closures, the $3 million to $5 million of savings, when would you expect that to fully hit the P&L in terms of the benefit?

Brian Robinson

I would expect the full benefit in 2015, but we believe we’ll get part of that in 2014, Shawn.

Shawn Harrison – Longbow Research

Got you. And the charge, will that all fall in the first quarter or spread out through the year?

Brian Robinson

I don’t have a definitive answer yet partly because we need to obviously run, we need to run through some of the decisions around the equipment, et cetera. But I would expect given that the decision was made basically right now or in the last week or so, that part of it would fall into the first quarter and then there’d be some that comes maybe in the rest of the year. But Shawn, we’ll call that out as well and be very clear about how that falls.

Shawn Harrison – Longbow Research

Perfect. And then if my math is right, I think your SG&A was up a little bit on a dollar basis sequentially as well as year over year. Just if you could speak about how you think SG&A dollars will be on a year-over-year basis, let's say assuming Alcan -- without the Alcan dynamics?

Brian Robinson

Sure. I would say I think about it as a run rate of $120 million per quarter, plus or minus. There was a step up from Q3 to Q4, nothing terribly abnormal in there. I think partly some of the seasonality with our Europe and MED businesses. But I would think about it as $120 million, plus or minus.

Shawn Harrison – Longbow Research

Got you. The final thing would be interest expense on a non-GAAP basis, so backing out the convert.

Brian Robinson

I would say in the range of $105 million plus or minus. Obviously with the $355 million convert now retired our non-GAAP is a little cleaner. We still have the long dated convert that’s a much smaller impact.

Operator

Your next question comes from the line of Brent Thielman from D.A. Davidson. Your line is open.

Brent Thielman – D.A. Davidson & Co.

Greg, I thought I heard you mention earlier in the call you entered the construction cable business for copper products. Could you just clarify that?

Gregory Kenny

Yeah. we have been in the business last year with -- we’re in the business around the world, but in North America we make aluminum products for construction applications which came through Alcan, which has been a strong business for us and very complementary to our product profile, has been -- the THHN and machine tool wire and things that travel on a project or a drumbeat for the distributor. So we already control internally, we have logistics. It’s a fixed cost. We have a very comprehensive selling arm and we look at it is last year we started bringing product from Mexico and Central America from our factories. And this year as we look at that supply chain and this is again back to the wire and cable, we think it will be more cost effective running that product in existing envelopes in the U.S.

It allows us to improve our turns and cycle times, transit et cetera. So expect to see us certainly not a major player, but a significant enough player to be important to our customer base when they would like to see that drumbeat or there’s a project that’s being bid. And that is something that we’ll grow into prudently and strategically, but I think it’s a good opportunity for us given the kind of assets we’ve already deployed. But maybe I’ll ask Greg Lampert who as I think our investors know, is responsible for Americas business which is the largest part of General Cable to comment more specifically. Greg?

Gregory Lampert

Brent, I would say it’s going to be, as Greg pointed out, a modest business. I think it’s very complementary to the products we sell to other customers. And for us the investment was relatively small to reenter this business in terms of U.S manufacturing because we have a lot of the assets already in our plants. So with very small capital investment, we can product THHN to complement our other products in a modest way.

Gregory Kenny

It’s a very small investment. The bigger investment is obviously just the working capital to support that. but we’re already in that -- I see it as a business that’s depending upon market and demand in the $100 million range, maybe a bit more in terms of -- and that will throw off our numbers a little bit because it’s metal intensive. But I think important for our customers. They’ve been calling for it. It’s a business we’re a leader in the world in some of the zero halogen and cables that pull easily. We have a lot of that knowhow in Europe and again we’re good at this. And I think on a very modest way under current envelopes, we own the majority of the fixed cost to do this. So it’s not a big investment decision and it’s already been done. So we’re in the business. We’ve been in business for a year. We’re just switching our source of supply to two of our U.S facilities who do other things, but this will be part of it.

Operator

Your next question comes from the line of Noelle Dilts from Stifel. Your line is open.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Thanks. Just a few follow-ups. First, just a question going back to the copper, and I think why we're seeing maybe a bit of a difference between the spot LME and what you guys are talking about. I think you're including the Midwest premium in your aluminum prices. Is that true?

Gregory Kenny

Correct. You have to take out -- that’s gone up materially with tightness in that market, but it’s currently in the $0.15, $0.16 range I think or over --

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Okay, thanks. And second, I think obviously strong transmission shipments in the quarter. Some of those were associated with projects that you talked about being delayed in the third quarter. Do you like you shipped most of those delayed projects in the fourth quarter, or is there still some catch-up in the first?

Gregory Kenny

You’re talking about catch up in North America on transmission in the first quarter?

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

In transmission you talked about, in the third quarter when you reported, you talked about maybe -- I think you talked about 6.5 million metal pounds sold of projects that have been deferred from the third quarter into the fourth and first. So it looks that some of those delayed projects shipped in the fourth quarter. I'm just wondering if there's anything that was delayed in the third quarter that still needs to ship at this point.

Brian Robinson

Noelle, it’s Brian. I think we had a fair amount that shipped in the fourth quarter. There’s some that’s coming in the first quarter. But we were pleased that so much of it came through in the fourth quarter. Obviously we had -- I think we set a near record volume and that reflects that a lot of it came through in Q4.

Gregory Kenny

Noelle, generally I would say December was -- we never know. In our last call we said we never quite know about December in terms of utility customers and channel partners, how they think about December and obviously weather begins to impact us. So December is always a tough month. I would say generally December was better than we had anticipated, meaning demand kept coming through, which showed up in the numbers in part.

Noelle Dilts – Stifel, Nicolaus & Co., Inc.

Okay. And then can you give us your current backlog of turnkey projects?

Len Texter

Noelle, this is Len. It’s roughly $400 million today.

Operator

There are no further questions at this time. General Cable, I turn the call back over to you.

Len Texter

Thank you for joining us this morning. That concludes our conference call. A replay of this call will be available on our website later today. We appreciate your continued interest in General Cable.

Operator

This concludes today’s conference call. You may now disconnect.

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